Registration No. 333-76444
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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MARSHALL & ILSLEY CORPORATION
(exact name of Registrant as specified in its charter)
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Wisconsin 6021 39-0968604
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification No.)
770 North Water Street
Milwaukee, Wisconsin 53202
(414) 765-7000
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
J.B. Wigdale
Chairman of the Board
Marshall & Ilsley Corporation
770 North Water Street
Milwaukee, Wisconsin 53202
(414) 765-7000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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Copies of communications to:
Randall J. Erickson Lynn M. Gardin
Godfrey & Kahn, S.C. Fredrikson & Byron, P.A.
780 North Water Street 1100 International Centre
Milwaukee, Wisconsin 53202 900 Second Ave. South
(414) 273-3500 Minneapolis, Minnesota 55402
(612) 347-7000
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Approximate Date of Commencement of Proposed Sale to the Public: As soon as
practicable after this Registration Statement becomes effective and all
conditions to the consummation of the merger described in this document have
been met.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, please check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
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The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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The information in this prospectus is not complete and may be changed. We may
not sell these securities until the Registration Statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an
offer to sell these securities and we are not soliciting offers to buy these
securities in any state where the offer or sale is not permitted.
Subject To Completion, Dated January 18, 2002
Proxy Statement/Prospectus
Proxy Statement for Richfield State Agency, Inc.
Special Meeting
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Prospectus of Marshall & Ilsley Corporation
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The boards of directors of Marshall & Ilsley Corporation and Richfield State
Agency, Inc. have agreed that Richfield State Agency will merge with and into
Marshall & Ilsley, with Marshall & Ilsley being the surviving corporation. If
the merger is completed, each share of Richfield State Agency common stock will
be converted into shares of Marshall & Ilsley common stock, although Richfield
State Agency shareholders may elect to receive cash for their shares, up to an
aggregate amount of $20 million. We will determine the exact exchange ratio
with a formula based on the average trading price of Marshall & Ilsley common
stock during the 20 trading days up to and including the third trading day
prior to the merger. The exchange ratio is intended to provide a value of
approximately $1,865 per share of Richfield State Agency common stock. Cash
will be paid in lieu of issuing fractional shares.
Based on the $62.61 average price per share of Marshall & Ilsley common
stock during the 20 trading days up to and including the third trading day
prior to January 16, 2002, the exchange ratio would equal 29.798 shares of
Marshall & Ilsley common stock for each share of your Richfield State Agency
common stock.
The merger cannot be completed unless the shareholders of Richfield State
Agency approve the merger and the agreement and plan of merger, including the
form of plan of merger constituting a part thereof. Richfield State Agency has
scheduled a special meeting on February 22, 2002 for you to vote on these
matters. The approval of Marshall & Ilsley's shareholders is not required.
The board of directors of Richfield State Agency unanimously recommends that
the holders of Richfield State Agency common stock vote "FOR" approval of the
merger and the agreement and plan of merger, including the form of plan of
merger constituting a part thereof.
Whether or not you plan to attend the special meeting on February 22, 2002,
please take the time to vote by completing, signing and mailing the enclosed
proxy card to us. Your vote is very important.
Marshall & Ilsley common stock is traded on the New York Stock Exchange
under the symbol "MI." Richfield State Agency common stock is not registered on
a national securities exchange or quoted on the Nasdaq Stock Market.
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For a description of certain significant considerations in connection with
the merger and related matters described in this document, see "Risk Factors"
beginning on page 14.
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Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this document. Any representation to the contrary is a
criminal offense.
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The shares of Marshall & Ilsley common stock are not savings accounts,
deposits or other obligations of any bank or savings association and are not
insured by the Federal Deposit Insurance Corporation or any other governmental
agency. Stock is subject to investment risks, including loss of value.
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The date of this proxy statement / prospectus is January 18, 2002 and is
being first mailed to Richfield State Agency shareholders on or about January
22, 2002.
This document incorporates by reference important business information and
financial information about Marshall & Ilsley that is not included in or
delivered with this document. See "Where You Can Find More Information" on page
55 of the document for a list of documents that Marshall & Ilsley has
incorporated by reference into this document. These documents are available to
you without charge upon written or oral request made to:
Shareholder/Investor Relations
Marshall & Ilsley Corporation
770 North Water Street
Milwaukee, Wisconsin 53202
(414) 765-7817
To obtain documents in time for the special meeting, your request should be
received by February 15, 2002.
Richfield State Agency, Inc.
6625 Lyndale Avenue South
Richfield, Minnesota 55423-2389
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Notice of Special Meeting of Shareholders
To be held on February 22, 2002
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To the Shareholders of Richfield State Agency, Inc.:
Please take notice that the board of directors of Richfield State Agency,
Inc. has called a special meeting of shareholders. The special meeting will be
held on Friday, February 22, 2002 at 10:00 a.m., Minneapolis time, at the
offices of Fredrikson & Byron, P.A., 1100 International Centre, 900 Second
Avenue South, Minneapolis, Minnesota.
The purposes of the meeting are the following:
1. To vote on a proposal to approve the agreement and plan of merger
dated November 18, 2001 by and between Marshall & Ilsley Corporation and
Richfield State Agency, Inc., including the form of plan of merger
constituting a part thereof, and the merger of Richfield State Agency, Inc.
with and into Marshall & Ilsley Corporation contemplated by that agreement;
and
2. To transact any other business that may properly come before the
meeting and any adjournment or postponement thereof.
Only Richfield State Agency shareholders of record on January 14, 2002 will
be entitled to vote at the special meeting or any adjournments or postponements
thereof.
By approving proposal one, Richfield State Agency shareholders are approving
the agreement and plan of merger, the form of plan of merger, and the
transactions contemplated by that agreement and plan of merger, including the
merger of Richfield State Agency with and into Marshall & Ilsley.
As described on pages 26 through 28 of this document under the caption "The
Merger--Dissenters' Rights," under Minnesota law, Richfield State Agency
shareholders may assert dissenters' rights in connection with the merger and
receive in cash the fair value of their shares of Richfield State Agency common
stock. A copy of the Minnesota dissenters' rights statute is included in this
document as Appendix C.
A proxy card for the special meeting is enclosed herewith. Whether or not
you plan to attend the special meeting, please promptly complete and mail the
enclosed proxy card. If you sign, date and mail your proxy card without
indicating how you want to vote, your proxy will be voted in favor of the
merger, the agreement and plan of merger, and the form of plan of merger. If
you fail to return your proxy card, the effect will be the same as a vote
against the merger, the agreement and plan of merger, and the form of plan of
merger. You may still vote in person at the meeting even if you have previously
returned your proxy card, so long as you revoke your proxy.
By order of the board of directors:
RICHFIELD STATE AGENCY, INC.
/S/ MARVEL THORNE
By: _______________________________
Marvel Thorne,
Secretary
January 18, 2002
TABLE OF CONTENTS
Page
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SUMMARY.......................................................................................... 4
The Companies................................................................................. 4
The Merger.................................................................................... 4
Merger Consideration.......................................................................... 4
Holders of Richfield State Agency Common Stock will Receive Marshall & Ilsley Common Stock in
the Merger.................................................................................. 4
Electing to Receive Cash in Exchange for Shares of Richfield State Agency Common Stock........ 5
No Fractional Shares will be Issued........................................................... 5
Material Federal Income Tax Consequences of the Merger........................................ 5
Reasons for the Merger........................................................................ 5
Recommendation to Richfield State Agency Shareholders......................................... 6
The Special Meeting........................................................................... 6
Vote Required................................................................................. 6
Action by Marshall & Ilsley Shareholders Not Required......................................... 6
Regulatory Approvals.......................................................................... 6
Dissenters' Rights Available.................................................................. 6
Share Information and Market Prices for Marshall & Ilsley Common Stock........................ 8
Price Range of Common Stock and Dividends..................................................... 9
Comparison of Unaudited Per Share Data........................................................ 10
Selected Historical Financial Data of Marshall & Ilsley....................................... 12
Selected Historical Financial Data of Richfield State Agency.................................. 13
RISK FACTORS..................................................................................... 14
FORWARD-LOOKING STATEMENTS....................................................................... 16
SPECIAL MEETING OF RICHFIELD STATE AGENCY SHAREHOLDERS........................................... 16
Purpose of the Meeting........................................................................ 16
Record Date................................................................................... 17
Required Vote................................................................................. 17
Proxies....................................................................................... 17
Solicitation of Proxies....................................................................... 17
THE MERGER....................................................................................... 18
Structure of the Merger....................................................................... 18
Background of the Merger...................................................................... 18
Management and Operations after the Merger.................................................... 18
Merger Consideration.......................................................................... 18
No Fractional Shares.......................................................................... 19
Effective Time of the Merger.................................................................. 19
Exchange of Certificates...................................................................... 19
Interests of Certain Persons.................................................................. 20
Recommendation of the Richfield State Agency Board of Directors and Reasons for the Merger.... 21
Marshall & Ilsley's Reasons for the Merger.................................................... 21
Material Federal Income Tax Consequences...................................................... 22
Regulatory Approvals.......................................................................... 24
Accounting Treatment.......................................................................... 25
Resales of Marshall & Ilsley Common Stock..................................................... 25
Dissenters' Rights............................................................................ 26
TERMS OF THE MERGER AGREEMENT.................................................................... 29
Representations and Warranties................................................................ 29
Conduct of Business Pending the Merger........................................................ 30
No Solicitation of Transactions............................................................... 31
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Page
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Employee Benefit Matters..................... 32
Conditions to Completion of the Merger....... 33
Termination of the Merger Agreement.......... 34
Waiver and Amendment of the Merger Agreement. 34
Shareholder Voting Agreement................. 34
MARSHALL & ILSLEY CORPORATION................... 36
Description of Business...................... 36
Recent Developments.......................... 37
Additional Information....................... 37
RICHFIELD STATE AGENCY, INC..................... 37
Description of Business...................... 37
COMPARATIVE RIGHTS OF SHAREHOLDERS.............. 38
SHAREHOLDER PROPOSALS........................... 55
LEGAL MATTERS................................... 55
EXPERTS......................................... 55
WHERE YOU CAN FIND MORE INFORMATION............. 55
APPENDICES:
Appendix A Agreement and Plan of Merger
Appendix B Plan of Merger
Appendix C Minnesota Dissenters' Rights Statute
Appendix D Richfield State Agency, Inc. and Subsidiaries Financial Statements and Management's
Discussion and Analysis of Financial Condition and Results of Operations
ii
QUESTIONS AND ANSWERS ABOUT THIS DOCUMENT AND THE MERGER
Q. What is the purpose of this document?
A. This document serves as both a proxy statement of Richfield State Agency and
prospectus of Marshall & Ilsley for the issuance of its common stock in the
merger. As a proxy statement, this document is being provided to you by
Richfield State Agency because Richfield State Agency's board of directors
is soliciting your proxy for use at the special meeting of shareholders
called to vote on the proposed merger of Richfield State Agency with and
into Marshall & Ilsley. When we use the term merger agreement in this
document, we are referring, collectively, to the agreement and plan of
merger, a copy of which is included in this document as Appendix A, and the
form of plan of merger constituting a part thereof, a copy of which is
included in this document as Appendix B.
As a prospectus, this document is being provided to you by Marshall & Ilsley
because Marshall & Ilsley is offering shares of its common stock in exchange
for your shares of Richfield State Agency common stock in connection with
the merger.
Q. Why do Richfield State Agency and Marshall & Ilsley want to merge?
A. The Richfield State Agency board of directors believes the merger is
consistent with Richfield State Agency's goal of achieving superior
shareholder returns and will create a more competitive company better able
to serve its customers. The Marshall & Ilsley board of directors believes
the merger will enable Marshall & Ilsley to expand its operations in the
Minneapolis, Minnesota area and strengthen its banking franchise through
Richfield State Agency's strong commercial and retail banking presence in
the Minneapolis area.
Q. What is the total consideration that Marshall & Ilsley will pay in
connection with the merger?
A. The total consideration for the merger will be $157,000,000, subject to
adjustment as follows:
. the merger consideration will be increased by $60,000 for each month or
portion thereof, beginning March 2, 2002 and until the day prior to the
effective time of the merger, and
. the merger consideration will be increased by a maximum amount of $700,000
for reductions, if any, prior to the effective time of the merger in the
prepayment premium on a promissory note previously issued by Richfield
State Agency.
Q. What will I receive for my Richfield State Agency shares of common stock?
A. You will receive shares of Marshall & Ilsley common stock with a total value
of approximately $1,865 for each share of Richfield State Agency common
stock you own at the effective time of the merger, which is subject to
increase if the total merger consideration is increased as described above.
The exact number of shares of Marshall & Ilsley common stock you will
receive in exchange for your shares of Richfield State Agency common stock
will be determined at the time of the merger based on the average trading
price of Marshall & Ilsley common stock during a measurement period of 20
trading days up to and including the third trading day before the merger.
Marshall & Ilsley will not issue any fractional shares. Instead, you will
receive cash in lieu of any fractional share owed to you.
You may elect to receive cash in exchange for some or all of your shares of
Richfield State Agency common stock. If you make such an election, then the
cash amount you will receive for each share of your Richfield State Agency
common stock will be an amount equal to approximately $1,865, subject to
adjustment for any increases in the total merger consideration described
above. If you make such an election and if the amount of cash that holders
of shares of Richfield State Agency common stock elect to receive in
exchange for their shares exceeds a total of $20,000,000, the amount of cash
that you will receive for each share will be subject to a pro rata
reduction, and you will receive a number of shares of Marshall & Ilsley
common stock with a value equal to the amount of that reduction.
1
Each previously issued and outstanding share of Marshall & Ilsley common
stock will remain issued and outstanding and will not be converted or
exchanged in the merger.
Q. How do I elect to receive cash for my shares?
A. A form of election has been included with this proxy statement/prospectus.
You may elect to receive cash for your shares of Richfield State Agency
common stock by completing and signing the enclosed form of election and
submitting it as instructed by the election deadline which is 5:00 p.m.,
Minneapolis time, on Thursday, February 21, 2002. If you have made an
election to receive cash for your shares, you may at any time change or
withdraw your election by written notice as instructed prior to the election
deadline. If you do not submit a properly completed and signed form of
election prior to the election deadline, then your shares will be converted
into the right to receive Marshall & Ilsley common stock at the effective
time.
Q. When do you expect the merger to be completed?
A. We hope to complete the merger as soon as possible after Richfield State
Agency's special meeting of shareholders, assuming the required shareholder
approval is obtained, together with federal regulatory approval and the
satisfaction of other closing conditions.
Q. When and where will the special meeting take place?
A. Richfield State Agency's special meeting of shareholders will be held at
10:00 a.m., Minneapolis time, on Friday, February 22, 2002, at the offices
of Fredrikson & Byron P.A., 1100 International Centre, 900 Second Avenue
South, Minneapolis, Minnesota.
Q. Who must approve the proposal at the special meeting?
A. Holders of a majority of the outstanding shares of Richfield State Agency
common stock as of the close of business on January 14, 2002 must approve
the merger and the merger agreement.
Approval of the proposed merger by Marshall & Ilsley's shareholders is not
required.
Q. What do I need to do now?
A. After reviewing this document, submit your proxy by promptly executing and
returning the enclosed proxy card. By submitting your proxy, you authorize
the individuals named in the proxy to represent you and vote your shares at
the special meeting of shareholders in accordance with your instructions.
These persons also may vote your shares to adjourn the special meeting and
will be authorized to vote your shares at any adjournments or postponements
of the special meeting.
Your vote is important. Whether or not you plan to attend the special
meeting, please promptly submit your proxy in the enclosed envelope.
Q. How will my shares be voted if I return a blank proxy card?
A. If you sign, date and send in your proxy card and do not indicate how you
want to vote, your proxy will be counted as a vote in favor of the merger
and the merger agreement and will be voted in the discretion of the persons
named as proxies in any other matters properly presented for a vote at the
special meeting.
Q. What will be the effect if I do not vote?
A. If you abstain or do not return your proxy card or otherwise do not vote at
the special meeting, your failure to vote will have the same effect as if
you voted against the merger and the merger agreement. Therefore, the board
of directors of Richfield State Agency encourages you to vote in favor of
the proposed merger and merger agreement as soon as possible.
Q. Can I vote my shares in person?
A. Yes, if you own your shares registered in your own name. You may attend the
special meeting and vote your shares in person rather than signing and
mailing your proxy card. However, in order to ensure that your vote is
counted at the special meeting, we recommend that you sign, date and
promptly mail the enclosed proxy card.
Q. Can I change my mind and revoke my proxy?
A. Yes, you may revoke your proxy and change your vote at any time before the
polls close at the special meeting by:
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. signing another proxy with a later date and filing it with an officer of
Richfield State Agency, or
. filing written notice of the revocation of your proxy with an officer of
Richfield State Agency.
Q. Should I send in my stock certificates now?
A. No--please do not send in your certificates at this time. Once the merger is
completed we will send you written instructions for exchanging your
Richfield State Agency common stock certificates.
Q. Who can answer my questions about the merger?
A. If you have more questions about the merger, please contact Steve Kirchner,
President of Richfield State Agency, at (612) 798-3342.
3
SUMMARY
This summary highlights selected information from this document and may not
contain all of the information that is important to you. To understand the
merger fully and for a more complete description of the legal terms of the
merger, you should read carefully this entire document, including the
appendices, and the other documents we refer to. For more information about
Marshall & Ilsley and Richfield State Agency, see "Where You Can Find More
Information" on page 55.
The Companies
Marshall & Ilsley Corporation
770 North Water Street
Milwaukee, Wisconsin 53202
(414) 765-7000
Marshall & Ilsley, incorporated under the laws of Wisconsin in 1959, is a
registered bank holding company. Marshall & Ilsley's principal assets are the
stock of its bank and nonbank subsidiaries. As of September 30, 2001, Marshall
& Ilsley had consolidated total assets of approximately $27.3 billion and
consolidated total deposits of approximately $16.7 billion, making it the
largest bank holding company headquartered in Wisconsin.
Marshall & Ilsley common stock is traded on the New York Stock Exchange
under the symbol "MI."
Richfield State Agency, Inc.
6625 Lyndale Avenue South
Richfield, Minnesota 55423-2389
(612) 798-3342
Richfield State Agency, Inc. is a registered bank holding company
incorporated under Minnesota law. Richfield State Agency's assets primarily
consist of the stock of its subsidiaries, which include Richfield Bank and
Trust Co., a commercial bank, a brokerage firm, and other unrelated assets
comprised primarily of real estate. Richfield State Agency and its subsidiaries
are located in the Minneapolis, Minnesota metropolitan area. As of September
30, 2001, Richfield State Agency had consolidated total assets of $750,787,000
and consolidated total deposits of $543,778,000.
The Merger
At the effective time of the merger, Richfield State Agency will merge with
and into Marshall & Ilsley. Marshall & Ilsley will issue shares of its common
stock and/or cash to the shareholders of Richfield State Agency in exchange for
their shares of Richfield State Agency common stock. Richfield State Agency
will cease to exist as a separate corporation. Marshall & Ilsley will be the
surviving corporation.
Merger Consideration
The total consideration for the merger will be $157,000,000, subject to
adjustment as follows:
. the merger consideration will be increased by $60,000 for each month or
portion thereof, beginning March 2, 2002 and until the day prior to the
effective time of the merger; and
. the merger consideration will be increased by a maximum amount of $700,000
for reductions, if any, prior to the effective time of the merger in the
prepayment premium on a promissory note previously issued by Richfield State
Agency.
Holders of Richfield State Agency Common Stock will Receive Marshall & Ilsley
Common Stock in the Merger
If the merger is completed, you will receive Marshall & Ilsley common stock
with a total value of approximately $1,865 for each share of Richfield State
Agency common stock that you own as of the effective time of the merger. We
will determine the exact number of shares of Marshall & Ilsley common stock you
will receive in exchange for your shares of Richfield State Agency common stock
at the time of the merger based on the average trading price of Marshall &
Ilsley common stock during a measurement period of 20 trading days up to and
including the third trading day before the merger. Based on a $62.61 average
trading price of Marshall & Ilsley common stock during the 20 trading days up
4
to and including the third trading day prior to January 16, 2002, you would
receive 29.798 shares of Marshall & Ilsley common stock for each share of
Richfield State Agency common stock you own at the effective time of the merger.
You may elect to receive cash in exchange for some or all of your shares of
Richfield State Agency common stock. If you make such an election, then the
cash amount you will receive for each share of your Richfield State Agency
common stock will be an amount equal to approximately $1,865, subject to
adjustment for any increases in the total merger consideration described above.
If you make such an election and if the amount of cash that holders of shares
of Richfield State Agency common stock elect to receive in exchange for their
shares exceeds a total of $20,000,000, the amount of cash that you will receive
for each share will be subject to a pro rata reduction, and you will receive a
number of shares of Marshall & Ilsley common stock with a value equal to the
amount of that reduction.
Each share of Marshall & Ilsley common stock issued and outstanding prior to
the merger will remain issued and outstanding and will not be converted or
exchanged in the merger.
Electing to Receive Cash in Exchange for Shares of Richfield State Agency
Common Stock
A form of election has been included with this proxy statement/prospectus.
You may elect to receive cash for some or all of your shares of Richfield State
Agency common stock by by completing and signing the form of election and
returning it as instructed in the form of election by the election deadline,
which is 5:00 p.m., Minneapolis time, on Thursday, February 21, 2002. If you
have made an election to receive cash for your shares, you may at any time
change or withdraw your election by written notice prior to the election
deadline. If you do not submit a properly completed and signed form of election
prior to the election deadline, then your shares shall be converted into the
right to receive Marshall & Ilsley common stock at the effective time.
No Fractional Shares will be Issued
Marshall & Ilsley will not issue any fractional shares. Instead, you will
receive cash in lieu of any
fractional share of Marshall & Ilsley common stock owed to you in exchange for
your shares of Richfield State Agency common stock.
Material Federal Income Tax Consequences of the Merger
The exchange of shares is expected to be tax-free to you for federal income
tax purposes, except for taxes payable on any cash you elect to receive for
your shares or that you receive in lieu of fractional shares. The expected
material federal income tax consequences are set out in greater detail
beginning on page 22.
Tax matters are very complicated and the tax consequences of the merger to
you will depend on the facts of your own situation. You are urged to consult
your own tax advisor for a full understanding of the tax consequences of the
merger to you.
Reasons for the Merger
The Richfield State Agency board believes that in the rapidly changing
environment of the banking industry, merging with Marshall & Ilsley is
consistent with Richfield State Agency's long-term goal of enhancing
shareholder value. In addition, Richfield State Agency's board believes that
the customers served by Richfield State Agency will benefit from the merger.
Marshall & Ilsley believes that the merger with Richfield State Agency
presents Marshall & Ilsley with a unique opportunity to expand its operations
in the Minneapolis, Minnesota area. In addition, Marshall & Ilsley believes
that the merger will provide growth opportunities and will be accretive to the
earnings per share of the combined company.
You can find a more detailed discussion of the background to the merger
agreement and Richfield State Agency's and Marshall & Ilsley's reasons for the
merger in this document under "The Merger--Background of the Merger" on page 18,
"--Recommendation of the Richfield State Agency Board of Directors and Reasons
for the Merger" beginning on page 21, and "--Marshall & Ilsley's Reasons for
the Merger" beginning on page 21.
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Recommendation to Richfield State Agency Shareholders
The Richfield State Agency board of directors believes that the merger is in
the best interests of Richfield State Agency and its shareholders and
unanimously recommends that you vote "FOR" approval of the merger and the
merger agreement.
The Special Meeting
A special meeting of the Richfield State Agency shareholders will be held at
10:00 a.m., Minneapolis time, on Friday, February 22, 2002, at the offices of
Fredrikson & Byron, P.A., 1100 International Centre, 900 Second Avenue South,
Minneapolis, Minnesota. Holders of Richfield State Agency common stock as of
the close of business on January 14, 2002 are entitled to vote at the Richfield
State Agency special meeting and will be asked to consider and vote upon:
. approval of the merger and the merger agreement; and
. any other matters properly presented at the Richfield State Agency special
meeting.
As of the date of this document, the Richfield State Agency board did not
know of any other matters that will be presented at the Richfield State Agency
special meeting.
Vote Required
At the special meeting of shareholders, the merger and the merger agreement
must be approved by the affirmative vote of at least a majority of the shares
of Richfield State Agency common stock outstanding at the close of business on
January 14, 2002. As of that date, there were 84,154 shares outstanding of
Richfield State Agency common stock. Each share of Richfield State Agency
common stock is entitled to one vote.
As of January 3, 2002, Richfield State Agency's directors, executive
officers and their affiliates held, in the aggregate, approximately 13,442
shares, or 16 percent, of the outstanding Richfield State Agency common stock.
Marshall & Ilsley has entered into an agreement with five Richfield State
Agency shareholders who own in the aggregate approximately 53 percent of the
outstanding Richfield State Agency common stock. Each of these shareholders has
agreed, among other things, to vote his, her or its shares in favor of the
merger and the merger agreement.
Approval of the merger and the merger agreement will also authorize the
Richfield State Agency board to exercise its discretion on whether to proceed
with the merger in the event Richfield State Agency has the right to terminate
the merger agreement. This determination may be made without notice to, or the
resolicitation of proxies from, the Richfield State Agency shareholders.
Action by Marshall & Ilsley Shareholders Not Required
Approval of the merger by Marshall & Ilsley's shareholders is not required.
Accordingly, Marshall & Ilsley has not called a special meeting of its
shareholders.
Regulatory Approvals
We cannot complete the merger unless it is approved by the Board of
Governors of the Federal Reserve System and the Commissioner of Commerce of the
State of Minnesota. Marshall & Ilsley has filed an application with the Federal
Reserve Board and the Minnesota Department of Commerce for approval of the
merger. In addition, the merger is subject to the approval of, or notice to,
other regulatory authorities.
As of the date of this document, we have not received the necessary
regulatory approvals. We cannot be certain of when or if we will obtain them.
However, we do not know of any reason why we should not obtain the required
approvals in a timely manner.
Dissenters' Rights Available
Richfield State Agency shareholders who properly dissent from the merger are
entitled to receive the fair value of their shares of Richfield State Agency
common stock in cash. To exercise your dissenters' rights, you must follow the
6
procedures outlined in Appendix C, including, without limitation:
. prior to the vote at the special meeting, delivering to Richfield State
Agency written notice of your intention to demand the fair value of your
Richfield State Agency shares; and
. not voting to approve the merger and the merger agreement.
If you sign and return your proxy without voting instructions, and do not
revoke the proxy, your proxy will be voted in favor of the merger and the
merger agreement and you will lose your dissenters' rights. Also, you may lose
your dissenters' rights if you fail to comply with other required procedures
contained in Appendix C.
The procedures you are required to follow to exercise your dissenters'
rights are set out in greater detail on pages 26 through 28 and in Appendix C.
7
Share Information and Market Prices for Marshall & Ilsley Common Stock
Marshall & Ilsley common stock is traded on the New York Stock Exchange
under the symbol "MI".
The following table lists the closing price of Marshall & Ilsley common
stock and the equivalent value of a share of Richfield State Agency common
stock giving effect to the merger on:
. November 16, 2001, the last trading day before we announced the merger; and
. January 16, 2002, the last practical day to obtain share price information
before the date of this proxy statement/prospectus.
There is no public trading market for the Richfield State Agency common
stock.
Equivalent Per
Richfield State Share Value of
Marshall & Ilsley Agency Richfield State Agency
Common Stock Common Stock Common Stock
----------------- --------------- ----------------------
November 16, 2001 $59.76 N/A $1,894.80
January 16, 2002. $60.34 N/A $1,798.01
The "equivalent per share value of Richfield State Agency common stock" on
each of these two days represents the closing price of a share of Marshall &
Ilsley common stock on that day multiplied by the relevant exchange ratio. The
exact exchange ratio will be determined pursuant to a formula based on the
average trading price of Marshall & Ilsley common stock during the 20 trading
days up to and including the third trading day prior to the effective time of
the merger. The exchange ratio is intended to provide a value of approximately
$1,865 per share of Richfield State Agency common stock. For each of these two
days, we calculated the exchange ratio by dividing $1,865 by the average of the
average high and low sale price per share of Marshall & Ilsley common stock on
the NYSE for the 20 trading days ending on and including the third trading day
preceding such date. As of November 16, 2001, such average trading price of
Marshall & Ilsley common stock was $58.84 and as of January 16, 2002, such
average trading price of Marshall & Ilsley common stock was $62.61.
The market price of Marshall & Ilsley common stock may change at any time.
Consequently, the value of the Marshall & Ilsley common stock you will be
entitled to receive as a result of the merger may be significantly higher or
lower than its current value or its value at the date of the special meeting.
8
Price Range of Common Stock and Dividends
Marshall & Ilsley--Share Prices and Dividends
Marshall & Ilsley common stock is listed on the New York Stock Exchange and
traded under the symbol "MI." The following table sets forth, for the periods
indicated, the high and low reported closing sale prices per share of Marshall
& Ilsley common stock on the NYSE composite transactions reporting system and
cash dividends declared per share of Marshall & Ilsley common stock.
Price Range of Dividends
Common Stock Declared
-------------- ---------
High Low
------ ------
1999
First Quarter.. $59.25 $55.38 $0.220
Second Quarter. 71.94 54.75 0.240
Third Quarter.. 69.75 55.88 0.240
Fourth Quarter. 69.31 57.81 0.240
2000
First Quarter.. $60.44 $43.88 $0.240
Second Quarter. 55.31 41.52 0.265
Third Quarter.. 51.63 43.56 0.265
Fourth Quarter. 51.49 38.63 0.265
2001
First Quarter.. $55.20 $48.04 $0.265
Second Quarter. 54.35 48.91 0.290
Third Quarter.. 59.56 50.99 0.290
Fourth Quarter. 64.12 52.66 0.290
Richfield State Agency--Share Prices and Dividends
There is no established public trading market for Richfield State Agency
common stock. Transfers of Richfield State Agency common stock have been made
previously through private transactions within families and related estates.
The last sale of Richfield State Agency stock of which Richfield State Agency
is aware occurred in February of 1999 at a price of $1,127 per share. During
calendar years 1999, 2000 and 2001, Richfield State Agency paid annual
dividends of $10 per share payable in February or March of each year.
The timing and amount of future dividends paid by Marshall & Ilsley and
Richfield State Agency are subject to determination by the applicable board of
directors in their discretion and will depend upon earnings, cash requirements
and the financial condition of the respective companies and their subsidiaries,
applicable government regulations and other factors deemed relevant by the
applicable company's board of directors. Various U.S. state and federal laws
limit the ability of affiliate banks to pay dividends to Marshall & Ilsley and
Richfield State Agency. The merger agreement restricts the cash dividends that
may be paid on Richfield State Agency common stock pending consummation of the
merger. Richfield State Agency has agreed not to declare or pay any dividends
with respect to its common stock, except for cash dividends that do not exceed
$7 million in the aggregate, an additional cash dividend of $1,306,302, and tax
distributions. See "The Terms of the Merger Agreement--Conduct of Business
Pending the Merger."
9
Comparison of Unaudited Per Share Data
The following table shows information about our net income per share, cash
dividends per share and book value per share, and similar information after
giving effect to the merger. This information is referred to below as "pro
forma" information. In presenting the pro forma information, we assumed that we
had been merged as of the beginning of the earliest period presented. The pro
forma information gives effect to the merger under the purchase method of
accounting in accordance with currently existing accounting principles
generally accepted in the United States.
We used the exchange ratio of 30.29 in computing the pro forma combined and
equivalent pro forma combined per share data. This exchange ratio is intended
to provide a value of $1,865 per share of Richfield State Agency common stock,
subject to adjustment for any increases in the total merger consideration
described above. We calculated the exchange ratio by dividing $1,865 by the
average of the average high and low sale price per share of Marshall and Ilsley
common stock on the NYSE for the 20 trading days ending on and including the
third trading day preceding December 14, 2001. As of January 16, 2002, such
average trading price of Marshall & Ilsley common stock was $62.61.
We expect that we will incur merger and integration charges as a result of
combining our companies. The pro forma information is helpful in illustrating
the financial characteristics of the combined company under one set of
assumptions. However, it does not reflect these merger and integration charges
and, accordingly, does not attempt to predict or suggest future results. Also,
it does not necessarily reflect what the historical results of the combined
company would have been had our companies been combined for the periods
presented.
You should read the information in the following table together with the
historical financial information that Marshall & Ilsley has included in its
prior filings with the United States Securities and Exchange Commission. This
material has been incorporated into this document by reference to those
filings. See "Where You Can Find More Information" on page 55.
Nine Months
Ended Year Ended
September 30, December 31,
2001 2000
------------- ------------
Marshall & Ilsley Common Stock
Income before cumulative effect of changes in
accounting principles per basic common share
Historical....................................... $ 2.17 $ 3.01
Pro forma combined(1)............................ 2.22 3.02
Income before cumulative effect of changes in
accounting principles per diluted common share
Historical....................................... 2.11 2.91
Pro forma combined(1)............................ 2.16 2.92
Dividends per basic common share
Historical....................................... 0.845 1.035
Pro forma combined(2)............................ 0.845 1.035
Book value per basic common share
Historical....................................... $23.60 $21.19
Pro forma combined............................... 24.46 22.12
10
Nine Months
Ended Year Ended
September 30, December 31,
2001 2000
------------- ------------
Richfield State Agency Common Stock
Net income per basic common share
Historical(3).................................... $124.01 $100.17
Equivalent pro forma combined(4)................. 67.24 91.48
Net income per diluted common share
Historical(3).................................... 124.01 100.17
Equivalent pro forma combined(4)................. 65.43 88.45
Dividends per basic common share
Historical....................................... 10.00 10.00
Equivalent pro forma combined(4)................. 25.60 31.35
Book value per basic common share
Historical....................................... $883.87 $775.39
Equivalent pro forma combined(4)................. 740.89 670.01
--------
(1) The effect of estimated non-recurring merger and integration costs
resulting from the merger has not been included in the pro forma amounts.
(2) Pro forma dividends per share represent historical dividends paid by
Marshall & Ilsley.
(3) No federal income tax expense has been recognized in Richfield State
Agency's consolidated net income due to certain elections made under
sections of federal income tax law.
(4) Represents Marshall & Ilsley's pro forma results multiplied by the exchange
ratio of 30.29.
11
Selected Historical Financial Data of Marshall & Ilsley
The table below presents selected Marshall & Ilsley historical financial
data for the five years ended December 31, 2000, which are derived from its
previously filed audited consolidated financial statements for those years, and
historical financial data for the nine months ended September 30, 2001 and
September 30, 2000, which are derived from its previously filed unaudited
consolidated financial statements for those quarters.
You should read the following table together with the historical financial
information that Marshall & Ilsley has presented in its prior SEC filings.
Marshall & Ilsley has incorporated this material into this document by
reference. See "Where You Can Find More Information" on page 55.
As of and for the Nine
Months Ended September 30, As of and for the Twelve Months Ended December 31,
(Unaudited) -----------------------------------------------------------
2001 2000 2000 1999 1998 1997 1996
----------- ----------- ----------- ----------- ----------- ----------- -----------
(in thousands, except per share data)
Income Statement:
Interest Income.............. $ 1,307,132 $ 1,290,479 $ 1,747,982 $ 1,496,584 $ 1,434,044 $ 1,220,333 $ 1,045,821
Net Interest Income.......... 605,491 498,241 673,006 705,281 676,070 594,547 535,841
Provision for Loan and Lease
Losses...................... 34,006 21,373 30,352 25,419 27,090 17,633 15,634
Other Income................. 740,501 684,204 978,918 878,545 794,500 634,111 538,333
Other Expense................ 973,109 815,826 1,083,978 1,030,468 954,822 822,853 716,647
Income Before Accounting
Changes & Special Charges... 295,502 271,919 361,636 354,511 317,591 256,685 221,910
Income Before Accounting
Changes..................... 229,600 233,071 317,402 354,511 301,323 256,685 206,635
Per Share:
Basic:
Income Before Accounting
Changes & Special
Charges.................... $ 2.81 $ 2.58 $ 3.44 $ 3.32 $ 2.94 $ 2.62 $ 2.28
Income Before Accounting
Changes.................... 2.17 2.21 3.01 3.32 2.79 2.62 2.12
Fully Diluted:...............
Income Before Accounting
Changes & Special
Charges.................... 2.72 2.49 3.32 3.14 2.76 2.43 2.12
Income Before Accounting
Changes.................... 2.11 2.14 2.91 3.14 2.61 2.43 1.98
Common Dividends Declared.... 0.845 0.770 1.035 0.940 0.860 0.785 0.720
Average Balance Sheet Data:
Net Loans and Leases......... $17,696,663 $16,800,558 $16,884,443 $14,680,725 $13,186,841 $10,805,088 $ 9,362,630
Total Assets................. 26,145,556 24,903,367 25,041,777 22,700,963 20,790,173 17,001,414 14,645,687
Total Deposits............... 17,285,759 17,270,898 17,497,783 16,156,902 14,757,215 12,239,795 10,897,512
Long-term Borrowings......... 1,797,883 1,185,304 1,178,805 1,009,132 1,046,321 787,819 823,397
Shareholders' Equity......... 2,392,164 2,116,331 2,148,074 2,172,117 2,133,037 1,556,366 1,374,858
12
Selected Historical Financial Data of Richfield State Agency
The table below presents selected Richfield State Agency historical
financial data for the five years ended December 31, 2000, which are derived
from its audited consolidated financial statements for those years, and
historical financial data for the quarters ended September 30, 2000 and
September 30, 2001, which are derived from its unaudited consolidated financial
statements for those quarters. This data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the historical consolidated financial statements and related
notes of Richfield State Agency included in Appendix D to this document.
Appendix D is incorporated by reference into this document.
As of and for the
Nine Months Ended
September 30 As of and for the Twelve Months Ended December 31,
(Unaudited) --------------------------------------------------
2001 2000 2000 1999 1998 1997 1996
-------- -------- -------- -------- -------- -------- --------
(in thousands, except per share data)
Income Statement:
Interest Income........... $ 37,815 $ 37,886 $ 51,211 $ 39,488 $ 37,688 $ 35,004 $ 32,107
Net Interest Income....... 20,681 19,211 26,174 23,457 22,281 20,572 19,408
Provision For Loan Losses. 1,221 1,123 1,483 834 1,079 800 960
All Other Income.......... 12,415 7,831 10,635 11,322 8,840 8,988 8,246
All Other Expense......... 21,083 17,854 25,754 23,376 19,441 18,787 17,354
Net Earnings.............. 10,568 7,284 8,583 9,632 9,323 6,544 5,946
Per Share:
Net Earnings.............. $ 124 $ 85 $ 100 $ 112 $ 109 $ 77 $ 70
Cash Dividends............ 10 10 10 10 16 11 10
Balance Sheet Items:
Loans..................... $460,132 $480,042 $500,345 $407,329 $360,647 $323,725 $297,862
Total Assets.............. 750,787 713,094 753,718 636,522 549,855 499,616 461,651
Total Deposits............ 543,778 534,682 561,474 479,981 448,035 410,297 384,799
Long-Term Debt............ 24,053 3,596 35,236 9,690 6,463 8,103 9,025
Stockholders' Equity...... 74,381 61,866 66,436 54,041 57,594 49,878 43,189
13
RISK FACTORS
In making your determination as to how to vote on the merger, you should
consider the following factors:
Risks Relating to the Merger
You will not know the exact number of Marshall & Ilsley shares you will
receive until the time of the merger.
If you receive shares of Marshall & Ilsley common stock in exchange for your
shares of Richfield State Agency common stock, we will calculate the number of
shares of Marshall & Ilsley common stock you will receive in exchange for each
of your shares of Richfield State Agency common stock based on a formula
provided in the merger agreement. The number of Marshall & Ilsley shares you
will receive will depend, in part, on the average trading price of Marshall &
Ilsley's common stock during the 20 trading days up to and including the third
trading day prior to the effective time of the merger. The exact number of
Marshall & Ilsley shares you will receive for each of your shares of Richfield
State Agency common stock will depend on the result of dividing approximately
$1,865 by the average trading price of Marshall & Ilsley common stock before
the merger. As a result, you must decide whether to approve the merger without
knowing the exact number of Marshall & Ilsley shares you will receive.
For a complete description of how we will determine the number of Marshall &
Ilsley shares you will receive in the merger, see "The Merger--Merger
Consideration."
The number of Marshall & Ilsley shares you receive will depend on the average
trading price of Marshall & Ilsley common stock during the measurement period
prior to the merger.
If you receive shares of Marshall & Ilsley common stock in exchange for your
shares of Richfield State Agency common stock, changes in the market price of
Marshall & Ilsley common stock before the merger will affect the exact number
of Marshall & Ilsley shares you will receive in exchange for your shares of
Richfield State Agency common stock. The exchange ratio is intended to provide
a value of approximately $1,865 per share of Richfield State Agency common
stock, subject to adjustment for any increases in the total merger
consideration. We cannot predict the price at which Marshall & Ilsley common
stock will trade before the merger. Any number of factors could cause the
market price of Marshall & Ilsley common stock to change, including changes in
general market and economic conditions, changes in Marshall & Ilsley's
business, operations and prospects and changes in the regulatory environment.
Many of these factors are beyond our control.
The value of the Marshall & Ilsley common stock you receive may be
substantially lower than anticipated.
The average trading price used to calculate the exchange ratio is likely to
be different from the closing price per share of Marshall & Ilsley common stock
at the effective time of the merger. As a result, if you elect to receive
shares of Marshall & Ilsley common stock in exchange for your shares of
Richfield State Agency common stock, the value of the Marshall & Ilsley common
stock you will be entitled to receive for each of your shares of Richfield
State Agency common stock may be substantially lower than $1,865.
Richfield State Agency Shareholders will be diluted by the merger.
The merger will dilute the ownership position of the present shareholders of
Richfield State Agency. Based on the number of shares of Richfield State Agency
common stock outstanding on the record dates of the special meeting and an
average trading price of $62.61 per share of Marshall & Ilsley common stock on
January 16, 2002, Marshall & Ilsley will issue to Richfield State Agency
shareholders approximately 2,507,621 shares of Marshall & Ilsley common stock
in the merger (assuming no cash elections are made). As a result, Richfield
State Agency shareholders will hold approximately 2.3 percent of the Marshall &
Ilsley common stock outstanding immediately after the completion of the merger
based on the number of shares of Marshall & Ilsley common stock outstanding as
of September 30, 2001.
14
Omitted Industry Financial Information.
Richfield State Agency has excluded certain financial disclosures required
of bank holding companies under rules promulgated by the Securities and
Exchange Commission from the Management's Discussion and Analysis of Financial
Condition and Results of Operations of Richfield State Agency attached to this
Proxy Statement/Prospectus as Appendix D. The omitted industry financial
information relates to, among other things, certain disclosures as to Richfield
State Agency's investments and deposits. Marshall & Ilsley and Richfield State
Agency have determined since Richfield State Agency has not been required to
make such disclosures in the past to its shareholders, it has not compiled and
would be unable to create such financial information from existing financial
records without incurring considerable expense, effort and delay. Marshall &
Ilsley and Richfield State Agency have determined the omission of certain bank
holding company financial disclosures is not material to the shareholders of
Richfield State Agency.
Post Merger Risks
Share Price Fluctuation.
The share price of Marshall & Ilsley Common Stock on the New York Stock
Exchange is by its nature subject to the general price fluctuations in the
market for publicly traded equity securities. Such fluctuations are not
necessarily related to a change in the financial performance or condition of
Marshall & Ilsley.
Marshall & Ilsley's future acquisitions will dilute your ownership of
Marshall & Ilsley and may cause Marshall & Ilsley to become more susceptible
to adverse economic events.
Marshall & Ilsley has acquired other businesses with its common stock in the
past and intends to acquire or make investments in complementary businesses
with its common stock in the future. Future business acquisitions could be
material to Marshall & Ilsley. Marshall & Ilsley may issue additional shares of
common stock to pay for those acquisitions, which would dilute your ownership
interest in Marshall & Ilsley. Acquisitions also could require Marshall &
Ilsley to use substantial cash or other liquid assets or to incur debt. In
those events, Marshall & Ilsley could become more susceptible to economic
downturns and competitive pressures.
If Marshall & Ilsley does not adjust to rapid changes in the financial
services industry, then its financial performance may suffer.
Marshall & Ilsley's ability to maintain its history of strong financial
performance and return on investment to shareholders will depend in part on
Marshall & Ilsley's ability to expand its scope of available financial services
as required to meet the needs and demands of its customers. In addition to the
challenge of attracting and retaining customers for traditional banking
services, Marshall & Ilsley's competitors now include securities dealers,
brokers, mortgage bankers, investment advisors and finance and insurance
companies that seek to offer one-stop financial services to their customers
that may include services that banks have not been able or allowed to offer to
their customers in the past. The increasingly competitive environment is
primarily a result of changes in regulation, changes in technology and product
delivery systems and the accelerating pace of consolidation among financial
service providers.
Difficulties in combining the operations of acquired entities, including
Richfield State Agency, with Marshall & Ilsley's own operations may prevent
Marshall & Ilsley from achieving the expected benefits from its acquisitions.
Marshall & Ilsley may not be able to achieve fully the strategic objectives
and operating efficiencies in its various acquisitions, including Richfield
State Agency. Inherent uncertainties exist in integrating the operations of an
acquired company into Marshall & Ilsley. In addition, the markets and
industries in which Marshall & Ilsley operates are highly competitive. Marshall
& Ilsley also may lose key personnel, either from the acquired entities or from
itself, as a result of acquisitions. These factors could contribute to Marshall
& Ilsley not achieving the expected benefits from its acquisitions within the
desired time frames, if at all.
Changes in interest rates could reduce Marshall & Ilsley's income and cash
flows.
Marshall & Ilsley's income and cash flows depend to a great extent on the
difference between the interest rates earned on interest-earning assets such as
loans and investment securities, and the interest rates paid on
15
interest-bearing liabilities such as deposits and borrowings. These rates are
highly sensitive to many factors which are beyond Marshall & Ilsley's control,
including general economic conditions and the policies of various governmental
and regulatory agencies, in particular, the Federal Reserve Board. Changes in
monetary policy, including changes in interest rates, will influence the
origination of loans, the purchase of investments, the generation of deposits
and the rates received on loans and investment securities and paid on deposits.
Fluctuations in these areas may adversely affect Marshall & Ilsley.
Future governmental regulation and legislation could limit Marshall &
Ilsley's future growth.
Marshall & Ilsley and its subsidiaries are subject to extensive state and
federal regulation, supervision and legislation that govern almost all aspects
of the operations of Marshall & Ilsley and its subsidiaries. These laws may
change from time to time and are primarily intended for the protection of
consumers, depositors and the deposit insurance funds. Any changes to these
laws may negatively affect Marshall & Ilsley's ability to expand its services
and to increase the value of its business. While we cannot predict what effect
any presently contemplated or future changes in the laws or regulations or
their interpretations would have on Marshall & Ilsley, these changes could be
materially adverse to Marshall & Ilsley's shareholders.
The long-term economic effects of recent terrorist attacks on the United
States and an economic slowdown could negatively affect Marshall & Ilsley's
financial condition.
On September 11, 2001, New York City and Washington, D.C. suffered serious
terrorist attacks. The long-term economic impact of these acts has yet to be
determined, and the ultimate cost associated with these attacks and related
incidents may place significant burdens on the United States economy as a
whole. In addition, an overall economic slowdown could negatively impact the
purchasing and decision making activities of the financial institution
customers of Marshall & Ilsley's data processing subsidiary, Metavante
Corporation. If these acts or additional terrorist attacks or other factors
cause an overall economic decline, the financial condition and operating
results of Marshall & Ilsley could be materially adversely affected.
FORWARD-LOOKING STATEMENTS
This document, including information incorporated by reference into this
document, contains or may contain forward-looking statements about Marshall &
Ilsley and Richfield State Agency which we believe are within the meaning of
the Private Securities Litigation Reform Act of 1995. This document contains
certain forward-looking statements with respect to the financial condition,
results of operations, plans, objectives, future performance and business of
Marshall & Ilsley and Richfield State Agency, including statements preceded by,
followed by or that include the words "believes," "expects," "anticipates" or
similar expressions. These forward-looking statements involve certain risks and
uncertainties. Factors that may cause actual results to differ materially from
those contemplated by such forward-looking statements include, among others,
those risks discussed above. Further information on other factors which could
affect the financial results of Marshall & Ilsley after the merger are included
in the SEC filings incorporated by reference into this document. See "Where You
Can Find More Information" on page 55.
SPECIAL MEETING OF RICHFIELD STATE AGENCY SHAREHOLDERS
This document and the accompanying proxy card are being furnished to you in
connection with the solicitation by the board of directors of Richfield State
Agency of proxies to be used at the Richfield State Agency special meeting of
shareholders to be held at 10:00 a.m., Minneapolis time, on Friday, February
22, 2002, at the offices of Fredrikson & Byron P.A., 1100 International Centre,
900 Second Avenue South, Minneapolis, Minnesota, and at any adjournments
thereof. This document, the notice of Richfield State Agency's special meeting
and proxy card are first being sent to you on or about January 22, 2002.
Purpose of the Meeting
The meeting is being held so that Richfield State Agency shareholders may
consider and vote upon a proposal to approve the agreement and plan of merger
with Marshall & Ilsley, including the form of plan of merger constituting a
part thereof, and the merger of Richfield State Agency with and into Marshall &
Ilsley contemplated by that agreement, and to transact any other business that
may properly come before the meeting or
16
any adjournment or postponement of the meeting. Approval of the proposal will
constitute approval of the agreement and plan of merger, the plan of merger and
the transactions contemplated by that agreement and plan, including the merger.
A copy of the agreement and plan of merger is contained in Appendix A and a
copy of the plan of merger is contained in Appendix B. When we use the term
merger agreement in this document, we are referring, collectively, to the
agreement and plan of merger and the form of plan of merger.
Record Date
Only holders of record on Richfield State Agency shares at the close of
business on January 14, 2002, are entitled to receive notice of and to vote at
the Richfield State Agency special meeting or any adjournments or postponements
of the meeting. At the close of business on January 14, 2002, there were 84,154
shares of Richfield State Agency common stock outstanding, held by
approximately 44 record holders.
Required Vote
The affirmative vote of the holders of a majority of all the shares entitled
to vote at the Richfield State Agency special meeting is required to approve
the merger agreement and the merger. For each Richfield State Agency share you
held on the record date, you are entitled to one vote on each proposal to be
presented to shareholders at the meeting. Abstentions and broker non-votes will
have the effect of a vote against approval of the merger agreement and the
merger.
Richfield State Agency's board of directors believes that the merger is fair
to and in the best interests of Richfield State Agency and its shareholders and
has unanimously approved the merger and the merger agreement. Richfield State
Agency's board unanimously recommends that the Richfield State Agency
shareholders vote "FOR" approval of the merger and the merger agreement.
Proxies
The persons named on the enclosed proxy card will vote all Richfield State
Agency shares represented by properly executed proxies that have not been
revoked. If no instructions are indicated, the persons named will vote the
shares "FOR" approval of the merger and the merger agreement. The affirmative
vote of a majority of the shares entitled to vote is required to approve the
merger and the merger agreement. Proxies which are marked "ABSTAIN" will have
the effect of a vote "AGAINST" approval of the merger and merger agreement.
If your shares are held in an account at a brokerage firm or bank, you must
instruct it on how to vote your shares. Your broker or bank will vote your
shares only if you provide instructions on how to vote by following the
information provided to you by your broker or bank.
Because approval of the merger and the merger agreement requires the
affirmative vote of at least a majority of all votes entitled to be cast,
abstentions, failures to vote and broker non-votes will have the same effect as
a vote against approval of the merger and merger agreement.
Richfield State Agency does not know of any matter not described in the
notice of meeting that is expected to come before the meeting. If, however, any
other matters are properly presented for action at the meeting, the persons
named as proxies will vote the proxies in their discretion, unless authority is
withheld.
A shareholder may revoke a proxy at any time prior to its exercise by filing
written notice with an officer of Richfield State Agency or by signing and
filing with an officer of Richfield State Agency a later dated proxy. Neither
attendance at the meeting nor attempting to vote the shares in person at the
meeting will revoke a proxy.
Do NOT send in your Richfield State Agency stock certificates with your
proxy card. As soon as practicable after the completion of the merger, the
exchange agent will mail to you transmittal forms with instructions for
exchanging your Richfield State Agency stock certificates for the merger
consideration.
Solicitation of Proxies
Richfield State Agency will pay all the costs of soliciting proxies, except
that Marshall & Ilsley will share equally in the expense of printing and filing
this document and all SEC, NYSE and other regulatory filing fees in
17
connection with this document. Richfield State Agency will reimburse brokerage
firms and other custodians, nominees and fiduciaries for reasonable expenses,
if any, incurred by them in sending proxy materials to the beneficial owners of
Richfield State Agency common stock. In addition to solicitations by mail,
directors, officers and employees of Richfield State Agency may solicit proxies
personally or by telephone without additional compensation.
THE MERGER
The following description summarizes the material terms of the merger
agreement. We urge you to read the agreement and plan of merger, a copy of
which is attached as Appendix A to this document and is incorporated by
reference into this document, and the form of plan of merger, a copy of which
is attached as Appendix B to this document and is incorporated by reference
into this document.
Structure of the Merger
Pursuant to the terms of the merger agreement, Richfield State Agency will
merge with and into Marshall & Ilsley. The separate legal existence of
Richfield State Agency will cease. Marshall & Ilsley will continue to exist as
the surviving corporation. Marshall & Ilsley will exchange shares of its common
stock and up to $20 million in cash for shares of Richfield State Agency common
stock. Richfield State Agency shareholders who do not perfect their dissenters'
rights under Minnesota law and who do not receive cash for all of their shares
will become Marshall & Ilsley shareholders, with their rights governed by
Wisconsin law and Marshall & Ilsley's restated articles of incorporation and
bylaws.
Background of the Merger
Richfield State Agency has been owned by the Kirchner family since 1948. To
increase their liquidity, Richfield State Agency's shareholders instructed
Richfield State Agency's management to invite offers for a business
combination. Richfield State Agency's management contacted Marshall & Ilsley
Corporation. At a special meeting of Richfield State Agency's Board of
Directors on Friday, November 16, 2001, the Board of Directors discussed the
terms and conditions of the merger agreement in detail with Richfield State
Agency's legal and accounting advisors. At a special meeting of Richfield State
Agency's Board of Directors on Sunday, November 18, 2001, the Board of
Directors unanimously approved the merger and authorized management to sign and
deliver to Marshall & Ilsley a definitive merger agreement.
Management and Operations after the Merger
After the merger is completed, the directors and officers of Marshall &
Ilsley who were in office prior to the effective time of the merger will
continue to serve as the directors and officers of Marshall & Ilsley for the
term for which they were elected, subject to Marshall & Ilsley's restated
articles of incorporation and bylaws and in accordance with applicable law.
Merger Consideration
The total consideration for the merger will be $157,000,000, subject to
adjustment as follows: the merger consideration will be increased by $60,000
for each month or portion thereof, beginning March 2, 2002 and until the day
prior to the effective time of the merger; and the merger consideration will be
increased by a maximum amount of $700,000 for reductions prior to the effective
time of the merger in the prepayment premium on a promissory note previously
issued by Richfield State Agency.
Unless you elect to receive cash for your shares of Richfield State Agency
common stock as described below at the effective time of the merger, each share
of issued and outstanding Richfield State Agency common stock will be converted
into shares of Marshall & Ilsley common stock. The number of shares you receive
will be equal to (i) approximately $1,865, subject to adjustment for any
increases in the total merger consideration described above, divided by (ii)
the average of the average high and low sale price per share of Marshall &
Ilsley common stock on the NYSE for the 20 trading days ending on and including
the third trading day preceding the effective time of the merger, rounded to
the nearest one-hundred thousandth.
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For example, if you do not elect to receive cash in exchange for your shares
of Richfield State Agency common stock, and if you hold 100 shares of Richfield
State Agency common stock, then assuming the average trading price of Marshall
& Ilsley common stock is $60.00 per share, you will receive approximately 3,109
shares of Marshall & Ilsley common stock.
The average trading price used to calculate the exchange ratio is likely to
be different from the closing price per share of Marshall & Ilsley common stock
at the time of merger. As a result, the value of the Marshall & Ilsley common
stock that you are entitled to receive may be different from $1,865.
You may also elect to receive cash in exchange for your shares of Richfield
State Agency common stock. If you make such an election then the cash amount
you will receive for each share of your Richfield State Agency common stock
will be an amount equal to approximately $1,865, subject to adjustment for any
increases in the total merger consideration described above. If you make such
an election and if the amount of cash that holders of shares of Richfield State
Agency common stock elect to receive in exchange for their shares exceeds a
total of $20,000,000, the amount of cash that you will receive for each share
will be subject to a pro rata reduction, and you will receive a number of
shares of Marshall & Ilsley common stock with a value equal to the amount of
that reduction.
A form of election has been included with this proxy statement/prospectus.
You may elect to receive cash for some or all of your shares of Richfield State
Agency common stock by completing and signing the enclosed form of election and
submitting it as instructed in the form of election by the election deadline,
which is 5:00 p.m., Minneapolis time, on Thursday, February 21, 2002. If you
have made an election to receive cash for your shares, you may at any time
change or withdraw your election by written notice prior to the election
deadline. If you do not submit a properly completed and signed form of election
prior to the election deadline, then your shares shall be converted into the
right to receive Marshall & Ilsley common stock at the effective time.
No Fractional Shares
Only whole shares of Marshall & Ilsley common stock will be issued in
connection with the merger. In lieu of fractional shares, each holder of
Richfield State Agency common stock otherwise entitled to a fractional share of
Marshall & Ilsley common stock will be paid, without interest, an amount of
cash equal to the amount of this fraction multiplied by the average trading
price of a share of Marshall & Ilsley common stock for the 20 trading days
ending on and including the third trading day preceding the merger. No
shareholder will be entitled to interest, dividends, voting rights or other
rights in respect of any fractional share.
Effective Time of the Merger
Unless Richfield State Agency and Marshall & Ilsley agree otherwise, the
effective time of the merger will be as soon as practicable after all
conditions contained in the merger agreement have been met or waived, including
the expiration of all applicable waiting periods. Richfield State Agency and
Marshall & Ilsley each will have the right, but not the obligation, to
terminate the merger agreement if the effective time of the merger does not
occur on or before June 30, 2002, unless the failure of the merger to occur by
such date is due to the failure of the party seeking such termination to comply
with its obligations under the merger agreement.
Exchange of Certificates
As of the effective time of the merger, Marshall & Ilsley will deposit, or
cause to be deposited, from time to time, with Continental Stock Transfer &
Trust Company, certificates representing the shares of Marshall & Ilsley common
stock and cash to be issued pursuant to the merger in exchange for outstanding
shares of Richfield State Agency common stock. Continental Stock Transfer &
Trust Company will act as the exchange agent for the benefit of the holders of
certificates of Richfield State Agency common stock.
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After the effective time of the merger, you will cease to have any rights as
a holder of Richfield State Agency common stock, and your sole right will be
your right to receive the merger consideration, including cash in lieu of
fractional shares, if any, into which your shares of Richfield State Agency
common stock will have been converted by virtue of the merger or to perfect
your dissenter's rights if you have validly exercised and not withdrawn or lost
such rights.
As soon as practicable after the effective time of the merger, the exchange
agent will send to you a letter of transmittal and instructions for use in
submitting to the exchange agent certificates formerly representing shares of
your Richfield State Agency common stock to be exchanged for certificates
representing shares of Marshall & Ilsley common stock and, to the extent
applicable, cash which you elected to receive for your shares of Richfield
State Agency common stock and cash in lieu of fractional shares of Marshall &
Ilsley common stock, that you are entitled to receive as a result of the
merger. You will also receive instructions for handling share certificates
which have been lost, stolen or destroyed. You will not be entitled to receive
any dividends or other distributions which may be payable to holders of record
of Marshall & Ilsley common stock following the effective time of the merger
until you have surrendered and exchanged your Richfield State Agency common
stock certificates, or, in the case of lost, stolen or destroyed share
certificates, such documentation as is reasonably required by Marshall &
Ilsley. Any dividends with a record date after the effective time of the merger
payable on Marshall & Ilsley common stock after the effective time of the
merger will be paid to the exchange agent and, upon receipt of the Richfield
State Agency common stock certificates or, in the case of lost, stolen or
destroyed share certificates, such documentation as is required by Marshall &
Ilsley, subject to any applicable abandoned property, escheat or similar laws,
the exchange agent will forward to you the following as applicable:
. certificates representing your shares of Marshall & Ilsley common stock;
. cash which you elected to receive in exchange for your shares of Richfield
State Agency common stock;
. dividends declared on your shares of Marshall & Ilsley common stock with a
record date after the effective time of the merger, without interest; and
. the cash value of any fractional shares, without interest.
Please DO NOT return your Richfield State Agency stock certificates with the
enclosed proxy card. You should not submit your Richfield State Agency stock
certificates until you have received written instructions from the exchange
agent to do so.
At the effective time of the merger, the stock transfer books of Richfield
State Agency will be closed and no transfer of Richfield State Agency common
stock will thereafter be made on Richfield State Agency's stock transfer books.
If a certificate formerly representing Richfield State Agency common stock is
presented to Richfield State Agency or Marshall & Ilsley, it will be forwarded
to the exchange agent for cancellation and exchanged for the merger
consideration.
Interests of Certain Persons
In addition to being shareholders of Richfield State Agency, certain members
of the management of Richfield State Agency have interests in the proposed
merger transaction.
Certain employees of Richfield Bank and Trust Co. have Change of
Control/Severance Pay Agreements with Richfield Bank and Trust Co. which would
entitle them to payments as specified therein if their employment is terminated
following a change of control. No decisions have yet been made regarding the
potential termination of any of these employees.
Each of Martin V. Chorzempa, Lynn R. Evans, Allen K. Helvick, and Steven L.
Kirchner has an executive salary continuation agreement with Richfield State
Agency or Richfield Bank & Trust Co. which provides such person with certain
payments as specified therein if their employment is terminated following a
change of control. No decisions have yet been made regarding the potential
termination of any of these officers. In addition, Richfield State Agency's
Board of Directors has approved a bonus of $100,000 to Steven L. Kirchner for
his efforts related to the merger.
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It is expected that Lynn Evans, the President of Richfield Bank & Trust Co.,
will be appointed as Chairman of the Minnesota Regional Advisory Board of M&I
Marshall & Ilsley Bank.
On January 11, 2002, Richfield State Agency sold to Spider Development,
L.L.C., a Minnesota limited liability company: (a) The Pines for a purchase
price of $8,200,000 (this transaction was completed by spinning The Pines off
into a limited liability company called Pines Investment, L.L.C. and having
Spider Development purchase all of the membership interests of such company
from Richfield State Agency), (b) all of Richfield State Agency's interest in
The Oaks, L.L.C. for a purchase price of $1,525,000 and (c) all of Richfield
State Agency's interest in Sun Lake II, L.L.C. for a purchase price of
$800,000. On January 11, 2002, Eastwood Village, L.L.C. sold its interest in
Eastwood III to JHS Investments, L.L.C. for a purchase price of $16,667. It is
expected that on or about January 31, 2002, Richfield State Agency will sell to
Spider Development all of its interest in Eastwood Village, L.L.C. for a
purchase price of $5,400,000. These sale prices are consistent with independent
appraisals conducted in connection with the Merger. It is anticipated that
purchasers of these interests will further sell these interests to other
investment vehicles, including a Minnesota limited liability company called RSA
Acquisitions, L.L.C. Each of Martin V. Chorzempa and Steven L. Kirchner is
expected to become a 13.0845% indirect owner of RSA Acquisitions, L.L.C.
Recommendation of the Richfield State Agency Board of Directors and Reasons for
the Merger
On November 18, 2001, the Richfield State Agency board of directors
unanimously determined that the merger agreement and the transactions
contemplated by the merger agreement, including the merger, were advisable and
fair to and in the best interests of Richfield State Agency and its
shareholders. In reaching its decision to approve the merger agreement and the
transactions contemplated by the merger agreement, and to recommend to
shareholders that they approve and adopt the merger agreement and the
transactions contemplated by the merger agreement, the Richfield State Agency
board consulted with its legal counsel, Fredrikson & Byron, P.A., and with
Richfield State Agency senior management. The Richfield State Agency board also
considered a number of factors, including the following:
. the liquidity needs of Richfield State Agency's shareholders;
. the market performance of Marshall & Ilsley's stock; and
. the capital and technology requirements necessary to remain independent.
The foregoing discussion of the information and factors considered by the
Richfield State Agency board is not intended to be exhaustive. While the
members of the board considered each of the foregoing factors in reaching its
determinations, individual members of the board may have attached levels of
different importance to each of the factors. In view of the number and wide
variety of factors considered in their evaluation of the merger, the members of
Richfield State Agency's board of directors did not consider it practicable,
nor did they attempt, to assign relative weight to the factors considered in
reaching their determinations.
In addition, the Richfield State Agency board did not undertake to make any
specific determination as to whether any particular factor was favorable or
unfavorable to the board's ultimate determination, but rather conducted an
overall evaluation of the reasons described above. The board considered all
these factors as a whole, and considered the factors to be favorable to and to
support each of its determinations.
Marshall & Ilsley's Reasons for the Merger
In reaching its decision to approve the merger agreement, Marshall & Ilsley
considered a variety of factors, including the following:
. Marshall & Ilsley's familiarity with and review of Richfield State
Agency's business, operations, management, markets, competitors, financial
condition, earnings and prospects;
. Richfield State Agency's financial strength, stable credit quality and
concentration in an attractive Midwestern metropolitan area;
. The business, operations, financial condition, earnings and prospects of
each of Marshall & Ilsley and Richfield State Agency;
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. Richfield State Agency's compatible risk philosophy, credit culture,
shareholder focus and operating philosophy;
. Marshall & Ilsley's belief that after the merger the combined company will
be able to continue to generate high revenue growth rates;
. The merger will allow Marshall & Ilsley to expand its operations in the
Minneapolis, Minnesota area;
. Richfield State Agency's market is contiguous and similar to Marshall &
Ilsley's Midwest markets; and
. The merger is intended to qualify as a transaction of a type that is
generally tax-free for federal income tax purposes.
The merger will be a purchase for accounting purposes.
The foregoing discussion of the information and factors considered by
Marshall & Ilsley is not intended to be exhaustive but is believed to include
all material factors considered by Marshall & Ilsley. In reaching its
determination to enter into the merger agreement, Marshall & Ilsley did not
assign any relative or specific weights to the foregoing factors.
Material Federal Income Tax Consequences
As a condition to the consummation of the merger, Richfield State Agency
will receive from Fredrikson & Byron, P.A., and Marshall & Ilsley will receive
from Godfrey & Kahn, S.C., an opinion that, for federal income tax purposes,
the merger will constitute a "reorganization" within the meaning of Section
368(a) of the Internal Revenue Code.
The opinions will be based on factors, assumptions and representations set
forth in the opinions, including representations contained in certificates of
officers of Richfield State Agency and Marshall & Ilsley. An opinion of counsel
represents only counsel's best legal judgment on the matters addressed in the
opinion, and has no binding effect on the Internal Revenue Service or any
court, and no assurance can be given that contrary positions may not be taken
by the Internal Revenue Service or a court considering the issues. Neither
Richfield State Agency nor Marshall & Ilsley has requested or will request a
ruling from the Internal Revenue Service with regard to any of the federal
income tax consequences of the merger.
As discussed below, the federal income tax consequences of the merger to a
Richfield State Agency shareholder will depend on whether the shareholder
exchanges its Richfield State Agency common stock for Marshall & Ilsley common
stock, cash or a combination thereof.
Exchange Solely for Marshall & Ilsley Common Stock. If, pursuant to the
merger, a shareholder exchanges all of the shares of Richfield State Agency
common stock actually owned by such shareholder solely for shares of Marshall &
Ilsley common stock, such shareholder will not recognize any gain or loss
except for cash received in lieu of a fractional share of Marshall & Ilsley
common stock (as discussed below). The aggregate adjusted tax basis of the
shares of Marshall & Ilsley common stock received in the exchange will be equal
to the aggregate adjusted tax basis of the shares of Richfield State Agency
common stock surrendered therefor (adjusted for fractional shares), and the
holding period of such Marshall & Ilsley common stock will include the period
during which such shares of Richfield State Agency common stock were held.
Cash Received in Lieu of a Fractional Share. Cash received by a Richfield
State Agency common stockholder in lieu of a fractional share of Marshall &
Ilsley common stock will be treated as received in exchange for such fractional
share, and gain or loss will be recognized, measured by the difference between
the amount of cash received and the portion of the basis of the share of
Richfield State Agency common stock allocable to such fractional interest. Such
gain or loss should be long-term capital gain or loss if the holding period for
such share of Richfield State Agency common stock was more than one year.
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Exchange Solely for Cash. In general, if, pursuant to the merger, a
shareholder exchanges all of the shares of Richfield State Agency common stock
actually owned by such shareholder solely for cash, such shareholder will
generally recognize capital gain or loss equal to the difference between the
amount of cash received and its adjusted tax basis in the shares of Richfield
State Agency common stock surrendered. The gain or loss will be long-term
capital gain or loss if the shareholder's holding period with respect to the
shares of Richfield State Agency common stock surrendered is more than one
year. If, however, any such shareholder constructively owns shares of Richfield
State Agency common stock that are exchanged for shares of Marshall & Ilsley
common stock in the merger or owns shares of Marshall & Ilsley common stock
actually or constructively after the merger, the consequences to such
shareholder may be similar to the consequences described below. In addition,
the amount of consideration, if any, treated as a dividend may not be limited
to the amount of such shareholder's gain.
Exchange for Marshall & Ilsley Common Stock and Cash. If, pursuant to the
merger, a shareholder exchanges all of the shares of Richfield State Agency
common stock actually owned by such shareholder for a combination of Marshall &
Ilsley common stock and cash, the shareholder will generally recognize gain,
but not loss, with respect to Richfield State Agency common stock surrendered
in an amount equal to the lesser of (i) the amount of gain realized ( i.e., the
excess of the sum of the amount of cash and the fair market value of Marshall &
Ilsley common stock received over the adjusted tax basis of its Richfield State
Agency common stock) and (ii) the amount of cash received. For this purpose,
gain or loss must be calculated separately for each identifiable block of
shares surrendered in the exchange, and a loss realized on one block of shares
may not be used to offset a gain realized on another block of shares. Any
recognized gain will generally be long-tem capital gain if the shareholder's
holding period with respect to the stock is more than one year. If, however,
the cash received has the effect of the distribution of a dividend, the amount
of cash received would be taxed as a dividend to the extent of the
shareholder's ratable share of Richfield State Agency's accumulated earnings
and profits.
The aggregate tax basis of Marshall & Ilsley common stock received by a
shareholder that exchanges its shares of Richfield State Agency common stock
for a combination of Marshall & Ilsley common stock and cash pursuant to the
merger will be the same as the aggregate adjusted tax basis of the shares of
Richfield State Agency common stock surrendered therefor, decreased by the cash
received and increased by the amount which was treated as a dividend and the
amount of any recognized gain (whether capital gain or ordinary income). The
holding period of such Marshall & Ilsley common stock will include the holding
period of the shares of Richfield State Agency common stock surrendered
therefor.
Possible Treatment of Cash as a Dividend. In general, the determination of
whether the gain recognized in the exchange will be treated as capital gain or
has the effect of a distribution of a dividend depends upon whether, and to
what extent, the exchange reduces the shareholder's deemed percentage stock
ownership of Marshall & Ilsley. For purposes of this determination, the
shareholder is treated as if such shareholder first exchanged all of such
shareholder's shares of Richfield State Agency common stock solely for Marshall
& Ilsley common stock and then Marshall & Ilsley immediately redeemed a portion
of such Marshall & Ilsley common stock in exchange for the cash the shareholder
actually received. The gain recognized in the exchange followed by a deemed
redemption will be treated as capital gain if the deemed redemption is (i)
"substantially disproportionate" with respect to the shareholder, or (ii) not
essentially equivalent to a dividend.
If the deemed redemption is treated as a dividend, the shareholder will
recognize ordinary income to the extent of such shareholder's allocable portion
of Richfield State Agency earnings and profits applicable to the dividend.
The deemed redemption, generally, will be "substantially disproportionate"
with respect to a shareholder if the percentage described in (ii) below is less
than 80% of the percentage described in (i) below. Whether the deemed
redemption is "not essentially equivalent to a dividend" with respect to a
shareholder will depend upon the shareholder's particular circumstances. At a
minimum, however, in order for the deemed redemption to be "not essentially
equivalent to a dividend," the deemed redemption must result in a "meaningful
reduction" in the shareholder's deemed actual and constructive percentage stock
ownership of Marshall & Ilsley. In general, that determination requires a
comparison of (i) the percentage of the outstanding stock of Marshall & Ilsley
the
23
shareholder is deemed actually and constructively to own immediately before the
deemed redemption and (ii) the percentage of the outstanding stock of Marshall
& Ilsley the shareholder actually and constructively owns immediately after the
deemed redemption. In applying the foregoing tests, a shareholder is deemed to
own stock owned and, in some cases, constructively owned, by certain family
members, by certain estates and trusts of which the shareholder is a
beneficiary, and by certain affiliated entities. As these rules are complex,
each shareholder that may be subject to these rules should consult such
shareholder's tax advisor. The Service has ruled that a relatively minor
reduction in the percentage stock ownership of a minority shareholder in a
publicly held corporation whose relative stock interest is minimal and who
exercises no control with respect to corporate affairs is a "meaningful
reduction."
The foregoing discussion is intended only as a summary of the material
federal income tax consequences of the merger. The foregoing discussion does
not address the tax consequences that may be relevant to particular taxpayers
in light of their personal circumstances or to taxpayers subject to special
treatment under the Internal Revenue Code.
No information is provided in this document with respect to the tax
consequences, if any, of the merger under applicable state, local, foreign and
other tax laws. The foregoing discussion is based upon the provisions of the
Internal Revenue Code, applicable Treasury regulations thereunder, Internal
Revenue Service rulings, and judicial decisions as in effect as of the date of
this document. We cannot assure you that future legislative, administrative or
judicial changes or interpretations will not affect the accuracy of the
statements or conclusions set forth in this document. Any such change could
apply retroactively and could affect the accuracy of such discussion.
You are urged to consult your own tax advisor as to the specific tax
consequences to you of the merger, including the application of federal, state,
local, foreign and other tax laws.
Regulatory Approvals
The merger is subject to prior approval by the Federal Reserve Board under
Section 3 of the Bank Holding Company Act of 1956, or BHCA. The BHCA requires
the Federal Reserve Board, when considering a transaction such as this merger,
to take into consideration the financial and managerial resources, including
the competence, experience and integrity of the officers, directors and
principal shareholders, and future prospects of the institutions and the
convenience and needs of the communities to be served. In addition, under the
Community Reinvestment Act of 1977, as amended, the Federal Reserve Board must
take into account the record of performance of the acquiring institution in
meeting the credit needs of the entire community, including low-and
moderate-income neighborhoods, served by the institution.
The BHCA also prohibits the Federal Reserve Board from approving a merger if
it would result in a monopoly or be in furtherance of any combination or
conspiracy to monopolize or attempt to monopolize the business of banking in
any part of the United States, or if its effect in any section of the country
would be substantially to lessen competition or to tend to create a monopoly,
or if it would in any other manner result in a restraint of trade, unless the
Federal Reserve Board finds that the anticompetitive effects of the merger are
clearly outweighed in the public interest by the probable effect of the
transaction in meeting the convenience and needs of the communities to be
served.
Pursuant to the BHCA, the merger may not be consummated until 30 days after
Federal Reserve Board approval, during which time the United States Department
of Justice may challenge the merger on antitrust grounds. The commencement of
an antitrust action would stay the effectiveness of the Federal Reserve Board's
approval unless a court specifically ordered otherwise. With the approval of
the Federal Reserve Board and the concurrence of the Department of Justice, the
waiting period may be reduced to not less than 15 days. Marshall & Ilsley and
Richfield State Agency believe that the merger does not raise substantial
antitrust or other significant regulatory concerns and that they will be able
to obtain all requisite regulatory approvals on a timely basis
24
without the imposition of any condition that would have a material adverse
effect on Marshall & Ilsley and Richfield State Agency.
Other Requisite Approvals and Consents. Approvals or notices are also
required from or to the Commissioner of the Minnesota Department of Commerce,
the New York Stock Exchange and other self-regulatory organizations and may be
required from or to certain other regulatory agencies.
Status of Regulatory Approvals. Marshall & Ilsley filed an application with
the Federal Reserve Board on December 14, 2001 and the Minnesota Department of
Commerce on December 14, 2001 for approval of the merger.
The merger cannot proceed in the absence of the requisite regulatory
approvals. We do not know if or when all of these regulatory approvals will be
obtained. Also, these approvals may contain a condition, restriction or
requirement that causes these approvals to fail to satisfy the conditions for
the merger.
Accounting Treatment
Marshall & Ilsley will account for the merger for accounting and financial
reporting purposes as a "purchase," as that term is used under accounting
principles generally accepted in the United States. Under purchase accounting,
the assets and liabilities of Richfield State Agency as of the effective time
will be recorded at their fair values and added to those of Marshall & Ilsley.
Any excess of the value of Marshall & Ilsley common stock issued for Richfield
State Agency common stock over the fair value of Richfield State Agency's
identifiable net assets will be recorded as goodwill. Financial statements of
Marshall & Ilsley issued after the effective time will reflect these values and
will not be restated retroactively to reflect the historical financial position
or results of operations of Richfield State Agency.
The Financial Accounting Standards Board has issued several statements of
Financial Accounting Standards that eliminate the pooling-of-interests method
of accounting for business combinations and require that goodwill and certain
intangible assets not be amortized. Instead, these assets will be reviewed for
impairment annually with any related losses recognized in earnings when
incurred. These statements are effective for Marshall & Ilsley for business
combinations completed after July 1, 2001 and will be effective for existing
goodwill and intangible assets on December 31, 2001.
Resales of Marshall & Ilsley Common Stock
The shares of Marshall & Ilsley common stock to be issued in the merger will
be freely transferable under the Securities Act of 1933, as amended. However,
this will not be the case for shares issued to any shareholder who may be
deemed to be an "affiliate" of Richfield State Agency for purposes of Rule 145
under the Securities Act as of the date of the special meeting. "Affiliates"
generally include directors, certain executive officers, and beneficial owners
of 10 percent or more of any class of capital stock. These affiliates may not
sell their shares of Marshall & Ilsley common stock acquired in the merger
except pursuant to an effective registration statement under the securities
laws or other applicable securities law exemptions from the registration
requirements of the securities laws.
This proxy statement/prospectus does not cover resales of Marshall & Ilsley
common stock received by any person who may be deemed to be an affiliate of
Richfield State Agency. Richfield State Agency has agreed in the merger
agreement to use its reasonable efforts to cause each person who may be deemed
to be an affiliate of Richfield State Agency to execute and deliver to Marshall
& Ilsley an affiliate agreement. As provided for in these agreements, Richfield
State Agency's affiliates agree not to offer to sell, transfer or otherwise
dispose of any of the shares of Marshall & Ilsley common stock distributed to
them pursuant to the merger except in compliance with Rule 145, or in a
transaction that is otherwise exempt from the registration requirements of, or
in an offering which is registered under, the Securities Act. Marshall & Ilsley
may place restrictive legends on
25
certificates representing Marshall & Ilsley common stock issued to all persons
who are deemed to be affiliates of Richfield State Agency under Rule 145.
Dissenters' Rights
Shareholders of Richfield State Agency are entitled to dissenters' rights in
connection with the merger. The procedures for preserving and exercising
dissenters' rights are set forth in the provisions of Sections 302A.471 and
302A.473 of the Minnesota Business Corporation Act. The following is a
description of those provisions. It is not complete and is qualified by
reference to the actual provisions, copies of which are included in Appendix C
to this document. Appendix C is incorporated by reference into this document.
Notice of Dissenters' Rights. Richfield State Agency is required to notify
its shareholders of their dissenters' rights and to provide them with a copy of
Sections 302A.471 and 302A.473 of the Minnesota Business Corporation Act. This
document, including the notice of special meeting of Richfield State Agency
shareholders, constitutes the required notice to shareholders of Richfield
State Agency. A copy of Sections 302A.471 and 302A.473 of the Minnesota
Business Corporation Act is included in Appendix C to this document.
Preserving Dissenters' Rights. To preserve your dissenters' rights, you
must do each of the following:
. deliver to Richfield State Agency, before the vote is taken at the special
meeting of shareholders, written notice of your intent to demand the fair
value of your shares if the merger is completed; and
. not vote your shares of Richfield State Agency common stock in favor of
the merger agreement and the merger.
If you sign and return your proxy without voting instructions, and do not
revoke the proxy, the proxy will be voted for the merger agreement and the
merger and you will have waived your dissenters' rights.
Beneficial Owners. Beneficial owners of shares who desire to exercise
statutory dissenter's rights must obtain and submit to Richfield State Agency
the registered shareholder's written consent at or before the time the notice
of intent to demand fair value is due. A shareholder may not assent dissenter's
rights with respect to less than all of the shares registered in the
shareholder's name, unless the shareholder dissents with respect to all shares
beneficially owned by another person and discloses the name and address of such
other person.
Notice of Merger Approval. If the merger agreement and the merger are
approved by Richfield State Agency's shareholders, Richfield State Agency must
deliver a written dissenters' notice to all shareholders who preserved their
dissenters' rights. The notice must do all of the following:
. state where and by what date the payment demand must be sent and where and
by what date certificates for certificated shares must be deposited;
. inform holders of uncertificated shares to what extent transfer of the
shares will be restricted after the payment demand is received;
. supply a form for demanding payment and for certifying the date on which
the shareholder, or the beneficial owners on whose behalf the shareholder
dissents, acquired the shares or an interest in the shares; and
. be accompanied by a copy of Sections 302A.471 and 302A.473 of the
Minnesota Business Corporation Act and a brief description of the
procedures to be followed under these Sections.
Duty to Demand Payment. A shareholder who is sent a dissenters' notice must
demand payment and deposit the shareholder's certificates or comply with any
restrictions on transfer of uncertificated shares within 30 days after the
dissenters' notice is given. Under Minnesota law, notice by mail is given when
deposited in the United States mail. A shareholder who so demands payment and
so deposits the shareholder's certificates or so
26
complies with any restrictions on transfer of uncertificated shares retains all
other rights of a shareholder until these rights are canceled or modified by
the merger. A shareholder who does not so demand payment or who does not so
deposit the shareholder's certificates or so comply with any restrictions on
transfer of uncertificated shares is only entitled to receive the merger
consideration for the shareholder's shares.
Share Restrictions. Richfield State Agency may restrict the transfer of
uncertificated shares from the date the demand for their payment is received
until the merger is completed or until the restrictions are released because
the merger is not completed.
Payment. Except as to after-acquired shares as discussed below, at the time
the merger is completed, or upon receipt of a payment demand, whichever occurs
later, Richfield State Agency must pay to each dissenter who demanded payment
in the manner required the amount Richfield State Agency estimates to be the
fair value of the dissenter's shares immediately before the effective time of
the merger, plus interest accrued from the fifth day after the date of the
merger. The payment must be accompanied by all of the following:
. Richfield State Agency's balance sheet and income statement as of and for
a fiscal year ended not more than 16 months before the effective time of
the merger, and the latest available interim financial statements, if any;
. a statement of Richfield State Agency's estimate of the fair value of the
shares and a brief description of the method used to reach the estimate;
. a description of the procedure the dissenter must follow to demand
supplemental payment if the dissenter is dissatisfied with Richfield State
Agency's payment offer; and
. a copy of Sections 302A.471 and 302A.473 of the Minnesota Business
Corporation Act and a brief description of the procedure to be followed in
demanding supplemental payment.
Failure of Richfield State Agency to Remit Payment. If Richfield State
Agency does not remit payment within 60 days after the deposit of share
certificates or the imposition of transfer restrictions on uncertificated
shares, Richfield State Agency must return the deposited certificates and
release the transfer restrictions on uncertificated shares. Richfield State
Agency may again give notice under the statute and require deposit or restrict
transfer at a later time.
After Acquired Shares. Richfield State Agency may elect to withhold payment
to a dissenting shareholder if the dissenter, or persons on whose behalf such
dissenter acts, was not the beneficial owner of the shares on the date of the
first announcement to the public of the terms of the merger. The terms of the
merger were first announced to the public on November 19, 2001. If Richfield
State Agency elects to withhold payment and the dissenter has complied with the
terms of the statute, it must forward the materials described above to the
dissenter along with a statement of the reason for withholding the payment and
an offer to pay the dissenter the amount listed in the materials if the
dissenter agrees to accept that amount in full satisfaction.
Procedure if Dissatisfied with Payment or Offer. A dissenter may notify
Richfield State Agency in writing of the dissenter's own estimate of the fair
value of the dissenter's shares and the amount of interest due, and demand
payment of the dissenter's estimate, less any payment made by Richfield State
Agency.
A dissenter waives the dissenter's rights to demand payment, and is entitled
only to the amount remitted or offered, unless the dissenter notifies Richfield
State Agency of the dissenter's estimate and demand in writing within 30 days
after Richfield State Agency mailed payment, or in the case of after-acquired
shares offered payment, for the dissenter's shares.
Court Action. If a dissenter's demand for payment remains unsettled,
Richfield State Agency will commence a proceeding within 60 days after
receiving the payment demand and petition the court to determine the fair value
of the shares and accrued interest. If Richfield State Agency does not commence
the proceeding
27
within the 60 day period, it must pay each dissenter, whose demand remains
unsettled, the amount demanded. Richfield State Agency must make all
dissenters, whether or not residents of Minnesota, whose demands remain
unsettled, parties to the proceeding and must serve them all with a copy of the
petition. The court may appoint one or more appraisers to receive evidence and
recommend decision on the question of fair value. Each dissenter made a party
to the proceeding is entitled to a judgment for the amount, if any, by which
the court finds the fair value of the dissenter's shares, plus interest,
exceeds the amount paid by Richfield State Agency. However, a dissenter is not
liable to Richfield State Agency for the amount, if any, by which the payments
remitted by Richfield State Agency exceed the fair value of the dissenter's
shares determined by the court, plus interest.
Court Costs and Counsel Fees. The court will determine all costs of the
appraisal proceeding, including the reasonable compensation and expenses of
appraisers appointed by the court. The court will assess the costs against
Richfield State Agency, except that the court may assess costs against all or
some of the dissenters to the extent the court finds the dissenters acted
arbitrarily, vexatiously, or not in good faith in demanding payment. Also, the
court may assess the fees and expenses of counsel and experts for the
respective parties as follows:
. against Richfield State Agency and in favor of any or all dissenters if
the court finds Richfield State Agency did not substantially comply with
the requirements of Section 302A.473 of the Minnesota Business Corporation
Act; or
. against either Richfield State Agency or a dissenter, in favor of the
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
in bringing the proceeding.
The court has the discretion to award fees and expenses to an attorney for
the dissenters out of the amount awarded to the dissenters, if any.
No Other Rights. A shareholder of Richfield State Agency has no rights at
law or equity to set aside the approval of the merger agreement or the
consummation of the merger, except if such approval or consummation is
fraudulent with respect to the shareholder or Richfield State Agency.
The merger and merger agreement will be approved if the holders of a
majority of the shares of Richfield State Agency common stock outstanding on
the record date vote in favor of the merger and merger agreement and plan of
merger. The holders of 44,198 shares of Richfield State Agency common stock,
representing approximately 53 percent of the outstanding shares of Richfield
State Agency common stock on the record date, have agreed to vote their shares
in favor of the merger and merger agreement and plan of merger. See "Terms of
the Merger Agreement--Shareholder Voting Agreement."
28
TERMS OF THE MERGER AGREEMENT
The following is a summary of various provisions of the merger agreement.
When we use the term merger agreement in this document, we are referring,
collectively, to the agreement and plan of merger, a copy of which is included
in this document as Appendix A, and the form of plan of merger, a copy of which
is included in this document as Appendix B. The merger agreement is
incorporated by reference into this document. This summary is qualified in its
entirety by reference to the full text of the merger agreement. You are
encouraged to read the merger agreement carefully and in its entirety.
Representations and Warranties
The merger agreement contains representations and warranties of Richfield
State Agency and Marshall & Ilsley, to each other, as to, among other things:
. the corporate organization and existence of each party and its
subsidiaries;
. the capitalization of each party;
. the ability of each party to enter into the merger agreement and make it
valid and binding;
. no conflict between the merger agreement and:
. the articles of incorporation and bylaws of each party,
. applicable law, or
. other agreements, instruments and obligations;
. required governmental approvals;
. the completeness and accuracy of each party's financial statements and
filings with the SEC and bank regulatory agencies;
. the absence of changes in each party's business since December, 2000 which
would have a material adverse effect on the party making the
representation; and
. the completeness and accuracy of the registration statement, of which this
proxy statement/prospectus is a part.
The merger agreement contains additional representations and warranties of
Richfield State Agency to Marshall & Ilsley as to, among other things:
. the absence of undisclosed legal proceedings and injunctions which would
have a material adverse effect on Richfield State Agency;
. the filing and accuracy of Richfield State Agency's tax returns;
. Richfield State Agency's employee benefit plans and related matters;
. Richfield State Agency's compliance with applicable law;
. Richfield State Agency's title to its property;
. the absence of environmental liabilities which would have a material
adverse effect on Richfield State Agency;
. the absence of material restrictions on Richfield State Agency's business;
. the validity of, and the absence of material defaults under, material
contracts;
. Richfield State Agency's broker's fees;
. the tax treatment of the merger; and
. the shareholder vote required to approve the merger.
29
Conduct of Business Pending the Merger
Richfield State Agency has agreed, unless Marshall & Ilsley's prior consent
is obtained or except as expressly contemplated by the merger agreement, that
it will and it will cause each of its subsidiaries to:
. operate its business in the usual, regular and ordinary course consistent
with past practices;
. use all reasonable efforts to preserve intact its business organization
and assets, maintain its rights and franchises, retain the services of its
officers and key employees and maintain its relationships with customers;
. use all reasonable efforts to maintain and keep its properties in as good
repair and condition as at present, ordinary wear and tear excepted;
. use all reasonable efforts to keep in full force and effect insurance and
bonds comparable in amount and scope of coverage to that now maintained by
it;
. use all reasonable efforts to perform in all material respects all
obligations required to be performed by it under all material contracts,
leases, and documents relating to or affecting its assets, properties, and
business;
. use all reasonable efforts to comply with and perform in all material
respects all obligations and duties imposed upon it by all applicable laws;
. use all reasonable efforts not to take any action or fail to take any
action which individually or in the aggregate can be expected to have a
material adverse effect on it and its subsidiaries, taken as a whole; and
. maintain its status as an S corporation for federal and state income tax
purposes.
Except as expressly contemplated by the merger agreement or as disclosed
prior to the signing of the merger agreement, Richfield State Agency has
further agreed that, without the prior written consent of Marshall & Ilsley, it
and its subsidiaries will not, among other things:
. except as required by applicable law or to maintain qualification under
the Internal Revenue Code, adopt, amend, renew or terminate any employee
benefit plan or any agreement with any of its or its subsidiaries' current
or former directors, officers or employees;
. except for normal increases in the ordinary course of business consistent
with past practice or except as required by applicable law, increase the
salary, bonus, incentive compensation or fringe benefits of any director,
officer or employee or pay any benefit not required by any employee
benefit plan or agreement in effect as of the date of the merger agreement;
. declare or pay any dividends or make any distributions in any amount on
Richfield State Agency common stock, except for tax distributions in the
amount of $5,100,000 with respect to the taxable income of Richfield State
Agency through February 28, 2002, tax distributions with respect to the
taxable income of Richfield State Agency from March 1, 2002 to the
effective time of the merger, a cash dividend or dividends not to exceed
$7,000,000 in the aggregate and dividends by a subsidiary of Richfield
State Agency solely to Richfield State Agency;
. redeem or repurchase shares of its capital stock or limited liability
company interests or any securities convertible into its capital stock or
limited liability company interests;
. merge with or into any other corporation or bank, or effect any
reorganization or recapitalization or statutory share exchange;
. acquire or dispose of assets, other than in the ordinary course of
business consistent with past practice;
. issue any shares of its capital stock or limited liability company
interests or any rights, warrants or options to acquire shares of its
capital stock or limited liability company interests;
30
. amend its articles of incorporation, bylaws, articles of organization or
operating agreement in a manner adverse to Marshall & Ilsley;
. change any of its methods of accounting or reporting of income and
deductions, except as required by law or accounting principles generally
accepted in the United States; or
. change in any material manner any lending, investment, liability
management or other material policies concerning its business or
operations.
Marshall & Ilsley has consented to an additional dividend of $1,306,302 by
Richfield State Agency to its shareholders.
Except as expressly contemplated by the merger agreement or as disclosed
prior to the signing of the merger agreement, Marshall & Ilsley has further
agreed that, without the prior written consent of Richfield State Agency, it
and its subsidiaries will not, among other things:
. amend its articles of incorporation or bylaws in a manner that would
adversely affect the terms of its common stock or its ability to
consummate the merger;
. take any action that would adversely affect or delay its ability to obtain
necessary regulatory approvals;
. take any action that would adversely affect or delay its ability to
perform its covenants under the merger agreement;
. take any action that would adversely affect or delay its ability to
consummate the merger; or
. take any action in violation of Regulation M under the Securities Exchange
Act of 1934.
No Solicitation of Transactions
For purposes of the merger agreement, we agreed that the term "competing
proposal" would mean, with respect to Richfield State Agency, any inquiry,
proposal or offer from any person relating to:
. any direct or indirect acquisition or purchase of a business that
constitutes 15 percent or more of the net revenues, net income or the
assets of Richfield State Agency and its subsidiaries taken as a whole;
. any direct or indirect acquisition or purchase of 15 percent or more of
any class of equity securities of Richfield State Agency or any of its
subsidiaries;
. any tender offer or exchange offer that if consummated would result in any
person beneficially owning 15 percent or more of any class of equity
securities of Richfield State Agency or any of its subsidiaries; or
. any merger, consolidation, business combination, recapitalization,
liquidation, dissolution or similar transaction involving Richfield State
Agency or any of its subsidiaries, other than the transactions
contemplated by the merger agreement.
For purposes of the merger agreement, we agreed that the term "superior
competing transaction" would mean any proposal made by a third party to
acquire, directly or indirectly, more than 50 percent of the combined voting
power of the shares of Richfield State Agency common stock then outstanding or
all or substantially all of the assets of Richfield State Agency and its
subsidiaries, taken as a whole, on terms which the board of directors of
Richfield State Agency determines in its good faith judgment, taking into
consideration the opinion of a financial advisor of nationally recognized
reputation, to be more favorable to its shareholders than the merger and for
which financing, to the extent required, is then committed or, in the good
faith judgment of the board of directors of Richfield State Agency, is
reasonably capable of being obtained by such third party.
Richfield State Agency agreed to immediately cease any existing discussions
or negotiations relating to a competing proposal, not to solicit any competing
proposals and to promptly inform Marshall & Ilsley if any competing proposal is
made.
We have also agreed that the limitations discussed above would not prohibit
Richfield State Agency's board of directors, prior to approval of the merger
and merger agreement and plan of merger by the shareholders of
31
Richfield State Agency, from entering into discussions or negotiations relating
to an unsolicited superior competing transaction. Prior to entering into such
discussions or negotiations, however, Richfield State Agency's board of
directors must have determined in good faith and after consultation with and
taking into consideration the advice of counsel that such action is required to
fulfill its fiduciary duties to Richfield State Agency's shareholders. In
addition, Richfield State Agency must provide prior written notice to Marshall
& Ilsley that it is entering into such discussions or negotiations and receive
a confidentiality agreement from the person proposing the superior competing
transaction. Richfield State Agency has also agreed to keep Marshall & Ilsley
informed of the status and details of such discussions or negotiations.
Employee Benefit Matters
Marshall & Ilsley has agreed that it will give employees of Richfield State
Agency who become employees of Marshall & Ilsley, whom we refer to as
transferred employees, full credit for their prior service with Richfield State
Agency for purposes of eligibility and vesting under retirement plans in which
the transferred employees may be eligible to participate and for all purposes
under any welfare benefit plans, "cafeteria" plans, vacation plans and similar
arrangements maintained by Marshall & Ilsley. However, Marshall & Ilsley will
not give prior service credit in connection with the Marshall & Ilsley retiree
health plan.
Marshall & Ilsley has also agreed to waive all preexisting conditions and
waiting periods with respect to participation and coverage requirements
applicable to transferred employees under any welfare benefit plans maintained
by Marshall & Ilsley in which transferred employees may be eligible to
participate. Marshall & Ilsley is not required to waive limitations or waiting
periods that are currently in effect and that have not been satisfied as of the
effective time of the merger under any welfare plan maintained for the
transferred employees prior to the effective time of the merger.
Transferred employees will be integrated into Marshall & Ilsley's welfare
benefit plans at a time determined on a plan-by-plan basis by Marshall &
Ilsley, but no later than January 1, 2003. Richfield State Agency's respective
plans will remain in effect until each integration date. Richfield State
Agency's 401(k) plan will be frozen as of the effective time of the merger and
all accounts in the plan will be fully vested at that time. Transferred
employees who are eligible to participate in Marshall & Ilsley's qualified
retirement program (taking into account prior service credit) will participate
with respect to compensation paid after the effective time of the merger.
Richfield State Agency employees terminated at or after the effective time
of the merger will be eligible to receive severance benefits under Marshall &
Ilsley severance plan, except for employees who have rights under severance or
certain other agreements with Richfield State Agency that they have not been
waived.
The merger agreement requires:
. Richfield State Agency to use its reasonable efforts to amend agreements
with specified employees who currently have executive salary continuation
agreements and executive deferred compensation agreements with Richfield
State Agency in order to, among other things, shorten the period of the
restrictions governing confidentiality, nonsolicitation and noncompetition
and to modify those restrictions;
. Richfield State Agency to increase each participant's performance unit
account under the executive long-term incentive plan by the amount
required under the plan and to distribute the balances in the plan to the
participants in accordance with the plan's terms;
. Richfield State Agency to enforce the executive deferred compensation
agreements, executive salary continuation agreements and change in
control/severance pay agreements in accordance with their terms and not to
make any payments thereunder until it receives a release of claims
agreements and all other conditions to receipt of payment have been
satisfied; and
. Richfield State Agency to give employees who have survivor income benefit
agreements written notice prior to the effective time of the merger that
such agreements are terminated.
32
Conditions to Completion of the Merger
Marshall & Ilsley's and Richfield State Agency's obligations to complete the
merger are subject to the satisfaction or written waiver, where permissible, of
a number of conditions including, among others, the following:
. the merger agreement must be approved by the holders of a majority of the
outstanding shares of common stock of Richfield State Agency;
. the approval of the Federal Reserve Board must have been obtained without
any materially burdensome condition that would significantly adversely
affect Marshall & Ilsley, all conditions to such approvals must have been
satisfied and any statutory waiting periods required by law must have
expired;
. the approval of the Commissioner of the Minnesota Department of Commerce
must be obtained without any materially burdensome condition that would
significantly adversely affect Marshall & Ilsley, all conditions to such
approvals must have been satisfied and any statutory waiting periods
required by law must have expired;
. the Marshall & Ilsley common stock that is to be issued in the merger must
be approved for listing on the NYSE and the registration statement filed
with the SEC concurrently with this document must be effective;
. the representations and warranties of each party contained in the merger
agreement must be true and correct in all respects;
. each party must have performed or complied with in all material respects
all of its agreements and covenants in the merger agreement;
. all required consents, approvals and authorizations must be obtained by
the parties;
. no challenge to the merger or the right of Marshall & Ilsley to own or
operate the business of Richfield State Agency shall be pending;
. Richfield State Agency must have delivered to Marshall & Ilsley evidence
that the total out-of-pocket expenses incurred by or on behalf of
Richfield State Agency in connection with the merger agreement do not
exceed $500,000;
. each holder of Richfield State Agency common stock must deliver to
Marshall & Ilsley an executed Tax Matters Agreement by which they will
agree to prepare and file all Richfield State Agency income tax returns
for all periods ending prior to the effective time of the merger;
. Richfield State Agency must have entered into a contract or contracts
providing for the sale of its real estate and investment interests as
identified in Annex A to the merger agreement;
. the parties must have received legal opinions relating to the merger and
tax opinions stating that the merger will be treated as a tax-free
reorganization under federal tax laws and no gain or loss will be
recognized by Richfield State Agency shareholders who receive only
Marshall & Ilsley shares in exchange for their Richfield State Agency
shares, except with respect to cash received in lieu of fractional shares;
and
. since the date of the merger agreement, there shall not have been any
change in the financial condition, results of operations or businesses of
either party that would have a material adverse effect on such party and
its subsidiaries, taken as a whole.
We cannot assure you that the required regulatory approvals necessary to
consummate the merger will be obtained, when they will be obtained, or whether
all of the other conditions to the merger will be satisfied or waived by the
party permitted to do so. As discussed below, if the merger is not completed on
or before June 30, 2002, either Marshall & Ilsley or Richfield State Agency may
terminate the merger agreement, unless the failure to effect the merger by that
date is due to the failure of the party seeking to terminate the merger
agreement to comply with its obligations under the merger agreement.
33
Termination of the Merger Agreement
The merger agreement may be terminated at any time whether before or after
approval of the merger agreement by the Richfield State Agency shareholders:
. by mutual consent of the parties by a vote of a majority of each party's
board of directors;
. by either party if there has been a material breach of any representation,
warranty, covenant or agreement contained in the merger agreement, except
that the breaching party may not terminate the merger agreement for this
reason;
. by either party if a final and non-appealable permanent injunction has
been issued preventing the merger;
. by either party if the merger has not been consummated by June 30, 2002
for a reason other than the failure of the party seeking termination to
comply with its obligations under the merger agreement;
. by either party if the Federal Reserve Board or the Commissioner of
Commerce of the State of Minnesota has denied approval of the merger;
. by either party if Richfield State Agency's shareholders do not approve
the merger and plan of merger and merger agreement;
. by Marshall & Ilsley if there is a proposal for a superior competing
transaction and the board of directors of Richfield State Agency withdraws
or modifies in a manner adverse to Marshall & Ilsley its approval or
recommendation of the merger or approves or recommends the superior
competing transaction; or
. by Marshall & Ilsley if record or beneficial holders of more than five
percent of Richfield State Agency's common stock exercise dissenters'
rights.
Waiver and Amendment of the Merger Agreement
At any time before completion of the merger, either of us may waive
compliance by the other party with any provision contained in the merger
agreement. We may also amend the merger agreement by a written agreement at any
time before or after Richfield State Agency shareholders approve the merger
agreement, except that after the Richfield State Agency shareholders have given
their approval, we may not amend the merger agreement in any manner that would
reduce the amount or change the type of consideration into which each share of
Richfield State Agency common stock will be converted in the merger or which by
law would require the further approval of the shareholders of Richfield State
Agency, in each case without the further approval of those shareholders.
Shareholder Voting Agreement
In order to induce Marshall & Ilsley to enter into the merger agreement,
shareholders who own in the aggregate approximately 53 percent of the
outstanding Richfield State Agency common stock have each agreed that at any
meeting of the shareholders of Richfield State Agency or in connection with any
written consent of the shareholders of Richfield State Agency, such shareholder
will vote all shares of Richfield State Agency common stock held of record or
beneficially owned by such shareholder:
. in favor of the merger and the merger agreement; and
. against any proposal relating to a competing proposal and against any
action or agreement that would impede or frustrate the shareholder voting
agreement or result in a breach in any respect of any obligation or
agreement of Richfield State Agency under the merger agreement or which
would result in any of the conditions to the parties' obligations to
effect the merger described in the merger agreement not being fulfilled.
34
Each shareholder has agreed that, except as provided by the merger agreement
and the shareholder voting agreement, such shareholder will not:
. offer to transfer, transfer or consent to transfer any or all shares of
Richfield State Agency common stock held of record or beneficially owned
by such shareholder;
. enter into any contract, option or other agreement or understanding with
respect to any transfer of any or all shares of Richfield State Agency
common stock held of record or beneficially owned by such shareholder;
. grant any proxy, power-of-attorney or other authorization or consent with
respect to any or all shares of Richfield State Agency common stock held
of record or beneficially owned by such shareholder; or
. deposit into a voting trust or enter into a voting agreement or
arrangement with respect to any or all shares of Richfield State Agency
common stock held of record or beneficially owned by such shareholder.
Each shareholder has agreed that such shareholder shall not encourage,
solicit, initiate or participate in any way in any discussions or negotiations
with, or provide information or otherwise take any action to assist or
facilitate, any person concerning any competing proposal. Each shareholder has
agreed to cease any such existing activities and to immediately communicate to
Marshall & Ilsley the terms of any competing proposal.
Each shareholder has waived any rights of appraisal or rights to dissent
from the merger.
The shareholder voting agreement with respect to each shareholder shall
terminate upon the earliest of:
. the effective time of the merger; or
. the termination of the merger agreement.
35
MARSHALL & ILSLEY CORPORATION
Description of Business
Marshall & Ilsley, incorporated in Wisconsin in 1959, is a registered bank
holding company under the Bank Holding Company Act of 1956. As of September 30,
2001, Marshall & Ilsley had consolidated total assets of approximately $27.3
billion and consolidated total deposits of approximately $16.7 billion, making
it the largest bank holding company headquartered in Wisconsin.
Marshall & Ilsley's principal assets are the stock of its bank and nonbank
subsidiaries, which include Metavante Corporation, three commercial banks, one
federal savings bank and a number of companies engaged in businesses that the
Federal Reserve Board has determined to be closely-related or incidental to the
business of banking. Marshall & Ilsley provides its subsidiaries with financial
and managerial assistance in such areas as budgeting, tax planning, compliance
assistance, asset and liability management, investment administration and
portfolio planning, business development, advertising and human resources
management.
Marshall & Ilsley's bank and savings association subsidiaries provide a full
range of banking services to individuals, businesses and governments throughout
Wisconsin, and in the Phoenix and Tucson, Arizona metropolitan areas, Las
Vegas, Nevada, Naples, Florida and Minneapolis, Minnesota. These subsidiaries
offer retail, institutional, international, business and correspondent banking,
investment and trust services through the operation of over 215 banking offices
in Wisconsin, 25 offices in Arizona, one office in Florida, one office in
Nevada and two offices in Minnesota. The Marshall & Ilsley bank and saving
association subsidiaries hold a significant portion of their mortgage and
investment portfolios indirectly through their ownership interests in direct
and indirect subsidiaries. M&I Marshall & Ilsley Bank is Marshall & Ilsley's
largest bank subsidiary, with consolidated assets as of September 30, 2001 of
approximately $18.0 billion.
Metavante is a major supplier of financial and data processing services and
software to banking, financial and related organizations. Metavante provides
integrated products and services to financial services providers that enable
them to initiate and process a broad range of financial transactions
electronically, including through the Internet. Metavante's integrated
financial transaction processing, outsourcing, software and consulting products
and services provide virtually all of the technology that a financial services
provider needs to run its operations. As of December 31, 2001, Metavante had
over 3,500 clients in the United States and abroad, including large banks,
mid-tier and community banks, Internet banks and non-traditional financial
services providers. In 2001, Metavante's products and services were used to
originate and/or process nearly 7.8 billion transactions for consumer and
business customer bank accounts.
Marshall & Ilsley's other nonbank subsidiaries operate a variety of
bank-related businesses, including those providing investment management
services, insurance services, trust services, equipment lease financing,
commercial and residential mortgage banking, home equity financing, venture
capital, brokerage services and financial advisory services. M&I Investment
Management Corp. offers a full range of asset management services to Marshall &
Ilsley's trust company subsidiaries, the Marshall Funds and other individual,
business and institutional customers. Marshall & Ilsley's trust company
subsidiaries provide trust and employee benefit plan services to customers
throughout the United States with offices in Wisconsin, Arizona, Florida,
Nevada, North Carolina and Illinois. M&I First National Leasing Corp. leases a
variety of equipment and machinery to large and small businesses. M&I Dealer
Finance, Inc. provides retail vehicle lease financing. M&I Mortgage Corp.
originates, purchases, sells and services residential mortgages. M&I Mortgage
Reinsurance Corporation acts as a reinsurer of private mortgage insurance
written in connection with residential mortgage loans originated in the
Marshall & Ilsley system. The Richter-Schroeder Company originates and services
long-term commercial real estate loans for institutional investors. M&I Capital
Markets Group L.L.C. and M&I Ventures L.L.C. provide venture capital, financial
advisory and strategic planning services to customers, including assistance in
connection with the private placement of securities, raising funds for
expansion, leveraged buy-outs, divestitures, mergers and acquisitions and small
business investment company transactions. M&I Brokerage Services, Inc., a
broker-dealer registered with the National Association of Securities Dealers
and the Securities and Exchange
36
Commission, provides brokerage and other investment related services to a
variety of retail and commercial customers. M&I Support Services Corp. operates
an extensive multi-media customer service center that provides banking
customers with 24-hour phone access to personal bankers and other customer
services.
As a registered bank holding company, Marshall & Ilsley is subject to
regulation and examination by various state and federal governmental regulatory
agencies.
Recent Developments
On December 4, 2001, Marshall & Ilsley announced that it had signed an
agreement to acquire privately-held Century Bancshares, Inc. of Eden Prairie,
Minnesota for $66 million payable in a combination of Marshall & Ilsley stock
and cash. Century Bancshares is the holding company for Century Bank, National
Association. Century Bank has approximately $325 million in assets and has
three branches in the Minneapolis, Minnesota area. The transaction is expected
to close in the first or second quarter of 2002, subject to regulatory approval
and other customary conditions.
Additional Information
Information concerning executive compensation, the principal holders of
voting securities, certain relationships and related transactions, and other
related matters concerning Marshall & Ilsley is included or incorporated by
reference in its Annual Report on Form 10-K for the year ended December 31,
2000, as amended. Marshall & Ilsley's Annual Report on Form 10-K, as amended,
is incorporated by reference into this document. Richfield State Agency
shareholders who would like a copy of this annual report or any document
incorporated by reference into the report may contact Marshall & Ilsley at the
address or telephone number provided under "Where You Can Find More
Information" on page 55.
RICHFIELD STATE AGENCY, INC.
Description of Business
Richfield State Agency is a holding company whose primary operations are the
ownership of its wholly owned subsidiary bank, Richfield Bank & Trust Co. The
subsidiary bank provides retail and commercial loan and deposit services, as
well as fiduciary and agency trust services, principally to customers within
the Twin Cities Metro area. In addition, the subsidiary bank provides brokerage
services to its customers through its wholly-owned subsidiary, R Community
Investments, Inc.
Richfield State Agency is or has been the owner and lessor of various
commercial and multi-family housing properties as follows (all of which have
been or will be sold as described in "The Merger-- Interests of Certain
Persons").
. Richfield State Agency owns Eastwood Village, L.L.C., which owns and
operates a low-income senior housing development in Oakdale, Minnesota
referred to as Eastwood Village I & II. Eastwood Village, L.L.C. owned a
33.33% co-tenancy interest in a 12 unit market-rate apartment complex in
Oakdale, Minnesota referred to as Eastwood Village III.
. Richfield State Agency owned a 28% ownership interest in THE OAKS,
L.L.C., which owns a 138 unit upscale apartment complex located in
Richfield, Minnesota referred to as The Oaks.
. Richfield State Agency owned a roughly 57% ownership interest in SUN
LAKE II, L.L.C., which owns a 26.75% co-tenancy interest in an 82 unit
upscale apartment complex in Chaska, Minnesota referred to as Sun Lake
Woods.
. Richfield State Agency owns an assisted living facility in Richfield,
Minnesota referred to as The Pines.
Richfield Bank & Trust Co. has its main banking office in the business
district of Richfield, Minneapolis and serves customers throughout the
Minneapolis/St. Paul metropolitan area, with branch offices in Bloomington,
Burnsville, Chanhassen, Edina, Minneapolis and St. Paul, Minnesota.
37
COMPARATIVE RIGHTS OF SHAREHOLDERS
The rights of Richfield State Agency shareholders are currently governed by
the Minnesota Business Corporation Act, or the MBCA, Richfield State Agency's
articles of incorporation and Richfield State Agency's amended and restated
bylaws. At the time of the merger, some or all of the Richfield State Agency
common shareholders will become Marshall & Ilsley common shareholders and their
rights will be determined by the Wisconsin Business Corporation Law, or the
WBCL, Marshall & Ilsley's restated articles of incorporation and Marshall &
Ilsley's bylaws. The following is a summary of the material differences between
the rights of Richfield State Agency common shareholders and the rights of
Marshall & Ilsley common shareholders. It is not a complete statement of the
provisions affecting and the differences between the rights of Richfield State
Agency common shareholders and those of Marshall & Ilsley common shareholders.
The summary is qualified in its entirety by reference to the MBCA, the WBCL,
Richfield State Agency's articles of incorporation and amended and restated
bylaws, and Marshall & Ilsley's restated articles of incorporation and bylaws.
Authorized Capital Stock
Richfield State Agency Marshall & Ilsley
Authorized: Authorized:
92,000 shares of common stock. 320,000,000 shares of common stock.
5,000,000 shares of preferred stock, of which
2,000,000 shares are designated as Series A
Convertible Preferred Stock.
Outstanding as of November 1, 2001: Outstanding as of September 30, 2001:
84,154 shares of common stock. 106,506,115 shares of common stock.
336,370 shares of Series A Convertible
Preferred Stock.
Size of Board of Directors
Richfield State Agency Marshall & Ilsley
Richfield State Agency's articles of Marshall & Ilsley's articles of incorporation
incorporation provide that the number of directors provide that the number of directors constituting the
shall not be less than three or more than seven. The board of directors shall be fixed by a majority vote of
MBCA provides that the board shall consist of one or the board of directors, but shall not be less than three.
more directors and that the number of directors shall By resolution of Marshall & Ilsley's board of
be fixed by or in the manner provided by the articles directors, there are currently 21 members on Marshall
or bylaws. There are currently four directors serving. & Ilsley's board.
Cumulative Voting
Cumulative voting entitles each shareholder to cast an aggregate number of
votes equal to the number of voting shares held, multiplied by the number of
directors to be elected. Each shareholder may cast all of his or her votes for
one nominee or distribute them among two or more nominees. The candidates, up
to the number of directors to be elected, receiving the highest number of votes
are elected.
38
Richfield State Agency Marshall & Ilsley
Under the MBCA, each shareholder entitled to Under the WBCL, shareholders do not have the
vote for directors has the right to cumulate those right to cumulate their votes for directors, unless the
votes unless the articles provide that there shall be no articles of incorporation provide for cumulative
cumulative voting. The articles of incorporation of voting. Marshall & Ilsley's articles of incorporation
Richfield State Agency do not exclude cumulative do not provide for cumulative voting.
voting; therefore, its shareholders have cumulative
voting rights.
Class of Directors
Richfield State Agency Marshall & Ilsley
The MBCA provides that directors of a The WBCL provides that directors of a
Minnesota corporation may be divided into classes as Wisconsin corporation may be divided into two or
provided in the articles or bylaws. Neither the articles three classes if provided by the articles of
nor the bylaws of Richfield State Agency divide its incorporation. Marshall & Ilsley's board of directors
board into classes. is divided into three classes and each director serves
for a three-year term or until his or her successor is
elected and qualified.
Qualifications of Directors
Richfield State Agency Marshall & Ilsley
The MBCA provides that directors must be Under the WBCL, a director is not required to
natural persons, but the method of election and any be a resident of the state of Wisconsin or a
additional qualifications for directors may be imposed shareholder of the corporation. Marshall & Ilsley's
by or in the manner provided in the articles or bylaws. bylaws provide that Marshall & Ilsley directors do
Richfield State Agency's bylaws provide that not need to be residents of Wisconsin or Marshall &
Richfield State Agency directors do not need to be Ilsley shareholders, but that no person is eligible for
Richfield State Agency shareholders. election to the board after the age of 72, unless this
limitation is waived by the board.
Filling Vacancies on the Board
Richfield State Agency Marshall & Ilsley
The MBCA provides that, unless different rules The WBCL provides that unless the articles of
for filling vacancies are provided for in the articles or incorporation provide otherwise, if a vacancy occurs
bylaws, (i) vacancies on the board resulting from on the board of directors it may filled by any of the
death, resignation, removal, or disqualification of a following, (i) the shareholders; (ii) the board of
director may be filled by the affirmative vote of the directors; or (iii) if the directors remaining in office
majority of the remaining directors, even though less constitute fewer than a quorum of the board, the
than a quorum; and (ii) vacancies on the board directors, by an affirmative vote of the majority of all
resulting from newly created directorships may be directors remaining in office. If the vacant office was
filled by the affirmative vote of a majority of the held by a director elected by a voting group of
directors serving at the time of the increase. Directors shareholders, only the holders of shares of that voting
elected under this provision of the MBCA hold office group are entitled to vote to fill the vacancy if it is
until a qualified successor is elected by the filled by shareholders. A vacancy that will occur at a
shareholders at the next regular or special meeting of specific later date may be filled before the vacancy
the shareholders. Richfield State Agency's bylaws occurs, but the new director will not take office until
reflect these statutory provisions. that vacancy occurs.
39
Removal of Directors
Richfield State Agency Marshall & Ilsley
The MBCA provides that, unless otherwise Under Wisconsin corporate law, shareholders of
provided in the articles, the bylaws or a shareholder a corporation may remove a director with or without
control agreement, a director may be removed at any cause, unless the corporation's articles of
time, with or without cause, if (i) the director was incorporation or bylaws provide that a director may
named by the board to fill a vacancy; (ii) the only be removed for cause. Marshall & Ilsley's
shareholders have not elected directors in the interval articles of incorporation provide that a director may
between the time of the appointment to fill a vacancy only be removed for cause and by an affirmative vote
and the time of the removal; and (iii) a majority of the of two-thirds of the outstanding shares entitled to
remaining directors present affirmatively vote to vote at a meeting of shareholders called for such
remove the director. Any one or all of the directors purpose. "Cause" means solely malfeasance arising
may be removed at any time by the affirmative vote of from the performance of a director's duties which has
the holders of a majority of the voting power of all a material adverse effect on Marshall & Ilsley's
shares entitled to vote at an election of directors. business. Directors, if any, elected by the holders of
However, if cumulative voting is authorized, which is Marshall & Ilsley preferred stock may only be
the case with Richfield State Agency, unless the entire removed in accordance with the terms of the
board is removed simultaneously, a director may not preferred stock.
be removed if the number of votes sufficient to elect
that director under cumulative voting is voted against
the director's removal. Richfield State Agency's
articles of incorporation and bylaws do not contain
provisions relating to the removal of directors.
Nomination of Directors for Election
Richfield State Agency Marshall & Ilsley
No procedure is set forth under Richfield State Marshall & Ilsley's bylaws provide that if a
Agency's articles of incorporation or bylaws for the shareholder wishes to nominate a person for election
nomination of directors for election. as a director, then the shareholder must give timely
notice of the nomination to Marshall & Ilsley. In
order to be timely, a notice must be received by
Marshall & Ilsley not less than 90 days before the
anniversary date of the annual meeting of
shareholders in the immediately preceding year.
Notices given by shareholders must be in
writing and contain information regarding the
nominee to the board of directors, the shareholder
bringing the nomination and other information
specified in Marshall & Ilsley's bylaws.
Anti-Takeover Provisions
Richfield State Agency Marshall & Ilsley
The MBCA protects certain corporations Wisconsin corporate law protects domestic
incorporated in Minnesota from hostile takeovers and corporations from hostile takeovers and abusive
abusive takeover tactics by preventing a person from takeover tactics by preventing a person from engaging
engaging in specific transactions with the corporation in specified transactions with the corporation or from
or from taking specific actions after that person has taking specific actions after that person has acquired a
acquired a significant portion of the corporation's significant portion of the corporation's shares. These
shares. These protections fall into three categories: protections fall into three categories:
40
. the business combination statute, which regulates . the business combination statute, which regulates
specific types of transactions between issuing specified types of transactions with interested
public corporations and interested shareholders; stockholders;
. fair price statute, which regulates the price at . the fair price statute, which regulates the price at
which large shareholders may acquire additional which large shareholders may acquire the
shares of a publicly held corporation; and remaining shares of the corporation; and
. control share statute, which regulates the voting . the control share statute, which regulates the
power of shares held by specified large voting power of shares held by specified large
shareholders of an issuing public corporation. shareholders.
Richfield State Agency is not a "publicly held The following section summarizes each of these
corporation" because its shares are not registered statutes.
pursuant to or subject to the Securities Exchange Act
of 1934, and does not qualify as an "issuing public Business combination statute. Wisconsin
corporation" under the MBCA because it is not a corporate law prohibits business combinations
"publicly held corporation" and it has fewer than 50 between some Wisconsin corporations, including
shareholders. The protections afforded by the Marshall & Ilsley, and a person who is an interested
MBCA's anti-takeover provisions are therefore not stockholder. This prohibition lasts for three years
applicable to Richfield State Agency for purposes of after the date on which that person became an
this transaction. interested stockholder. Business combinations
include mergers, share exchanges, sales of assets,
liquidations, dissolutions, and specified types of
stock transactions and stock issuances. An interested
stockholder is a person who owns at least 10 percent
of a corporation's outstanding shares or who is an
affiliate or associate of the corporation and owned at
least 10 percent of the corporation's outstanding
shares at any time within the prior three-year period.
The prohibition on business combinations does not
apply if the corporation's board of directors approves
either the business combination or the share
acquisition that caused the person to be designated as
an interested stockholder. The board of directors
approval must be given before the date on which a
person becomes an interested stockholder. The
prohibition on business combinations continues after
the initial three-year period unless:
. the corporation's board of directors approved the
share acquisition that caused the interested
stockholder to be designated as an interested
stockholder;
. a majority of the corporation's shareholders,
excluding the interested stockholder, approve the
business combination;
. the interested stockholder pays a fair price, as
defined in the statute, for the shares it acquires in
the business combination; or
. the business combination is specifically excluded
from the prohibition on business combinations.
41
The business combination statutes do not apply
to the merger, because the merger is not a business
combination with an interested stockholder within the
meaning of the business combination statutes.
Fair price statute. Wisconsin corporate law
requires that business combinations between some
Wisconsin corporations, including Marshall & Ilsley,
and a person designated as a significant shareholder
must be approved by 80 percent of all of the
corporation's shareholders and two-thirds of all of
the corporation's shareholders other than the
significant shareholder. This requirement does not
apply if the corporation's shareholders receive a fair
price, as defined in the statute, for their shares from
the significant shareholder in the business
combination. A significant shareholder is a person
who owns 10 percent or more of the corporation's
outstanding shares or who is an affiliate of the
corporation and owned at least 10 percent of the
corporation's outstanding shares at any time within
the prior two-year period.
The fair price statutes do not apply to the
merger, because the merger is not a business
combination with a significant shareholder within the
meaning of the fair price statutes.
Control share statute. Under Wisconsin
corporate law, if a person holds more than 20 percent
of the outstanding shares of some Wisconsin
corporations, including Marshall & Ilsley, then the
voting power of the shares held by that person in
excess of 20 percent of the corporation's outstanding
shares is reduced to 10 percent of the voting power
the excess shares would otherwise have had. The full
voting power of the excess shares may be restored by
a vote of a majority of the corporation's shares. The
person seeking restoration of full voting power may
vote on this resolution.
In addition to any other approvals required by
law and by the articles of incorporation and bylaws,
Marshall & Ilsley's articles of incorporation require
that business combinations between Marshall &
Ilsley and an interested stockholder be approved by:
. the holders of 80 percent of Marshall & Ilsley's
shares; or
. the holders of two-thirds of Marshall & Ilsley's
shares, other than the interested stockholder.
42
This requirement does not apply if a business
combination with an interested stockholder is
approved by a majority of disinterested directors or
the shareholders receive a fair price, as defined in the
articles of incorporation, for their shares and certain
other conditions are satisfied.
Business combinations under Marshall & Ilsley's
articles of incorporation generally include mergers,
consolidations, sales of $25,000,000 or more in assets,
the issuance or transfer of $25,000,000 or more in
securities, liquidations, dissolutions, and
reclassifications, recapitalizations and other
transactions that have the effect of increasing the
proportionate ownership interest of an interested
stockholder. An interested stockholder is a person who
owns at least 10 percent of Marshall & Ilsley's shares
or who is an affiliate or associate of Marshall & Ilsley
and owned at least 10 percent of Marshall & Ilsley's
shares at any time within the prior two-year period. A
disinterested director means a director who is not
affiliated with the interested stockholder and who was
either a director before the person became an
interested stockholder or was elected or recommended
for election by a majority of disinterested directors.
This transaction does not involve a business
combination with an interested shareholder as those
terms are defined above. As a result, the requirements
set forth in the anti-takeover provisions described in
this section do not apply to this transaction.
Shareholder Rights Plan
Richfield State Agency Marshall & Ilsley
Richfield State Agency does not have a Marshall & Ilsley does not have a shareholder
shareholder rights plan. rights plan.
Shareholders' Meeting
Richfield State Agency Marshall & Ilsley
Annual and Special Meetings. Under the Annual and Special Meetings. Under
MBCA, regular meetings of shareholders may be Wisconsin corporate law, a corporation must hold an
held on an annual or other less frequent periodic annual meeting at a time specified in its bylaws and
basis, but need not be held unless required by the may hold special meetings. Marshall & Ilsley's
articles of incorporation or bylaws. If a regular bylaws provide for an annual meeting to be held on
meeting of shareholders is not held during a 15- the fourth Tuesday of April of each year, or on a
month period, a shareholder or shareholders holding different date determined by the board of directors.
3% or more of the voting power of all shares entitled
to vote may demand a regular meeting of Place of Meeting. Marshall & Ilsley's bylaws
shareholders by written notice. Richfield State provide that the annual meeting of shareholders shall
Agency's bylaws provide for an annual meeting to be be held either at Marshall & Ilsley's principal office
held on a date in February of each year, as specified in Milwaukee, Wisconsin, or at another place
by the board of directors. selected by Marshall & Ilsley's board of directors.
43
Place of Meeting. Richfield State Agency's Attendance and Voting. Shareholders entitled
bylaws provide that the annual meeting of to vote at a meeting may attend and vote at the
shareholders shall be held at the registered office of meeting in person or by proxy. A shareholder may
the corporation at 6625 Lyndale Avenue South, appoint a proxy in writing or by transmitting or
Richfield, Minnesota, or at any other place specified authorizing the transmission of an electronic
by the board of directors in the meeting notice. transmission of the appointment including over the
internet or by telephone, fax or telegram. Each share
Attendance and Voting. Shareholders entitled to of Marshall & Ilsley common stock is entitled to one
vote at a meeting may attend and vote at the meeting vote.
in person or by proxy. Each share of Richfield State
Agency common stock is entitled to one vote. Quorum. Under Marshall & Ilsley's bylaws,
the presence in person or by proxy of the holders of
Quorum. Under Richfield State Agency's record of a majority of the shares entitled to be cast
bylaws, the holders of a majority of the outstanding on a matter by a voting group constitutes a quorum of
stock entitled to vote at the meeting, present in that voting group for action on that matter.
person or represented by proxy, constitute a quorum.
Shareholder Action Without a Meeting
Richfield State Agency Marshall & Ilsley
In accordance with Section 302A.441 of the Under Wisconsin corporate law, shareholders
MBCA, Richfield State Agency's bylaws provide may take action required or permitted to be taken at a
that any action required or permitted to be taken at a meeting without a meeting if a written consent is
shareholders' meeting may be taken without a signed by all of the corporation's shareholders
meeting by written action signed by all of the entitled to vote on the action, unless the corporation's
shareholders entitled to vote on that action. articles of incorporation provide otherwise. Marshall
& Ilsley's articles of incorporation do not provide
otherwise.
Calling Special Meetings of Shareholders
Richfield State Agency Marshall & Ilsley
Under the MBCA, special meetings of the Under Wisconsin corporate law, a special
shareholders may be called for any purpose at any meeting of shareholders may be called by the board
time by (i) the chief executive officer; (ii) the chief of directors, by any person authorized by the articles
financial officer; (iii) two or more directors; (iv) a of incorporation or bylaws to call a special meeting
person authorized in the articles or bylaws to do so; or upon the written demand of the holders of 10
or (v) holders of 10% or more of the voting power of percent of the votes entitled to be cast on any issue
all shares entitled to vote. However, a special proposed to be considered at the special meeting.
meeting for the purpose of considering any action to Marshall & Ilsley's bylaws provide that a special
effect a business combination must be called by 25% meeting of the shareholders may be called only by
or more of the voting power of all shares entitled to the chief executive officer or the president pursuant
vote. The bylaws of Richfield State Agency provide to a resolution approved by at least three-quarters of
that a special meeting may be called by the president, the board, except as otherwise provided by the
or by the secretary at the written request of two or WBCL.
more directors or of shareholders owning a majority
of the capital stock, issued and outstanding, entitled
to vote. However, the MBCA does not permit a
corporation to circumscribe in its bylaws the right of
shareholders to call special meetings.
44
Submission of Shareholder Proposals
Richfield State Agency Marshall & Ilsley
The Richfield State Agency bylaws do not set Marshall & Ilsley's bylaws provide that if a
forth a procedure to be followed by a shareholder shareholder wishes to bring business before a
who wishes to bring business before the annual meeting, then the shareholder must give timely notice
meeting. of the business to Marshall & Ilsley. In order to be
timely, a notice must:
. be received by Marshall & Ilsley not less than 90
days before the anniversary date of the annual
meeting of shareholders in the immediately
preceding year; and
. contain specified information, including a
description of the business to be brought before the
meeting and information about the shareholder
making the proposal.
Notices given by shareholders must be in
writing.
Notice of Shareholder Meetings
Richfield State Agency Marshall & Ilsley
The MBCA generally provides that notice of the Under Wisconsin corporate law, a Wisconsin
date, time, and place of all meetings of shareholders corporation must notify its shareholders of an annual
must be given to every holder of shares entitled to or special meeting not less than 10 nor more than 60
vote at least 10 days before the date of the meeting, days before the meeting, unless the corporation's
or a shorter time provided in the articles or bylaws, articles of incorporation or bylaws provide otherwise.
and not more than 60 days before the date of the Marshall & Ilsley's bylaws provide that notice of an
meeting. If shareholders are entitled to vote on a plan annual meeting or a special meeting must be
of merger or exchange, notice must be given at least delivered not less than 10 nor more than 60 days
14 days before the date of the meeting. Richfield before the date of the meeting. Marshall & Ilsley's
State Agency's bylaws provide for written notice to bylaws require that notice of a meeting must state the
be given by mail to shareholders of record at least 30 place, date and time of the meeting and that notice of
days prior to an annual meeting or 10 days prior to a a special meeting must also state the purpose or
special meeting. purposes for which the meeting is called. Notice may
be communicated in person, by telephone, telegraph,
teletype, facsimile or other forms of wire or wireless
communication, by mail or private carrier, or by
electronic transmission.
Shareholder Vote Required for Mergers
Richfield State Agency Marshall & Ilsley
Under the MBCA, the board of directors of the The WBCL provides that a merger to which a
corporation must approve a plan of merger and the Wisconsin corporation is a party must be approved
shareholders entitled to vote must approve the plan of by the affirmative vote of the holders of a majority of
merger by the affirmative vote of the holders of a the shares entitled to vote on the merger and the
majority of the shares entitled to vote on the merger. affirmative vote of the holders of a majority of the
Approval of this merger will, therefore, require an shares of each class or series entitled to vote
affirmative vote by the holders of at least 42,078 separately on the merger, if any.
45
shares of Richfield State Agency common stock. A Approval of a plan of merger by the shareholders
class or series of shares generally is entitled to vote of the surviving corporation is not required if:
as a class or series if any provision of the plan, if
contained in a proposed amendment to the articles, . the articles of incorporation of the surviving
would entitle the class or series to vote as a class or corporation will not differ, except for limited
series. changes;
. the number of shares and the rights and preferences
of the shares held by the surviving corporation's
shareholders prior to the merger will not change
immediately after the merger; and
. the number of shares of stock of the surviving
corporation outstanding immediately after the
merger plus the number of shares issuable as a
result of the merger will not be greater than 20
percent of the total number of shares of stock of the
surviving corporation outstanding immediately
before the merger.
Because each of the requirements above is met,
the approval of the merger by the shareholders of
Marshall & Ilsley is not required.
Dividends
Richfield State Agency Marshall & Ilsley
A Minnesota corporation may not make a Under the WBCL, distributions are paid at the
distribution if either: (i) the corporation will not be discretion of the board of directors of a Wisconsin
able to pay its debts in the ordinary course of corporation. The board may authorize, and the
business after making the distribution; (ii) all corporation may make distributions to its
amounts payable to preferential shareholders are not shareholders, including in connection with the
paid; or (iii) the distribution would reduce the repurchase of the corporation's shares, in amounts
remaining net assets of the corporation below the determined by the board, unless:
amount payable to preferential shareholders in the
event of liquidation. . after the distribution the corporation would not be
able to pay its debts as they become due in the
Richfield State Agency's articles of usual course of business; or
incorporation do not authorize the issuance of a
preferred class of stock. The corporation may . the corporation's total assets after the distribution
therefore make a distribution if the distribution will would be less than the sum of its total liabilities,
not render Richfield State Agency unable to pay its plus, unless the articles of incorporation provide
debts in the ordinary course of business. otherwise, the amount that would be needed to
satisfy the preferential rights upon dissolution of
shareholders whose preferential rights are superior
to those receiving the distribution, if the corporation
were to be dissolved at the time of distribution.
Holders of Marshall & Ilsley Series A
Convertible Preferred Stock are entitled to receive,
when, as and if declared by the board of directors,
dividends at an annual rate fixed by the board of
directors. Such dividends must be paid or declared
and set apart for payment for each dividend period
before any dividend for the same period shall be paid
or set apart for payment on the common stock.
46
Dissenters' Rights
Richfield State Agency Marshall & Ilsley
The MBCA provides that shareholders of a Under Wisconsin corporate law, a shareholder
corporation are generally entitled to dissent from, and may dissent from, and obtain payment of the fair
obtain payment of the fair value of their shares in the value of his or her shares in the event of specified
event of, any of the following corporate actions: mergers, share exchanges and transactions involving
the sale of all or substantially all of the corporation's
. an amendment of the articles that materially and property other than in the usual and regular course of
adversely affects the dissenting shareholders' business. However, dissenters' rights generally are
preferential rights, right to redemption of the not available to holders of shares, such as Marshall &
shares, preemptive right to acquire shares or other Ilsley shares, that are registered on a national
securities, or right to vote on a matter or to securities exchange or quoted on the National
cumulate votes; Association of Securities Dealers, Inc. Automated
Quotations System, unless the transaction is a
. a sale, lease, transfer or other disposition of all or business combination involving a significant
substantially all of the property and assets of the shareholder or the corporation's articles of
corporation if the shareholder is entitled to vote on incorporation provide otherwise.
the disposition, except in the case of a dissolution,
a disposition pursuant to a court order, or a Because Marshall & Ilsley shareholders do not
disposition for cash the net proceeds of which will have the right to vote on the merger, its shareholders
be distributed to the shareholders within one year; do not have dissenters' rights with respect to the
merger under Wisconsin corporate law. Marshall &
. a merger, except that a shareholder of the Ilsley's articles of incorporation do not otherwise
surviving corporation has dissenters rights only provide for dissenters' rights with respect to the
with respect to shares entitled to vote on the merger.
merger;
. a plan of exchange, except that shareholders of the
acquiring corporation do not have dissenter's
rights; and
. any other corporate action taken pursuant to
shareholder vote with respect to which the articles,
bylaws or a resolution approved by the board
directs that dissenting shareholders may obtain
payment for their shares.
Neither the articles of incorporation nor the
bylaws of Richfield State Agency provide for any
other actions which would entitle shareholders to
additional dissenters' rights.
Because Richfield State Agency is not the
surviving corporation in the merger, dissenters' rights
are available. See "The Merger--Dissenters' Rights."
47
Shareholder Preemptive Rights
Richfield State Agency Marshall & Ilsley
Under the MBCA, unless denied or limited in Under Wisconsin corporate law, subject to
the articles of incorporation, a shareholder has a specified limitations, holders of shares of a class
preemptive right whenever the corporation proposes authorized before 1991 have preemptive rights to
to issue new or additional shares or rights to purchase acquire a corporation's unissued shares or other
shares of the same series or class held by the securities convertible into unissued shares, unless the
shareholder, with, unless otherwise provided in the articles of incorporation provide otherwise. Marshall
articles, the following exceptions: & Ilsley's articles of incorporation provide that no
holder of its capital stock has or will have any
. shares or rights to purchase shares issued for a preemptive rights.
consideration other than money;
. shares or rights to purchase shares issued pursuant
to a plan of merger or exchange;
. shares or rights to purchase shares issued pursuant
to an employee or incentive benefit plan approved
by the shareholders;
. shares or rights to purchase shares issued upon
exercise of previously issued rights to purchase
securities of the corporation;
. shares or rights to purchase shares issued pursuant
to a public offering of the corporation's securities
or rights to purchase securities; or
. shares or rights to purchase shares issued pursuant
to a court approved plan of reorganization.
The articles of incorporation of Richfield State
Agency do not deny, limit, or otherwise provide for
preemptive rights. Therefore, Richfield State
Agency's shareholders have preemptive rights as
described above.
48
Shareholder Class Voting Rights
Richfield State Agency Marshall & Ilsley
The MBCA provides that in any case where a Under Sections 180.1004 and 180.1103 of the
class or series of shares is entitled by the MBCA, the WBCL, holders of a particular class of shares are
articles of incorporation or the terms of the shares to entitled to vote as a separate class if the rights of
vote as a class or series, the matter being voted upon that class are affected in various respects by
must also receive the affirmative vote of the holders mergers, consolidations or amendments to the
of the same proportion of the shares represented of articles of incorporation. Under Section 180.1003 of
that class or series, or the total outstanding shares of the WBCL, the presence or absence of dissenters'
that class or series, as required for approval by all of rights for a voting group affects the right of that
the voting shareholders of the corporation. group to vote on amendments to a corporation's
articles of incorporation. If a voting group would
The outstanding shares of Richfield State have dissenters' rights as a result of the amendment,
Agency common stock will vote on the merger as a then a majority of the votes entitled to be cast by
single class. No shares of Richfield State Agency that voting group is required for adoption of the
capital stock have the right to vote on the merger as a amendment.
separate class or series.
Indemnification
Richfield State Agency Marshall & Ilsley
Unless limited by the articles of incorporation or Wisconsin corporate law requires a corporation
bylaws, the MBCA provides for mandatory to indemnify a director or officer to the extent that he
indemnification of a director, officer, committee or she has been successful on the merits or otherwise
member or employee made or threatened to be made in the defense of a proceeding for all reasonable
a party to a proceeding by reason of that person's expenses that he or she incurred in the proceeding if
former or present official capacity in the corporation the director or officer was a party because he or she
against certain liabilities and expenses if all of the is or was a director or officer of the corporation.
following apply: Indemnification is also required in other instances,
unless the director or officer is personally liable
. the individual has not otherwise been indemnified because the director or officer breached or failed to
against the same liabilities or expenses; perform a duty that he or she owes to the corporation,
and the breach or failure to perform constitutes any
. the individual acted in good faith; of the following:
. the individual received no improper personal . a willful failure to deal fairly with the corporation
benefit and, if applicable, the MBCA's or its shareholders in connection with a matter in
requirements with respect to conflicts of interest which the director or officer has a material conflict
were satisfied; of interest;
. in the case of a criminal proceeding, the individual . a violation of criminal law, unless the director or
had no reasonable cause to believe that the conduct officer had reasonable cause to believe that his or
was unlawful; and her conduct was lawful or no reasonable cause to
believe that his or her conduct was unlawful;
. depending on the capacity in which the individual
is serving, the individual either believed the . a transaction from which the director or officer
conduct was in the best interests of the corporation derived an improper personal benefit; or
or believed that the conduct was not opposed to the
best of interests of the corporation. . willful misconduct.
49
A person requesting indemnification is entitled Wisconsin corporate law allows a corporation to
to the payment or reimbursement by the corporation limit its obligation to indemnify directors and officers,
for reasonable expenses in advance of the final but Marshall & Ilsley's articles of incorporation do
disposition of the proceeding if (i) he or she provides not limit Marshall & Ilsley's obligation to indemnify
to the corporation a written affirmation of his or her its directors and officers.
good faith belief that the criteria for indemnification
have been satisfied and a written undertaking to Wisconsin corporate law also permits a
repay all amounts so advanced; (ii) a determination is corporation to provide directors and officers additional
made on behalf of the corporation that rights of indemnification, except for conduct described
indemnification is not precluded based on the facts above, in the articles of incorporation or bylaws, by a
then known; and (iii) such advances are not resolution adopted by the board of directors or a
prohibited by article or bylaw provisions equally majority vote of the shareholders or by written
applicable to all members of such person's class. agreement. Marshall & Ilsley's bylaws provide for
indemnification of its directors and officers to the
Richfield State Agency's bylaws provide that fullest extent permitted by law and set forth procedural
the company will indemnify its directors, officers and requirements for requesting indemnification. If a
employees for expenses and liabilities to the extent director or officer provides Marshall & Ilsley with a
provided in the MBCA, as described above. written affirmation of his or her good faith belief that
he or she has not breached or failed to perform his or
her duties in a manner listed above and a written
undertaking to repay Marshall & Ilsley if he or she is
not entitled to indemnification, then Marshall & Ilsley
is required to pay or reimburse the director or officer
for all reasonable expenses as incurred.
Limitations on Directors' Liability
Richfield State Agency Marshall & Ilsley
The MBCA provides that the articles of Under Wisconsin corporate law, a director is not
incorporation may contain a provision eliminating or liable to the corporation, its shareholders or any
limiting the personal liability of a director to the person asserting rights on behalf of the corporation or
corporation or its shareholders for monetary damages its shareholders for monetary damages or other
for breach of fiduciary duty as a director, provided monetary liabilities arising from a breach of or
that the provision does not eliminate or limit the failure to perform any duty resulting solely from his
liability of a director for: or her status as a director, unless the breach
constitutes:
. a breach of the director's duty of loyalty to the
corporation or its shareholders; . a willful failure to deal fairly with the corporation or
its shareholders in connection with a matter in
. acts or omissions not in good faith or which which the director has a material conflict of interest;
involved intentional misconduct or a knowing
violation of law; . a violation of criminal law, unless the director had
reasonable cause to believe that his or her conduct
. a transaction from which the director derived an was lawful or no reasonable cause to believe that
improper personal benefit; his or her conduct was unlawful;
. an unlawful sale of a security or an unlawful . a transaction from which the director derived an
distribution to shareholders; or improper personal profit; or
. an act or omission occurring prior to the date when . willful misconduct.
the provision in the articles of incorporation
became effective. Under Wisconsin corporate law, a director or
officer, in discharging his or her duties to the
Richfield State Agency's articles of corporation and determining what he or she believes
incorporation contain no provision limiting the is in the best interests of the corporation, may, in
personal liability of Richfield State Agency's addition to considering the effects of any action on
directors. shareholders, consider:
50
Under the MBCA, a director, in determining . the effects of the action on employees, suppliers
what is in the best interests of the corporation, may and customers of the corporation;
consider the following interests:
. the effects of the action on the communities in
. the corporation's employees, suppliers, creditors which the corporation operates; and
and customers;
. any other factors that the director or officer
. the economy of the state and nation; considers pertinent.
. community and societal considerations; and
. the long-term, as well as short-term, interests of
the corporation and its shareholders, including the
possibility that these interests may be best served
by the continued independence of the corporation.
Amendment of Articles of Incorporation
Richfield State Agency Marshall & Ilsley
Under the MBCA, an amendment of the articles Under Wisconsin corporate law, the board of
of incorporation must be approved by the affirmative directors of a corporation may propose amendments
vote of the majority of the directors present at a duly to a corporation's articles of incorporation and may
held board meeting or proposed by a shareholder establish conditions for the submission of the
holding 3% or more of the voting power of the shares amendment to the shareholders. Under most
entitled to vote. The proposed or approved resolution circumstances, Wisconsin corporate law provides that
must then be submitted to a shareholder vote at the amendments to a corporation's articles of
next regular meeting or special meeting of the incorporation must be approved by both the board of
shareholders, except that certain amendments directors of the corporation and its shareholders.
effected in connection with stock dividends, stock However, any amendment to the articles of
splits and reverse stock splits require only board incorporation of a corporation organized before
approval. Generally, a proposed amendment to the January 1, 1973 which did not expressly elect before
articles requiring shareholder approval is adopted if January 1, 1991 to be governed by a majority or
approved by the affirmative vote of a majority of the greater voting requirement must be approved by the
voting power of the shares present and entitled to affirmative vote of two-thirds of the shares entitled to
vote, or by a larger percentage if required by the vote at a meeting called for that purpose. Marshall &
articles. For a corporation having more than 35 Ilsley's articles of incorporation were not amended
shareholders, if the articles provide for a larger prior to January 1, 1991 to reduce the vote required
percentage to transact a specified type of business, to amend its articles of incorporation.
the vote of that larger percentage is required to
amend the articles to decrease the percentage
necessary to transact that business. The articles of
incorporation of Richfield State Agency contain no
provision with regard to amendment of the
corporation's articles of incorporation or requiring a
supermajority vote to transact any specified type of
business.
51
Amendment of Bylaws
Richfield State Agency Marshall & Ilsley
Under the MBCA, the power to adopt, amend or Under Wisconsin corporate law, the board of
repeal the bylaws is vested in the board unless directors or the shareholders of a corporation may
reserved by the articles of incorporation to the adopt, amend or repeal the bylaws, except to the
shareholders. The power of the board is subject to the extent that the articles of incorporation reserve that
power of a shareholder or shareholders holding 3% or power to the shareholders or the shareholders provide
more of the voting power of the shares entitled to in adopting, amending or repealing a particular
vote to propose a resolution for action by the bylaw, that the board of directors may not amend,
shareholders to adopt, amend or repeal bylaws repeal or readopt that bylaw or the shareholders set
adopted, amended or repealed by the board. The specific voting requirements for the board of
board may not adopt, amend or repeal a bylaw fixing directors to amend, repeal or readopt that bylaw.
a quorum for meetings of shareholders, prescribing Marshall & Ilsley's articles of incorporation and
procedures for removing directors or filling vacancies bylaws provide that the bylaws may be amended,
in the board, or fixing the number of directors or their altered or repealed, and new bylaws may be enacted,
classifications, qualifications or terms of office, but only by the affirmative vote of not less than two-
may adopt or amend a bylaw to increase the number thirds of the shares entitled to vote, or by a vote of
of directors. The articles of incorporation of Richfield not less than three-quarters of the board of directors.
State Agency provide that the board of directors has Marshall & Ilsley's bylaws further provide that no
the authority to make or alter the bylaws of the bylaw adopted, amended or repealed by the
corporation, subject to the power of the shareholders shareholders shall thereafter be enacted, amended or
to change or repeal such bylaws. repealed by the directors unless such action by the
shareholders shall expressly confer upon the directors
authority to thereafter enact, amend or repeal such
bylaw as so amended. Marshall & Ilsley's bylaws
also provide that any bylaw adopted, repealed, or
amended by the board of directors shall be subject to
reenactment, repeal or amendment by the
shareholders acting at any meeting of the
shareholders in accordance with the bylaws.
52
Shareholder's Inspection Rights
Richfield State Agency Marshall & Ilsley
Under the MBCA, a shareholder or beneficial Under Wisconsin corporate law, each
owner of a corporation that is not a publicly held shareholder of record and his or her agent or attorney
corporation has a right to demand, examine and copy has the right to inspect and copy for a proper purpose
the corporation's share register containing the names the list of shareholders prepared for a meeting. The
and addresses of the shareholders and the number and list must be arranged by class or series of shares and
classes of shares held by each shareholder, as well as must show the address of, and the number of shares
certain corporate organizational and financial owned by, each shareholder of record. Inspections
documents and reports, shareholder control and must be conducted during regular business hours at
voting trust agreements, and records of corporate the shareholder's expense. This right of inspection
proceedings. Other corporate records, including the begins two business days after notice of the
record dates of issuance of shares, are accessible only shareholders' meeting is given and continues through
upon showing a proper purpose. A proper purpose is the meeting. This right of inspection may be
a purpose reasonably related to the person's interest exercised upon written demand.
as a shareholder or beneficial owner of the
corporation. Inspection rights take effect only upon a Both shareholders of record and beneficial
demonstration that the stated purpose for the shareholders of a Wisconsin corporation who satisfy
inspection is a proper purpose and that the corporate specified requirements, and their attorneys and
records sought to be inspected are reasonably related agents, have the right to inspect and copy the
to that stated purpose. A corporation need not permit corporation's bylaws and, subject to the requirements
inspection if it can establish that the plaintiff's actual discussed below, minutes of meetings and consent
purpose for the inspection is improper, regardless of actions of the board of directors and shareholders,
the stated purpose. records of actions taken by a committee of the board
of directors on behalf of the corporation, accounting
A Minnesota corporation is also required to records and the record of shareholders. Inspections
furnish to a shareholder, within 10 business days must be conducted during regular business hours and
after receipt of the shareholder's written request, the are conducted at the shareholder's expense. Notice of
corporation's most recently prepared annual financial a demand must begiven five business days before the
statements including, at minimum, a balance sheet date on which the shareholder wants to inspect and
and statement of income as of the end of and for the copy the records. For records other than the bylaws,
fiscal year. the demand must be made in good faith and for
proper purpose, and the person must have been a
shareholder for at least six months or hold at least
five percent of the outstanding shares of the
corporation.
A Wisconsin corporation is also required to mail
a copy of its latest financial statements to any
shareholder who requests a copy in writing.
53
Issuance of New Shares
Richfield State Agency Marshall & Ilsley
Under Minnesota corporate law, a corporation Under Wisconsin corporate law, a corporation
may, by action of its board of directors, issue up to may, by action of its board of directors, issue up to
the number of shares of a class or series authorized in the number of shares of a class or series authorized in
the corporation's articles of incorporation. If a the corporation's articles of incorporation. If a
corporation wishes to increase the number of shares corporation wishes to increase the number of shares
of a class or series authorized in its articles of of a class or series authorized in its articles of
incorporation, then it must amend its articles of incorporation, then it must amend its articles of
incorporation in the manner described above. Except incorporation in the manner described above.
in conjunction with certain stock splits, stock
dividends, and reverse stock splits, an amendment to The listing requirements of the NYSE applicable
the articles of incorporation to change the aggregate to Marshall & Ilsley require prior shareholder
number of authorized shares requires a vote of approval of specified issuances of shares, including
shareholders. issuances of shares bearing voting power equal to or
exceeding 20 percent of the pre-issuance outstanding
voting power or pre-issuance outstanding number of
shares. These requirements do not apply to the
issuance of Marshall & Ilsley common stock
pursuant to the terms of the merger agreement
because the shares to be issued do not exceed 20
percent of Marshall & Ilsley's outstanding shares of
common stock.
Assessability
Richfield State Agency Marshall & Ilsley
Subscribers for shares and shareholders of a In general, shareholders of a Wisconsin
Minnesota corporation are under no obligation to the corporation are not personally liable for the acts or
corporation or its creditors with respect to the shares debts of the corporation. Shareholders of a Wisconsin
subscribed for or owned, except to pay the full agreed corporation may be directly liable up to the aggregate
consideration for the shares. par value of the shares owned by them for debts of
the corporation owed to the corporation's employees
for services performed for the corporation, but not
exceeding six months' service in any one case. Some
Wisconsin courts have interpreted par value to mean
the amount paid by the shareholder for their shares.
54
SHAREHOLDER PROPOSALS
The 2002 annual meeting of Marshall & Ilsley shareholders is scheduled for
April 23, 2002. In accordance with Marshall & Ilsley's bylaws, nominations,
other than by or at the direction of the board of directors, of candidates for
election as directors at the 2002 annual meeting and any other shareholder
proposed business to be brought before the 2002 annual meeting must be
submitted to Marshall & Ilsley no later than January 24, 2002. Shareholder
proposed nominations and other shareholder proposed business must be made in
accordance with Marshall & Ilsley's bylaws, which provide, among other things,
that shareholder proposed nominations must be accompanied by certain
information concerning the nominee and the shareholder submitting the
nomination, and that shareholder proposed business must be accompanied by
certain information concerning the proposal and the shareholder submitting the
proposal. To be considered for inclusion in the proxy statement solicited by
the board of directors, shareholder proposals for consideration at the 2002
annual meeting must have been received by Marshall & Ilsley at its principal
executive offices, 770 North Water Street, Milwaukee, Wisconsin 53202, on or
before November 9, 2001. Proposals should be directed to Mr. M.F. Furlong,
Executive Vice President. To avoid disputes as to the date of receipt, it is
suggested that any shareholder proposal be submitted by certified mail, return
receipt requested.
LEGAL MATTERS
The validity of the Marshall & Ilsley common stock to be issued in
connection with the merger will be passed upon by Godfrey & Kahn, S.C.,
Milwaukee, Wisconsin. Godfrey & Kahn, S.C. will also render an opinion to
Marshall & Ilsley regarding the material U.S. federal income tax consequences
of the merger. Fredrikson & Byron, P.A. will render an opinion to Richfield
State Agency regarding the material U.S. federal income tax consequences of the
merger.
EXPERTS
Arthur Andersen LLP, independent auditors, have audited Marshall & Ilsley's
consolidated financial statements included in Marshall & Ilsley's Annual Report
on Form 10-K, as amended, as of December 31, 2000 and December 31, 1999, and
for the three years ended December 31, 2000, as set forth in their report,
which is incorporated by reference in this prospectus and elsewhere in the
registration statement. Marshall & Ilsley's financial statements are
incorporated by reference in reliance on Arthur Andersen LLP's report, given on
their authority as experts in accounting and auditing.
Larson Allen Weishair & Co., LLP, independent auditors, have audited
Richfield State Agency's consolidated financial statements as of December 31,
2000 and December 31, 1999, and for December 31, 1999 and 1998 respectively, as
set forth in their reports, which are attached hereto as Appendix D,
incorporated by reference in this prospectus and elsewhere in this registration
statement. Richfield State Agency's financial statements are incorporated by
reference in reliance on Larson Allen Weishair & Co., LLP's report, given on
their authority as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
Marshall & Ilsley has filed a registration statement with the SEC under the
Securities Act of 1933 that registers the distribution to shareholders of
Richfield State Agency the shares of Marshall & Ilsley common stock to be
issued in the merger. The registration statement, including the attached
exhibits and schedules, contains additional relevant information about Marshall
& Ilsley and Marshall & Ilsley's common stock. The rules and regulations of the
SEC allow us to omit some information included in the registration statement
from this proxy statement/prospectus.
55
In addition, Marshall & Ilsley (File No. 1-15403) files reports, proxy
statements and other information with the SEC under the Securities Exchange Act
of 1934. You may read and copy this information at the following locations of
the SEC:
Public Reference Room Northeast Regional Office Chicago Regional Office
450 Fifth Street, N.W. 223 Broadway Citicorp Center
Room 1024 New York, New York 10279 500 West Madison Street
Washington, D.C. 20549 Suite 1400
Chicago, Illinois 60661-2511
You may also obtain copies of this information by mail from the Public
Reference Section of the SEC, 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549, at prescribed rates. You may obtain information on the operation of
the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also
maintains an Internet world wide web site that contains reports, proxy
statements and other information about issuers, like Marshall & Ilsley, that
file information electronically with the SEC. The address of that site is
http://www.sec.gov.
You can also request copies of this information from Marshall & Ilsley by
making a request to:
Shareholder/Investor Relations
Marshall & Ilsley Corporation
770 North Water Street
Milwaukee, Wisconsin 53202
(414) 765-7817 or (414) 765-7806
Marshall & Ilsley's address on the world wide web is http://www.micorp.com.
The information on Marshall & Ilsley's web site is not a part of this document.
You can also inspect reports, proxy statements and other information about
Marshall & Ilsley at the offices of the NYSE, 20 Broad Street, New York, New
York 10005.
The SEC allows Marshall & Ilsley to "incorporate by reference" information
into this proxy statement/prospectus. This means that we can disclose important
information to you by referring you to another document filed separately with
the SEC. The information incorporated by reference is considered to be a part
of this document, except for any information that is superseded by information
that is included directly in this document.
This document incorporates by reference the documents listed below that
Marshall & Ilsley has previously filed with the SEC. They contain important
information about our companies and their financial condition.
Marshall & Ilsley Filings Period or Date Filed
------------------------- --------------------
Annual Report on Form 10-K Year ended December 31, 2000 (as amended by a
Form 10-K/A filed on April 17, 2001)
Quarterly Reports on Form 10-Q Quarters ended March 31, 2001, June 30, 2001 and
September 30, 2001
The description of Marshall & Ilsley common stock set October 18, 1999
forth in the registration statement on Form 8-A filed
pursuant to Section 12 of the Securities and Exchange
Act, including any amendment or report filed with the
SEC for the purpose of updating this description
Current Reports on Form 8-K June 22, 2001, July 12, 2001 and August 24, 2001
56
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes hereof to the extent that a statement contained herein or in any
other subsequently filed document that also is, or is deemed to be,
incorporated by reference 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 hereof.
Additional documents that Marshall & Ilsley may file with the SEC pursuant
to Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934,
as amended, between the date of this document and the date of the special
meeting of Richfield State Agency's shareholders or any adjournments or
postponements of the special meeting are also incorporated by reference. These
documents include periodic reports, such as Annual Reports on Form 10-K,
Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, as well as
proxy statements.
In deciding how to vote on the merger, you should rely only on the
information contained or incorporated by reference in this document. Neither
Marshall & Ilsley nor Richfield State Agency has authorized any person to
provide you with any information that is different from what is contained in
this document. This document is dated January 18, 2002. You should not assume
that the information contained in this document is accurate as of any date
other than such date, and neither the mailing to you of this document nor the
issuance to you of shares of Marshall & Ilsley common stock will create any
implication to the contrary.
57
APPENDIX A
AGREEMENT AND PLAN OF MERGER
BETWEEN
RICHFIELD STATE AGENCY, INC.
AND
MARSHALL & ILSLEY CORPORATION
Dated as of November 18, 2001
TABLE OF CONTENTS
Page
----
ARTICLE I--THE MERGER
SECTION 1.1 The Merger.......................................... 1
SECTION 1.2 Effective Time...................................... 1
SECTION 1.3 Effect of the Merger................................ 1
SECTION 1.4 Articles of Incorporation; By-Laws.................. 2
SECTION 1.5 Directors and Officers.............................. 2
SECTION 1.6 Merger Consideration................................ 2
SECTION 1.7 Conversion of Securities; Dissenting Shares......... 2
SECTION 1.8 Exchange of Certificates............................ 4
SECTION 1.9 Stock Transfer Books................................ 6
SECTION 1.10 Adjustments for Dilution and Other Matters.......... 6
SECTION 1.11 Company Common Stock................................ 6
ARTICLE II--REPRESENTATIONS AND WARRANTIES OF SELLER
SECTION 2.1 Organization and Qualification; Subsidiaries........ 6
SECTION 2.2 Articles of Incorporation and By-Laws............... 7
SECTION 2.3 Capitalization...................................... 7
SECTION 2.4 Authority........................................... 8
SECTION 2.5 No Conflict; Required Filings and Consents.......... 8
SECTION 2.6 Compliance; Permits................................. 9
SECTION 2.7 Securities and Banking Reports; Financial Statements 9
SECTION 2.8 Absence of Certain Changes or Events................ 10
SECTION 2.9 Absence of Litigation............................... 10
SECTION 2.10 Employee Benefit Plans.............................. 10
SECTION 2.11 Registration Statement; Proxy Statement/Prospectus.. 12
SECTION 2.12 Title to Property................................... 12
SECTION 2.13 Environmental Matters............................... 12
SECTION 2.14 Absence of Agreements............................... 13
SECTION 2.15 Taxes............................................... 13
SECTION 2.16 Insurance........................................... 14
SECTION 2.17 Brokers............................................. 14
SECTION 2.18 Tax Matters......................................... 14
SECTION 2.19 Material Adverse Effect............................. 14
SECTION 2.20 Material Contracts.................................. 15
SECTION 2.21 Vote Required....................................... 15
ARTICLE III--REPRESENTATIONS AND WARRANTIES OF THE COMPANY
SECTION 3.1 Organization and Qualification; Subsidiaries........ 15
SECTION 3.2 Articles of Incorporation and By-Laws............... 15
SECTION 3.3 Capitalization...................................... 16
SECTION 3.4 Authority........................................... 16
SECTION 3.5 No Conflict; Required Filings and Consents.......... 16
SECTION 3.6 Securities and Banking Reports; Financial Statements 17
SECTION 3.7 Absence of Certain Changes or Events................ 17
SECTION 3.8 Registration Statement; Proxy Statement/Prospectus.. 18
ARTICLE IV--COVENANTS OF SELLER
SECTION 4.1 Affirmative Covenants............................... 18
SECTION 4.2 Negative Covenants.................................. 19
i
Page
----
SECTION 4.3 Letter of Seller's Accountants............................. 20
SECTION 4.4 No Solicitation of Transactions............................ 20
SECTION 4.5 Update Disclosure; Breaches................................ 21
SECTION 4.6 Affiliates; Tax Treatment.................................. 21
SECTION 4.7 Delivery of Shareholder List............................... 22
SECTION 4.8 Loan and Investment Policies............................... 22
SECTION 4.9 Access and Information..................................... 22
SECTION 4.10 Confidentiality Letter..................................... 22
ARTICLE V--COVENANTS OF THE COMPANY
SECTION 5.1 Affirmative Covenants...................................... 22
SECTION 5.2 Negative Covenants......................................... 22
SECTION 5.3 Update Disclosure; Breaches................................ 23
SECTION 5.4 Stock Exchange Listing..................................... 23
SECTION 5.5 Tax Treatment.............................................. 23
SECTION 5.6 Confidentiality Letter..................................... 23
ARTICLE VI--ADDITIONAL AGREEMENTS
SECTION 6.1 Proxy Statement/Prospectus; Registration Statement......... 23
SECTION 6.2 Meeting of Seller's Shareholders........................... 24
SECTION 6.3 Appropriate Action; Consents; Filings...................... 24
SECTION 6.4 Employee Benefit Matters................................... 24
SECTION 6.5 Directors' and Officers' Indemnification and Insurance..... 24
SECTION 6.6 Notification of Certain Matters............................ 25
SECTION 6.7 Public Announcements....................................... 25
SECTION 6.8 Customer Retention......................................... 25
SECTION 6.9 Expenses................................................... 25
ARTICLE VII--CONDITIONS OF MERGER
SECTION 7.1 Conditions to Obligation of Each Party to Effect the Merger 25
SECTION 7.2 Additional Conditions to Obligations of the Company........ 26
SECTION 7.3 Additional Conditions to Obligations of Seller............. 28
ARTICLE VIII--TERMINATION, AMENDMENT AND WAIVER
SECTION 8.1 Termination................................................ 29
SECTION 8.2 Effect of Termination...................................... 30
SECTION 8.3 Amendment.................................................. 30
SECTION 8.4 Waiver..................................................... 30
ARTICLE IX--GENERAL PROVISIONS
SECTION 9.1 Non-Survival of Representations, Warranties and Agreements. 31
SECTION 9.2 Notices.................................................... 31
SECTION 9.3 Certain Definitions........................................ 31
SECTION 9.4 Headings................................................... 32
SECTION 9.5 Severability............................................... 32
SECTION 9.6 Entire Agreement........................................... 32
SECTION 9.7 Assignment................................................. 32
SECTION 9.8 Parties in Interest........................................ 32
SECTION 9.9 Governing Law.............................................. 32
SECTION 9.10 Counterparts............................................... 32
SECTION 9.11 Time is of the Essence..................................... 33
SECTION 9.12 Specific Performance....................................... 33
ii
ANNEX A REAL ESTATE TO BE SOLD
ANNEX B SUBSIDIARIES OF SELLER
ANNEX C EMPLOYEE BENEFIT MATTERS
ANNEX D FORM OF OPINION OF COUNSEL TO SELLER
ANNEX E FORM OF OPINION OF COUNSEL TO COMPANY
EXHIBIT 1.1 PLAN OF MERGER
EXHIBIT 7.2(l) FORM OF TAX MATTERS AGREEMENT
iii
Index of Defined Terms
Section
-------
Adjustment Amount........................................ SECTION 1.6(c)
Affiliate................................................ SECTION 9.3(a)
Agreement................................................ PREAMBLE
Articles of Merger....................................... SECTION 1.2
Average Trading Price.................................... SECTION 1.6(a)
BHCA..................................................... SECTION 2.1(a)
Blue Sky Laws............................................ SECTION 2.5(b)
Business Day............................................. SECTION 9.3(b)
Cash Consideration....................................... SECTION 1.7(a)
Cash Election............................................ SECTION 1.7(a)
Cash Election Number..................................... SECTION 1.7(b)
Cash Election Shares..................................... SECTION 1.7(c)
Cash Fraction............................................ SECTION 1.7(c)
Certificates............................................. SECTION 1.8(b)
Code..................................................... PREAMBLE
Company.................................................. PREAMBLE
Company Approvals........................................ SECTION 3.1(a)
Company Articles......................................... SECTION 1.4
Company By-Laws.......................................... SECTION 1.4
Company Common Stock..................................... SECTION 1.6(a)
Company Disclosure Schedule.............................. ARTICLE III, PREAMBLE
Company Preferred Stock.................................. SECTION 3.3(a)
Company Reports.......................................... SECTION 3.6(a)
Company SEC Reports...................................... SECTION 3.6(a)
Company Subsidiaries..................................... SECTION 3.1(a)
Company Subsidiary....................................... SECTION 3.1(a)
Competing Proposal....................................... SECTION 4.4(b)
Control.................................................. SECTION 9.3(c)
DFI...................................................... SECTION 1.2
Dissenting Shares........................................ SECTION 1.7(j)
Effective Time........................................... SECTION 1.2
Election Deadline........................................ SECTION 1.7(f)
Election Form Record Date................................ SECTION 1.7(e)
Environmental Claims..................................... SECTION 2.13
Environmental Laws....................................... SECTION 2.13
ERISA.................................................... SECTION 2.10(a)
Exchange Act............................................. SECTION 2.5(b)
Exchange Agent........................................... SECTION 1.8(a)
Exchange Fund............................................ SECTION 1.8(a)
Exhibit 21............................................... SECTION 3.1(c)
Expenses................................................. SECTION 6.9(b)
FDIC..................................................... SECTION 2.1(a)
Federal Reserve Board.................................... SECTION 2.1(a)
Form of Election......................................... SECTION 1.7(e)
Governmental Authority................................... SECTION 2.13
Hazardous Materials...................................... SECTION 2.13
Indemnified Parties...................................... SECTION 6.5(c)
IRS...................................................... SECTION 2.15
Laws..................................................... SECTION 2.5(a)
iv
Section
-------
Material Adverse Effect.................................. SECTION 2.1(d)
MBCA..................................................... PREAMBLE
MBL...................................................... SECTION 2.5(b)
Merger................................................... PREAMBLE
Merger Consideration..................................... SECTION 1.6(a)
Minnesota Secretary of State............................. SECTION 1.2
NYSE..................................................... SECTION 1.6(a)
OCC...................................................... SECTION 3.1(a)
Participation Facility................................... SECTION 2.13
Per Share Merger Consideration........................... SECTION 1.6(b)
Person................................................... SECTION 9.3(d)
Plan of Merger........................................... SECTION 1.1
Plans.................................................... SECTION 2.10(a) Proxy
Statement/Prospectus..................................... SECTION 2.11
Real Estate Value........................................ SECTION 1.6(c)
Registration Statement................................... SECTION 3.8
Representatives.......................................... SECTION 4.4(a)
SEC...................................................... SECTION 2.1(a)
Section 180.0622(2)(b) of the WBCL....................... SECTION 3.3(a)
Secured Debt............................................. SECTION 1.6(c)
Securities Act........................................... SECTION 2.5(b)
Seller................................................... PREAMBLE
Seller Affiliate......................................... SECTION 4.6
Seller Approvals......................................... SECTION 2.1(a)
Seller Articles.......................................... SECTION 2.2
Seller By-Laws........................................... SECTION 2.2
Seller Common Stock...................................... SECTION 1.6(b)
Seller Disclosure Schedule............................... ARTICLE II, PREAMBLE
Seller Reports........................................... SECTION 2.7(a)
Seller Shareholders' Meeting............................. SECTION 2.11
Seller Subsidiaries...................................... SECTION 2.1(a)
Seller Subsidiary........................................ SECTION 2.1(a)
Series A Preferred Stock................................. SECTION 3.3(a)
Shareholder Voting Agreement............................. PREAMBLE
Shares................................................... SECTION 1.7(a)
Stock Consideration...................................... SECTION 1.7(a)
Subsidiary............................................... SECTION 9.3(e)
Subsidiary Organizational Documents...................... SECTION 2.2
Superior Competing Transaction........................... SECTION 4.4(c)
Surviving Corporation.................................... SECTION 1.1
Tax or Taxes............................................. SECTION 2.15
Tax Returns.............................................. SECTION 2.15
Title IV Plan............................................ SECTION 2.10(b)
USBL..................................................... SECTION 2.5(b)
WBCL..................................................... PREAMBLE
v
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of November 18, 2001 (the
"Agreement"), between RICHFIELD STATE AGENCY, INC., a Minnesota corporation
(the "Seller") and MARSHALL & ILSLEY CORPORATION, a Wisconsin corporation (the
"Company").
WHEREAS, the Boards of Directors of the Company and the Seller have each
determined that it is fair to and in the best interests of their respective
shareholders for the Seller to merge with and into the Company (the "Merger")
upon the terms and subject to the conditions set forth herein and in accordance
with the Minnesota Business Corporation Act (the "MBCA") and the Wisconsin
Business Corporation Law (the "WBCL");
WHEREAS, the respective Boards of Directors of the Company and the Seller
have each approved the Merger of the Seller with and into the Company, upon the
terms and subject to the conditions set forth herein, and adopted and approved
this Agreement;
WHEREAS, subsequent to the approval of this Agreement by the Seller's Board
of Directors and concurrently with the execution of this Agreement and as a
condition and an inducement to the willingness of the Company to enter into
this Agreement, the Company and each of Steven L. Kirchner, Jan L. Kirchner,
Janet L. Chorzempa and the Garnett I. Kirchner Grantor Retained Annuity Trust
No. 1 Under Agreement dated October 11, 2001, have entered into an agreement
pursuant to which each such shareholder has agreed to vote his, her or its
shares of Seller Common Stock in favor of the Merger (the "Shareholder Voting
Agreement");
WHEREAS, for federal income tax purposes, it is intended that the Merger
shall qualify as a reorganization under the provisions of Section 368 of the
Internal Revenue Code of 1986, as amended (the "Code"), and this Agreement
shall constitute the plan of reorganization;
WHEREAS, for financial accounting purposes it is intended that the Merger
shall be accounted for as a purchase.
NOW, THEREFORE, in consideration of the foregoing premises and the
representations, warranties and agreements contained herein, and subject to the
terms and conditions set forth herein, the parties hereto hereby agree as
follows:
ARTICLE I--THE MERGER
SECTION 1.1 The Merger. Upon the terms and subject to the conditions set
forth in this Agreement, and in accordance with the MBCA, the WBCL and the Plan
of Merger attached hereto as Exhibit 1.1 (the "Plan of Merger"), at the
Effective Time (as defined in Section 1.2) Seller shall be merged with and into
the Company. As a result of the Merger, the separate corporate existence of
Seller shall cease and the Company shall continue as the surviving corporation
of the Merger (the "Surviving Corporation").
SECTION 1.2 Effective Time. As promptly as practicable after the
satisfaction or, if permissible, waiver of the conditions set forth in Article
VII, the parties hereto shall cause the Merger to be consummated by filing
articles of merger (the "Articles of Merger") with the Secretary of State of
the State of Minnesota (the "Minnesota Secretary of State") and the Department
of Financial Institutions of the State of Wisconsin (the "DFI"), in such form
as required by, and executed in accordance with the relevant provisions of, the
MBCA and the WBCL (the date and time of the later of such filing with the
Minnesota Secretary of State or the DFI is referred to herein as the "Effective
Time").
SECTION 1.3 Effect of the Merger. At the Effective Time, the effect of the
Merger shall be as provided in this Agreement and the applicable provisions of
the MBCA and the WBCL. Without limiting the generality of
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the foregoing, and subject thereto, at the Effective Time, except as otherwise
provided herein, all the property, rights, privileges, immunities, powers and
franchises of the Company and the Seller shall vest in the Surviving
Corporation, and all debts, liabilities and duties of the Company and the
Seller shall become the debts, liabilities and duties of the Surviving
Corporation.
SECTION 1.4 Articles of Incorporation; By-Laws. At the Effective Time, the
Articles of Incorporation, as amended, of the Company (the "Company Articles")
and the By-Laws, as amended, of the Company (the "Company By-Laws"), as in
effect immediately prior to the Effective Time, shall be the Articles of
Incorporation and the By-Laws of the Surviving Corporation.
SECTION 1.5 Directors and Officers. At the Effective Time, the directors
of the Company immediately prior to the Effective Time shall be the initial
directors of the Surviving Corporation, each to hold office in accordance with
the Articles of Incorporation and By-Laws of the Surviving Corporation and to
be assigned to the class previously assigned. At the Effective Time, the
officers of the Company immediately prior to the Effective Time, shall be the
initial officers of the Surviving Corporation, in each case until their
respective successors are duly elected or appointed.
SECTION 1.6 Merger Consideration
(a) The aggregate dollar value of the merger consideration shall be
$157,000,000 plus the Adjustment Amount as defined in (c) below, if any (the
"Merger Consideration"). The Merger Consideration shall consist of shares of
common stock, par value $1.00 per share, of the Company ("Company Common
Stock"); provided, however, that up to $20,000,000 (the "Cash Amount") of the
Merger Consideration may be payable in cash at the election of holders of the
Seller's common stock. For purposes of valuing the Company Common Stock as part
of the Merger Consideration, one share of Company Common Stock will be deemed
to have a value equal to the average of the average high and low sale price per
share of Company Common Stock on the New York Stock Exchange (the "NYSE") as
reported in the Midwest Edition of The Wall Street Journal for the twenty (20)
consecutive trading days ending on and including the third trading day
preceding the Effective Time (the "Average Trading Price"). The Company agrees
that all of the Company's purchases of Company Common Stock shall be in
accordance with Regulation M of the Exchange Act.
(b) The "Per Share Merger Consideration" shall be an amount equal to the
aggregate value of the Merger Consideration divided by the total number of
shares of common stock, no par value, of the Seller ("Seller Common Stock")
issued and outstanding immediately prior to the Effective Time.
(c) The "Adjustment Amount" shall be an amount equal to (A) $60,000 per
month, or any portion thereof, commencing with March 2002 and ending on the day
prior to the Effective Time, plus (B) the excess, if any, of (i) the prepayment
premium due on the full principal amount of Seller's Promissory Note dated June
30, 1999 in the aggregate principal amount of $13,500,000 assigned to IDS Life
Insurance Company (the "IDS Note") if the IDS Note was paid in full on the
Effective Time, over (ii) the prepayment penalty due on the principal amount
actually outstanding on the IDS Note if the IDS Note was paid in the full on
the Effective Time, on a dollar-for-dollar basis, but in no event greater than
$700,000.
SECTION 1.7 Conversion of Securities; Dissenting Shares. Subject to
Section 1.7(h) regarding fractional shares, at the Effective Time, by virtue of
the Merger and without action on the part of the Company, the Seller or the
holders of the Seller's securities:
(a) Each share of Seller Common Stock issued and outstanding immediately
prior to the Effective Time, other than Shares owned by the Company, or any
direct or indirect wholly owned Company Subsidiary or Seller Subsidiary for its
own account (all such shares of Seller Common Stock issued and outstanding
immediately prior to the Effective Time being referred to herein as the
"Shares") and other than Dissenting Shares (as defined in Section 1.7(j)),
shall be converted into the right to receive a number of shares of Company
Common Stock, determined by dividing the Per Share Merger Consideration by the
Average Trading Price and rounding the
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result to the nearest one thousandth of a share (the "Stock Consideration");
provided, however, that, subject to the election and allocation procedures set
forth in this Section 1.7, each holder of Shares will be entitled, with respect
to the Merger Consideration to be received for each Share held by the holder,
to elect to receive cash from the Company, without interest (a "Cash
Election"), in an amount equal to the Per Share Merger Consideration (the "Cash
Consideration").
(b) The number of Shares which may be converted into the right to receive
the Cash Consideration in the Merger shall be no more than (i) the Cash Amount
divided by the Per Share Merger Consideration (rounded down to the nearest
whole number) minus (ii) the total number of Dissenting Shares, if any (the
"Cash Election Number").
(c) If the aggregate number of Shares covered by Cash Elections (the "Cash
Election Shares") exceeds the Cash Election Number, each Cash Election Share
shall be converted, at the Effective Time, into the right to receive (i) an
amount in cash, without interest, equal to the product of (x) the Per Share
Consideration and (y) a fraction (the "Cash Fraction"), the numerator of which
shall be the Cash Election Number and the denominator of which shall be the
total number of Cash Election Shares, and (ii) a number of shares of Company
Common Stock equal to the product of (x) the Stock Consideration and (y) a
fraction equal to one minus the Cash Fraction.
(d) In the event that Section 1.7(c) above is inapplicable, all Cash
Election Shares shall be converted, at the Effective Time, into the right to
receive the Cash Consideration and all other Shares, other than Dissenting
Shares, shall be converted, at the Effective Time, into the right to receive
the Stock Consideration.
(e) All Cash Elections shall be made on a form designed for that purpose and
mutually acceptable to the Company and Seller (a "Form of Election") and mailed
to holders of record of Shares as of the record date for the Seller's
Shareholders' Meeting or such other date as the Company and the Seller shall
mutually agree (the "Election Form Record Date"). The Company and the Seller
shall make available one or more Election Forms as may be reasonably requested
by all persons who become holders of record of Shares between the Election Form
Record Date and the Election Deadline (as defined below). Elections shall be
made by submitting to the Exchange Agent a duly completed Form of Election. To
be effective, a Form of Election must be properly completed, signed and
submitted to the Exchange Agent in accordance with Section 1.7(f). The Company
will have the discretion, which it may delegate in whole or in part to the
Exchange Agent, to reasonably determine whether Forms of Election have been
properly completed, signed and submitted or revoked and to disregard immaterial
defects in Forms of Election. The decision of the Company (or the Exchange
Agent) shall be conclusive and binding. Neither the Company nor the Exchange
Agent will be under any obligation to notify any person of any defect in a Form
of Election submitted to the Exchange Agent. The Exchange Agent shall also make
all computations contemplated by this Section 1.7 and all computations shall be
conclusive and binding on the holders of Shares.
(f) A Form of Election must be received by the Exchange Agent by the close
of business of the last business day prior to the date of the Seller
Shareholders' Meeting (as defined below) in order to be effective. Such date
shall hereinafter be referred to as the "Election Deadline." Any holder of
Shares who has made an election may at any time prior to the Election Deadline
change or withdraw its election by written notice to the Exchange Agent prior
to the Election Deadline. As soon as practicable after the Election Deadline,
the Exchange Agent shall determine the allocation of the cash portion of the
Merger Consideration and the stock portion of the Merger Consideration and
shall notify the Company of its determination.
(g) The Shares of a holder who does not submit a Form of Election which is
received by the Exchange Agent prior to the Election Deadline (other than
Dissenting Shares (as defined in Section 1.7(j))) shall be converted into the
right to receive the Stock Consideration at the Effective Time. If the Company
or the Exchange Agent shall determine that any purported Cash Election was not
properly made, the purported Cash Election shall be deemed to be of no force
and effect and the Shares of the holder making such purported Cash Election
shall be converted into the right to receive the Stock Consideration at the
Effective Time.
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(h) No fractional shares of Company Common Stock shall be issued in the
Merger. All fractional shares of Company Common Stock that a holder of any
Shares would otherwise be entitled to receive as a result of the Merger shall
be aggregated. If a fractional share of Company Common Stock results from the
aggregation, the holder shall be entitled to receive, in lieu thereof, a cash
amount, without interest, determined by multiplying the Average Trading Price
by the fraction of a share of Company Common Stock to which the holder would
otherwise have been entitled. As promptly as practicable after the
determination of the amount of cash, if any, to be paid to holders of
fractional share interests, the Exchange Agent shall so notify the Company, and
the Company shall deposit that amount with the Exchange Agent and shall cause
the Exchange Agent to forward payments to the holders of fractional share
interests, subject to and in accordance with the terms of this Section 1.7.
(i) Each share of Seller Common Stock held by the Company or any direct or
indirect wholly owned Company Subsidiary or Seller Subsidiary for its own
account shall be canceled and extinguished at the Effective Time without
conversion thereof into the Merger Consideration or payment therefor.
(j) Notwithstanding anything in this Agreement to the contrary, shares of
Seller Common Stock which are issued and outstanding immediately prior to the
Effective Time and which are held by shareholders or beneficial owners who have
validly exercised and perfected dissenter's rights with respect to those Shares
under Sections 302A.471 and 302A.473 of the MBCA and have not withdrawn or lost
such rights (the "Dissenting Shares") shall not be converted into or be
exchangeable for the right to receive the Merger Consideration in accordance
with this Section 1.7, unless and until such holders or beneficial owners shall
have failed to perfect or shall have effectively withdrawn or lost their
dissenter's rights with respect to such Dissenting Shares under the MBCA.
Dissenting Shares shall be treated in accordance with Sections 302A.471 and
302A.473 of the MBCA, if and to the extent applicable. If, after the Effective
Time, any such holder or beneficial owner shall have failed to perfect or shall
have effectively withdrawn or lost such right to dissent with respect to any
Dissenting Shares, such Dissenting Shares shall thereupon be treated as if they
had been converted into and become exchangeable only for the right to receive,
as of the Effective Time, the Stock Consideration in accordance with this
Section 1.7, without any interest thereon. Seller shall give the Company (a)
prompt notice of each and every notice of a shareholder's or beneficial owner's
intent to demand payment of the "fair value" of the shareholder's or beneficial
owner's Shares, attempted withdrawals of such demands, and any other
instruments served pursuant to the MBCA and received by the Seller relating to
rights to be paid the "fair value" of Shares, as provided in Sections 302A.471
and 302A.473 of the MBCA and (b) the opportunity to direct all negotiations and
proceedings with respect to such demands for "fair value." Seller shall not,
except with the prior written consent of the Company, voluntarily make any
payment with respect to, offer to settle or settle, or approve any withdrawal
of any such demands for "fair value."
SECTION 1.8 Exchange of Certificates.
(a) Exchange Agent. The Company shall deposit, or shall cause to be
deposited, from time to time, with a bank or trust company designated by the
Company and which may be an affiliate of the Company (the "Exchange Agent"),
for the benefit of the holders of Shares, for exchange in accordance with this
Article I, through the Exchange Agent, the Merger Consideration, together with
any dividends or distributions with respect thereto, if any, to be paid in
respect of Shares pursuant to this Article I (the "Exchange Fund"). Such
deposits shall be made after the Effective Time as requested by the Exchange
Agent in order for the Exchange Agent to promptly deliver the Merger
Consideration.
(b) Exchange Procedures. As soon as reasonably practicable after the
Effective Time, the Exchange Agent shall mail to each holder of record of a
certificate representing Shares which were converted into the right to receive
the Merger Consideration pursuant to Section 1.7 (each, a "Certificate" and
collectively, the "Certificates"), (i) a letter of transmittal (which shall
specify that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon delivery of the Certificates to the Exchange
Agent and shall be in such form and have such other provisions as the Company
may reasonably specify) and (ii) instructions for use in effecting the
surrender of the Certificates in exchange for the Merger Consideration. Upon
surrender of a
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Certificate for cancellation to the Exchange Agent together with such letter of
transmittal, duly executed, the holder of such Certificate shall be entitled to
receive in exchange therefor the Merger Consideration and any unpaid dividends
and distributions thereon as provided in this Article I, which such holder has
the right to receive in respect of the Certificate surrendered pursuant to the
provisions of this Article I, and the Certificate so surrendered shall
forthwith be canceled. In the event of a transfer of ownership of Shares which
is not registered in the transfer records of the Seller, a transferee may
exchange the Certificate representing such Shares for the Merger Consideration
and any unpaid dividends and distributions thereon as provided in this Article
I if the Certificate representing such Shares is presented to the Exchange
Agent, accompanied by all documents required to evidence and effect such
transfer and by evidence that any applicable stock transfer taxes have been
paid. In the event any Certificate shall have been lost, stolen or destroyed,
upon the making of an affidavit of that fact by the person claiming such
Certificate to be lost, stolen or destroyed and the posting by such person of a
bond in such amount as the Company may direct as indemnity against any claim
that may be made against it or the Exchange Agent with respect to such
Certificate, the Exchange Agent will issue in exchange for such lost, stolen or
destroyed Certificate the Merger Consideration and any unpaid dividends and
distributions thereon as provided in this Article I, which such holder would
have had the right to receive in respect of such lost, stolen or destroyed
Certificate. Until surrendered as contemplated by this Section 1.8, each
Certificate shall be deemed at any time after the Effective Time to represent
only the right to receive upon such surrender the Merger Consideration and any
unpaid dividends and distributions thereon as provided in this Article I.
(c) Distributions with Respect to Unexchanged Shares. No dividends or other
distributions declared or made after the Effective Time with respect to Company
Common Stock with a record date after the Effective Time shall be paid to the
holder of any unsurrendered Certificate with respect to the shares of Company
Common Stock issuable in exchange for the Shares represented thereby, and no
cash payment in lieu of fractional shares shall be paid to any such holder
pursuant to Section 1.7(h), until the holder of such Certificate shall
surrender such Certificate. Subject to the effect of applicable laws, following
surrender of any such Certificate, there shall be paid to the holder of the
certificates representing whole shares of Company Common Stock issued in
exchange therefor, without interest, (i) promptly, the amount of any cash
payable with respect to a fractional share of Company Common Stock to which
such holder is entitled pursuant to Section 1.7(h) and the amount of dividends
or other distributions with a record date after the Effective Time theretofore
paid with respect to such whole shares of Company Common Stock, and (ii) at the
appropriate payment date, the amount of dividends or other distributions, with
a record date after the Effective Time but prior to surrender and a payment
date occurring after surrender, payable with respect to such whole shares of
Company Common Stock.
(d) No Further Rights in the Shares. All Merger Consideration issued or
paid upon conversion of the Shares in accordance with the terms hereof
(including any cash paid pursuant to Section 1.7(h)) shall be deemed to have
been issued or paid in full satisfaction of all rights pertaining to such
Shares.
(e) Termination of Exchange Fund. Any portion of the Exchange Fund which
remains undistributed to the former shareholders of Seller for six (6) months
after the Effective Time shall be delivered to the Company, upon demand, and
any former shareholders of Seller who have not theretofore complied with this
Article I shall thereafter look only to the Company to claim the Merger
Consideration to which they are entitled, any cash in lieu of fractional shares
of Company Common Stock and any dividends or distributions with respect to
Company Common Stock, in each case without interest thereon, and subject to
Section 1.8(f).
(f) No Liability. Neither the Company nor the Seller shall be liable to any
former holder of Shares for any shares of Company Common Stock (or dividends or
distributions with respect thereto) or cash or other payment delivered to a
public official pursuant to any abandoned property, escheat or similar laws.
(g) Withholding Rights. The Company shall be entitled to deduct and
withhold from the consideration otherwise payable pursuant to this Agreement to
any former holder of Shares such amounts as the Company is required to deduct
and withhold with respect to the making of such payment under the Code, or any
provision of state, local or foreign tax law. To the extent that amounts are so
withheld by the Company, such withheld
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amounts shall be treated for all purposes of this Agreement as having been paid
to the former holder of the Shares in respect of which such deduction and
withholding was made by the Company.
SECTION 1.9 Stock Transfer Books. At the Effective Time, the stock
transfer books of Seller shall be closed and there shall be no further
registration of transfers of shares of Seller Common Stock thereafter on the
records of Seller. From and after the Effective Time, the holders of
certificates evidencing ownership of shares of Seller Common Stock outstanding
immediately prior to the Effective Time shall cease to have any rights with
respect to such Shares except as otherwise provided herein or by law. On or
after the Effective Time, any Certificates presented to the Exchange Agent or
the Company for any reason shall be converted into the Merger Consideration in
accordance with this Article I.
SECTION 1.10 Adjustments for Dilution and Other Matters. If, after the
date of this Agreement and during the period in which the Average Trading Price
is determined, the Company shall declare a stock dividend or distribution upon
or subdivide, split up, reclassify or combine the Company Common Stock or
declare a dividend or make a distribution on the Company Common Stock in any
security convertible into Company Common Stock, appropriate adjustment or
adjustments, if any, will be made to the Merger Consideration and the Stock
Consideration determined pursuant to Sections 1.6(a) and 1.7(a).
SECTION 1.11 Company Common Stock. The shares of Company Common Stock
issued and outstanding immediately prior to the Effective Time shall be
unaffected by the Merger and at the Effective Time, such shares shall remain
issued and outstanding.
ARTICLE II--REPRESENTATIONS AND WARRANTIES OF SELLER
Except as set forth in the Disclosure Schedule delivered by Seller to the
Company prior to the execution of this Agreement (the "Seller Disclosure
Schedule"), which shall identify exceptions by specific Section references,
Seller hereby represents and warrants to the Company that:
SECTION 2.1 Organization and Qualification; Subsidiaries.
(a) Seller is a corporation duly organized, validly existing and in good
standing under the laws of the State of Minnesota, and is a registered bank
holding company under the Bank Holding Company Act of 1956, as amended (the
"BHCA") and is exempt from certain prohibitions of the BHCA pursuant to its
status as an exempt bank holding company under Section (4)(c)(ii) of the BHCA.
Each subsidiary of Seller ("Seller Subsidiary," or collectively the "Seller
Subsidiaries") is a state banking corporation, corporation or limited liability
company duly organized, validly existing and in good standing under the laws of
the state of its incorporation or organization. Each of Seller and the Seller
Subsidiaries has the requisite corporate power and authority and is in
possession of all franchises, grants, authorizations, licenses, permits,
easements, consents, certificates, approvals and orders ("Seller Approvals")
necessary to own, lease and operate its properties and to carry on its business
as it is now being conducted, including appropriate authorizations from the
Board of Governors of the Federal Reserve System (the "Federal Reserve Board"),
the Federal Deposit Insurance Corporation (the "FDIC"), the Securities and
Exchange Commission (the "SEC"), the National Association of Securities
Dealers, Inc., the Minnesota Secretary of State and the Minnesota Department of
Commerce, and neither Seller nor any Seller Subsidiary has received any notice
of proceedings relating to the revocation or modification of any Seller
Approvals, except in each case where the revocations or modifications, the
failure to have such power, authority and Seller Approvals would not,
individually or in the aggregate, have a Material Adverse Effect (as defined in
Section 2.1(d)) on Seller and Seller Subsidiaries, taken as a whole.
(b) Seller and each Seller Subsidiary is duly qualified or licensed as a
foreign corporation or foreign limited liability company to do business, and is
in good standing, in each jurisdiction where the character of its properties
owned, leased or operated by it or the nature of its activities makes such
qualification or licensing necessary, except for such failures to be so duly
qualified or licensed and in good standing that would not, either
A-6
individually or in the aggregate, have a Material Adverse Effect on Seller or
Seller Subsidiaries, taken as a whole.
(c) A true and complete list of all of the Seller Subsidiaries, together
with (i) the Seller's percentage ownership of each Seller Subsidiary and (ii)
laws under which the Seller Subsidiary is incorporated or organized is set
forth on Annex B. Except as set forth on Annex B, Seller and/or one or more of
the Seller Subsidiaries owns beneficially and of record all of the outstanding
shares of capital stock or limited liability company interests of each of the
Seller Subsidiaries. Except as set forth on Annex B, Seller does not directly
or indirectly own any equity or similar interests in, or any interests
convertible into or exchangeable or exercisable for any equity or similar
interest in, any corporation, partnership, joint venture or other business
association or entity other than in the ordinary course of business, and in no
event in excess of 5% of the outstanding equity securities of such entity.
(d) As used in this Agreement, the term "Material Adverse Effect" means,
with respect to the Company or the Seller, as the case may be, any effect that
(i) is material and adverse to the business, assets, liabilities, results of
operations or financial condition of the Company and the Company Subsidiaries
(as defined in Section 3.1(a)) taken as a whole or the Seller and Seller
Subsidiaries taken as a whole, respectively, or (ii) materially impairs the
ability of the Company or Seller, respectively, to consummate the transactions
contemplated hereby; provided, however, that Material Adverse Effect shall not
be deemed to include the impact of (a) compliance with the terms of, or the
taking of actions contemplated by, this Agreement, (b) changes in laws and
regulations or interpretations thereof that are generally applicable to the
banking industry, (c) changes in generally accepted accounting principles that
are generally applicable to the banking industry, (d) reasonable expenses
incurred in connection with the transactions contemplated hereby, and (e)
changes attributable to or resulting from changes in general economic
conditions affecting banks or their holding companies generally, including
changes in the prevailing level of interest rates; provided, further, however,
that none of the following shall be deemed (either alone or in combination) to
constitute, and none of the following shall be taken into account in
determining whether there has been or will be, a Material Adverse Effect with
respect to the Seller: (x) the payment by Seller and the Seller Subsidiaries of
any amounts due to, or the provision of any other benefits to, any officers or
employees under employment contracts, non-competition agreements, employee
benefit plans, severance agreements or other arrangements in existence as of
the date of this Agreement, (y) the taking of any action by the Seller or any
Seller Subsidiary approved or consented to by the Company, or (z) any adverse
event (including litigation, employee terminations or disruption of business
relationships) directly caused by this Agreement and the transactions
contemplated herein. Failure by the Seller to meet its revenue or income
projections shall not be deemed in and of itself to be a Material Adverse
Effect.
(e) The minute books of the Seller and each of the Seller Subsidiaries which
is a corporation contain true, complete and accurate records in all material
respects of all meetings and other corporate actions held or taken since
January 1, 1998, of their respective shareholders and Boards of Directors
(including committees of their respective Boards of Directors).
SECTION 2.2 Articles of Incorporation and By-Laws. Seller has heretofore
furnished to the Company a complete and correct copy of the Articles of
Incorporation and the By-Laws, as amended or restated, of Seller ("Seller
Articles" and "Seller By-Laws," respectively) and the Articles of Incorporation
and the By-Laws, or Articles of Organization and Operating Agreement, as the
case may be, of each Seller Subsidiary (the "Subsidiary Organizational
Documents"). The Seller Articles, the Seller By-Laws and the Subsidiary
Organizational Documents are in full force and effect. Neither Seller nor any
Seller Subsidiary is in violation of any of the provisions of the Seller
Articles, the Seller By-Laws or the Subsidiary Organizational Documents.
SECTION 2.3 Capitalization. The authorized capital stock of Seller
consists of 92,000 shares of Seller Common Stock. As of the date of this
Agreement, 84,154 shares of Seller Common Stock are issued and outstanding, all
of which are duly authorized, validly issued, fully paid and non-assessable,
and not issued in violation of any preemptive right of any Seller shareholder.
There are no outstanding options, warrants or other
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rights, agreements, arrangements or commitments of any character, including
without limitation voting agreements or arrangements, relating to the issued or
unissued capital stock or limited liability company interests of Seller or any
Seller Subsidiary or obligating Seller or any Seller Subsidiary to issue or
sell any shares of capital stock or limited liability company interests of, or
other equity interests in, Seller or any Seller Subsidiary. There are no
obligations, contingent or otherwise, of Seller or any Seller Subsidiary to
repurchase, redeem or otherwise acquire any shares of Seller Common Stock or
the capital stock or limited liability company interests of any Seller
Subsidiary or to provide funds to or make any investment (in the form of a
loan, capital contribution or otherwise) in any Seller Subsidiary or any other
entity, except for loan commitments and other funding obligations entered into
in the ordinary course of business and except as set forth on Schedule 2.3 of
Seller's Disclosure Schedule. Each of the outstanding shares of capital stock
or limited liability company interests of each Seller Subsidiary are duly
authorized, validly issued, fully paid and non-assessable, and not issued in
violation of any preemptive rights of any Seller Subsidiary shareholder, and
such shares or limited liability company interests owned by Seller or another
Seller Subsidiary are owned free and clear of all security interests, liens,
claims, pledges, agreements, limitations of Seller's voting rights, charges or
other encumbrances of any nature whatsoever, except as set forth on Section 2.3
of Seller's Disclosure Schedule.
SECTION 2.4 Authority. Seller has the requisite corporate power and
authority to execute and deliver this Agreement, to perform its obligations
hereunder and to consummate the transactions contemplated hereby (other than,
with respect to the Merger, the approval and adoption of this Agreement by
Seller's shareholders in accordance with the MBCA and the Seller Articles and
Seller By-Laws). The execution and delivery of this Agreement by Seller and the
consummation by Seller of the transactions contemplated hereby have been duly
and validly authorized by all necessary corporate action, including without
limitation Seller's Board of Directors, and no other corporate proceedings on
the part of Seller are necessary to authorize this Agreement or to consummate
the transactions so contemplated hereby (other than, with respect to the
Merger, the approval and adoption of this Agreement by Seller's shareholders in
accordance with the MBCA and the Seller Articles and Seller By-Laws). This
Agreement has been duly executed and delivered by, and, assuming due
authorization, execution and delivery by Company, constitutes a valid and
binding obligation of Seller, enforceable against Seller in accordance with its
terms, except as enforcement may be limited by laws affecting insured
depository institutions, general principles of equity whether applied in a
court of law or a court of equity and by bankruptcy, insolvency and similar
laws affecting creditors' rights and remedies generally.
SECTION 2.5 No Conflict; Required Filings and Consents.
(a) The execution and delivery of this Agreement by Seller do not, and the
performance of this Agreement and the transactions contemplated hereby by
Seller shall not, (i) conflict with or violate the Seller Articles or Seller
By-Laws or the Subsidiary Organizational Documents, (ii) conflict with or
violate any domestic (federal, state or local) or foreign law, statute,
ordinance, rule, regulation, order, judgment or decree (collectively, "Laws")
applicable to Seller or any Seller Subsidiary or by which its or any of their
respective properties is bound or affected, or (iii) except as set forth on
Schedule 2.5(a)(iii) of Seller's Disclosure Schedule, result in any breach of
or constitute a default (or an event that with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, or result in the creation of a lien
or encumbrance on any of the properties or assets of Seller or any Seller
Subsidiary pursuant to, any note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other instrument or obligation
to which Seller or any Seller Subsidiary is a party or by which Seller or any
Seller Subsidiary or its or any of their respective properties is bound or
affected, except in the case of clauses (ii) and (iii) for any such conflicts,
violations, breaches, defaults or other occurrences that would not,
individually or in the aggregate, have a Material Adverse Effect on Seller and
the Seller Subsidiaries, taken as a whole. Sections 302A.671, 302A.673 and
302A.675 of the MBCA are inapplicable to the Merger, this Agreement and the
transactions contemplated hereby or entered into in connection herewith
(including without limitation the execution of that certain Shareholder Voting
Agreement dated as of the date hereof among the Company and certain
shareholders of the Seller). Without limiting the generality of the foregoing,
the Seller is not an "issuing public corporation," as such
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term is defined in Section 302A.011 Subd. 39 of the MBCA. No other "control
share acquisition," "fair price" (other than Sections 302A.471 and 302A.473 of
the MBCA) or other anti-takeover laws or regulations enacted under state or
federal laws in the United States apply to the Merger, this Agreement or any of
the transactions contemplated hereby or entered into in connection herewith
(including, without limitation, the execution of the Shareholder Voting
Agreement).
(b) The execution and delivery of this Agreement by Seller do not, and the
performance of this Agreement by Seller shall not, require any consent,
approval, authorization or permit of, or filing with or notification to, any
governmental or regulatory authority, domestic or foreign, except (i) for
applicable requirements, if any, of the Securities Act of 1933, as amended (the
"Securities Act"), the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), state securities or blue sky laws ("Blue Sky Laws"), the BHCA,
the banking laws and regulations of the United States of America (the "USBL"),
the banking laws and regulations of the State of Minnesota (the "MBL") and the
filing and recordation of appropriate merger or other documents as required by
the MBCA and the WBCL and (ii) where the failure to obtain such consents,
approvals, authorizations or permits, or to make such filings or notifications,
would not prevent or delay consummation of the Merger or otherwise prevent
Seller from performing its obligations under this Agreement, and would not have
a Material Adverse Effect on Seller or Seller Subsidiaries, taken as a whole.
SECTION 2.6 Compliance; Permits. Neither Seller nor any Seller Subsidiary
is in conflict with, or in default or violation of, (i) any Law applicable to
Seller or any Seller Subsidiary or by which its or any of their respective
properties is bound or affected, or (ii) any note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise or other instrument or
obligation to which Seller or any Seller Subsidiary is a party or by which
Seller or any Seller Subsidiary or its or any of their respective properties is
bound or affected, except for any such conflicts, defaults or violations which
would not, individually or in the aggregate, have a Material Adverse Effect on
Seller or Seller Subsidiaries, taken as a whole.
SECTION 2.7 Securities and Banking Reports; Financial Statements.
(a) Seller and each Seller Subsidiary have filed all forms, reports and
documents required to be filed with the Federal Reserve Board, the Minnesota
Department of Commerce and any other applicable federal or state securities or
banking authorities (all such reports and statements are collectively referred
to as the "Seller Reports"). The Seller Reports, including all Seller Reports
filed after the date of this Agreement, (i) were or will be prepared in all
material respects in accordance with the requirements of applicable Law and
(ii) did not at the time they were filed, or will not at the time they are
filed, contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
(b) Each of the consolidated financial statements (including, in each case,
any related notes thereto) contained in the Seller Reports, including any
Seller Reports filed since the date of this Agreement and prior to or on the
Effective Time, have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis throughout the periods
involved (except as may be indicated in the notes thereto) and each fairly
presents the consolidated financial position of Seller and Seller Subsidiaries
as of the respective dates thereof and the consolidated results of its
operations and changes in financial position for the periods indicated, except
that any unaudited interim financial statements were or are subject to normal
and recurring year-end adjustments, which were not or are not expected to be
material in amount.
(c) Except (i) for those liabilities that are fully reflected or reserved
against on the consolidated balance sheet of the Seller for the fiscal year
ended December 31, 2000, (ii) for liabilities incurred in the ordinary course
of business consistent with past practice since December 31, 2000, and (iii) as
set forth in Section 2.7 of the Seller Disclosure Schedule, neither Seller nor
any Seller Subsidiary has incurred any liability of any nature whatsoever
(whether absolute, accrued, contingent or otherwise due or to become due),
that, either alone or when combined with all other undisclosed liabilities, has
had, or would reasonably be expected to have, a Material Adverse Effect on the
Seller and the Seller Subsidiaries, taken as a whole.
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SECTION 2.8 Absence of Certain Changes or Events. Except as set forth in
Section 2.8 of the Seller Disclosure Schedule, since December 31, 2000 to the
date of this Agreement, Seller and the Seller Subsidiaries have conducted their
businesses only in the ordinary course and in a manner consistent with past
practice and, since December 31, 2000, there has not been (i) any change in the
financial condition, results of operations or business of Seller and any of the
Seller Subsidiaries having a Material Adverse Effect on Seller or the Seller
Subsidiaries, taken as a whole, (ii) any damage, destruction or loss (whether
or not covered by insurance) with respect to any assets of Seller or any of the
Seller Subsidiaries having a Material Adverse Effect on Seller and the Seller
Subsidiaries, taken as a whole, (iii) any change by Seller in its accounting
methods, principles or practices, (iv) any revaluation by Seller of any of its
assets in any material respect, (v) except for regular cash dividends on Seller
Common Stock with usual record and payment dates, to the date of this
Agreement, any declaration, setting aside or payment of any dividends or
distributions in respect of shares of Seller Common Stock or any redemption,
purchase or other acquisition of any of its securities or any of the securities
of any Seller Subsidiary, (vi) increased the wages, salaries, compensation,
pension, or other fringe benefits or perquisites payable to any executive
officer, employee, or director from the amount thereof in effect as of January
1, 2001 (which amounts have been previously disclosed to Company), granted any
severance or termination pay, entered into any contract to make or grant any
severance or termination pay, or paid any bonus, (vii) suffered any strike,
work stoppage, slow-down or other labor disturbance, (viii) been a party to a
collective bargaining agreement, contract or other agreement or understanding
with a labor union or organization, or (ix) had any union organizing activities.
SECTION 2.9 Absence of Litigation.
(a) Except as set forth in Section 2.9 of the Seller Disclosure Schedule,
neither the Seller nor any of the Seller Subsidiaries is a party to any, and
there are no pending or, to the Seller's knowledge, threatened, legal,
administrative, arbitral or other proceedings, claims, actions or governmental
or regulatory investigations of any nature against the Seller or any of the
Seller Subsidiaries or challenging the validity or propriety of the
transactions contemplated by this Agreement as to which there is reasonable
probability of an adverse determination and which, if adversely determined,
would, individually or in the aggregate, have a Material Adverse Effect on the
Seller and the Seller Subsidiaries, taken as a whole.
(b) There is no injunction, order, judgment, decree or regulatory
restriction imposed upon the Company, any of the Seller Subsidiaries or the
assets of the Seller or any of the Seller Subsidiaries which has had a Material
Adverse Effect on the Seller and the Seller Subsidiaries, taken as a whole.
SECTION 2.10 Employee Benefit Plans.
(a) Current Plans. Section 2.10(a) of the Seller Disclosure Schedule lists
(i) all employee benefit plans (as defined in Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA")), and all bonus,
stock option, stock purchase, restricted stock, incentive, deferred
compensation, retiree medical or life insurance, supplemental retirement,
severance or other benefit plans, programs or arrangements, and all material
employment, termination, severance or other employment contracts or employment
agreements, with respect to which Seller or any Seller Subsidiary has any
obligation (collectively, the "Plans"). Seller has furnished or made available
to the Company a complete and accurate copy of each Plan (or a description of
the Plans, if the Plans are not in writing) and a complete and accurate copy of
each material document prepared in connection with each such Plan, including,
without limitation, and where applicable, a copy of (i) each trust or other
funding arrangement, (ii) each summary plan description and summary of material
modifications, (iii) the three (3) most recently filed IRS Forms 5500 and
related schedules, (iv) the most recently issued IRS determination letter for
each such Plan and the materials submitted to obtain that letter and (v) the
three (3) most recently prepared actuarial and financial statements with
respect to each such Plan.
(b) Absence of Certain Types of Plans. Except as disclosed in the Seller
Disclosure Schedule, no member of Seller's "controlled group," within the
meaning of Section 4001(a)(14) of ERISA, maintains or contributes to,
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or within the five years preceding the Effective Time has maintained or
contributed to, an employee pension benefit plan subject to Title IV of ERISA
("Title IV Plan"). No Title IV Plan is a "multiemployer pension plan" as
defined in Section 3(37) of ERISA. Except as disclosed in the Seller Disclosure
Schedule, none of the Plans obligates Seller or any of the Seller Subsidiaries
to pay material separation, severance, termination or similar-type benefits
solely as a result of any transaction contemplated by this Agreement or as a
result of a "change in control," within the meaning of such term under Section
280G of the Code. Except as disclosed in the Seller Disclosure Schedule, or as
required by COBRA, none of the Plans provides for or promises retiree medical,
disability or life insurance benefits to any current or former employee,
officer or director of Seller or any of the Seller Subsidiaries. Each of the
Plans is subject only to the laws of the United States or a political
subdivision thereof.
(c) Compliance with Applicable Law. Except as disclosed in the Seller
Disclosure Schedule, each Plan has been operated in all respects in accordance
with the requirements of all applicable Law and all persons who participate in
the operation of such Plans and all Plan "fiduciaries" (within the meaning of
Section 3(21) of ERISA) have acted in accordance with the provisions of all
applicable Law, except where such violations of applicable Law would not,
individually or in the aggregate, have a Material Adverse Effect on Seller and
the Seller Subsidiaries, taken as a whole. Seller and the Seller Subsidiaries
have performed all obligations required to be performed by any of them under,
are not in any respect in default under or in violation of, and Seller and the
Seller Subsidiaries have no knowledge of any default or violation by any party
to, any Plan, except where such failures, defaults or violations would not,
individually or in the aggregate, have a Material Adverse Effect on Seller and
the Seller Subsidiaries, taken as a whole. No legal action, suit or claim is
pending or, to the knowledge of Seller or the Seller Subsidiaries, threatened
with respect to any Plan (other than claims for benefits in the ordinary
course) and, except as disclosed in the Seller Disclosure Schedule, to the
knowledge of Seller or the Seller Subsidiaries, no fact or event exists that
could reasonably be expected to give rise to any such action, suit or claim.
Except as disclosed in the Seller Disclosure Schedule, neither Seller nor any
Seller Subsidiary has incurred any material liability under Section 302 of
ERISA or Section 412 of the Code that is currently due and that has not been
satisfied in full and no condition exists that presents a material risk of
incurring any such liability.
(d) Qualification of Certain Plans. Each Plan that is intended to be
qualified under Section 401(a) of the Code or Section 401(k) of the Code
(including each trust established in connection with such a Plan that is
intended to be exempt from Federal income taxation under Section 501(a) of the
Code) has received a favorable determination letter from the IRS (as defined
herein) that it is so qualified, and, except as disclosed in the Seller
Disclosure Schedule, Seller is not aware of any fact or event that has occurred
since the date of such determination letter from the IRS to adversely affect
the qualified status of any such Plan. Except as disclosed on the Seller
Disclosure Schedule, no trust maintained or contributed to by the Seller or any
of the Seller Subsidiaries is intended to be qualified as a voluntary
employees' beneficiary association or is intended to be exempt from federal
income taxation under Section 501(c)(9) of the Code.
(e) Absence of Certain Liabilities and Events. Except for matters disclosed
in the Seller Disclosure Schedule, there has been no non-exempt prohibited
transaction (within the meaning of Section 406 of ERISA or Section 4975 of the
Code) with respect to any Plan. Seller and each of the Seller Subsidiaries has
not incurred any liability for any excise tax arising under Sections 4971
through 4980E of the Code that would individually or in the aggregate have a
Material Adverse Effect on the Seller and the Seller Subsidiaries, taken as a
whole, and, to the knowledge of Seller or the Seller Subsidiaries, no fact or
event exists that could reasonably be expected to give rise to any such
liability.
(f) Plan Contributions. All contributions, premiums or payments required to
be made with respect to any Plan have been made on or before their due dates.
(g) Employment Contracts. Except for employment, severance, consulting or
other similar contracts with any employees, consultants, officers or directors
of Seller or any of the Seller Subsidiaries disclosed in Section 2.10(g) of
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the Seller Disclosure Schedule, neither Seller nor any Seller Subsidiary is a
party to any such contracts. Neither Seller nor any Seller Subsidiary is a
party to any collective bargaining agreements.
(h) Effect of Agreement. Except as disclosed on the Seller Disclosure
Schedule, the consummation of the transactions contemplated by this Agreement
will not, either alone or in conjunction with another event, entitle any
current or former employee of Seller or any Seller Subsidiary to severance pay,
unemployment compensation or any other payment, except as required by law or as
expressly provided herein, or accelerate the time of payment or vesting or
increase the compensation due any such employee or former employee, in each
case, except as expressly provided herein.
SECTION 2.11 Registration Statement; Proxy Statement/Prospectus. The
information supplied by Seller for inclusion in the Registration Statement (as
defined in Section 3.8) shall not at the time the Registration Statement is
declared effective contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in the light of the circumstances under which they
were made, not misleading. The information supplied by Seller for inclusion in
the proxy statement/prospectus to be sent to the shareholders of Seller in
connection with the meeting of Seller's shareholders to consider the approval
of this Agreement and the Merger (the "Seller Shareholders' Meeting") (such
proxy statement/prospectus as amended or supplemented is referred to herein as
the "Proxy Statement/Prospectus") shall not at the date the Proxy
Statement/Prospectus (or any amendment thereof or supplement thereto) is first
mailed to shareholders, at the time of the Seller Shareholders' Meeting and at
the Effective Time, be false or misleading with respect to any material fact
required to be stated herein, or omit to state any material fact required to be
stated therein or necessary in order to make the statements made therein, in
the light of the circumstances under which they are made, not misleading. If at
any time prior to the Effective Time any event relating to Seller or any of its
affiliates, officers or directors should be discovered by Seller which should
be set forth in an amendment to the Registration Statement or a supplement to
the Proxy Statement/Prospectus, Seller shall promptly inform the Company. The
Proxy Statement/Prospectus shall comply in all material respects as to form
with the requirements of the Securities Act, the Exchange Act (to the extent
applicable) and the rules and regulations thereunder. Notwithstanding the
foregoing, Seller makes no representation or warranty with respect to any
information about, or supplied or omitted by, the Company which is contained in
any of the foregoing documents.
SECTION 2.12 Title to Property. Except as set forth in Section 2.12 of the
Seller Disclosure Schedule, Seller and each of the Seller Subsidiaries has good
and marketable title to all of their respective properties and assets, real and
personal, free and clear of all mortgage liens, and free and clear of all other
liens, charges and encumbrances except liens for taxes not yet due and payable,
pledges to secure deposits and such minor imperfections of title, if any, as do
not materially detract from the value of or interfere with the present use of
the property affected thereby or which, individually or in the aggregate, would
not have a Material Adverse Effect on Seller and the Seller Subsidiaries, taken
as a whole; and all leases pursuant to which Seller or any of the Seller
Subsidiaries lease from others material amounts of real or personal property
are in good standing, valid and effective in accordance with their respective
terms, and there is not, under any of such leases, any existing material
default or event of default by Seller or any Seller Subsidiary (or event which
with notice or lapse of time, or both, would constitute a material default by
Seller or any Seller Subsidiary and in respect of which the Seller or such
Seller Subsidiary has not taken adequate steps to prevent such a default from
occurring). Substantially all of Seller's and each of the Seller's
Subsidiaries' buildings and equipment in regular use have been reasonably
maintained and are in good and serviceable condition, reasonable wear and tear
excepted.
SECTION 2.13 Environmental Matters. Except as set forth in Section 2.13 of
the Seller Disclosure Schedule, Seller represents and warrants that to the
Seller's knowledge: (i) each of the Seller, the Seller's Subsidiaries,
properties owned or operated by the Seller or the Seller's Subsidiaries and the
Participation Facilities (as hereinafter defined) are and have been in
compliance with all applicable federal, state and local laws including common
law, rules, guidance, regulations and ordinances and with all applicable
decrees, orders, judgments, and contractual obligations relating to the
environment, health, safety, natural resources, wildlife or "Hazardous
Materials" which are hereinafter defined as chemicals, pollutants,
contaminants, wastes, toxic
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substances, compounds, products, solid, liquid, gas, petroleum or other
regulated substances or materials which are hazardous, toxic or otherwise
harmful to health, safety, natural resources, or the environment
("Environmental Laws"), except for violations which, either individually or in
the aggregate, would not have a Material Adverse Effect on Seller or Seller's
Subsidiaries; (ii) during and prior to the period of (a) the Seller's or any of
the Seller's Subsidiaries' ownership or operation of any of their respective
current properties, or (b) the Seller's or any of the Seller's Subsidiaries'
participation in the management of any Participation Facility, Hazardous
Materials have not been generated, treated, stored, transported, released or
disposed of in, on, under, above, from or affecting any such property, except
where such release, generation, treatment, storage, transportation, or disposal
would not have, either individually or in the aggregate, a Material Adverse
Effect on the Seller or Seller's Subsidiaries; (iii) there is no asbestos or
any material amount of ureaformaldehyde materials in or on any property owned
or operated by Seller or Seller's Subsidiaries or any Participation Facility
and no electrical transformers or capacitors, other than those owned by public
utility companies, on any such properties contain any PCB's; (iv) there are no
underground or aboveground storage tanks and there have never been any
underground or aboveground storage tanks located on, in or under any properties
currently or formerly owned or operated by the Seller or any of Seller's
Subsidiaries or any Participation Facility; (v) neither Seller nor Seller's
Subsidiaries have received any notice from any governmental agency or third
party notifying the Seller or Seller's Subsidiaries of any Environmental Claim;
(vi) and there are no circumstances with respect to any properties currently
owned or operated by the Seller or any of Seller's Subsidiaries or any
Participation Facility that could reasonably be anticipated (a) to form the
basis for an Environmental Claim against Seller or Seller's Subsidiaries or any
properties currently or formerly owned or operated by the Seller or any of
Seller's Subsidiaries or any Participation Facility or (b) to cause any
properties currently owned or operated by the Seller or any of Seller's
Subsidiaries or any Participation Facility to be subject to any restrictions on
ownership, occupancy, use or transferability under any applicable Environmental
Law or require notification to or consent of any Governmental Authority or
third party pursuant to any Environmental Law.
The following definitions apply for purposes of this Section 2.13: (a)
"Participation Facility" means any facility in which the Seller or any of the
Seller's Subsidiaries participates in the management and, where required by the
context, said term means the owner or operator of such property; (b)
"Environmental Claims" shall mean any and all administrative, regulatory,
judicial or private actions, suits, demands, demand letters, notices, claims,
liens, notices of non-compliance or violation, investigations, allegations,
injunctions or proceedings relating in any way to (i) any Environmental Law;
(ii) any Hazardous Material including without limitation any abatements,
removal, remedial, corrective or other response action in connection with any
Hazardous Material, Environmental Law or order of a Governmental Authority; or
(iii) any actual or alleged damage, injury, threat or harm to health, safety,
natural resources, wildlife, or the environment, which individually or in the
aggregate would have a Material Adverse Effect on Seller or Seller's
Subsidiaries; and (c) "Governmental Authority" shall mean any applicable
federal, state, regional, county or local person or body having governmental
authority.
SECTION 2.14 Absence of Agreements. Neither Seller nor any Seller
Subsidiary is a party to any agreement or memorandum of understanding with, or
a party to any commitment letter or similar undertaking to, or is subject to
any order or directive by, or is a recipient of any extraordinary supervisory
letter which restricts materially the conduct of its business (including any
contract containing covenants which limit the ability of Seller or of any
Seller Subsidiary to compete in any line of business or with any person or
which involve any restriction of the geographical area in which, or method by
which, Seller or any Seller Subsidiary may carry on its business (other than as
may be required by Law or applicable regulatory authorities)), or in any manner
relates to its capital adequacy, its credit policies or its management, except
as disclosed in the Seller Disclosure Schedule, nor has Seller been advised
that any federal, state, or governmental agency is contemplating issuing or
requesting (or is considering the appropriateness of issuing or requesting) any
such order, decree, agreement, memorandum of understanding, extraordinary
supervisory letter, commitment letter or similar submission, except as
disclosed by Seller in Section 2.14 of the Seller Disclosure Schedule.
SECTION 2.15 Taxes. Seller and the Seller Subsidiaries have timely filed
all material Tax Returns (as defined below) required to be filed by them, and
Seller and the Seller Subsidiaries have timely paid and
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discharged all material Taxes (as defined below) due in connection with or with
respect to the filing of such Tax Returns, except such as are being contested
in good faith by appropriate proceedings and with respect to which Seller is
maintaining reserves adequate for their payment. To the knowledge of the
Seller, the liability for Taxes set forth on each such Tax Return adequately
reflects the Taxes required to be reflected on such Tax Return. For purposes of
this Agreement, "Tax" or "Taxes" shall mean taxes, charges, fees, levies, and
other governmental assessments and impositions of any kind, payable to any
federal, state, local or foreign governmental entity or taxing authority or
agency, including, without limitation, (i) income, franchise, profits, gross
receipts, estimated, ad valorem, value added, sales, use, service, real or
personal property, capital stock, license, payroll, withholding, disability,
employment, social security, workers compensation, unemployment compensation,
utility, severance, production, excise, stamp, occupation, premiums, windfall
profits, transfer and gains taxes, (ii) customs duties, imposts, charges,
levies or other similar assessments of any kind, and (iii) interest, penalties
and additions to tax imposed with respect thereto; and "Tax Returns" shall mean
returns, reports, and information statements with respect to Taxes required to
be filed with the United States Internal Revenue Service (the "IRS") or any
other governmental entity or taxing authority or agency, domestic or foreign,
including, without limitation, consolidated, combined and unitary tax returns.
Seller has made a valid and timely election under Subchapter S of the Code to
be treated as an "S Corporation" and to have each of the Seller Subsidiaries
that is treated as a domestic corporation or association for federal income tax
purposes to be treated as a "qualified Subchapter S Subsidiary," which election
was accomplished in compliance with all applicable federal and state laws and
regulations, has been effective since January 1, 1998, remains in effect as of
the date hereof and will remain in effect through the Effective Time. For the
purposes of this Section 2.15, references to the Seller and the Seller
Subsidiaries include former subsidiaries of Seller for the periods during which
any such corporations were owned, directly or indirectly, by Seller. Except as
otherwise disclosed in the Seller's Disclosure Schedule, to the knowledge of
the Seller, neither the IRS nor any other governmental entity or taxing
authority or agency is now asserting, either through audits, administrative
proceedings or court proceedings, any deficiency or claim for additional Taxes.
Except as otherwise disclosed, neither Seller nor any of the Seller
Subsidiaries has granted any waiver of any statute of limitations with respect
to, or any extension of a period for the assessment of, any Tax. Except as
otherwise disclosed in the Seller Disclosure Schedule and except for statutory
liens for current taxes not yet due, there are no material tax liens on any
assets of Seller or any of the Seller Subsidiaries. Except as otherwise
disclosed in the Seller Disclosure Schedule, neither Seller nor any of the
Seller Subsidiaries has received a ruling or entered into an agreement with the
IRS or any other taxing authority that would have a Material Adverse Effect on
Seller or the Seller Subsidiaries, taken as a whole, after the Effective Time.
Except as otherwise disclosed in the Seller Disclosure Schedule, no agreements
relating to allocating or sharing of Taxes exist among Seller and the Seller
Subsidiaries and no tax indemnities given by Seller or the Seller Subsidiaries
in connection with a sale of stock or assets remain in effect. From and after
January 1, 2001, neither the Seller nor any of the Seller Subsidiaries is
required to include income either (i) any amount in respect of any adjustment
under Section 481 of the Code, or (ii) any installment sale gain. Neither
Seller nor any of the Seller Subsidiaries has made an election under Section
341(f) of the Code.
SECTION 2.16 Insurance. Section 2.16 of the Seller Disclosure Schedule
lists all material policies of insurance of Seller and the Seller Subsidiaries
currently in effect. Neither Seller nor any of the Seller Subsidiaries has any
liability for unpaid premiums or premium adjustments not properly reflected on
Seller's financial statements for the fiscal year ended December 31, 2000.
SECTION 2.17 Brokers. No broker, finder or investment banker is entitled
to any brokerage, finder's or other fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of Seller.
SECTION 2.18 Tax Matters. Neither Seller nor, to the Seller's knowledge,
any of its affiliates has through the date of this Agreement taken or agreed to
take any action that would prevent the Merger from qualifying as a
reorganization under Section 368(a)(1)(A) of the Code.
SECTION 2.19 Material Adverse Effect. Since December 31, 2000, there has
been no Material Adverse Effect on Seller or the Seller Subsidiaries, taken as
a whole.
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SECTION 2.20 Material Contracts. Except as disclosed in the Seller
Disclosure Schedule (which may reference other sections of such Schedule) and
except for loan transactions in the ordinary course of business, neither the
Seller nor any Seller Subsidiary is a party to or obligated under any contract,
agreement or other instrument or understanding which is not terminable by
Seller or the Seller Subsidiary without additional payment or penalty within 60
days and obligates Seller or any Seller Subsidiary for payments or other
consideration with a value in excess of $100,000.
SECTION 2.21 Vote Required. The affirmative vote of the holders of a
majority of the then outstanding shares of Seller Common Stock is the only vote
of the holders of any class or series of Seller capital stock necessary to
approve this Agreement and the Merger.
ARTICLE III--REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth in the Disclosure Schedule delivered by the Company to
Seller prior to the execution of this Agreement (the "Company Disclosure
Schedule"), which shall identify exceptions by specific Section references, the
Company hereby represents and warrants to Seller that:
SECTION 3.1 Organization and Qualification; Subsidiaries.
(a) The Company is a corporation duly organized, validly existing and in
active status under the laws of the State of Wisconsin and a registered bank
holding company under the BHCA. Each subsidiary of the Company (a "Company
Subsidiary" or, collectively, "Company Subsidiaries") is a bank, a corporation,
a limited liability company or another form of business entity duly organized,
validly existing and in good standing under the laws of the state of its
organization or the United States of America. Each of the Company and the
Company Subsidiaries have the requisite corporate power and authority and are
in possession of all franchises, grants, authorizations, licenses, permits,
easements, consents, certificates, approvals and orders ("Company Approvals")
necessary to own, lease and operate their respective properties and to carry on
their respective business as now being conducted, including appropriate
authorizations from the Federal Reserve Board, the FDIC, the DFI, the Office of
the Comptroller of the Currency (the "OCC"), or the Office of Thrift
Supervision and neither Company nor any Company Subsidiary has received any
notice of proceedings relating to the revocation or modification of any Company
Approvals, except in each case where the revocations or modifications, the
failure to have such power, authority or Company Approvals would not,
individually or in the aggregate, have a Material Adverse Effect on the Company
and the Company Subsidiaries, taken as a whole.
(b) The Company and each Company Subsidiary is duly qualified or licensed as
a foreign business entity to do business, and is in good standing, in each
jurisdiction where the character of its properties owned, leased or operated by
it or the nature of its activities makes such qualification or licensing
necessary, except for such failures to be so duly qualified or licensed and in
good standing that would not, either individually or in the aggregate, have a
Material Adverse Effect on the Company and the Company Subsidiaries, taken as a
whole.
(c) A true and complete list of all of the Company Subsidiaries as of
February 28, 2001 is set forth in Exhibit 21 to the Company's Annual Report on
Form 10-K for the year ended December 31, 2000, ("Exhibit 21") previously
delivered to Seller. Except as set forth in the Company Disclosure Schedule,
the Company and/or one or more of the Company Subsidiaries owns beneficially
and of record substantially all of the outstanding shares of capital stock or
other equity interests of each of the Company Subsidiaries which is a
"significant subsidiary" under Rule 12b-2 under the Exchange Act. Except for
the Company Subsidiaries set forth on said Exhibit 21, the Company did not as
of February 28, 2001 directly or indirectly own any equity or similar interests
in, or any interests convertible into or exchangeable or exercisable for any
equity or similar interest in, any corporation, partnership, joint venture or
other business, other than in the ordinary course of business, which would be
required to be disclosed on Exhibit 21.
SECTION 3.2 Articles of Incorporation and By-Laws. The Company has
previously furnished to Seller a complete and correct copy of the Company
Articles and the Company By-Laws. The Company Articles and
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Company By-Laws are in full force and effect. The Company is not in violation
of any of the provisions of the Company Articles or the Company By-Laws. No
Company Subsidiary is in violation of any of the provisions of its Articles of
Incorporation or By-Laws or other organizational documents where such violation
would have a Material Adverse Effect on the Company and the Company
Subsidiaries, taken as a whole.
SECTION 3.3 Capitalization.
(a) The authorized capital stock of the Company consists of (i) 320,000,000
shares of Company Common Stock of which, as of September 30, 2001, 106,506,115
shares were issued and outstanding, 10,795,640 shares were held in treasury,
(ii) 5,000,000 shares of Preferred Stock, $1.00 par value ("Company Preferred
Stock"), of which 2,000,000 shares of Company Preferred Stock have been
designated as Series A Convertible Preferred Stock ("Series A Preferred Stock")
and 336,370 of which, as of September, 30, 2001 were outstanding. All of the
outstanding shares of the Company's capital stock have been duly authorized and
validly issued and are fully paid and non-assessable, except pursuant to
Section 180.0622(2)(b) of the WBCL (such section, including judicial
interpretations thereof and Section 180.40(6), its predecessor statute, are
referred to herein as "Section 180.0622(2)(b) of the WBCL"). Except as set
forth in clauses (i)-(ii), above, as of the date of this Agreement there are no
options, warrants or other rights, agreements, arrangements or commitments of
any character relating to the issued or unissued capital stock of the Company
or obligating the Company to issue or sell any shares of capital stock of, or
other equity interests in, the Company. Except as disclosed in the Company SEC
Reports (as hereinafter defined), there are no obligations, contingent or
otherwise, of the Company to repurchase, redeem or otherwise acquire any shares
of Company Common Stock.
(b) The shares of Company Common Stock to be issued pursuant to the Merger
will, upon issuance in accordance with the provisions of this Agreement, be
duly authorized, validly issued, fully paid and non-assessable, except as
otherwise provided by Section 180.0622(2)(b) of the WBCL.
SECTION 3.4 Authority. The Company has the requisite corporate power and
authority to execute and deliver this Agreement, and to perform its obligations
hereunder and to consummate the transactions contemplated hereby. The execution
and delivery of this Agreement by the Company and the consummation by the
Company of the transactions contemplated hereby have been duly and validly
authorized by all necessary corporate action on the part of the Company,
including without limitation the Company's Board of Directors, and no other
corporate proceedings on the part of the Company are necessary to authorize
this Agreement or to consummate the transactions so contemplated hereby. This
Agreement has been duly and validly executed and delivered by the Company and
assuming the due authorization, execution and delivery by the Seller,
constitutes a valid and binding obligation of the Company enforceable against
the Company in accordance with its terms, except as enforcement may be limited
by laws affecting insured depository institutions, general principles of
equity, whether applied in a court of law or a court of equity, and by
bankruptcy, insolvency and similar laws affecting creditors' rights and
remedies generally.
SECTION 3.5 No Conflict; Required Filings and Consents.
(a) The execution and delivery of this Agreement by the Company does not,
and the performance of this Agreement by the Company shall not, (i) conflict
with or violate the Company Articles or Company By-Laws or the Articles of
Incorporation or By-Laws of any Company Subsidiary, (ii) conflict with or
violate any Laws applicable to the Company or any Company Subsidiary or by
which any of their respective properties is bound or affected, or (iii) result
in any breach of or constitute a default (or an event which with notice or
lapse of time or both would become a default) under, or give to others any
rights of termination, amendment, acceleration or cancellation of, or result in
the creation of a lien or encumbrance on any of the properties or assets of the
Company or any Company Subsidiary pursuant to, any note, bond, mortgage,
indenture, contract, agreement, lease, license, permit, franchise or other
instrument or obligation to which the Company or any Company Subsidiary is a
party or by which the Company or any Company Subsidiary or its or any of their
respective properties is bound or affected, except in the case of clause (ii)
and (iii) for any such conflicts, violations, breaches, defaults or other
occurrences that would not, individually or in the aggregate, have a Material
Adverse Effect on the Company and the Company Subsidiaries, taken as a whole.
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(b) The execution and delivery of this Agreement by the Company do not, and
the performance of this Agreement by the Company shall not, require any
consent, approval, authorization or permit of, or filing with or notification
to, any governmental or regulatory authority, domestic or foreign, except (i)
for applicable requirements, if any, of the Securities Act, the Exchange Act,
Blue Sky Laws, the BHCA, the USBL, the MBL and the filing and recordation of
appropriate merger or other documents as required by Wisconsin law and
Minnesota Law and (ii) where the failure to obtain such consents, approvals,
authorizations or permits, or to make such filings or notifications, would not
prevent or delay consummation of the Merger, or otherwise prevent the Company
from performing its obligations under this Agreement, and would not have a
Material Adverse Effect on the Company or the Company Subsidiaries, taken as a
whole.
SECTION 3.6 Securities and Banking Reports; Financial Statements.
(a) The Company and each Company Subsidiary have filed all forms, reports
and documents required to be filed with (x) the SEC since December 31, 2000
(true and correct copies of which have been delivered to Seller), and as of the
date of this Agreement have made available to Seller through the SEC's EDGAR
system, in the form filed with the SEC, (i) its Annual Reports on Form 10-K for
the fiscal years ended December 31, 1998, 1999 and 2000, respectively, (ii) all
proxy statements relating to the Company's meetings of shareholders (whether
annual or special) held since December 31, 1998, (iii) all Reports on Form 8-K
filed by the Company with the SEC since December 31, 1998, (iv) all other
reports or registration statements filed by the Company with the SEC since
December 31, 1998, and (v) all amendments and supplements to all such reports
and registration statements filed by the Company with the SEC since December
31, 1998 (collectively, the "Company SEC Reports") and (y) the OCC, the Federal
Reserve Board, the DFI and any other applicable Federal or state securities or
banking authorities (all such reports and statements are collectively referred
to with the Company SEC Reports as the "Company Reports"). The Company Reports,
including all Company Reports filed after the date of this Agreement, (i) were
or will be prepared in accordance with the requirements of applicable Law and
(ii) did not at the time they were filed, or will not at the time they are
filed, contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
(b) Each of the consolidated financial statements (including, in each case,
any related notes thereto) contained in the Company SEC Reports, including any
Company SEC Reports filed since the date of this Agreement and prior to or on
the Effective Time, have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis throughout the periods
involved (except as may be indicated in the notes thereto) and each fairly
presents the consolidated financial position of the Company and the Company
Subsidiaries as of the respective dates thereof and the consolidated results of
its operations and changes in financial position for the periods indicated,
except that any unaudited interim financial statements were or are subject to
normal and recurring year-end adjustments, which were not or are not expected
to be material in amount.
(c) Except (i) for those liabilities that are fully reflected or reserved
against on the consolidated statement of condition of the Company included in
the Company Form 10-K for the year ended December 31, 2000, as amended, (ii)
for the liabilities incurred in the ordinary course of business consistent with
past practice since December 31, 2000, and (iii) as set forth in Section 3.7 of
the Company Disclosure Schedule, neither Company nor any Company Subsidiary has
incurred any liability of any nature whatsoever (whether absolute, accrued,
contingent or otherwise and whether due or to become due) that, either alone or
when combined with all similar liabilities, has had, or would reasonably be
expected to have, a Material Adverse Effect on the Company and the Company
Subsidiaries, taken as a whole.
SECTION 3.7 Absence of Certain Changes or Events. Except as disclosed in
the Company SEC Reports filed prior to the date of this Agreement or in the
Company Disclosure Schedule, since December 31, 2000 to the date of this
Agreement, the Company and the Company Subsidiaries have conducted their
businesses only in the ordinary course and in a manner consistent with past
practice and, since December 31, 2000, there has not been
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any change in the financial condition, results of operations or business of the
Company or any of the Company Subsidiaries having a Material Adverse Effect on
the Company and the Company Subsidiaries, taken as a whole.
SECTION 3.8 Registration Statement; Proxy Statement/Prospectus. The
information supplied by the Company for inclusion in the registration statement
of the Company (the "Registration Statement") pursuant to which the shares of
Company Common Stock to be issued in the Merger will be registered with the SEC
shall not, at the time the Registration Statement (including any amendments or
supplements thereto) is declared effective by the SEC, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light
of the circumstances under which they were made, not misleading. The
information supplied by the Company for inclusion in the Proxy
Statement/Prospectus shall not, at the date the Proxy Statement/Prospectus (or
any amendment thereof or supplement thereto) is first mailed to shareholders,
at the time of the Seller's Shareholders' Meeting and at the Effective Time, be
false or misleading with respect to any material fact required to be stated
therein, or omit to state any material fact necessary in order to make the
statements made therein, in light of the circumstances under which they are
made, not misleading. If at any time prior to the Effective Time any event
relating to the Company or any of its affiliates, officers or directors should
be discovered by the Company which should be set forth in an amendment to the
Registration Statement or a supplement to the Proxy Statement/Prospectus, the
Company will promptly inform the Seller. The Registration Statement and the
Proxy Statement/Prospectus shall comply in all material respects as to form
with the requirements of the Securities Act, the Exchange Act (to the extent
applicable) and the rules and regulations thereunder. Notwithstanding the
foregoing, the Company makes no representation or warranty with respect to any
information about, or supplied or omitted by, Seller which is contained in any
of the foregoing documents.
ARTICLE IV--COVENANTS OF SELLER
SECTION 4.1 Affirmative Covenants. Seller hereby covenants and agrees with
the Company that from the date hereof until the Effective Time, unless the
prior written consent of the Company shall have been obtained and except as
otherwise contemplated herein, it will and it will cause each Seller Subsidiary
to:
(a) operate its business only in the usual, regular and ordinary course
consistent with past practices;
(b) use all reasonable efforts to preserve intact its business
organization and assets, maintain its rights and franchises, retain the
services of its officers and key employees and maintain its relationships
with customers;
(c) use all reasonable efforts to maintain and keep its properties in as
good repair and condition as at present, ordinary wear and tear excepted;
(d) use all reasonable efforts to keep in full force and effect insurance
and bonds comparable in amount and scope of coverage to that now maintained
by it; provided, however, that Seller shall not maintain existing insurance
policies and/or purchase new insurance policies for directors' and officers'
liabilities at an aggregate annual premium cost equal to or in excess of
150% of the current annual premiums paid by Seller on its existing policies;
(e) use all reasonable efforts to perform in all material respects all
obligations required to be performed by it under all material contracts,
leases, and documents relating to or affecting its assets, properties, and
business;
(f) use all reasonable efforts to comply with and perform in all material
respects all obligations and duties imposed upon it by all applicable Laws;
(g) use all reasonable efforts not to take any action or fail to take any
action which individually or in the aggregate can be expected to have a
Material Adverse Effect on the Seller and Seller Subsidiaries, taken as a
whole; and
(h) maintain its status as an S corporation for federal and state income
tax purposes.
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SECTION 4.2 Negative Covenants. Except as specifically contemplated by
this Agreement, from the date of this Agreement until the Effective Time,
Seller shall not do, or permit any Seller Subsidiary to do, without the prior
written consent of the Company, any of the following:
(a)(i) except as required by applicable law or to maintain qualification
pursuant to the Code, adopt, amend, renew or terminate any Plan or any
agreement, arrangement, plan or policy between the Seller or any Subsidiary of
the Seller and one or more of its current or former directors, officers or
employees or (ii) except for normal increases in the ordinary course of
business consistent with past practice, and subject to the specific provisions
of Annex C, or, except as required by applicable law, increase in any manner
the base salary, bonus, incentive compensation or fringe benefits of any
director, officer or employee or pay any benefit not required by any plan or
agreement as in effect as of the date hereof (including, without limitation,
the granting of stock options, stock appreciation rights, restricted stock,
restricted stock units or performance units or shares);
(b) declare or pay any dividend on, or make any other distribution in
respect of, its outstanding shares of capital stock or limited liability
company interests, except for (A) tax distributions in the amount of $5,100,000
with respect to the taxable income of Seller through February 28, 2002, (B) tax
distributions with respect to the taxable income of Seller from March 1, 2002
to the Effective Time calculated on a basis consistent with Exhibit 4.2(b)
attached hereto, (C) a cash dividend or dividends not to exceed $7,000,000 in
the aggregate, and (D) dividends by a Seller Subsidiary solely to Seller;
(c)(i) redeem, purchase or otherwise acquire any shares of its capital
stock, limited liability company interests or any securities or obligations
convertible into or exchangeable for any shares of its capital stock or limited
liability company interests, or any options, warrants, conversion or other
rights to acquire any shares of its capital stock, limited liability company
interests or any such securities or obligations; (ii) subject to Section 4.4
hereof, merge with or into any other person, permit any other person to merge
into it or consolidate with any other person, or effect any reorganization or
recapitalization or statutory share exchange; (iii) purchase or otherwise
acquire any substantial portion of the assets, or more than 5% of any class of
stock or other equity interests, of any person other than in the ordinary
course of business and consistent with past practice; (iv) liquidate, sell,
dispose of, or encumber any assets or acquire any assets, other than in the
ordinary course of its business consistent with past practice; or (v) split,
combine or reclassify any of its capital stock or limited liability company
interests or issue or authorize or propose the issuance of any other securities
in respect of, in lieu of or in substitution for shares of its capital stock or
limited liability company interests;
(d) issue, deliver, award, grant or sell, or authorize or propose the
issuance, delivery, award, grant or sale of, any shares of any class of capital
stock or limited liability company interests of Seller or any Seller Subsidiary
(including shares held in treasury) or any rights, warrants or options to
acquire, any such shares or limited liability company interests;
(e) propose or adopt any amendments to its articles of incorporation,
by-laws, articles of organization, or operating agreement, as the case may be,
in any way adverse to the Company;
(f) change any of its methods of accounting in effect at December 31, 2000
or change any of its methods of reporting income or deductions for federal
income tax purposes from those employed in the preparation of the federal
income tax returns for the taxable year ending December 31, 2000, except as may
be required by Law or generally accepted accounting principles;
(g) change in any material manner any lending, investment, liability
management or other material policies concerning the business or operations of
Seller or any of the Seller Subsidiaries, except as required by Law and except
as otherwise contemplated by Section 4.8, including, without limitation: (i)
acquire or sell any contracts for the purchase or sale of financial or other
futures or any put or call options, or enter into any hedges or interest rate
swaps relating to cash, securities, or any commodities whatsoever or enter into
any other derivative transaction; (ii) sell, assign, transfer, pledge, mortgage
or otherwise encumber, or permit any encumbrances to
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exist with respect to, any of its assets with a value in excess of $100,000
individually, except in the ordinary course of business consistent with past
practice; (iii) make any investment with an interest maturity of five years or
more, (iv) incur any material liabilities or material obligations, whether
directly or by way of guaranty, including any obligation for borrowed money,
whether or not evidenced by a note, bond, debenture or similar instrument,
except in the ordinary course of business consistent with past practice and in
no event in excess of $100,000 individually; (v) enter into any agreement with
respect to any acquisition of a material amount of assets or securities or any
discharge, waiver, satisfaction, release or relinquishment of any material
contract rights, liens, encumbrances, debt or claims, not in the ordinary
course of business and consistent with past practices and in no event with a
value in excess of $100,000 individually; (vi) settle any claim, action, suit,
litigation, proceeding, arbitration, investigation or controversy of any kind,
for any amount in excess of $100,000 or in any manner which would restrict in
any material respect the operations or business of Seller or any of the Seller
Subsidiaries; (vii) purchase any new financial product or instrument which
involves entering into a contract with a term of six months or longer; (viii)
make any capital expenditure, except in the ordinary course and consistent with
past practice and in no event in excess of $100,000 individually and except for
$25 per square foot of tenant improvement allowance for the premises located at
6601 Lyndale Avenue in Minneapolis, Minnesota; or (ix) take any action or fail
to take any action which individually or in the aggregate can be expected to
have a Material Adverse Effect on the Seller and the Seller Subsidiaries, taken
as a whole; or
(h) agree in writing or otherwise to do any of the foregoing.
SECTION 4.3 Letter of Seller's Accountants. If requested in writing by the
Company, Seller shall use its reasonable efforts to cause to be delivered to
the Company "comfort" letters of Larson, Allen, Weishair & Co., LLP, Seller's
independent public accountants, dated the date on which the Registration
Statement shall become effective and the Effective Time, respectively, and
addressed to the Company, in a form reasonably satisfactory to the Company and
reasonably customary in scope and substance for letters delivered by
independent public accountants in connection with registration statements
similar to the Registration Statement and transactions such as those
contemplated by this Agreement.
SECTION 4.4 No Solicitation of Transactions.
(a) Seller shall immediately cease and cause to be terminated any existing
discussions or negotiations relating to a Competing Proposal (as defined
below), other than with respect to the Merger, with any parties conducted
heretofore. Seller will not, directly or indirectly, and will instruct its
directors, officers, employees, accountants, consultants, legal counsel,
agents, investment bankers, advisors and other representatives (collectively,
"Representatives") not to, directly or indirectly, initiate, solicit or
encourage (including by way of furnishing information or assistance), or take
any other action or facilitate, any inquiries or the making of any proposal
that constitutes, or may reasonably be expected to lead to, any Competing
Proposal, or enter into or maintain discussions or negotiate with any person in
furtherance of or relating to such inquiries or to obtain a Competing Proposal,
or agree to or endorse any Competing Proposal, or authorize or permit any
Representative of Seller or any of the Seller Subsidiaries to take any such
action, and Seller shall use its reasonable efforts to cause the
Representatives of Seller and the Seller Subsidiaries not to take any such
action, and Seller shall promptly notify the Company if any such inquiries or
proposals are made regarding a Competing Proposal, and Seller shall keep the
Company informed, on a current basis, of the status and terms of any such
proposals; provided, however, that prior to such time as the shareholders of
Seller shall have adopted and approved this Agreement and the Merger in
accordance with the MBCA, nothing contained in this Section 4.4 shall prohibit
the Board of Directors of Seller from (i), in connection with a Superior
Competing Transaction (as defined below), furnishing information to, or
entering into discussions or negotiations with, any person that makes an
unsolicited bona fide proposal to acquire Seller pursuant to a merger,
consolidation, share exchange, business combination or other similar
transaction, if, and only to the extent that, (A) the Board of Directors of
Seller, after consultation with and taking into consideration the advice of
independent legal counsel, determines in good faith that such action is
required for the Board of Directors of Seller to comply with its fiduciary
duties to shareholders imposed by Minnesota law, (B) prior to furnishing such
information to, or entering into discussions or negotiations with,
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such person, Seller provides written notice to the Company to the effect that
it is furnishing information to, or entering into discussions or negotiations
with, such person, (C) prior to furnishing such information to such person,
Seller receives from such person an executed confidentiality agreement, and (D)
Seller keeps the Company informed, on a current basis, of the status and
details of any such discussions or negotiations, or (ii) complying with Rule
14e-2 promulgated under the Exchange Act.
(b) For purposes of this Agreement, "Competing Proposal" shall mean any of
the following involving Seller or any Seller Subsidiary: any inquiry, proposal
or offer from any person relating to any direct or indirect acquisition or
purchase of a business that constitutes 15% or more of the net revenues, net
income or the assets of Seller and the Seller Subsidiaries taken as a whole, or
15% or more of any class of equity securities of Seller or any of the Seller
Subsidiaries, any tender offer or exchange offer that if consummated would
result in any person beneficially owning 15% or more any class of equity
securities of Seller or any of the Seller Subsidiaries, or any merger,
consolidation, business combination, recapitalization, liquidation, dissolution
or similar transaction involving Seller or any of the Seller Subsidiaries,
other than the transactions contemplated by this Agreement.
(c) For purposes of this Agreement "Superior Competing Transaction" shall
mean any of the following involving Seller or any Seller Subsidiary: any
proposal made by a third party to acquire, directly or indirectly, including
pursuant to a tender offer, exchange offer, merger, consolidation, business
combination, recapitalization, liquidation, dissolution or similar transaction,
for consideration consisting of cash and/or securities, more than 50% of the
combined voting power of the shares of Seller Common Stock then outstanding or
all or substantially all of the assets of Seller and the Seller Subsidiaries,
taken as a whole, and otherwise on terms which the Board of Directors of Seller
determines in its good faith judgment (taking into consideration the opinion of
a financial advisor of nationally recognized reputation) to be more favorable
to its shareholders than the Merger and for which financing, to the extent
required, is then committed or which if not committed is, in the good faith
judgment of its Board of Directors, reasonably capable of being obtained by
such third party.
SECTION 4.5 Update Disclosure; Breaches.
(a) From and after the date of this Agreement until the Effective Time,
Seller shall update the Seller Disclosure Statement on a regular basis by
written notice to the Company to reflect any matters which have occurred from
and after the date of this Agreement which, if existing on the date of this
Agreement, would have been required to be described therein; provided that (i)
to the extent that any information that would be required to be included in an
update under this Section 4.5(a) would have in the past been contained in
internal reports prepared by Seller or any Seller Subsidiary in the ordinary
course, such update may occur by delivery of such internal reports prepared in
accordance with past practice, with appropriate steps taken by Seller to
identify relevant information contained therein, and (ii) to the extent that
updating required under this Section is unduly burdensome to Seller, Seller and
the Company will use their reasonable efforts to develop alternate updating
procedures using, wherever possible, existing reporting systems.
(b) Seller shall, in the event it becomes aware of the impending or
threatened occurrence of any event or condition which would cause or constitute
a material breach (or would have caused or constituted a material breach had
such event occurred or been known prior to the date of this Agreement) of any
of its representations or agreements contained or referred to herein, give
prompt written notice thereof to the Company and use its reasonable efforts to
prevent or promptly remedy the same.
SECTION 4.6 Affiliates; Tax Treatment. Within thirty (30) days after the
date of this Agreement (a) Seller shall deliver to the Company a letter
identifying all persons who are then "affiliates" of Seller, including, without
limitation, all directors and executive officers of Seller, for purposes of
Rule 145 promulgated under the Securities Act (each a "Seller Affiliate") and
(b) Seller shall advise the persons identified in such letter of the resale
restrictions imposed by applicable securities laws. Seller shall use its
reasonable efforts to obtain from each person identified in such letter a
written agreement, substantially in the form attached hereto as Exhibit 4.6.
Seller shall use its reasonable efforts to obtain from any person who becomes
an affiliate of Seller after Seller's
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delivery of the letter referred to above, on or prior to the Effective Time, a
written agreement, substantially in the form attached hereto as Exhibit 4.6 as
soon as practicable after such person attains such status. Seller will use its
reasonable efforts to cause the Merger to qualify as a reorganization under
Section 368(a)(1)(A) of the Code.
SECTION 4.7 Delivery of Shareholder List. Seller shall arrange to have its
transfer agent deliver to the Company or its designee, from time to time prior
to the Effective Time, a true and complete list setting forth the names and
addresses of the Seller shareholders, their holdings of stock as of the latest
practicable date, and such other shareholder information as the Company may
reasonably request.
SECTION 4.8 Loan and Investment Policies. To the extent permitted by
applicable law or regulations, Seller agrees to give the Company prior notice
of any material change in its or any of the Seller Subsidiary's loan and
investment policies and procedures. Seller agrees to use all reasonable efforts
to communicate on a regular and reasonable basis with the Company regarding its
loan and investment activity prior to the Effective Time. The Seller and the
Company agree to use their reasonable efforts to develop a plan for such
communication.
SECTION 4.9 Access and Information. From the date hereof until the
Effective Time, Seller will give the Company and its representatives,
employees, counsel and accountants reasonable access to the properties, books
and records of the Seller and any other information relating to Seller that is
reasonably requested by the Company for purpose of permitting the Company,
among other things, to: (a) verify the accuracy of the representations and
warranties of Seller contained in this Agreement, (b) confirm compliance by
Seller with the terms of this Agreement, and (c) prepare for the consummation
of the transactions contemplated by the Agreement. The parties hereto
acknowledge and agree that any investigation by the Company pursuant to this
Section 4.9 shall not unreasonably interfere with the business and operations
of Seller. The Company shall not, without the consent of Seller (which consent
shall not be unreasonably withheld), contact any customers or key employees of
Seller. If the Merger contemplated hereby is not consummated, the Company shall
maintain in confidentiality all non-public and all proprietary information
acquired by the Company from the Seller in connection with its due diligence
review.
SECTION 4.10 Confidentiality Letter. Seller agrees that the
Confidentiality Letter entered into between the Company and the Seller dated as
of October 5, 2001, shall remain in full force and effect and binding upon the
Seller and shall survive termination of this Agreement.
ARTICLE V--COVENANTS OF THE COMPANY
SECTION 5.1 Affirmative Covenants. The Company hereby covenants and agrees
with Seller that from the date hereof until the Effective Time, unless the
prior written consent of Seller shall have been obtained and except as
otherwise contemplated herein, it will:
(a) maintain its corporate existence in good standing and maintain all books
and records in accordance with accounting principles and practices as used in
the Company's financial statements applied on a consistent basis;
(b) conduct its business in a manner that does not violate any Law, except
for unintentional violations which individually or in the aggregate do not,
and, insofar as reasonably can be foreseen, in the future will not, have a
Material Adverse Effect on the Company and the Company Subsidiaries, taken as a
whole; and
(c) perform in all material respects all obligations required to be
performed by it under all material contracts, leases and documents relating to
or affecting the Company or any Company Subsidiary and their respective
business, assets and properties, except to the extent nonperformance of such
obligations would not have a Material Adverse Effect on the Company and the
Company Subsidiaries, taken as a whole.
SECTION 5.2 Negative Covenants. Except as set forth in Section 5.2 of the
Company Disclosure Schedule or as otherwise contemplated by this Agreement,
from the date of this Agreement until the Effective
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Time, the Company shall not, or agree to commit to, or permit any Company
Subsidiaries to, without the prior written consent of Seller, (a) propose or
adopt any amendments to its Articles of Incorporation or By-laws in a manner
which would adversely affect in any manner the terms of the Company Common
Stock or the ability of Company to consummate the transactions contemplated
hereby, or agree in writing to do any of the foregoing; provided, however, that
any such amendment to the Company Articles to increase the authorized number of
shares of Company Common Stock shall not be deemed to have such an adverse
effect; (b) take any action that would adversely affect or delay the ability of
the Company to (i) obtain the necessary approvals of any applicable regulatory
authority required for the transactions contemplated hereby, (ii) perform its
covenants or agreements under this Agreement, or (iii) consummate the
transactions contemplated hereby; or (c) take any action in violation of
Regulation M under the Exchange Act.
SECTION 5.3 Update Disclosure; Breaches.
(a) From and after the date of this Agreement, until the Effective Time, the
Company shall update the Company Disclosure Schedule on a regular basis by
written notice to the Seller to reflect any matters which have occurred from
and after the date of this Agreement which, if existing on the date of this
Agreement, would have been required to be described therein; provided, that (i)
to the extent that any information that would be required to be included in an
update under this Section 5.3 would have in the past been contained in internal
reports prepared by the Company or any Company Subsidiary in the ordinary
course, such update may occur by delivery of such internal reports prepared in
accordance with past practice, with appropriate steps taken by the Company to
identify relevant information contained therein, and (ii) to the extent that
updating required under this Section 5.3 is unduly burdensome to the Company,
the Company and the Seller will use their reasonable efforts to develop
alternate updating procedures using, wherever possible, existing reporting
systems.
(b) The Company shall, in the event it becomes aware of the impending or
threatened occurrence of any event or condition which would cause or constitute
a material breach (or would have caused or constituted a material breach had
such event occurred or been known prior to the date of this Agreement) of any
of its representations or agreements contained or referred to herein, give
prompt written notice thereof to the Seller and use its best efforts to prevent
or promptly remedy the same.
SECTION 5.4 Stock Exchange Listing. The Company shall use all reasonable
efforts to cause the shares of Company Common Stock to be issued in the Merger
to be approved for listing on the NYSE prior to the Effective Time.
SECTION 5.5 Tax Treatment. The Company will use its reasonable best
efforts to cause the Merger to qualify as a reorganization under Section
368(a)(1)(A) of the Code.
SECTION 5.6 Confidentiality Letter. The Company agrees that the
Confidentiality Letter entered into between the Company and the Seller dated as
of October 5, 2001, shall remain in full force and effect and binding upon the
Company and shall survive termination of this Agreement.
ARTICLE VI--ADDITIONAL AGREEMENTS
SECTION 6.1 Proxy Statement/Prospectus; Registration Statement. As
promptly as practicable after the execution of this Agreement, Seller and the
Company shall prepare and file with the SEC the Proxy Statement/Prospectus and
registration statement on Form S-4 promulgated under the Securities Act (or on
such other form as shall be appropriate) relating to the approval of this
Agreement and the Merger by the shareholders of Seller and the registration
with the SEC of the shares of Company Common Stock to be issued in the Merger,
and shall use all reasonable efforts to cause the Registration Statement to
become effective as soon thereafter as practicable. The Proxy
Statement/Prospectus shall include the recommendation of the Board of Directors
of Seller in favor of the Merger; provided, however, that in connection with
the Seller's Board of Directors'
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recommendation to the Seller's shareholders in favor of a Superior Competing
Transaction (as defined in Section 4.4), the Board of Directors of Seller may,
at any time prior to such time as the shareholders of Seller shall have adopted
and approved this Agreement and the Merger in accordance with the MBCA,
withdraw, modify or change any such recommendation to the extent Board of
Directors of Seller determines in good faith, after consultation with and
taking into consideration the advice of independent legal counsel, that the
failure to so withdraw, modify or change its recommendation would cause the
Board of Directors of Seller to breach its fiduciary duties to Seller's
shareholders under applicable Law.
SECTION 6.2 Meeting of Seller's Shareholders. Seller shall promptly after
the date of this Agreement take all action necessary in accordance with the
MBCA and the Seller Articles and the Seller By-Laws to convene and hold the
Seller Shareholders' Meeting (regardless of whether or not the Board of
Directors of Seller has withdrawn, modified or changed its recommendation in
favor of the Merger). Seller shall use its reasonable efforts to solicit from
shareholders of Seller proxies in favor of the Merger and approval of this
Agreement and shall take all other action necessary or advisable to secure the
vote or consent of shareholders required by the MBCA to approve the Merger and
this Agreement, unless the Board of Directors of Seller shall have determined
in good faith, after consultation with and taking into consideration the advice
of counsel, that such actions would violate its fiduciary duty to Seller's
Shareholders under applicable Law.
SECTION 6.3 Appropriate Action; Consents; Filings. Seller and the Company
shall use all reasonable efforts to (i) take, or cause to be taken, all
appropriate action, and do, or cause to be done, all things necessary, proper
or advisable under applicable Law to consummate and make effective the
transactions contemplated by this Agreement, (ii) obtain all consents,
licenses, permits, waivers, approvals, authorizations or orders required under
Law (including, without limitation, all foreign and domestic (federal, state
and local) governmental and regulatory rulings and approvals and parties to
contracts) required in connection with the authorization, execution and
delivery of this Agreement and the consummation by them of the transactions
contemplated hereby, including, without limitation, the Merger, (iii) make all
necessary filings, and thereafter make any other required submissions, with
respect to this Agreement and the Merger required under (A) the Securities Act
and the Exchange Act (to the extent applicable) and the rules and regulations
thereunder, and any other applicable federal or state securities laws, (B) the
BHCA, the USBL, the MBL and any other applicable federal or state banking laws
and (C) any other applicable Law; provided that, the Company and Seller shall
cooperate with each other in connection with the making of all such filings,
including providing copies of all such documents to the non-filing party and
its advisors prior to filing and, if requested, to accept all reasonable
additions, deletions or changes suggested in connection therewith. Seller and
the Company shall furnish all information required for any application or other
filing to be made pursuant to the rules and regulations of any applicable Law
(including all information required to be included in the Proxy
Statement/Prospectus and the Registration Statement) in connection with the
transactions contemplated by this Agreement. In case at any time after the
Effective Time any further action is necessary or desirable to carry out the
purposes of this Agreement, the proper officers and directors of each party to
this Agreement shall use all reasonable efforts to take all such necessary
action.
SECTION 6.4 Employee Benefit Matters. Annex C hereto sets forth certain
agreements with respect to Seller's employee benefit matters.
SECTION 6.5 Directors' and Officers' Indemnification and Insurance.
(a) By virtue of the occurrence of the Merger, the Company shall from and
after the Effective Time succeed to Seller's obligations with respect to
indemnification or exculpation now existing in favor of the directors,
officers, employees and agents of Seller and the Seller Subsidiaries as
provided in the Seller Articles, Seller By-Laws, indemnification agreements of
Seller or the Seller Subsidiaries or otherwise in effect as of the date of this
Agreement with respect to matters occurring prior to the Effective Time.
Section 6.5 of the Seller Disclosure Schedule contains a complete list of all
indemnification arrangements to which Seller is a party to on the date of this
Agreement with each director, officer, employee and agent of Seller and the
Seller Subsidiaries. Seller agrees not to amend or enter into new
indemnification arrangements or agreements from and after the date hereof with
such persons.
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(b) The Company agrees to maintain an insurance policy for directors' and
officers' liabilities for all present and former directors and officers of
Seller covered by Seller's current insurance policies on the date of this
Agreement for a period of six years from and after the Effective Time with
terms (including coverage limits) not less advantageous as currently in effect
on the date of this Agreement with respect to acts, omissions and other matters
occurring prior to the Effective Time.
(c) The provisions of this Section 6.5 are intended to be for the benefit
of, and shall be enforceable by, each person who is now, or has been at any
time prior to the date of this Agreement or who becomes prior to the Effective
Time, an officer or director of Seller or any Seller Subsidiary (the
"Indemnified Parties") and his or her heirs and representatives.
SECTION 6.6 Notification of Certain Matters. Seller shall give prompt
notice to the Company, and the Company shall give prompt notice to Seller, of
(i) the occurrence, or non-occurrence, of any event the occurrence, or
non-occurrence, of which would be likely to cause any representation or
warranty contained in this Agreement to be untrue or inaccurate and (ii) any
failure of Seller or the Company, as the case may be, to comply with or satisfy
any covenant, condition or agreement to be complied with or satisfied by it
hereunder; provided, however, that the delivery of any notice pursuant to this
Section 6.6 shall not limit or otherwise affect the remedies available
hereunder to the party receiving such notice.
SECTION 6.7 Public Announcements. The Company and Seller shall consult
with each other before issuing any press release or otherwise making any public
statements with respect to the Merger and shall not issue any such press
release or make any such public statement prior to such consultation, except as
may be required by Law, including disclosures required under the federal
securities laws.
SECTION 6.8 Customer Retention. To the extent permitted by law or
applicable regulation, Seller shall use all reasonable efforts to assist the
Company in its efforts to retain Seller's customers for the Surviving
Corporation; provided, however, the Seller shall not be required to take any
action which the Seller in good faith believes is reasonably likely to disrupt
its existing customer relationships or practices or procedures.
SECTION 6.9 Expenses.
(a) All Expenses (as defined below) incurred by the Company and Seller shall
be borne solely and entirely by the party which has incurred the same, except
that the parties shall share equally in the expense of printing and filing the
Registration Statement and the Proxy Statement/Prospectus and all SEC, NYSE and
other regulatory filing fees incurred in connection herewith.
(b) "Expenses" as used in this Agreement shall include all reasonable
out-of-pocket expenses (including, without limitation, all fees and expenses of
counsel, accountants, investment bankers, experts and consultants to the party
and its affiliates) incurred by a party or on its behalf in connection with or
related to the authorization, preparation and execution of this Agreement, the
solicitation of shareholder approvals and all other matters related to the
closing of the transactions contemplated hereby.
(c) Seller hereby agrees that, if this Agreement is terminated, and at the
time of such termination, there shall be a Superior Competing Transaction,
Seller shall promptly (and in any event within two days after such termination)
pay the Company all Expenses of the Company by same day funds pursuant to
electronic funds transfer.
ARTICLE VII--CONDITIONS OF MERGER
SECTION 7.1 Conditions to Obligation of Each Party to Effect the
Merger. The respective obligations of each party to effect the Merger shall be
subject to the satisfaction at or prior to the Effective Time of the following
conditions:
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(a) Effectiveness of the Registration Statement. The Registration Statement
shall have been declared effective by the SEC under the Securities Act. No stop
order suspending the effectiveness of the Registration Statement shall have
been issued by the SEC and no proceedings for that purpose shall, on or prior
to the Effective Time, have been initiated or, to the knowledge of the Company
or Seller, threatened by the SEC. The Company shall have received all other
Federal or state securities permits and other authorizations necessary to issue
Company Common Stock in exchange for Seller Common Stock and to consummate the
Merger.
(b) Shareholder Approval. This Agreement and the Merger shall have been
approved and adopted by the requisite vote of the shareholders of Seller.
(c) Federal Reserve Board. The Merger shall have been approved by the
Federal Reserve Board, which approval shall not contain any materially
burdensome condition that would significantly adversely affect the Company, all
conditions required to be satisfied prior to the Effective Time imposed by the
terms of such approval shall have been satisfied and all waiting periods
relating to such approval shall have expired. Notwithstanding the foregoing, in
no event shall any requirement in any regulatory approval that the Company
divest itself of all or any portion of any real estate not used in the Seller's
banking operations be deemed to be a burdensome condition, it being understood
and agreed that the Company bears all risk of such divestitures which may be
required by any regulatory authority as a condition for approval of the Merger,
including without limitation, all risks in connection with finding a buyer, the
pricing of the divestiture and the closing of the divestiture.
(d) State Approval. The Merger shall have been approved by the Wisconsin
Department of Financial Institutions and the Commissioner of Commerce of the
State of Minnesota, which approval shall not contain any materially burdensome
condition that would significantly adversely affect the Company. All conditions
required to be satisfied prior to the Effective Time imposed by the terms of
such approval shall have been satisfied and all waiting periods relating to
such approval shall have expired.
(e) No Order. No federal or state governmental or regulatory authority or
other agency or commission, or federal or state court of competent
jurisdiction, shall have enacted, issued, promulgated, enforced or entered any
statute, rule, regulation, executive order, decree, injunction or other order
(whether temporary, preliminary or permanent) which is in effect restricting,
preventing or prohibiting consummation of the transactions contemplated by this
Agreement.
(f) NYSE Listing. The shares of Company Common Stock to be issued at the
Effective Time shall have been authorized for listing on the NYSE subject to
official notice of issuance.
SECTION 7.2 Additional Conditions to Obligations of the Company. The
obligations of the Company to effect the Merger are also subject to the
following conditions:
(a) Representations and Warranties. Each of the representations and
warranties of Seller contained in this Agreement, without giving effect to any
update to the Seller Disclosure Schedule or notice to the Company under Section
4.5 or 6.6, shall be true and correct in all respects as of the date of this
Agreement and (except to the extent such representations and warranties speak
as of an earlier date) as of the Effective Time as though made on and as of the
Effective Time; provided, however, that for purposes of determining the
satisfaction of the condition contained in this clause, no effect shall be
given to any exception in such representations and warranties relating to
materiality or a Material Adverse Effect, and provided, further, however, that,
for purposes of this clause, such representations and warranties shall be
deemed to be true and correct in all material respects unless the failure or
failures of such representations and warranties to be so true and correct,
individually or in the aggregate, represent a Material Adverse Effect on the
Seller and the Seller Subsidiaries, taken as a whole. Company shall have
received a certificate signed on behalf of the Seller by the Chief Executive
Officer and the Chief Financial Officer of the Seller to the foregoing effect.
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(b) Agreements and Covenants. The Seller shall have performed or complied
in all material respects with all agreements and covenants required by this
Agreement to be performed or complied with by it on or prior to the Effective
Time.
(c) Consents Obtained. All Seller Approvals and all filings required to be
made by Seller for the authorization, execution and delivery of this Agreement
and the consummation by it of the transactions contemplated hereby shall have
been obtained and made by Seller, except where the failure to obtain any Seller
Approvals required to be obtained or filings required to be made would not have
a Material Adverse Effect on the Seller and the Seller Subsidiaries, taken as a
whole.
(d) No Challenge. There shall not be pending any action, proceeding or
investigation before any court or administrative agency or by a government
agency or any other person (i) challenging or seeking material damages in
connection with, the Merger or the conversion of Seller Common Stock into the
Merger Consideration pursuant to the Merger or (ii) seeking to restrain,
prohibit or limit the exercise of full rights of ownership or operation by the
Company or the Company Subsidiaries of all or any portion of the business or
assets of Seller, which in either case is reasonably likely to have a Material
Adverse Effect on either Seller and the Seller Subsidiaries, taken as a whole,
or the Company and the Company Subsidiaries, taken as a whole.
(e) Tax Opinion. An opinion of Godfrey & Kahn, S.C., independent counsel to
the Company, dated as of the Effective Time, substantially to the effect that
on the basis of facts, representations and assumptions set forth in such
opinion which are consistent with the state of facts existing at the Effective
Time, the Merger will be treated for federal income tax purposes as a
reorganization within the meaning of Section 368(a) of the Code, and
accordingly that no gain or loss will be recognized by Seller as a result of
the Merger. In rendering such opinion, Godfrey & Kahn may require and rely upon
representations and covenants contained in certificates of officers of the
Company, the Seller and others.
(f) Opinion of Counsel. The Company shall have received from Fredrikson &
Byron, P.A., or other independent counsel for Seller reasonably satisfactory to
the Company, an opinion or opinions dated the Effective Time, in form and
substance reasonably satisfactory to the Company, covering the matters set
forth in Annex D hereto, which opinion or opinions shall be based on such
assumptions and containing such qualifications and limitations as are
appropriate and reasonably satisfactory to the Company.
(g) Comfort Letters. If requested by the Company as provided in Section
4.3, the Company shall have received from Larson, Allen, Weishair & Co., LLP,
the "comfort" letters referred to in Section 4.3.
(h) Affiliate Agreements. The Company shall have received from each person
who is identified in the affiliate letter as an "affiliate" of Seller a signed
affiliate agreement in the form attached hereto as Exhibit 4.6.
(i) Burdensome Condition. There shall not be any action taken, or any
statute, rule, regulation or order enacted, entered, enforced or deemed
applicable to the Merger, by any federal or state governmental entity which, in
connection with the grant of any regulatory approval, imposes any condition or
restriction upon the Company or Seller or their respective subsidiaries (or the
Surviving Corporation or its subsidiaries after the Effective Time), which
would materially adversely impact the economic or business benefits of the
transactions contemplated by this Agreement in such a manner as to render
inadvisable the consummation of the Merger in the good faith judgment of the
Company. Notwithstanding the foregoing, in no event shall any requirement that
the Company divest itself of all or any portion of any real estate not used in
the Seller's banking operations be deemed to be a burdensome condition, it
being understood and agreed that the Company bears all risk of such
divestitures which may be required by any regulatory authority as a condition
for approval of the Merger, including without limitation, all risks in
connection with finding a buyer, the pricing of the divestiture and the closing
of the divestiture.
(j) No Material Adverse Changes. Since the date of the Agreement, there has
not been any change in the financial condition, results of operations or
business of the Seller and the Seller Subsidiaries, taken as a whole,
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that either individually or in the aggregate would have a Material Adverse
Effect on the Seller and the Seller Subsidiaries taken as a whole. The Company
shall have received a certificate of the President and the Chief Financial
Officer of the Seller to that effect.
(k) Seller Expenses. Seller shall have delivered to the Company evidence in
form reasonably satisfactory to the Company that all out-of-pocket expenses
(including, without limitation, all fees and expenses of counsel, accountants,
investment bankers, experts and consultants to the Seller and its affiliates)
incurred by the Seller or on its behalf in connection with or related to the
authorization, preparation and execution of this Agreement, the Registration
Statement and the Proxy Statement/Prospectus and all SEC and other regulatory
filings, the solicitation of shareholder approvals and all other matters
related to the closing of the transactions contemplated hereby are not in
excess of $500,000.
(l) Tax Matters Agreement. The Company shall have received from each
shareholder of Seller a duly executed tax matters agreement in the form
attached hereto as Exhibit 7.2(l).
(m) Real Estate. The Seller shall have entered into a contract or
contracts, in form and substance reasonably satisfactory to the Company,
providing for the sale of the Seller's interests in the real estate and the
Seller's investment interests identified on Annex A hereto, the assumption of
the debt and other liabilities related to such real estate by the purchaser or
purchasers of such real estate and the closing of the sale of such real estate
and investment interests immediately after the Effective Time.
(n) Split Dollar Agreement. The Company shall have received copies of all
agreements related to any "split dollar" insurance arrangement to which the
Seller or any Seller Subsidiary is a party.
SECTION 7.3 Additional Conditions to Obligations of Seller. The obligation
of Seller to effect the Merger is also subject to the following conditions:
(a) Representations and Warranties. Each of the representations and
warranties of the Company contained in this Agreement, without giving effect to
any notice to Seller under Section 5.3 or 6.6, shall be true and correct in all
respects as of the date of this Agreement and (except to the extent such
representations and warranties speak as of an earlier date) as of the Effective
Time, as though made on and as of the Effective Time; provided, however, that
for purposes of determining the satisfaction of the condition contained in this
clause, no effect shall be given to any exception in such representations and
warranties relating to materiality or a Material Adverse Effect, and provided,
further, however, that, for purposes of this clause, such representations and
warranties shall be deemed to be true and correct in all material respects
unless the failure or failures of such representations and warranties to be so
true and correct, individually or in the aggregate, represent a Material
Adverse Effect on the Company. The Seller shall have received a certificate
signed on behalf of the Company by the Chief Executive Officer and the Chief
Financial Officer of the Company to the foregoing effect.
(b) Agreements and Covenants. The Company shall have performed or complied
in all material respects with all agreements and covenants required by this
Agreement to be performed or complied with by it on or prior to the Effective
Time.
(c) Consents Obtained. All material consents, waivers, approvals,
authorizations or orders required to be obtained, and all filings required to
be made by the Company for the authorization, execution and delivery of this
Agreement and the consummation by it of the transactions contemplated hereby
shall have been obtained and made by the Company, except where the failure to
obtain any consents, waivers, approvals, authorizations or orders required to
be obtained or any filings required to be made would not have a Material
Adverse Effect on the Company and the Company Subsidiaries, taken as a whole.
(d) Tax Opinion. The Seller shall have received an opinion of Fredrikson &
Byron, P.A., in form and substance reasonably satisfactory to the Seller, dated
as of the Effective Time, substantially to the effect that on
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the basis of facts, representations and assumptions set forth in such opinion
which are consistent with the state of facts existing at the Effective Time,
the Merger will be treated as a reorganization within the meaning of Section
368(a) of the Code, and that, accordingly, for federal income tax purposes:
(i) No gain or loss will be recognized by the Seller as a result of the
Merger;
(ii) No gain or loss will be recognized by the shareholders of the Seller
who exchange their Seller Common Stock solely for Company Common Stock
pursuant to the Merger (except with respect to cash received in lieu of a
fractional share interest in Company Common Stock); and
(iii) The aggregate tax basis of the Company Common Stock received by
shareholders who exchange their Seller Common Stock solely for Company
Common Stock pursuant to the Merger will be the same as the aggregate tax
basis of the Seller Common Stock surrendered in exchange therefor (reduced
by any amount allocable to a fractional share interest for which cash is
received).
In rendering such opinion, the Seller's Counsel may require and rely upon
representations and covenants contained in certificates of officers of Company,
the Seller and others.
(e) Opinion of Counsel. Seller shall have received from Godfrey & Kahn,
S.C., or other independent counsel for the Company reasonably satisfactory to
Seller, opinions dated the Effective Time, in form and substance reasonably
satisfactory to Seller, covering the matters set forth in Annex E hereto, which
opinion shall be based on such assumptions and contain such qualifications and
limitations as are appropriate and reasonably satisfactory to Seller.
(f) No Material Adverse Changes. Since the date of the Agreement, there has
not been any change in the financial condition, results of operations or
business of the Company and the Company Subsidiaries, taken as a whole, that
either individually or in the aggregate would have a Material Adverse Effect on
the Company and the Company Subsidiaries taken as a whole. The Seller shall
have received a certificate of the President and the Chief Financial Officer of
the Company to that effect.
ARTICLE VIII--TERMINATION, AMENDMENT AND WAIVER
SECTION 8.1 Termination.
(a) This Agreement may be terminated at any time prior to the Effective
Time, whether before or after approval of the matters presented in connection
with the Merger by the shareholders of Seller:
(i) by mutual consent of the Company and Seller by a vote of majority of
the members of the entire Board of Directors of both the Company and Seller;
(ii) by Seller or the Company (A) if there has been a breach in any
material respect (except that where any statement in a representation or
warranty expressly includes a standard of materiality, such statement shall
have been breached in any respect) of any representation, warranty, covenant
or agreement on the part of the Company, on the one hand, or the Seller, on
the other hand, respectively, set forth in this Agreement, or (B) if any
representation or warranty of the Company, on the one hand, or the Seller,
on the other hand, respectively, shall be discovered to have become untrue
in any material respect (except that where any statement in a representation
or warranty expressly includes a standard of materiality, such statement
shall have become untrue in any respect), in either case which breach or
other condition has not been cured within 30 business days following receipt
by the nonterminating party of notice of such breach or other condition, or
which breach by its nature, cannot be cured prior to Closing; provided,
however, neither party shall have the right to terminate this Agreement
pursuant to this Section 8.1(a)(ii) unless the breach of any representation
or warranty (but not breaches of covenants or agreements), together with all
other such breaches, would entitle the party receiving such representation
or warranty not to consummate the transactions contemplated hereby under
Section 7.2(a) (in the case of a breach of a representation or
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warranty by the Seller) or Section 7.3(a) (in the case of a breach of
representation or warranty by the Company); provided, further, this
Agreement may not be terminated pursuant to this clause (ii) by the
breaching party or party making any representation or warranty which shall
have become untrue in any material respect;
(iii) by either the Company or Seller if any permanent injunction
preventing the consummation of the Merger shall have become final and
nonappealable;
(iv) by either the Company or Seller if the Merger shall not have been
consummated by June 30, 2002, for a reason other than the failure of the party
seeking termination to comply with its obligations under this Agreement;
provided that if the Merger shall not have been consummated on or prior to June
30, 2002 as a result of proceedings of a governmental authority or litigation,
then the date on which either the Company or the Seller may terminate this
Agreement under this Section 8.1(a)(iv) shall be extended to the earlier of (A)
the lapse of a reasonable period of time necessary to consummate the Merger
following the final termination of proceedings of a governmental authority or
litigation or (B) September 30, 2002;
(v) by either the Company or Seller if any of the Federal Reserve Board or
the Commissioner of Commerce of the State of Minnesota or the Wisconsin
Department of Financial Institutions has denied approval of the Merger, and
neither the Company nor Seller has, within 30 days after the entry of such
order denying approval, filed a petition seeking review of such order as
provided by applicable law;
(vi) by either the Company or the Seller, if at the Seller Shareholders'
Meeting, this Agreement and the Merger shall fail to receive the requisite vote
for approval and adoption by the Seller's Shareholders;
(vii) by the Company, if there shall exist a proposal for a Superior
Competing Transaction with respect to the Seller and the Board of Directors of
the Seller has withdrawn or modified in a manner adverse to the Company its
approval and recommendation of this Agreement or its approval of the Merger or
any other transaction contemplated hereby or if the Board of Directors of the
Seller shall have approved or recommended such Superior Competing Transaction;
or
(viii) by the Company if any person or persons holding of record or
beneficially in the aggregate 5% or more of the outstanding shares of Seller
Common Stock deliver a notice or notices of intent to demand payment in respect
of such shares in accordance with Section 302A.473 of the MBCA.
SECTION 8.2 Effect of Termination. In the event of the termination of this
Agreement pursuant to Section 8.1, this Agreement shall forthwith become void
and all rights and obligations of any party hereto shall cease except: (i) as
set forth in Section 9.1 of this Agreement and (ii) nothing herein shall
relieve any party from liability for any willful breach of this Agreement or
shall restrict either party's rights in the case thereof.
SECTION 8.3 Amendment. This Agreement may be amended by the parties hereto
by action taken by or on behalf of their respective Boards of Directors at any
time prior to the Effective Time; provided, however, that, after approval of
this Agreement and the Merger by the shareholders of Seller, no amendment may
be made which would reduce the amount or change the type of consideration into
which each Share shall be converted pursuant to this Agreement upon
consummation of the Merger, or which by law would require the further approval
of the shareholders of the Seller, in each case without the further approval of
the shareholders of the Seller. This Agreement may not be amended except by an
instrument in writing signed by the parties hereto.
SECTION 8.4 Waiver. At any time prior to the Effective Time, any party
hereto may, to the extent legally allowed, (a) extend the time for the
performance of any of the obligations or other acts of the other party hereto,
(b) waive any inaccuracies in the representations and warranties contained
herein or in any document delivered pursuant hereto and (c) waive compliance
with any of the agreements or conditions contained herein. Any such extension
or waiver shall be valid if set forth in an instrument in writing signed by the
party or parties
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to be bound thereby, but such extension or waiver or failure to insist on
strict compliance with an obligation, covenant, agreement or condition shall
not operate as a waiver of, or estoppel with respect to, any subsequent other
failure.
ARTICLE IX--GENERAL PROVISIONS
SECTION 9.1 Non-Survival of Representations, Warranties and
Agreements. The representations, warranties and agreements in this Agreement
shall terminate at the Effective Time or upon the termination of this Agreement
pursuant to Article VIII, except that the agreements set forth in Article I and
Sections 6.5 and 6.7 shall survive the Effective Time indefinitely and those
set forth in Sections 4.10, 5.6, 6.9, 8.2 and Article IX hereof shall survive
termination indefinitely.
SECTION 9.2 Notices. All notices and other communications given or made
pursuant hereto shall be in writing and shall be deemed given if delivered
personally, mailed by registered or certified mail (postage prepaid, return
receipt requested) or telecopied (with confirmation) to the parties at the
following addresses or telecopy numbers, as the case may be (or at such other
address or telecopy number for a party as shall be specified by like changes of
address or telecopy number) and shall be effective upon receipt:
(a) If to the Company:
Marshall & Ilsley Corporation
770 North Water Street
Milwaukee, Wisconsin 53202
Attention: Michael A. Hatfield
Facsimile: (414) 765-7899
With a copy to:
Godfrey & Kahn, S.C.
780 North Water Street
Milwaukee, Wisconsin 53202
Attention: Randall J. Erickson
Facsimile: (414) 273-5198
(b) If to Seller:
Personal & Confidential
Richfield State Agency, Inc.
6625 Lyndale Avenue South
Richfield, Minnesota 55423
Attention: Steven L. Kirchner
Facsimile: (612) 798-3191
With a copy to:
Fredrikson & Byron, P.A.
1100 International Centre
900 Second Avenue South
Minneapolis, Minnesota 55402
Attention: Lynn M. Gardin, Esq.
Facsimile: (612) 347-7077
SECTION 9.3 Certain Definitions. For purposes of this Agreement, the term:
(a) "affiliate" means, for all purposes other than Rule 145 under the
Securities Act, a person that directly or indirectly, through one or more
intermediaries, controls, is controlled by, or is under common control with,
the first mentioned person; including, without limitation, any partnership or
joint venture in which any person (either alone, or through or together with
any other subsidiary) has, directly or indirectly, an interest of 5% or more;
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(b) "business day" means any day other than a day on which banks in
Wisconsin are required or authorized to be closed;
(c) "control" (including the terms "controlled by" and "under common control
with") means the possession, directly or indirectly or as trustee or executor,
of the power to direct or cause the direction of the management or policies of
a person, whether through the ownership of stock or as trustee or executor, by
contract or credit arrangement or otherwise;
(d) "person" means an individual, corporation, partnership, association,
trust, unincorporated organization, limited liability company, other entity or
group (as defined in Section 13(d) of the Exchange Act); and
(e) "subsidiary" or "subsidiaries" of Seller, the Company, the Surviving
Corporation, or any other person, means any corporation, limited liability
company, partnership, joint venture or other legal entity of which Seller, the
Company, the Surviving Corporation or such other person, as the case may be
(either alone or through or together with any other subsidiary), owns, directly
or indirectly, 10% or more of the stock or other equity interests the holders
of which are generally entitled to vote for the election of the board of
directors or other governing body of such corporation or other legal entity.
SECTION 9.4 Headings. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
SECTION 9.5 Severability. If any term or other provision of this Agreement
is invalid, illegal or incapable of being enforced by any rule of law or public
policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in an acceptable manner to the end
that transactions contemplated hereby are fulfilled to the extent possible.
SECTION 9.6 Entire Agreement. This Agreement constitutes the entire
agreement of the parties and supersedes all prior agreements and undertakings,
both written and oral, between the parties, or any of them, with respect to the
subject matter hereof and, except as otherwise expressly provided herein, are
not intended to confer upon any other person any rights or remedies hereunder.
SECTION 9.7 Assignment. This Agreement shall not be assigned by operation
of law or otherwise, except that the Company may assign all or any of its
rights hereunder and thereunder to any affiliate provided that no such
assignment shall relieve the assigning party of its obligations hereunder.
SECTION 9.8 Parties in Interest. Except as provided in Section 9.7, this
Agreement (including Annex C hereto) shall be binding upon and inure solely to
the benefit of each party hereto, and nothing in this Agreement, express or
implied, is intended to or shall confer upon any other person any right,
benefit or remedy of any nature whatsoever under or by reason of this
Agreement, other than Section 6.5 (which is intended to be for the benefit of
the Indemnified Parties and may be enforced by such Indemnified Parties).
SECTION 9.9 Governing Law. Except to the extent that the laws of the State
of Minnesota are mandatorily applicable to the matters arising under or in
connection with this Agreement, this Agreement shall be governed by, and
construed in accordance with, the laws of the State of Wisconsin, regardless of
the laws that might otherwise govern under applicable principles of choice of
law or conflicts of law.
SECTION 9.10 Counterparts. This Agreement may be executed in one or more
counterparts, and by the different parties hereto in separate counterparts,
each of which when executed shall be deemed to be an original but all of which
taken together shall constitute one and the same agreement.
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SECTION 9.11 Time is of the Essence. Time is of the essence of this
Agreement.
SECTION 9.12 Specific Performance. The parties hereto acknowledge that
monetary damages would not be a sufficient remedy for breach of this Agreement.
Therefore, upon breach of this Agreement by any party, the aggrieved party may
proceed to protect its rights and enforce this Agreement by suit in equity,
action at law or other appropriate proceeding, including an action for the
specific performance of any provision herein or any other remedy granted by
law, equity or otherwise. Any action for specific performance hereunder shall
not be deemed exclusive and may also include claims for monetary damages as may
be warranted under the circumstances. The prevailing party in any such suit,
action or other proceeding arising out of or related to this Agreement shall be
entitled to recover its costs, including attorney's fees, incurred in such
suit, action or other proceeding.
IN WITNESS WHEREOF, the Company and Seller have caused this Agreement to be
executed as of the date first written above by their respective officers
thereunto duly authorized.
RICHFIELD STATE AGENCY, INC.
/s/ STEVEN L. KIRCHNER
By: _______________________________
Name: Steven L. Kirchner
Title: President
MARSHALL & ILSLEY CORPORATION
/s/ DENNIS J. KUESTER
By: _______________________________
Name: Dennis J. Kuester
Title: President
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ANNEX A--Real Estate and Investment Interests to be Sold
Investment Interests
Eastwood Village I & II
Eastwood Tax Credits
Eastwood Village III
SunLake Woods
The Oaks
Real Estate
The Pines
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ANNEX B--Subsidiaries of Seller
Richfield Bank & Trust Co. (100%)--Minnesota
R Community Investments, Inc. (100%)--Minnesota
SUN LAKE II, L.L.C. (57.69%)--Minnesota
Eastwood Village, L.L.C. (100%)--Minnesota
THE OAKS, L.L.C. (28.1%)--Minnesota
Other Interests: Seller has a 33 1/3% co-tenancy interest in Eastwood Village
III.
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APPENDIX B
PLAN OF MERGER
Merging
RICHFIELD STATE AGENCY, INC.
(a Minnesota Corporation)
with and into
MARSHALL & ILSLEY CORPORATION
(a Wisconsin corporation)
Background
Marshall & Illsley Corporation, a Wisconsin corporation (the "Company"), and
Richfield State Agency, Inc., a Minnesota corporation (the "Seller"), are
parties to an Agreement and Plan of Merger dated as of November 18, 2001 (the
"Merger Agreement"), providing for the merger of the Seller with and into the
Company (the "Merger") upon the terms and conditions set forth in this Plan of
Merger and pursuant to the Minnesota Business Corporation Act (the "MBCA") and
the Wisconsin Business Corporation Law (the "WBCL"). The Company and the Seller
are sometimes hereinafter together referred to as the "Constituent
Corporations." Terms used herein that are not defined herein shall have the
meanings ascribed thereto in the Merger Agreement.
Terms and Conditions
1. Merger. The Constituent Corporations shall effect the Merger upon the
terms and subject to the conditions set forth in this Plan of Merger.
1.1 The Merger. Upon the terms and subject to the conditions set forth in
this Plan of Merger, and in accordance with the MBCA, the WBCL, at the
Effective Time (as defined in Section 1.2) Seller shall be merged with and into
the Company. As a result of the Merger, the separate corporate existence of
Seller shall cease and the Company shall continue as the surviving corporation
of the Merger (the "Surviving Corporation").
1.2 Effective Time. As promptly as practicable after the satisfaction or,
if permissible, waiver of the conditions set forth in Article VII of the Merger
Agreement, the parties hereto shall cause the Merger to be consummated by
filing articles of merger (the "Articles of Merger") with the Secretary of
State of the State of Minnesota (the "Minnesota Secretary of State") and the
Department of Financial Institutions of the State of Wisconsin (the "DFI"), in
such form as required by, and executed in accordance with the relevant
provisions of, the MBCA and the WBCL (the date and time of the later of such
filing with the Minnesota Secretary of State or the DFI is referred to herein
as the "Effective Time").
1.3 Effect of the Merger. At the Effective Time, the effect of the Merger
shall be as provided in the Merger Agreement and the applicable provisions of
the MBCA and the WBCL. Without limiting the generality of the foregoing, and
subject thereto, at the Effective Time, except as otherwise provided herein,
all the property, rights, privileges, immunities, powers and franchises of the
Company and the Seller shall vest in the Surviving Corporation, and all debts,
liabilities and duties of the Company and the Seller shall become the debts,
liabilities and duties of the Surviving Corporation.
1.4 Articles of Incorporation; By-Laws. At the Effective Time, the Articles
of Incorporation, as amended, of the Company (the "Company Articles") and the
By-Laws, as amended, of the Company (the "Company By-Laws"), as in effect
immediately prior to the Effective Time, shall be the Articles of Incorporation
and the By-Laws of the Surviving Corporation.
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1.5 Directors and Officers. At the Effective Time, the directors of the
Company immediately prior to the Effective Time shall be the initial directors
of the Surviving Corporation, each to hold office in accordance with the
Articles of Incorporation and By-Laws of the Surviving Corporation and to be
assigned to the class previously assigned. At the Effective Time, the officers
of the Company immediately prior to the Effective Time, shall be the initial
officers of the Surviving Corporation, in each case until their respective
successors are duly elected or appointed.
1.6 Merger Consideration
(a) The aggregate dollar value of the merger consideration shall be
$157,000,000 plus the Adjustment Amount as defined in (c) below, if any (the
"Merger Consideration"). The Merger Consideration shall consist of shares of
common stock, par value $1.00 per share, of the Company ("Company Common
Stock"); provided, however, that up to $20,000,000 (the "Cash Amount") of
the Merger Consideration may be payable in cash at the election of holders
of the Seller Common Stock (as defined below). For purposes of valuing the
Company Common Stock as part of the Merger Consideration, one share of
Company Common Stock will be deemed to have a value equal to the average of
the average high and low sale price per share of Company Common Stock on the
New York Stock Exchange (the "NYSE") as reported in the Midwest Edition of
The Wall Street Journal for the twenty (20) consecutive trading days ending
on and including the third trading day preceding the Effective Time (the
"Average Trading Price"). The Company agrees that all of the Company's
purchases of Company Common Stock shall be in accordance with Regulation M
of the Exchange Act.
(b) The "Per Share Merger Consideration" shall be an amount equal to the
aggregate value of the Merger Consideration divided by the total number of
shares of common stock, no par value, of the Seller ("Seller Common Stock")
issued and outstanding immediately prior to the Effective Time.
(c) The "Adjustment Amount" shall be an amount equal to (A) $60,000 per
month, or any portion thereof, commencing with March 2002 and ending on the
day prior to the Effective Time, plus (B) the excess, if any, of (i) the
prepayment premium due on the full principal amount of Seller's Promissory
Note dated June 30, 1999 in the aggregate principal amount of $13,500,000
assigned to IDS Life Insurance Company (the "IDS Note") if the IDS Note was
paid in full on the Effective Time, over (ii) the prepayment penalty due on
the principal amount actually outstanding on the IDS Note if the IDS Note
was paid in the full on the Effective Time, on a dollar-for-dollar basis,
but in no event greater than $700,000.
1.7 Conversion of Securities; Dissenting Shares. Subject to Section 1.7(h)
regarding fractional shares, at the Effective Time, by virtue of the Merger and
without action on the part of the Company, the Seller or the holders of the
Seller's securities:
(a) Each share of Seller Common Stock issued and outstanding immediately
prior to the Effective Time, other than Shares owned by the Company, or any
direct or indirect wholly owned Company Subsidiary or Seller Subsidiary for
its own account (all such shares of Seller Common Stock issued and
outstanding immediately prior to the Effective Time being referred to herein
as the "Shares") and other than Dissenting Shares (as defined in Section
1.7(j)), shall be converted into the right to receive a number of shares of
Company Common Stock, determined by dividing the Per Share Merger
Consideration by the Average Trading Price and rounding the result to the
nearest one thousandth of a share (the "Stock Consideration"); provided,
however, that, subject to the election and allocation procedures set forth
in this Section 1.7, each holder of Shares will be entitled, with respect to
the Merger Consideration to be received for each Share held by the holder,
to elect to receive cash from the Company, without interest (a "Cash
Election"), in an amount equal to the Per Share Merger Consideration (the
"Cash Consideration").
(b) The number of Shares which may be converted into the right to receive
the Cash Consideration in the Merger shall be no more than (i) the Cash
Amount divided by the Per Share Merger Consideration (rounded down to the
nearest whole number) minus (ii) the total number of Dissenting Shares, if
any (the "Cash Election Number").
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(c) If the aggregate number of Shares covered by Cash Elections (the
"Cash Election Shares") exceeds the Cash Election Number, each Cash Election
Share shall be converted, at the Effective Time, into the right to receive
(i) an amount in cash, without interest, equal to the product of (x) the Per
Share Consideration and (y) a fraction (the "Cash Fraction"), the numerator
of which shall be the Cash Election Number and the denominator of which
shall be the total number of Cash Election Shares, and (ii) a number of
shares of Company Common Stock equal to the product of (x) the Stock
Consideration and (y) a fraction equal to one minus the Cash Fraction.
(d) In the event that Section 1.7(c) above is inapplicable, all Cash
Election Shares shall be converted, at the Effective Time, into the right to
receive the Cash Consideration and all other Shares, other than Dissenting
Shares, shall be converted, at the Effective Time, into the right to receive
the Stock Consideration.
(e) All Cash Elections shall be made on a form designed for that purpose
and mutually acceptable to the Company and Seller (a "Form of Election") and
mailed to holders of record of Shares as of the record date for the Seller's
Shareholders' Meeting or such other date as the Company and the Seller shall
mutually agree (the "Election Form Record Date"). The Company and the Seller
shall make available one or more Election Forms as may be reasonably
requested by all persons who become holders of record of Shares between the
Election Form Record Date and the Election Deadline (as defined below).
Elections shall be made by submitting to the Exchange Agent a duly completed
Form of Election. To be effective, a Form of Election must be properly
completed, signed and submitted to the Exchange Agent in accordance with
Section 1.7(f). The Company will have the discretion, which it may delegate
in whole or in part to the Exchange Agent, to reasonably determine whether
Forms of Election have been properly completed, signed and submitted or
revoked and to disregard immaterial defects in Forms of Election. The
decision of the Company (or the Exchange Agent) shall be conclusive and
binding. Neither the Company nor the Exchange Agent will be under any
obligation to notify any person of any defect in a Form of Election
submitted to the Exchange Agent. The Exchange Agent shall also make all
computations contemplated by this Section 1.7 and all computations shall be
conclusive and binding on the holders of Shares.
(f) A Form of Election must be received by the Exchange Agent by the
close of business of the last business day prior to the date of the Seller
Shareholders' Meeting (as defined below) in order to be effective. Such date
shall hereinafter be referred to as the "Election Deadline." Any holder of
Shares who has made an election may at any time prior to the Election
Deadline change or withdraw its election by written notice to the Exchange
Agent prior to the Election Deadline. As soon as practicable after the
Election Deadline, the Exchange Agent shall determine the allocation of the
cash portion of the Merger Consideration and the stock portion of the Merger
Consideration and shall notify the Company of its determination.
(g) The Shares of a holder who does not submit a Form of Election which
is received by the Exchange Agent prior to the Election Deadline (other than
Dissenting Shares (as defined in Section 1.7(j))) shall be converted into
the right to receive the Stock Consideration at the Effective Time. If the
Company or the Exchange Agent shall determine that any purported Cash
Election was not properly made, the purported Cash Election shall be deemed
to be of no force and effect and the Shares of the holder making such
purported Cash Election shall be converted into the right to receive the
Stock Consideration at the Effective Time.
(h) No fractional shares of Company Common Stock shall be issued in the
Merger. All fractional shares of Company Common Stock that a holder of any
Shares would otherwise be entitled to receive as a result of the Merger
shall be aggregated. If a fractional share of Company Common Stock results
from the aggregation, the holder shall be entitled to receive, in lieu
thereof, a cash amount, without interest, determined by multiplying the
Average Trading Price by the fraction of a share of Company Common Stock to
which the holder would otherwise have been entitled. As promptly as
practicable after the determination of the amount of cash, if any, to be
paid to holders of fractional share interests, the Exchange Agent shall so
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notify the Company, and the Company shall deposit that amount with the
Exchange Agent and shall cause the Exchange Agent to forward payments to the
holders of fractional share interests, subject to and in accordance with the
terms of this Section 1.7.
(i) Each share of Seller Common Stock held by the Company or any direct
or indirect wholly owned Company Subsidiary or Seller Subsidiary for its own
account shall be canceled and extinguished at the Effective Time without
conversion thereof into the Merger Consideration or payment therefor.
(j) Notwithstanding anything in this Plan of Merger to the contrary,
shares of Seller Common Stock which are issued and outstanding immediately
prior to the Effective Time and which are held by shareholders or beneficial
owners who have validly exercised and perfected dissenter's rights with
respect to those Shares under Sections 302A.471 and 302A.473 of the MBCA and
have not withdrawn or lost such rights (the "Dissenting Shares") shall not
be converted into or be exchangeable for the right to receive the Merger
Consideration in accordance with this Section 1.7, unless and until such
holders or beneficial owners shall have failed to perfect or shall have
effectively withdrawn or lost their dissenter's rights with respect to such
Dissenting Shares under the MBCA. Dissenting Shares shall be treated in
accordance with Sections 302A.471 and 302A.473 of the MBCA, if and to the
extent applicable. If, after the Effective Time, any such holder or
beneficial owner shall have failed to perfect or shall have effectively
withdrawn or lost such right to dissent with respect to any Dissenting
Shares, such Dissenting Shares shall thereupon be treated as if they had
been converted into and become exchangeable only for the right to receive,
as of the Effective Time, the Stock Consideration in accordance with this
Section 1.7, without any interest thereon. Seller shall give the Company (a)
prompt notice of each and every notice of a shareholder's or beneficial
owner's intent to demand payment of the "fair value" of the shareholder's or
beneficial owner's Shares, attempted withdrawals of such demands, and any
other instruments served pursuant to the MBCA and received by the Seller
relating to rights to be paid the "fair value" of Shares, as provided in
Sections 302A.471 and 302A.473 of the MBCA and (b) the opportunity to direct
all negotiations and proceedings with respect to such demands for "fair
value." Seller shall not, except with the prior written consent of the
Company, voluntarily make any payment with respect to, offer to settle or
settle, or approve any withdrawal of any such demands for "fair value."
1.8 Exchange of Certificates.
(a) Exchange Agent. The Company shall deposit, or shall cause to be
deposited, from time to time, with a bank or trust company designated by the
Company and which may be an affiliate of the Company (the "Exchange Agent"),
for the benefit of the holders of Shares, for exchange in accordance with
this Section 1, through the Exchange Agent, the Merger Consideration,
together with any dividends or distributions with respect thereto, if any,
to be paid in respect of Shares pursuant to this Section 1 (the "Exchange
Fund"). Such deposits shall be made after the Effective Time as requested by
the Exchange Agent in order for the Exchange Agent to promptly deliver the
Merger Consideration.
(b) Exchange Procedures. As soon as reasonably practicable after the
Effective Time, the Exchange Agent shall mail to each holder of record of a
certificate representing Shares which were converted into the right to
receive the Merger Consideration pursuant to Section 1.7 (each, a
"Certificate" and collectively, the "Certificates"), (i) a letter of
transmittal (which shall specify that delivery shall be effected, and risk
of loss and title to the Certificates shall pass, only upon delivery of the
Certificates to the Exchange Agent and shall be in such form and have such
other provisions as the Company may reasonably specify) and (ii)
instructions for use in effecting the surrender of the Certificates in
exchange for the Merger Consideration. Upon surrender of a Certificate for
cancellation to the Exchange Agent together with such letter of transmittal,
duly executed, the holder of such Certificate shall be entitled to receive
in exchange therefor the Merger Consideration and any unpaid dividends and
distributions thereon as provided in this Section 1, which such holder has
the right to receive in respect of the Certificate surrendered pursuant to
the provisions of this Section 1, and the Certificate so surrendered shall
forthwith be canceled. In the event of a transfer of ownership of Shares
which is not registered in the transfer records of the Seller, a transferee
may exchange the Certificate representing such Shares for the Merger
Consideration and any unpaid dividends and
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distributions thereon as provided in this Section 1 if the Certificate
representing such Shares is presented to the Exchange Agent, accompanied by
all documents required to evidence and effect such transfer and by evidence
that any applicable stock transfer taxes have been paid. In the event any
Certificate shall have been lost, stolen or destroyed, upon the making of an
affidavit of that fact by the person claiming such Certificate to be lost,
stolen or destroyed and the posting by such person of a bond in such amount
as the Company may direct as indemnity against any claim that may be made
against it or the Exchange Agent with respect to such Certificate, the
Exchange Agent will issue in exchange for such lost, stolen or destroyed
Certificate the Merger Consideration and any unpaid dividends and
distributions thereon as provided in this Section 1, which such holder would
have had the right to receive in respect of such lost, stolen or destroyed
Certificate. Until surrendered as contemplated by this Section 1.8, each
Certificate shall be deemed at any time after the Effective Time to
represent only the right to receive upon such surrender the Merger
Consideration and any unpaid dividends and distributions thereon as provided
in this Section 1.
(c) Distributions with Respect to Unexchanged Shares. No dividends or
other distributions declared or made after the Effective Time with respect
to Company Common Stock with a record date after the Effective Time shall be
paid to the holder of any unsurrendered Certificate with respect to the
shares of Company Common Stock issuable in exchange for the Shares
represented thereby, and no cash payment in lieu of fractional shares shall
be paid to any such holder pursuant to Section 1.7(h), until the holder of
such Certificate shall surrender such Certificate. Subject to the effect of
applicable laws, following surrender of any such Certificate, there shall be
paid to the holder of the certificates representing whole shares of Company
Common Stock issued in exchange therefor, without interest, (i) promptly,
the amount of any cash payable with respect to a fractional share of Company
Common Stock to which such holder is entitled pursuant to Section 1.7(h) and
the amount of dividends or other distributions with a record date after the
Effective Time theretofore paid with respect to such whole shares of Company
Common Stock, and (ii) at the appropriate payment date, the amount of
dividends or other distributions, with a record date after the Effective
Time but prior to surrender and a payment date occurring after surrender,
payable with respect to such whole shares of Company Common Stock.
(d) No Further Rights in the Shares. All Merger Consideration issued or
paid upon conversion of the Shares in accordance with the terms hereof
(including any cash paid pursuant to Section 1.7(h)) shall be deemed to have
been issued or paid in full satisfaction of all rights pertaining to such
Shares.
(e) Termination of Exchange Fund. Any portion of the Exchange Fund which
remains undistributed to the former shareholders of Seller for six (6)
months after the Effective Time shall be delivered to the Company, upon
demand, and any former shareholders of Seller who have not theretofore
complied with this Section 1 shall thereafter look only to the Company to
claim the Merger Consideration to which they are entitled, any cash in lieu
of fractional shares of Company Common Stock and any dividends or
distributions with respect to Company Common Stock, in each case without
interest thereon, and subject to Section 1.8(f).
(f) No Liability. Neither the Company nor the Seller shall be liable to
any former holder of Shares for any shares of Company Common Stock (or
dividends or distributions with respect thereto) or cash or other payment
delivered to a public official pursuant to any abandoned property, escheat
or similar laws.
(g) Withholding Rights. The Company shall be entitled to deduct and
withhold from the consideration otherwise payable pursuant to this Plan of
Merger to any former holder of Shares such amounts as the Company is
required to deduct and withhold with respect to the making of such payment
under the Code, or any provision of state, local or foreign tax law. To the
extent that amounts are so withheld by the Company, such withheld amounts
shall be treated for all purposes of this Plan of Merger as having been paid
to the former holder of the Shares in respect of which such deduction and
withholding was made by the Company.
1.9 Stock Transfer Books. At the Effective Time, the stock transfer books
of Seller shall be closed and there shall be no further registration of
transfers of shares of Seller Common Stock thereafter on the records of
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Seller. From and after the Effective Time, the holders of certificates
evidencing ownership of shares of Seller Common Stock outstanding immediately
prior to the Effective Time shall cease to have any rights with respect to such
Shares except as otherwise provided herein or by law. On or after the Effective
Time, any Certificates presented to the Exchange Agent or the Company for any
reason shall be converted into the Merger Consideration in accordance with this
Section 1.
1.10 Adjustments for Dilution and Other Matters. If, after the date of the
Merger Agreement and during the period in which the Average Trading Price is
determined, the Company shall declare a stock dividend or distribution upon or
subdivide, split up, reclassify or combine the Company Common Stock or declare
a dividend or make a distribution on the Company Common Stock in any security
convertible into Company Common Stock, appropriate adjustment or adjustments,
if any, will be made to the Merger Consideration and the Stock Consideration
determined pursuant to Sections 1.6(a) and 1.7(a).
1.11 Company Common Stock. The shares of Company Common Stock issued and
outstanding immediately prior to the Effective Time shall be unaffected by the
Merger and at the Effective Time, such shares shall remain issued and
outstanding.
2. Termination. This Plan of Merger may be terminated at any time on or
before the Effective Time by agreement of the Boards of Directors of the
Constituent Corporations. This Plan of Merger shall be automatically terminated
if the Merger Agreement is terminated in accordance with the terms thereof.
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APPENDIX C
MINNESOTA BUSINESS CORPORATION ACT
DISSENTERS' RIGHTS
302A.471 RIGHTS OF DISSENTING SHAREHOLDERS.--Subdivision 1. Actions
creating rights. A shareholder of a corporation may dissent from, and obtain
payment for the fair value of the shareholder's shares in the event of, any of
the following corporate actions:
(a) An amendment of the articles that materially and adversely affects the
rights or preferences of the shares of the dissenting shareholder in that it:
(1) alters or abolishes a preferential right of the shares;
(2) creates, alters, or abolishes a right in respect of the redemption of
the shares, including a provision respecting a sinking fund for the
redemption or repurchase of the shares;
(3) alters or abolishes a preemptive right of the holder of the shares to
acquire shares, securities other than shares, or rights to purchase shares
or securities other than shares;
(4) excludes or limits the right of a shareholder to vote on a matter, or
to cumulate votes, except as the right may be excluded or limited through
the authorization or issuance of securities of an existing or new class or
series with similar or different voting rights; excepts that an amendment to
the articles of an issuing public corporation that provides that section
302A.671 does not apply to a control share acquisition does not give rise to
the right to obtain payment under this section;
(b) A sale, lease, transfer, or other disposition of all or substantially
all of the property and assets of the corporation, but not including a
transaction permitted without shareholder approval in section 302A.661,
subdivision 1, or a disposition in dissolution described in section 302A.725,
subdivision 2, or a disposition pursuant to an order of a court, or a
disposition for cash on terms requiring that all or substantially all of the
net proceeds of disposition be distributed to the shareholders in accordance
with their respective interests within one year after the date of disposition;
(c) A plan of merger, whether under this chapter or under chapter 322B, to
which the corporation is a constituent organization, except as provided in
subdivision 3;
(d) A plan of exchange, whether under this chapter or under chapter 322B, to
which the corporation is a party as the corporation whose shares will be
acquired by the acquiring corporation, except as provided in subdivision 3; or
(e) Any other corporate action taken pursuant to a shareholder vote with
respect to which the articles, the bylaws, or a resolution approved by the
board directs that dissenting shareholders may obtain payment for their shares.
Subdivision 2. Beneficial owners.
(a) A shareholder shall not assert dissenters' rights as to less than all of
the shares registered in the name of the shareholder, unless the shareholder
dissents with respect to all the shares that are beneficially owned by another
person but registered in the name of the shareholder and discloses the name and
address of each beneficial owner on whose behalf the shareholder dissents. In
that event, the rights of the dissenter shall be determined as if the shares as
to which the shareholder has dissented and the other shares were registered in
the names of different shareholders.
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(b) A beneficial owner of shares who is not the shareholder may assert
dissenters' rights with respect to shares held on behalf of the beneficial
owner, and shall be treated as a dissenting shareholder under the terms of this
section and section 302A.473, if the beneficial owner submits to the
corporation at the time of or before the assertion of the rights a written
consent of the shareholder.
Subdivision 3. Rights not to apply.
(a) Unless the articles, the bylaws, or a resolution approved by the board
otherwise provide, the right to obtain payment under this section does not
apply to a shareholder of (1) the surviving corporation in a merger with
respect to shares of the shareholder that are not entitled to be voted on the
merger and are not canceled or exchanged in the merger or (2) the corporation
whose shares will be acquired by the acquiring corporation in a plan of
exchange with respect to shares of the shareholder that are not entitled to be
voted on the plan of exchange and are not exchanged in the plan of exchange.
(b) If a date is fixed according to section 302A.445, subdivision 1, for the
determination of shareholders entitled to receive notice of and to vote on an
action described in subdivision 1, only shareholders as of the date fixed, and
beneficial owners as of the date fixed who hold through shareholders, as
provided in subdivision 2, may exercise dissenters' rights.
Subdivision 4. Other rights. The shareholders of a corporation who have a
right under this section to obtain payment for their shares do not have a right
at law or in equity to have a corporate action described in subdivision 1 set
aside or rescinded, except when the corporate action is fraudulent with regard
to the complaining shareholder or the corporation. (Last amended by Ch. 264, L.
'00, eff. 8-1-00.)
302A.473 PROCEDURES FOR ASSERTING DISSENTERS' RIGHTS.--Subdivision
1. Definitions.
(a) For purposes of this section, the terms defined in this subdivision have
the meanings given them.
(b) "Corporation" means the issuer of the shares held by a dissenter before
the corporate action referred to in section 302A.471, subdivision 1 or the
successor by merger of that issuer.
(c) "Fair value of the shares" means the value of the shares of a
corporation immediately before the effective date of the corporate action
referred to in section 302A.471, subdivision 1.
(d) "Interest" means interest commencing five days after the effective date
of the corporate action referred to in section 302A.471, subdivision 1, up to
and including the date of payment, calculated at the rate provided in Section
549.09 for interest on verdicts and judgments.
Subdivision 2. Notice of action. If a corporation calls a shareholder
meeting at which any action described in section 302A.471, subdivision 1 is to
be voted upon, the notice of the meeting shall inform each shareholder of the
right to dissent and shall include a copy of Section 302A.471 and this section
and a brief description of the procedure to be followed under these sections.
Subdivision 3. Notice of dissent. If the proposed action must be approved
by the shareholders, a shareholder who is entitled to dissent under Section
302A.471 and who wishes to exercise dissenters' rights must file with the
corporation before the vote on the proposed action a written notice of intent
to demand the fair value of the shares owned by the shareholder and must not
vote the shares in favor of the proposed action.
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Subdivision 4. Notice of procedure; deposit of shares.
(a) After the proposed action has been approved by the board and, if
necessary, the shareholders, the corporation shall send to all shareholders who
have complied with subdivision 3 and to all shareholders entitled to dissent if
no shareholder vote was required, a notice that contains:
(1) the address to which a demand for payment and certificates of
certificated shares must be sent in order to obtain payment and the date by
which they must be received;
(2) any restrictions on transfer of uncertificated shares that will apply
after the demand for payment is received;
(3) a form to be used to certify the date on which the shareholder, or
the beneficial owner on whose behalf the shareholder dissents, acquired the
shares or an interest in them and to demand payment; and
(4) a copy of section 302A.471 and this section and a brief description
of the procedures to be followed under these sections.
(b) In order to receive the fair value of the shares, a dissenting
shareholder must demand payment and deposit certificated shares or comply with
any restrictions on transfer of uncertificated shares within 30 days after the
notice required by paragraph (a) was given, but the dissenter retains all other
rights of a shareholder until the proposed action takes effect.
Subdivision 5. Payment; return of shares.
(a) After the corporate action takes effect, or after the corporation
receives a valid demand for payment, whichever is later, the corporation shall
remit to each dissenting shareholder who has complied with subdivisions 3 and 4
the amount the corporation estimates to be the fair value of the shares, plus
interest, accompanied by:
(1) the corporation's closing balance sheet and statement of income for a
fiscal year ending not more than 16 months before the effective date of the
corporate action, together with the latest available interim financial
statements;
(2) an estimate by the corporation of the fair value of the shares and a
brief description of the method used to reach the estimate; and
(3) a copy of section 302A.471 and this section, and a brief description
of the procedure to be followed in demanding supplemental payment.
(b) The corporation may withhold the remittance described in paragraph (a)
from a person who was not a shareholder on the date the action dissented from
was first announced to the public or who is dissenting on behalf of a person
who was not a beneficial owner on that date. If the dissenter has complied with
subdivisions 3 and 4, the corporation shall forward to the dissenter the
materials described in paragraph (a), a statement of the reason for withholding
the remittance, and an offer to pay to the dissenter the amount listed in the
materials if the dissenter agrees to accept that amount in full satisfaction.
The dissenter may decline the offer and demand payment under subdivision 6.
Failure to do so entitles the dissenter only to the amount offered. If the
dissenter makes demand, subdivisions 7 and 8 apply.
(c) If the corporation fails to remit payment within 60 days of the deposit
of certificates or the imposition of transfer restrictions on uncertificated
shares, it shall return all deposited certificates and cancel all transfer
restrictions. However, the corporation may again give notice under subdivision
4 and require deposit or restrict transfer at a later time.
Subdivision 6. Supplemental payment; demand. If a dissenter believes that
the amount remitted under subdivision 5 is less than the fair value of the
shares plus interest, the dissenter may give written notice to the
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corporation of the dissenter's own estimate of the fair value of the shares,
plus interest, within 30 days after the corporation mails the remittance under
subdivision 5, and demand payment of the difference. Otherwise, a dissenter is
entitled only to the amount remitted by the corporation.
Subdivision 7. Petition; determination. If the corporation receives a
demand under subdivision 6, it shall, within 60 days after receiving the
demand, either pay to the dissenter the amount demanded or agreed to by the
dissenter after discussion with the corporation or file in court a petition
requesting that the court determine the fair value of the shares, plus
interest. The petition shall be filed in the county in which the registered
office of the corporation is located, except that a surviving foreign
corporation that receives a demand relating to the shares of a constituent
domestic corporation shall file the petition in the county in this state in
which the last registered office of the constituent corporation was located.
The petition shall name as parties all dissenters who have demanded payment
under subdivision 6 and who have not reached agreement with the corporation.
The corporation shall, after filing the petition, serve all parties with a
summons and copy of the petition under the rules of civil procedure.
Nonresidents of this state may be served by registered or certified mail or by
publication as provided by law. Except as otherwise provided, the rules of
civil procedure apply to this proceeding. The jurisdiction of the court is
plenary and exclusive. The court may appoint appraisers, with powers and
authorities the court deems proper, to receive evidence on and recommend the
amount of the fair value of the shares. The court shall determine whether the
shareholder or shareholders in question have fully complied with the
requirements of this section, and shall determine the fair value of the shares,
taking into account any and all factors the court finds relevant, computed by
any method or combination of methods that the court, in its discretion, sees
fit to use, whether or not used by the corporation or by a dissenter. The fair
value of the shares as determined by the court is binding on all shareholders,
wherever located. A dissenter is entitled to judgment in cash for the amount by
which the fair value of the shares as determined by the court, plus interest,
exceeds the amount, if any, remitted under subdivision 5, but shall not be
liable to the corporation for the amount, if any, by which the amount, if any,
remitted to the dissenter under subdivision 5 exceeds the fair value of the
shares as determined by the court, plus interest.
Subdivision 8. Costs; fees; expenses.
(a) The court shall determine the costs and expenses of a proceeding under
subdivision 7, including the reasonable expenses and compensation of any
appraisers appointed by the court, and shall assess those costs and expenses
against the corporation, except that the court may assess part or all of those
costs and expenses against a dissenter whose action in demanding payment under
subdivision 6 is found to be arbitrary, vexatious, or not in good faith.
(b) If the court finds that the corporation has failed to comply
substantially with this section, the court may assess all fees and expenses of
any experts or attorneys as the court deems equitable. These fees and expenses
may also be assessed against a person who has acted arbitrarily, vexatiously,
or not in good faith in bringing the proceeding, and may be awarded to a party
injured by those actions.
(c) The court may award, in its discretion, fees and expenses to an attorney
for the dissenters out of the amount awarded to the dissenters, if any. (Last
amended by Ch. 10, L.'97, eff. 8-1-97.)
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APPENDIX D
RICHFIELD STATE AGENCY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS SELECTED FINANCIAL DATA
Changes in Financial Condition
Total Company assets at year end 2000 were $753,718,000. During 2000, assets
increased by $117,196,000 or 18.4%. The majority of this increase was in gross
loans, which increased by $93,946,000 or 22.8% to $505,398,000. The loan growth
experienced was primarily due to increased commercial and commercial real
estate loan activity within the Minneapolis metropolitan market. The remaining
increase in assets was largely attributed to additional investments in rental
real estate property.
Most of the increased loan balances were funded by an increase in total
deposits. Total deposits increased from $479,981,000 at December 31, 1999 to
$561,474,000 at December 31, 2000, an increase of $81,493,000, or 17.0%.
Approximately $42,285,000, or 51.9%, of the total deposit growth was in
additional money market savings deposits within the Company's Minneapolis
metropolitan market area. The remaining increase in deposits was comprised
largely of wholesale and brokered deposits which were obtained from sources
outside the Company's normal trade area. These wholesale and brokered deposits
were intended to be an incremental source of alternate funding primarily
utilized to match fund particular assets, meet seasonal funding needs, and to
take advantage of pricing opportunities in the marketplace. Funding from
sources other than deposits also increased in 2000. The Company borrowed an
additional $24,788,000 to finance additions of rental real estate property
during 2000.
Stockholders' equity increased by $12,395,000 or 22.9% in 2000. This
increase resulted from Company net income of $8,583,000 with the balance
attributable to the change in unrealized gains on securities
available-for-sale. The Company also paid $857,000 in cash dividends and
$1,018,000 in S-Corp shareholder tax payments during 2000.
Total securities decreased by $1,577,000 in 2000. Cash and cash equivalents
decreased by $5,269,000 in 2000 paralleling a $4,890,000 addition of cash value
in life insurance.
During the period from December 31, 2000 to September 30, 2001, total assets
decreased by $2,931,000; the decrease in total assets was driven largely by a
decrease in loan balances of $40,072,000 and a decrease in cash and cash
equivalents of $2,319,000, largely offset by increases in securities of
$36,704,000 and additions to premises and equipment of $1,871,000 and other
assets of $1,631,000.
The 7.9% decrease in loan balances during this nine-month period is the
direct result of the Company's decision to exit the indirect auto dealer and
1-4 family residential real estate lending markets. During this same time
period, the Company also experienced a softening in loan demand as the economy
began to exhibit signs of a slower growth rate.
Total deposits decreased by $17,696,000, or 3.2% during the period from
December 31, 2000 to September 30, 2001. The majority of the decrease in
deposits is directly linked to a deleveraging of the balance sheet by reducing
wholesale and brokered deposits in conjunction with the Company's exit from the
indirect auto dealer and 1-4 family residential real estate lending markets.
The Company continued its efforts to expand depository relationships with its
existing customer base and new market niches, including civic banking and
property management sectors. As a result, several new larger account
relationships were initiated within the Minneapolis metropolitan market.
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Stockholders' equity increased by $7,945,000 from December 31, 2000 to
September 30, 2001. The increase came from $10,568,000 of net income, and the
remainder from the change in unrealized gains on available-for-sale securities.
The Company also paid $857,000 in cash dividends and $3,444,000 in S-Corp
shareholder tax payments during this time period.
Results of Operations for the Nine-Months Ended September 30, 2001 Compared
with the Nine-Months Ended September 30, 2000
For the nine-months ended September 30, 2001, the Company's net income
increased by $3,284,000 or 45.1% over the same nine-month period in 2000. Basic
and diluted net income per share was $124.01 and $85.01 for the nine-month
period ended September 30, 2001 and 2000, respectively. As discussed in further
detail below, the majority of the increase in net income resulted from
increased net interest income of $1,470,000 and securities gains of $1,690,000.
The increase in gross rental real estate income was offset by a parallel
increase in occupancy expense attributable to additions to rental real estate
property in 2001.
Net interest income increased by $1,470,000 or 7.7%, to $20,681,000. The
Company's net interest margin improved to 4.62% from 4.52% for the nine-month
period ended September 30, 2001 and 2000, respectively. The growth in interest
bearing earning assets of $18,541,000 offset by increases in interest bearing
liabilities of $11,923,000 was a significant component of the overall increase
in net income. A falling rate environment and an improved composition of core
funding sources resulted in a decrease in deposit costs by approximately 36
basis points.
The balance in the allowance for loan losses is based on management's
evaluation of the loan portfolio. Management determines the adequacy of the
allowance for loan losses based on past loan loss experience, current economic
conditions, composition of the loan portfolio and the potential for future
loss. During the nine-month period ended September 30, 2001, there was $683,000
more in net charge-offs compared with the same period in 2000. While
charge-offs are above levels for the same period in 2000, asset quality has
been the organization's highest priority in 2001. The Company has been able to
keep asset quality high by aggressively identifying deteriorating credits and
successfully managing the exit of credits outside the organization, generally
to asset-based lenders. As a result, the provision for loan losses was
increased by $98,000 to $1,221,000 for the nine-month period ended September
30, 2001. Management believes the reserve is adequate to absorb current losses
in the loan portfolio.
Other income increased by $4,584,000, or 58.5% for the first nine-months of
2001 compared to the first nine-months of 2000. The increase was primarily
comprised of an increase of $1,690,000 in securities gains, an increase of
$2,190,000 of gross real estate rental income, and increases in service charges
and other fees of $632,000.
Operating expenses increased from $17,854,000 to $21,083,000 an increase of
$3,229,000, or 18.1% for the first nine-months of 2001 compared to the same
period in 2000. Salary and related benefit costs accounted for $829,000 of this
increase. In addition, occupancy and miscellaneous operating expenses increased
by $2,383,000 in conjunction with the additions to rental real estate property
and equipment during 2001.
Income tax expense decreased by $557,000 in the first nine-months of 2001
compared with the same period in 2000 due to the beneficial change in
Subchapter S state tax conformity during 2001. Income tax expense of $224,000
in 2001 represents deferred tax amounts that have been written-off in
conjunction with Subchapter S tax conformity in the State of Minnesota.
Results of Operations for the Years Ended December 31, 2000, 1999 and 1998
Net income in 2000 totaled $8,583,000 or a decrease of $1,049,000 or 10.9%
under the $9,632,000 earned in 1999. Reflective in 1999's net income is the
recognition of $950,000 of key officer life insurance proceeds. Net
D-2
income in 1999 was $309,000 or 3.3% over the 1998 level of $9,323,000. On a per
share basis, basic net income was $100.17, $112.42 and $108.81 for 2000, 1999
and 1998, respectively. There was no dilutive effect for the three years. The
decrease in net income reflective from 1999 to 2000, net of key officer life
insurance proceeds, is largely attributed to funding the allowance for loan
losses in conjunction with significant loan portfolio growth, including
increases in personnel and technology operating costs in support of this asset
growth. At December 31, 2000, 1999 and 1998, the total assets per employee were
approximately $2,801,000, $2,516,000, and $2,226,000, respectively.
Net interest income increased $2,717,000, or 11.6% to $26,174,000 in 2000
compared to $23,457,000 in 1999. The 1999 total represented an increase of
$1,176,000, or 5.3% compared to 1998. The net interest margin for 2000 was
4.48% compared with 4.74% in 1999 and 4.57% in 1998. Although earning asset
yields increased by 45 basis points to 8.62% in 2000 compared to 8.17% in 1999,
increasing competitive pressures caused the effective rate paid on deposits to
increase from 3.75% in 1999 to 4.29% in 2000. From 1998 to 1999, market
interest rates increased. Although the yield on earning assets fell by 20 basis
points from 8.37% in 1998 to 8.17% in 1999, an increase in the composition of
noninterest bearing business deposit balances resulted in a 47 basis point
reduction in the cost of deposits in 1999. The level of average earning assets
increased by $51,631,000 from 1998 to 1999 and by $112,489,000 from 1999 to
2000.
The provision for loan losses was $1,483,000 for 2000, representing an
increase of $649,000 or 77.8% over the $834,000 of loan loss provision charged
to operations in 1999. The 1999 provision was $245,000 or 22.7% lower than the
provision of $1,079,000 incurred in 1998. The increase in 2000 was principally
a result of higher loan levels in 2000 compared to 1999. As a direct result of
the significant growth and higher loan levels during the years 2000 and 1999,
the percentage of the allowances for loan losses to total gross loans
outstanding has decreased from 1.33% in 1998 to 1.00% in 1999 and 2000.
Other income consists primarily of loan fee income, securities gains, and
deposit account service charges and related fee income. Other income increased
by $263,000 or 2.50% in 2000 compared to 1999, net of key officer life
insurance proceeds of $950,000 in 1999. Other income increased by $1,532,000 or
17.3% in 1999 compared to 1998.
Other expenses increased $2,378,000 or 10.2% in 2000 compared to a
$3,935,000 or 20.2% increase in 1999 over 1998 levels. Salary and related
benefit expenses increased by $2,141,000 or 15.2% in 2000 due to an increase in
the number of full time equivalent employees and also to an increase in base
compensation and individual performance incentives. Similarly, salary and
benefits increased by $1,871,000 or 15.4% from 1998 to 1999. In addition, the
Company's subsidiary bank received regulatory approval and opened two new
branch offices during 1999. As a result, 2000 expenses included a full year of
personnel and occupancy costs while 1999 results included approximately nine
months of these expenses. Additionally, miscellaneous operating expenses
increased by $943,000 from 1998 to 1999.
Income tax expense increased by $52,000 or 5.5% from 1999 to 2000, while a
decrease of $341,000 occurred from 1998 to 1999, directly attributed to
$950,000 of officer life insurance proceeds that were recognized in 1999 that
are not subject to income taxes.The effective income tax rates were relatively
unchanged during the years.
Liquidity and Capital Resources
The concept of liquidity comprises the ability of an enterprise to maintain
sufficient cash flow to meet its needs and obligations on a timely basis. Bank
liquidity must be considered in terms of the nature and mix of the
institution's sources and uses of funds. Bank liquidity is provided from
several asset categories. The asset side of the balance sheet provides
liquidity through maturities of investment securities and repayment of loans.
Cash and amounts due from correspondent banks, investment securities available
for sale and Federal funds sold are
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primarily sources of asset liquidity. At December 31, 2000, these categories
totaled approximately $153,787,000 and approximately $192,348,000 at September
30, 2001.
The Company has no significant plans for major capital expenditures in 2002.
Management believes that, in the current economic environment, the Bank's
liquidity position is adequate. There are no known trends, nor any known
demands, commitments, events or uncertainties that will result or are
reasonably likely to result in a material increase or decrease in the Bank's
liquidity.
Effects of Inflation
The Company's consolidated financial statements and notes thereto have been
prepared in accordance with generally accepted accounting principles, which
require the measurement of financial position and operating results in terms of
historical dollars without considering the changes in the relative purchasing
power of money over time due to inflation. The impact of inflation is reflected
in the increased cost of the Company's operations. Unlike most industrial
companies, nearly all of the assets and liabilities of the Company are monetary
in nature. As a result, interest rates have a greater impact on the Company's
performance than do the effects of general levels of inflation. Interest rates
do not necessarily move in the same direction or to the same extent as the
price of goods and services.
Regulatory Capital Requirements
The Federal Reserve Board, the Company's primary regulator, has adopted
risk-based capital regulations which require the Company to maintain a risk
based capital/asset ratio of at least 8%. The Company's capital ratios and
those of the Bank exceed the minimum ratios required by their respective
regulators. The FDIC and Commissioner of Commerce for the State of Minnesota
examine and regulate the Bank. Management is not aware of any pending
regulatory requirements or recommendations that, if enacted, would have a
material adverse impact on the Company's capital, liquidity, or results of
operations.
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RICHFIELD STATE AGENCY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
September 30, 2001 and 2000
2001 2000
ASSETS -------- --------
Cash and cash equivalents................................... $ 19,615 $ 18,696
Available-for-sale securities (Note 3)...................... 172,733 125,272
Held-to-maturity securities (Note 3)........................ 14,672 16,549
Loans, net (Note 2)......................................... 460,132 480,042
Premises and equipment, net................................. 8,430 5,737
Rental real estate, net..................................... 45,211 39,447
Cash value of life insurance................................ 18,405 17,564
Accrued interest receivable and other assets (Note 5)....... 11,589 9,787
-------- --------
$750,787 $713,094
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits:
Noninterest-bearing.................................. $102,790 $107,653
Interest-bearing..................................... 440,988 427,029
-------- --------
Total deposits.................................... 543,778 534,682
Short-term borrowings.................................... 101,940 105,549
Notes payable (Note 4)................................... 24,053 3,596
Accrued interest payable and other liabilities (Note 5).. 6,635 7,401
-------- --------
Total liabilities................................. 676,406 651,228
-------- --------
Commitments, Contingencies, and Credit Risk
Stockholders' Equity
Common stock, no par value; 92,000 shares authorized;
84,154 shares issued................................... 1,162 1,183
Retained earnings........................................ 70,605 64,368
Accumulated other comprehensive income................... 2,614 (3,685)
-------- --------
Total stockholders' equity........................ 74,381 61,866
-------- --------
$750,787 $713,094
======== ========
See accompanying Notes to Consolidated Financial Statements.
D-5
RICHFIELD STATE AGENCY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except share and per share amounts)
Nine-Month Period Ended September 30, 2001 and 2000
2001 2000
------- -------
Interest income:
Loans............................................................. $29,997 $30,164
Securities:
Taxable....................................................... 5,782 4,340
Tax-exempt.................................................... 1,943 3,046
Federal funds sold................................................ 93 36
------- -------
37,815 37,586
------- -------
Interest expense:
Deposits.......................................................... 11,992 14,026
Short-term borrowings............................................. 4,307 4,119
Notes payable..................................................... 835 230
------- -------
17,134 18,375
------- -------
Net interest income........................................ 20,681 19,211
Provision for loan losses (Note 2)................................... 1,221 1,123
------- -------
Net interest income after provision for loan losses........ 19,460 18,088
------- -------
Other income:
Service charges and other fees.................................... 3,957 3,552
Trust fees........................................................ 3,012 2,785
Securities gains, net (Note 3).................................... 2,037 347
Other income...................................................... 3,409 1,147
------- -------
12,415 7,831
------- -------
Other expenses:
Salaries and employee benefits.................................... 12,137 11,308
Occupancy expenses................................................ 4,962 2,579
Other expenses.................................................... 3,984 3,967
------- -------
21,083 17,854
------- -------
Income before income taxes................................. 10,792 8,065
Income tax expense (Note 5).......................................... 224 781
------- -------
Net income................................................. $10,568 $ 7,284
======= =======
Net income per common share................................ $124.01 $ 85.01
======= =======
See accompanying Notes to Consolidated Financial Statements.
D-6
RICHFIELD STATE AGENCY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands, except share and per share amounts)
Nine-Month Period Ended September 30, 2001 and 2000
Accumulated
Common Stock Other
-------------- Retained Comprehensive
Shares Amount Earnings Income Total
------ ------ -------- ------------- -------
Balance, January 1, 2000.............................. 85,681 $1,183 $58,959 $(6,101) $54,041
Comprehensive Income:
Net income......................................... -- -- 7,284 --
Net change in unrealized gain (loss) on available-
for-sale securities, net of taxes and
reclassification adjustment...................... -- -- -- 2,416
Comprehensive Income........................... 9,700
Cash dividends declared ($10.00 per share)......... -- -- (857) -- (857)
S-Corp shareholder tax payments.................... -- -- (1,018) -- (1,018)
------ ------ ------- ------- -------
Balance, September 30, 2000........................... 85,681 $1,183 $64,368 $(3,685) $61,866
Balance, January 1, 2001.............................. 85,681 $1,183 $65,667 $ (414) $66,436
Comprehensive Income:
Net income......................................... -- -- 10,568 --
Net change in unrealized gain (loss) on available-
for-sale securities, net of taxes and
reclassification adjustment...................... -- -- -- 3,028
Comprehensive Income........................... 13,596
Cash dividends declared ($10.00 per share)......... -- -- (857) -- (857)
Redemption of 1,527 shares of common stock at
$884 per share................................... (1,527) (21) (1,329) -- (1,350)
S-Corp shareholder tax payments.................... -- -- (3,444) -- (3,444)
------ ------ ------- ------- -------
Balance, September 30, 2001........................... 84,154 $1,162 $70,605 $ 2,614 $74,381
====== ====== ======= ======= =======
See accompanying Notes to Consolidated Financial Statements.
D-7
RICHFIELD STATE AGENCY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, except share and per share amounts)
Nine-Month Period Ended September 30, 2001 and 2000
2001 2000
-------- --------
Cash Flows From Operating Activities
Net income..................................................................... $ 10,568 $ 7,284
Adjustments to reconcile net income to net cash provided by (used in) operating
activities:
Provision for loan losses................................................... 1,221 1,123
Depreciation and amortization............................................... 2,345 1,400
Equity in net (income) loss of equity method investees...................... (81) 25
Other....................................................................... (1,300) 315
-------- --------
Net cash provided by (used in) operating activities..................... 12,753 10,147
-------- --------
Cash Flows From Investing Activities
Net (increase) decrease from securities........................................ (33,676) 12,873
Net (increase) decrease in loans............................................... 38,992 (73,836)
Premises and equipment expenditures, net....................................... (1,871) --
Rental real estate expenditures, net........................................... (1,659) (18,717)
Change in cash value of life insurance......................................... (637) (4,686)
-------- --------
Net cash provided by (used in) investing activities..................... 1,149 (84,366)
-------- --------
Cash Flows From Financing Activities
Net increase (decrease) in deposits............................................ (17,696) 54,701
Increase (decrease) in short-term borrowings................................... 18,309 18,980
Net increase (decrease) from notes payable and other borrowings................ (11,183) (6,094)
Redemption of common stock..................................................... (1,350) --
Cash dividends paid............................................................ (857) (857)
S-Corp shareholder tax payments................................................ (3,444) (1,018)
-------- --------
Net cash provided by (used in) financing activities..................... (16,221) 65,712
-------- --------
Increase (decrease) in cash and cash equivalents........................ (2,319) (8,507)
Cash and Cash Equivalents
Beginning................................................................... 21,934 27,203
-------- --------
Ending...................................................................... $ 19,615 $ 18,696
======== ========
Supplemental disclosures of cash flow information:
Cash payments for interest..................................................... $ 18,060 $ 16,535
======== ========
Cash payments for income taxes................................................. 174 810
======== ========
D-8
RICHFIELD STATE AGENCY, INC AND SUBSIDIARIES
CONSOLIDATING BALANCE SHEETS
(In thousands, except share and per share amounts)
September 30, 2001 and 2000
2001
------------------------------------------------------ -------------------
Richfield Richfield
State Richfield Eastwood State Richfield
Agency, Bank & Village, Agency, Bank &
Inc. Trust Co. LLC Eliminations Consolidated Inc. Trust Co.
--------- --------- -------- ------------ ------------ --------- ---------
ASSETS
Cash and cash equivalents........................ $ 792 $ 19,615 $ 24 $ (816) $ 19,615 $ 404 $ 18,696
Available-for-sale securities.................... -- 172,733 -- -- 172,733 -- 125,272
Held-to-maturity securities...................... -- 14,672 -- -- 14,672 -- 16,549
Loans, net....................................... -- 460,132 -- -- 460,132 -- 480,042
Premises and equipment, net...................... 1,895 6,343 192 -- 8,430 22 5,482
Rental real estate, net.......................... 41,333 -- 3,878 -- 45,211 35,377 --
Cash value of life insurance..................... 1,559 16,846 -- -- 18,405 1,544 16,020
Accrued interest receivable and other assets..... 6,367 5,222 -- -- 11,589 3,361 6,426
Investment in subsidiaries....................... 65,700 -- -- (65,700) -- 53,831 --
-------- -------- ------ -------- -------- ------- --------
$117,646 $695,563 $4,094 $(66,516) $750,787 $94,539 $668,487
======== ======== ====== ======== ======== ======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits:
Noninterest-bearing........................... $ -- $103,606 $ -- $ (816) $102,790 $ -- $108,106
Interest-bearing.............................. -- 440,988 -- -- 440,988 -- 427,029
-------- -------- ------ -------- -------- ------- --------
Total deposits............................... -- 544,594 -- (816) 543,778 -- 535,135
Short-term borrowings.......................... 18,449 83,491 -- -- 101,940 28,182 77,367
Notes payable.................................. 24,053 -- -- -- 24,053 3,596 --
Accrued interest payable and other liabilities. 763 5,860 12 -- 6,635 895 6,450
-------- -------- ------ -------- -------- ------- --------
Total liabilities............................ 43,265 633,945 12 (816) 676,406 32,673 618,952
-------- -------- ------ -------- -------- ------- --------
Stockholders' Equity
Common stock................................... 1,162 37,500 -- (37,500) 1,162 1,183 37,500
Retained earnings.............................. 70,605 21,504 4,082 (25,586) 70,605 64,368 15,720
Accumulated other comprehensive income......... 2,614 2,614 -- (2,614) 2,614 (3,685) (3,685)
-------- -------- ------ -------- -------- ------- --------
Total stockholders' equity................... 74,381 61,618 4,082 (65,700) 74,381 61,866 49,535
-------- -------- ------ -------- -------- ------- --------
$117,646 $695,563 $4,094 $(66,516) $750,787 $94,539 $668,487
======== ======== ====== ======== ======== ======= ========
Eastwood
Village,
LLC Eliminations Consolidated
-------- ------------ ------------
ASSETS
Cash and cash equivalents........................ $ 49 $ (453) $ 18,696
Available-for-sale securities.................... -- -- 125,272
Held-to-maturity securities...................... -- -- 16,549
Loans, net....................................... -- -- 480,042
Premises and equipment, net...................... 233 -- 5,737
Rental real estate, net.......................... 4,070 -- 39,447
Cash value of life insurance..................... -- -- 17,564
Accrued interest receivable and other assets..... -- -- 9,787
Investment in subsidiaries....................... -- (53,831) --
------ -------- --------
$4,352 $(54,284) $713,094
====== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits:
Noninterest-bearing........................... $ -- $ (453) $107,653
Interest-bearing.............................. -- -- 427,029
------ -------- --------
Total deposits............................... -- (453) 534,682
Short-term borrowings.......................... -- -- 105,549
Notes payable.................................. -- -- 3,596
Accrued interest payable and other liabilities. 56 -- 7,401
------ -------- --------
Total liabilities............................ 56 (453) 651,228
------ -------- --------
Stockholders' Equity
Common stock................................... -- (37,500) 1,183
Retained earnings.............................. 4,296 (20,016) 64,368
Accumulated other comprehensive income......... -- 3,685 (3,685)
------ -------- --------
Total stockholders' equity................... 4,296 (53,831) 61,866
------ -------- --------
$4,352 $(54,284) $713,094
====== ======== ========
D-9
RICHFIELD STATE AGENCY, INC AND SUBSIDIARIES
CONSOLIDATING STATEMENTS OF INCOME
(In thousands, except share and per share amounts)
Nine-Month Period Ended September 30, 2001 and 2000
2001
---------------------------------------------------------
Richfield Richfield Eastwood
State Bank & Village,
Agency, Inc. Trust Co. LLC Eliminations Consolidated
------------ --------- -------- ------------ ------------
Interest income:
Loans..................................................... $ -- $29,997 $ -- $ $29,997
Securities:
Taxable................................................. -- 5,782 -- 5,782
Tax-exempt.............................................. -- 1,943 -- 1,943
Federal funds sold........................................ -- 93 -- 93
------- ------- ---- -------- -------
-- 37,815 -- -- 37,815
------- ------- ---- -------- -------
Interest expense:
Deposits.................................................. -- 11,992 -- 11,992
Short-term borrowings..................................... 658 3,649 -- 4,307
Notes payable............................................. 835 -- -- 835
------- ------- ---- -------- -------
1,493 15,641 -- -- 17,134
------- ------- ---- -------- -------
Net interest income.................................... (1,493) 22,174 -- -- 20,681
Provision for loan losses.................................. -- 1,221 -- 1,221
------- ------- ---- -------- -------
Net interest income after provision for loan losses.... (1,493) 20,953 -- -- 19,460
------- ------- ---- -------- -------
Other income:
Service charges and other fees............................ -- 3,957 -- 3,957
Trust fees................................................ -- 3,012 -- 3,012
Securities gains, net..................................... -- 2,037 -- 2,037
Other income.............................................. 3,773 -- 477 (841) 3,409
------- ------- ---- -------- -------
3,773 9,006 477 (841) 12,415
------- ------- ---- -------- -------
Other expenses:
Salaries and employee benefits............................ 226 11,911 -- 12,137
Occupancy expenses........................................ 3,281 2,522 -- (841) 4,962
Other expenses............................................ 134 3,445 405 3,984
------- ------- ---- -------- -------
3,641 17,878 405 (841) 21,083
Income (loss) before income taxes...................... (1,361) 12,081 72 -- 10,792
Income tax expense......................................... 269 (45) 224
------- ------- ---- -------- -------
Income (loss) before equity in net income of
subsidiaries.......................................... (1,361) 11,812 117 -- 10,568
Equity in income of subsidiaries........................... 11,929 -- -- (11,929) --
------- ------- ---- -------- -------
Net income............................................. $10,568 $11,812 $117 $(11,929) $10,568
======= ======= ==== ======== =======
2000
---------------------------------------------------------
Richfield Richfield Eastwood
State Bank & Village,
Agency, Inc. Trust Co. LLC Eliminations Consolidated
------------ --------- -------- ------------ ------------
Interest income:
Loans..................................................... $ -- $30,164 $ -- $ -- $30,164
Securities:
Taxable................................................. -- 4,340 -- -- 4,340
Tax-exempt.............................................. -- 3,046 -- -- 3,046
Federal funds sold........................................ -- 36 -- -- 36
------ ------- ---- ------- -------
-- 37,586 -- -- 37,586
------ ------- ---- ------- -------
Interest expense:
Deposits.................................................. -- 14,026 -- -- 14,026
Short-term borrowings..................................... 381 3,738 -- -- 4,119
Notes payable............................................. 230 -- -- -- 230
------ ------- ---- ------- -------
611 17,764 -- -- 18,375
------ ------- ---- ------- -------
Net interest income.................................... (611) 19,822 -- -- 19,211
Provision for loan losses.................................. -- 1,123 -- -- 1,123
------ ------- ---- ------- -------
Net interest income after provision for loan losses.... (611) 18,699 -- -- 18,088
------ ------- ---- ------- -------
Other income:
Service charges and other fees............................ -- 3,552 -- -- 3,552
Trust fees................................................ -- 2,785 -- -- 2,785
Securities gains, net..................................... -- 347 -- -- 347
Other income.............................................. 1,503 -- 459 (815) 1,147
------ ------- ---- ------- -------
1,503 6,684 459 (815) 7,831
------ ------- ---- ------- -------
Other expenses:
Salaries and employee benefits............................ 223 11,085 -- -- 11,308
Occupancy expenses........................................ 954 2,440 -- (815) 2,579
Other expenses............................................ 388 3,340 239 3,967
------ ------- ---- ------- -------
1,565 16,865 239 (815) 17,854
Income (loss) before income taxes...................... (673) 8,518 220 -- 8,065
Income tax expense......................................... (62) 822 21 -- 781
------ ------- ---- ------- -------
Income (loss) before equity in net income of
subsidiaries.......................................... (611) 7,696 199 -- 7,284
Equity in income of subsidiaries........................... 7,895 -- -- (7,895) --
------ ------- ---- ------- -------
Net income............................................. $7,284 $ 7,696 $199 $(7,895) $ 7,284
====== ======= ==== ======= =======
D-10
SELECTED FINANCIAL DATA
(AMOUNTS IN THOUSANDS EXCEPT SHARE AND RATIO DATA)
As of and for the nine
months ended As of and for the year ended
September 30, December 31,
---------------------- ----------------------------
2001 2000 2000 1999 1998
-------- -------- -------- -------- --------
(Unaudited)
Income statement data:
Interest income..................... $ 37,815 $ 37,586 $ 51,211 $ 39,488 $ 37,688
Interest expense.................... 17,134 18,375 25,037 16,031 15,407
-------- -------- -------- -------- --------
Net interest income............. 20,681 19,211 26,174 23,457 22,281
Provision for loan losses........... 1,221 1,123 1,483 834 1,079
Other income........................ 12,415 7,831 10,635 11,322 8,840
Other expenses...................... 21,083 17,854 25,754 23,376 19,441
-------- -------- -------- -------- --------
Income before income taxes...... 10,792 8,065 9,572 10,569 10,601
Income tax expense.................. 224 781 989 937 1,278
-------- -------- -------- -------- --------
Net income...................... $ 10,568 $ 7,284 $ 8,583 $ 9,632 $ 9,323
======== ======== ======== ======== ========
Per common share data:
Net income per share
Basic........................... $ 124.01 $ 85.01 $ 100.17 $ 112.42 $ 108.81
Diluted......................... $ 124.01 $ 85.01 $ 100.17 $ 112.42 $ 108.81
Weighted average shares outstanding
Basic........................... 85,222 85,681 85,681 85,681 85,681
Diluted......................... 85,222 85,681 85,681 85,681 85,681
Cash dividends per share............... $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 16.00
Balance sheet data:
Total assets........................ $750,787 $713,094 $753,718 $636,522 $549,855
Loans............................... 465,326 484,891 505,398 411,452 365,526
Allowances for loan losses.......... 5,194 4,849 5,053 4,123 4,879
Total deposits...................... 543,778 534,682 561,474 479,981 448,035
Stockholders' equity................ 74,381 61,866 66,436 54,041 57,594
LOAN PORTFOLIO (amounts in 000's)
Nine-months
ending December 31,
September 30, --------------------------------------------
2001 2000 1999 1998 1997 1996
------------- -------- -------- -------- -------- --------
Commercial Loans............. $169,888 $191,258 $139,276 100,603 69,775 70,968
Commercial Real Estate Loans. 114,557 113,531 90,223 63,121 52,412 42,243
Direct Finance Leases........ 12,640 12,504 11,896 10,332 10,750 7,992
Installment Loans............ 7,471 9,212 5,705 6,023 6,106 7,854
Auto Dealer Financing........ 31,225 50,217 66,640 98,743 99,868 88,843
Auto Lease Financing......... 5,482 9,705 16,098 23,455 29,349 35,281
Home Equity Loans............ 115,708 98,677 64,253 45,084 37,810 24,966
Real Estate Loans............ 2,364 10,423 10,561 13,927 18,356 20,423
Consumer Open Lines of Credit 5,924 9,169 6,727 3,915 3,517 2,408
Other........................ 67 702 73 323 104 883
-------- -------- -------- -------- -------- --------
Total..................... $465,326 $505,398 $411,452 $365,526 $328,047 $301,861
======== ======== ======== ======== ======== ========
Loans held for sale were immaterial at December 31, 2000 and 1999.
D-11
LOAN MATURITIES AND SENSITIVITY TO CHANGES IN INTEREST RATES AS OF DECEMBER 31,
2000 (amounts in 000's)
The following table summaries the first available repricing period of the
loan principal balances outstanding as of December 31, 2000:
Due after
one year Due after
One year through five
or less five years years Total
-------- ---------- --------- --------
Fixed Rate Maturities
Commercial Loans........................... $ 48,980 $ 28,044 $ 8,173 $ 85,197
Commercial Real Estate Loans............... 19,988 51,323 12,883 84,194
Direct Finance Leases...................... 941 11,410 105 12,456
Installment Loans.......................... 873 4,499 29 5,401
Auto Dealer Financing...................... 2,687 46,292 353 49,332
Auto Lease Financing....................... 3,553 6,395 27 9,975
Home Equity Loans.......................... 2,937 37,590 36,846 77,373
Real Estate Loans.......................... 2,001 1,591 6,567 10,159
Consumer Open Lines of Credit.............. -- -- --
Other...................................... -- -- --
-------- -------- ------- --------
Sub-total Fixed Rate Loans.............. $ 81,960 $187,144 $64,983 $334,087
Variable Rate Loans
Sub-total Fixed and Variable Rate Loans. 93,234 67,439 9,375 170,048
Nonaccrual Loans 553 286 424 1,263
-------- -------- ------- --------
Total Loans............................. $175,747 $254,869 $74,782 $505,398
======== ======== ======= ========
PAST DUE AND NONPERFORMING LOANS AND ASSETS (amounts in 000's)
The following table reflects as of the period ended the aggregate amounts of
loans past due and nonperforming:
December 31,
----------------------------------
2000 1999 1998 1997 1996
------ ------ ------ ------ ------
Loans, excluding restructured loans:
Loans contractually past due over 90 days........ $ 164 $ 48 $ 535 $ 353 $ 85
Nonaccrual Loans.................................... 1,263 1,249 2,602 1,654 1,419
Restructured loans not in compliance with terms:
Loans contractually past due 30-89 days.......... -- -- -- -- --
Loans contractually past due over 90 days........ -- -- -- -- --
Nonaccrual Loans................................. -- -- -- -- --
Other real estate owned............................. -- -- -- -- --
------ ------ ------ ------ ------
Total........................................ $1,427 $1,297 $3,137 $2,007 $1,504
====== ====== ====== ====== ======
Interest on nonaccrual loans were immaterial as of December 31, 2000 and
1999.
The Company accounts for impaired loans in accordance with FASB Statement
No. 114, Accounting by Creditors for Impairment of a Loan, which defines a loan
as impaired when it is probable the Company will be unable to collect all
principal and interest payments due in accordance with the terms of the loan
agreement. The statement further requires that the impairment of loans that
have been separately identified for evaluation is to be measured based on the
present value of expected future cash flows or, alternatively, the observable
market price of the loans or the fair value of the collateral. However, for
those loans that are collateral dependent (that is, if repayment of those loans
is expected to be provided solely by the underlying collateral) and for which
management has determined foreclosure is probable, the measure of impairment of
those loans is to be based on the fair value of the collateral. As of December
31, 2001 and 2000, impaired loans were considered immaterial to the Company's
financial position and results of operations.
D-12
ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES (amounts in 000's)
December 31,
---------------------------------------
2000 1999 1998 1997 1996
------ ------- ------ ------ ------
Balance at beginning of period......................... $4,123 $ 4,879 $4,322 $3,999 $3,637
Charge-offs:
Commercial Loans.................................... $ 139 $ 526 $ 157 $ 175 $ 242
Commercial Real Estate Loans........................
Direct Finance Leases...............................
Installment Loans................................... 164 359 105 66 78
Auto Dealer Financing............................... 669 1,435 419 262 312
Auto Lease Financing................................ 65 40 31 12
Home Equity Loans................................... 55
Real Estate Loans...................................
Consumer Open Lines of Credit....................... 47 3 3 9 17
Other...............................................
------ ------- ------ ------ ------
Subtotal........................................ $1,074 $ 2,388 $ 724 $ 543 $ 661
Recoveries
Commercial Loans.................................... $ 67 $ 160 $ 100 $ 13 $ 9
Commercial Real Estate Loans........................
Direct Finance Leases...............................
Installment Loans................................... 27 38 5 3 3
Auto Dealer Financing............................... 425 587 85 48 48
Auto Lease Financing................................ 9 12
Home Equity Loans...................................
Real Estate Loans...................................
Consumer Open Lines of Credit....................... 2 4 2 3
Other...............................................
------ ------- ------ ------ ------
Subtotal........................................ $ 521 $ 798 $ 202 $ 66 $ 63
------ ------- ------ ------ ------
Net charge-offs:....................................... $ (553) $(1,590) $ (522) $ (477) $ (598)
------ ------- ------ ------ ------
Provisions charged to operations....................... $1,483 $ 834 $1,079 $ 800 $ 960
------ ------- ------ ------ ------
Balance at end of period............................... $5,053 $ 4,123 $4,879 $4,322 $3,999
====== ======= ====== ====== ======
Ratio of net charge-offs during period to average loans
outstanding during the period........................ 0.13% 0.16% 0.11% 0.08% 0.50%
====== ======= ====== ====== ======
The allowance for loan losses is established through a provision for loan
losses charged to expense. Loans are charged against the allowance for loan
losses when management believes that collectibility of the principal is
unlikely. The allowance is an amount that management believes will be adequate
to absorb estimated losses on existing loans that may become uncollectible,
based on evaluation of the collectibility of loans and prior loan loss
experience. This evaluation also takes into consideration such factors as
changes in the nature and volume of the loan portfolio, overall portfolio
quality, review of specific problem loans, and current economic conditions that
may affect the borrower's ability to pay. While management uses the best
information available to make its evaluation, future adjustments to the
allowance may be necessary if there are significant changes in economic
conditions.
D-13
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES AND LOAN CONCENTRATIONS
(amounts in 000's)
December 31, 2000 December 31, 1999 December 31, 1998
-------------------- ------------------ ------------------
Percent Percent Percent
of Loans of Loans of Loans
In Each In Each In Each
Category Category Category
To Total To Total To Total
Amount Loans Amount Loans Amount Loans
------ -------- ------ -------- ------ --------
Balance at the end of period applicable to:
Commercial Loans............................ $1,801 37.84% $1,549 33.85% $1,447 27.52%
Commercial Real Estate Loans................ 1,069 22.46% 1,021 21.93% 1,078 17.27%
Direct Finance Leases....................... 118 2.47% 133 2.89% 159 2.83%
Installment Loans........................... 36 1.82% 27 1.39% 40 1.65%
Auto Dealer Financing....................... 197 9.94% 642 16.20% 1,304 27.01%
Auto Lease Financing........................ 60 1.92% 124 3.91% 248 6.42%
Home Equity Loans........................... 1,441 19.52% 312 15.62% 299 12.33%
Real Estate Loans........................... 41 2.06% 50 2.57% 93 3.81%
Consumer Open Lines of Credit............... 287 1.81% 262 1.63% 208 1.07%
Other....................................... 3 0.14% 2 0.02% 3 0.09%
------ ------ ------ ------ ------ ------
Total.................................. $5,053 100.00% $4,123 100.00% $4,879 100.00%
====== ====== ====== ====== ====== ======
December 31, 1997 December 31,
------------------ ------------------
Percent Percent
of Loans of Loans
In Each In Each
Category Category
To Total To Total
Amount Loans Amount Loans
------ -------- ------ --------
Balance at the end of period applicable to:
Commercial Loans............................ $1,393 21.27% $1,185 23.51%
Commercial Real Estate Loans................ 1,191 15.98% 1,207 13.99%
Direct Finance Leases....................... 227 3.28% 169 2.65%
Installment Loans........................... 38 1.86% 53 2.60%
Auto Dealer Financing....................... 635 30.44% 584 29.43%
Auto Lease Financing........................ 299 8.95% 370 11.69%
Home Equity Loans........................... 240 11.53% 164 8.27%
Real Estate Loans........................... 117 5.60% 135 6.77%
Consumer Open Lines of Credit............... 179 1.07% 127 0.80%
Other....................................... 3 0.03% 5 0.29%
------ ------ ------ ------
Total.................................. $4,322 100.00% $3,999 100.00%
====== ====== ====== ======
For each period ended shown, the allowance for loan losses has been allocated to
the following categories in amounts deemed reasonably necessary to provide for
the possibility of losses being incurred within each category of loans as of the
dates indicated.
D-14
Note 1. General
The accounting and reporting policies of Richfield State Agency, Inc. and
Subsidiaries ("the Company") conform to United States generally accepted
accounting principles and to general practices within the banking industry.
Significant accounting policies used by the Company are described in the
summary of significant accounting policies included as part of the December 31,
2000 and 1999 consolidated financial statements.
The financial statements reflect adjustments, all of which are of a normal
recurring nature, and, in the opinion of management, necessary for a fair
statement of results for the interim periods. The operating results for the
nine months ended September 30, 2001 and 2000 are not necessarily indicative of
the results which may be expected for the entire year. The accompanying
consolidated financial statements should be read in conjunction with the
Company's December 31, 2000 and 1999 consolidated financial statements and
related notes.
Emerging Accounting Standards: In June 2001, the Financial Accounting
Standards Board issued Statement No. 142, Accounting for Goodwill and Other
Intangible Assets, which is required to be adopted in years beginning after
December 15, 2001. Statement No. 142 requires that goodwill no longer be
amortized to earnings, but instead be reviewed for impairment. Impairment
write-downs required to state the amount of goodwill recorded at the lower of
fair value or amortized cost must be recorded to current period earnings in the
year in which such impairment is noted.
Management believes that the adoption of Statement No. 142 will have an
immaterial impact on the Company's consolidated financial statements.
Note 2. Allowance for Loan Losses
Summary of allowance:
Nine-months Ended
September 30,
----------------
2001 2000
------- ------
Balance, beginning............. $ 5,053 $4,123
Provision charged to operations 1,221 1,123
Loans charged off.............. (1,563) (807)
Recoveries..................... 483 410
------- ------
Balance, ending................ $ 5,194 $4,849
======= ======
Note 3. Available-for-Sale Securities
As of September 30, 2001 and 2000, the Company's subsidiary bank held
$172,733 and $125,272 of available-for-sale securities, and $14,672 and $16,549
of held-to-maturity securities, respectively.
Changes in accumulated other comprehensive income: The Company presently
has only one component of accumulated other comprehensive income which
represents the change in the unrealized gain (loss) on available-for-sale
securities. The changes representing this component are as follows:
Nine-months Ended
September 30,
----------------
2001 2000
------ -------
Balance, beginning......................................... $ (414) $(6,101)
Unrealized gain (loss) during the year.................. 3,830 2,804
Deferred tax effect related to unrealized (gain) loss... (42) (163)
Reclassification of realized (gains) losses, net of tax. (760) (225)
------ -------
Balance, ending............................................ $2,614 $(3,685)
====== =======
D-15
Note 4. Notes Payable
Restrictive covenants: The Company is subject to certain restrictive
covenants relating to its subsidiary bank including, but not limited to, the
maintenance of a minimum ownership percentage of the outstanding common stock,
limitations on outstanding indebtedness, and the maintenance of certain
financial statement ratio minimum thresholds. At September 30, 2001 and 2000,
the Company was in compliance with these covenants.
Tax incremental financing bonds: On October 17, 2001, the Company
refinanced $7,000 of a $9,500 construction note outstanding with another
creditor. In addition, the City of Richfield--Housing and Redevelopment
Authority issued a tax incremental note in the amount of $2,500 to the creditor
as repayment of the Company's remaining construction note balance. Funds to
repay this tax incremental note will be provided by the City of Richfield to
the creditor from property tax payments made by the Company to the City of
Richfield. However, the Company was released from its obligation to repay the
remaining $2,500 owed under the former construction note outstanding.
The Company has established a collateral account in the name of the City of
Richfield--Housing and Redevelopment Authority in the amount of $223. The
purpose of this collateral account is to provide a source of repayment of the
$2,500 tax incremental note to the creditor from the City of Richfield should
the Company default on future property tax payments to the City of Richfield.
The Company is not obligated to pay, nor is guaranteeing repayment of, any debt
outstanding in addition to the balance outstanding in the collateral account in
connection with this financing arrangement. Should the Company not default on
future property tax payments to the City of Richfield, the City of Richfield
will utilize the funds from the collateral account to make the Company's last
two property tax installments under the tax incremental financing arrangement.
These tax incremental financing arrangements mature on February 1, 2026.
In addition, the City of Richfield--Housing and Redevelopment Authority
issued a tax incremental note in the amount of $7,000 to the Company. The
Company paid no consideration to receive this tax incremental note and pledged
only their intent to continue making annual property tax payments for the next
25 years. This tax incremental note was issued to evidence the City of
Richfield's intent, but not their obligation, to pay excess tax incremental
funds to the Company in future periods. However, as there is no guarantee that
such payments will be received and the amount of payment to be received is
uncertain, no amounts have been recorded in the Company's financial statements
reflecting the issuance of this tax incremental note. As future payments are
received by the Company in accordance with this tax incremental note, these
payments will be applied as a reduction of the Company's current year property
tax expense in the year which such payments are received.
Although the creditor has forgiven $2,500 of the Company's debt previously
outstanding to them, the Company has pledged assets in the form of the
collateral account and provided a credit enhancement to the creditor in the
form of the tax incremental note issued to them by the City of Richfield. As
required by generally accepted accounting principles, such debt forgiven is not
considered to be extinguished due to the existence of the collateral account
and the credit enhancements. Therefore, the remaining balance outstanding will
continue to be recorded on the Company's balance sheet and accreted to current
period earnings over the term of the tax incremental financing arrangements.
The amount accreted to the Company's earnings will be in same proportion as the
principal payments received by the creditor from the City of Richfield under
the tax incremental financing bonds issued to the creditor.
Note 5. Income Taxes
On January 1, 1998, the Company, with the consent of its stockholders,
elected to be taxed under sections of federal income tax law (subchapter S
Corporation), which provide that, in lieu of corporation income taxes, the
stockholders will separately account for their pro rata shares of the Company's
income, deductions, losses and credits. As a result of the Tax Reform Act of
1986, the Company may be subject to income taxes at the maximum corporate rate
if certain assets are sold at a gain for a ten year period following the
election. As a result of this election, no federal income tax expense is
recorded in the consolidated financial statements.
D-16
Effective June 30, 2001, the State of Minnesota--Department of Revenue
adopted conformity with sections of federal income tax law regarding subchapter
S Corporations. This change is to be accounted for retroactively to January 1,
2001. In connection therewith, the Company has charged to operations the net
deferred tax asset that was previously recorded. In addition, a receivable has
been established representing current year income tax payments made by the
Company during 2001 prior to the adoption of full conformity on June 30, 2001.
The Company has recognized income tax expense of $224 in the September 30,
2001 consolidated financial statements which represents the charge to
operations of the net deferred tax asset that was outstanding at September 30,
2000. In addition, since the State of Minnesota's adoption of full conformity
did not occur until June 30, 2001, a receivable of $614 has been recorded which
represents current year quarterly income tax payments that were paid and will
be refunded.
As of September 30, 2000, total income tax expense of $781 was recognized in
the consolidated financial statements. This amount consisted of $733 in current
year tax expense with the remaining $48 representing deferred income tax
expense.
Note 6. Subsequent Event
On November 18, 2001, the Company entered into an Agreement and Plan of
Merger ("Merger Agreement") with Marshall & Ilsley Corporation ("M&I Corp.")
wherein shareholders of the Company would receive shares of M&I Corp. in
exchange for their shares of the Company. The proposed merger is subject to the
appropriate regulatory and shareholder approvals and compliance with the terms
of the Merger Agreement by the Company and M&I Corp. The Merger Agreement may
be terminated under certain circumstances by either party prior to the
effective merger date. The terms of the proposed transaction, which is expected
to be consummated during the first quarter of 2002, require that the
transaction be accounted for as a purchase under provisions of FAS No. 141 and
142. Under the terms of the Merger Agreement, each issued and outstanding share
of common stock of the Company shall be converted into the right to receive
shares of common stock of M&I Corp. under a formula defined in the Merger
Agreement. Pursuant to the Merger Agreement, total consideration of
approximately $157,000 is to be paid in shares of M&I Corp. common stock;
provided, however, that up to $20,000 of the merger consideration may be
payable in cash at the election of the shareholders of the Company.
D-17
[PAGE INTENTIONALLY LEFT BLANK]
D-18
RICHFIELD STATE AGENCY, INC.
AND SUBSIDIARIES
Consolidated Financial Report
December 31, 2000-
D-19
CONTENTS
FINANCIAL STATEMENTS
Independent auditor's report.............................. 21
Consolidated balance sheets............................... 22
Consolidated statements of income......................... 23
Consolidated statements of stockholders' equity........... 24
Consolidated statements of cash flows..................... 25
Notes to consolidated financial statements................ 26-41
SUPPLEMENTARY INFORMATION
Independent auditor's report on consolidating information. 42
Consolidating balance sheets.............................. 43
Consolidating statements of income........................ 44
D-20
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Richfield State Agency, Inc.
Richfield, Minnesota
We have audited the accompanying consolidated balance sheets of Richfield
State Agency, Inc. and Subsidiaries as of December 31, 2000 and 1999, and the
related consolidated statements of income, changes in stockholders' equity, and
cash flows for the years 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Richfield State Agency, Inc. and Subsidiaries as of December 31, 2000 and
1999, and the results of their operations and their cash flows for the years
then ended, in conformity with generally accepted accounting principles.
LARSON, ALLEN, WEISHAIR & CO., LLP
Minneapolis, Minnesota
January 26, 2001
D-21
RICHFIELD STATE AGENCY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
December 31, 2000 and 1999
2000 1999
-------- --------
ASSETS
Cash and cash equivalents (Note 2)............................................ $ 21,934 $ 27,203
Available-for-sale securities (Note 3)........................................ 131,853 138,373
Held-to-maturity securities (Note 4).......................................... 18,848 13,905
Loans, net (Notes 5, 11, and 13).............................................. 500,345 407,329
Premises and equipment, net (Note 6).......................................... 6,559 6,015
Rental real estate, net (Note 6).............................................. 45,816 21,771
Cash value of life insurance.................................................. 17,768 12,878
Accrued interest receivable and other assets (Note 10)........................ 10,595 9,048
-------- --------
$753,718 $636,522
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits (Notes 3, 4, and 7):
Noninterest-bearing.................................................... $106,881 $101,941
Interest-bearing....................................................... 454,593 378,040
-------- --------
Total deposits...................................................... 561,474 479,981
Short-term borrowings (Note 8)............................................. 83,631 86,569
Notes payable (Note 9)..................................................... 35,236 9,690
Accrued interest payable and other liabilities (Note 12)................... 6,941 6,241
-------- --------
Total liabilities................................................... 687,282 582,481
-------- --------
Commitments, Contingencies, and Credit Risk (Note 11)
Stockholders' Equity (Note 14)
Common stock, no par value; 92,000 shares authorized; 85,681 shares issued. 1,183 1,183
Retained earnings.......................................................... 65,667 58,959
Accumulated other comprehensive income..................................... (414) (6,101)
-------- --------
Total stockholders' equity.......................................... 66,436 54,041
-------- --------
$753,718 $636,522
======== ========
See accompanying Notes to Consolidated Financial Statements.
D-22
RICHFIELD STATE AGENCY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except share and per share amounts)
Years Ended December 31, 2000 and 1999
2000 1999
------- -------
Interest income:
Loans............................................................. $41,391 $31,719
Securities:
Taxable....................................................... 5,834 4,400
Tax-exempt.................................................... 3,940 2,948
Federal funds sold................................................ 46 421
------- -------
51,211 39,488
------- -------
Interest expense:
Deposits.......................................................... 19,463 13,334
Short-term borrowings............................................. 5,198 2,240
Notes payable..................................................... 376 457
------- -------
25,037 16,031
------- -------
Net interest income........................................ 26,174 23,457
Provision for loan losses (Note 5)................................... 1,483 834
------- -------
Net interest income after provision for loan losses........ 24,691 22,623
------- -------
Other income:
Service charges and other fees.................................... 4,806 5,083
Trust fees........................................................ 3,727 3,694
Securities gains, net (Note 3).................................... 585 397
Other income...................................................... 1,517 2,148
------- -------
10,635 11,322
------- -------
Other expenses:
Salaries and employee benefits (Note 12).......................... 16,183 14,042
Occupancy expenses (Notes 6 and 13)............................... 3,569 3,358
Other expenses.................................................... 6,002 5,976
------- -------
25,754 23,376
------- -------
Income before income taxes................................. 9,572 10,569
Income tax expense (Note 10)............................... 989 937
------- -------
Net income................................................. $ 8,583 $ 9,632
======= =======
Net income per common share................................ $100.17 $112.42
======= =======
See accompanying Notes to Consolidated Financial Statements.
D-23
RICHFIELD STATE AGENCY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands, except share and per share amounts)
Years Ended December 31, 2000 and 1999
Accumulated
Common Stock Other
------------- Retained Comprehensive
Shares Amount Earnings Income Total
------ ------ -------- ------------- -------
Balance, December 31, 1998............................ 85,681 $1,183 $54,463 $ 1,948 $57,594
Comprehensive Income:
Net income......................................... -- -- 9,632 --
Net change in unrealized gain (loss) on available-
for-sale securities, net of taxes and
reclassification adjustment (Note 3)............. -- -- -- (8,049)
Comprehensive Income........................... 1,583
Cash dividends declared ($10.00 per share)......... -- -- (857) -- (857)
S-Corp shareholder tax payments (Note 10).......... -- -- (4,279) -- (4,279)
------ ------ ------- ------- -------
Balance, December 31, 1999............................ 85,681 $1,183 $58,959 $(6,101) $54,041
Comprehensive Income:
Net income......................................... -- -- 8,583 --
Net change in unrealized gain (loss) on available-
for-sale securities, net of taxes and
reclassification adjustment (Note 3)............. -- -- -- 5,687
Comprehensive Income........................... 14,270
Cash dividends declared ($10.00 per share)......... -- -- (857) -- (857)
S-Corp shareholder tax payments (Note 10).......... -- -- (1,018) -- (1,018)
------ ------ ------- ------- -------
Balance, December 31, 2000............................ 85,681 $1,183 $65,667 $ (414) $66,436
====== ====== ======= ======= =======
See accompanying Notes to Consolidated Financial Statements.
D-24
RICHFIELD STATE AGENCY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, except share and per share amounts)
Years Ended December 31, 2000 and 1999
2000 1999
-------- ---------
Cash Flows From Operating Activities
Net income..................................................................... $ 8,583 $ 9,632
Adjustments to reconcile net income to net cash provided by (used in) operating
activities:
Securities (gains) losses, net.............................................. (585) (397)
Net amortization and accretion of bond premiums and discounts............... (1,305) (1,011)
Provision for loan losses................................................... 1,483 834
Depreciation and amortization............................................... 2,100 2,051
Deferred income taxes....................................................... 64 70
(Gain) loss on disposal of property and equipment........................... 15 355
Equity in net (income) loss of equity method investees...................... 160 (13)
Other....................................................................... (566) (3,211)
-------- ---------
Net cash provided by (used in) operating activities..................... 9,949 8,310
-------- ---------
Cash Flows From Investing Activities
Cash flows from securities (Note 15)........................................... 9,772 (61,329)
Net (increase) decrease in federal funds sold.................................. -- 11,000
Net (increase) decrease in loans............................................... (94,499) (47,516)
Purchases of premises and equipment............................................ (1,860) (3,196)
Purchases of rental real estate................................................ (88) (816)
Change in cash value of life insurance......................................... (4,890) (1,293)
-------- ---------
Net cash provided by (used in) investing activities..................... (91,565) (103,150)
-------- ---------
Cash Flows From Financing Activities
Net increase (decrease) in deposits............................................ 81,493 31,946
Increase (decrease) in short-term borrowings................................... (2,938) 59,912
Proceeds from notes payable and other borrowings............................... -- 1,300
Payments made on notes payable and other borrowings............................ (333) (2,617)
Dissenting shareholder supplemental payments................................... -- (3,178)
Cash dividends paid............................................................ (857) (857)
S-Corp shareholder tax payments................................................ (1,018) (4,279)
-------- ---------
Net cash provided by (used in) financing activities..................... 76,347 82,227
-------- ---------
Increase (decrease) in cash and cash equivalents........................ (5,269) (12,613)
Cash and Cash Equivalents
Beginning................................................................... 27,203 39,816
-------- ---------
Ending...................................................................... $ 21,934 $ 27,203
======== =========
See accompanying Notes to Consolidated Financial Statements (Additional Cash
Flow Information--Note 15)
D-25
RICHFIELD STATE AGENCY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
Note 1. Summary of Significant Accounting Policies
Nature of business: Richfield State Agency, Inc. (the Company) is a
multi-entity holding company whose primary operations are the ownership of its
wholly-owned subsidiary bank, Richfield Bank & Trust Co. (the subsidiary bank).
The subsidiary bank provides retail and commercial loan and deposit services,
as well as fiduciary and agency trust services, principally to customers within
the Twin Cities Metro area. In addition, the subsidiary bank provides brokerage
services to Bank customers through its wholly-owned subsidiary, R Community
Investments, Inc. The Company is also the owner and lessor of various
commercial and multi-family housing properties.
The Company's other activities consist of the following:
. 100 percent ownership of Eastwood Village, LLC which owns and operates a
low-income senior housing development in Oakdale, Minnesota.
. 28 percent ownership in The Oakes which is a 138 unit upscale apartment
complex located in Richfield, Minnesota.
. 57 percent ownership interest in Sun Lake, LLC which is presently under
development. Upon completion, Sun Lake, LLC will own and operate an
apartment complex in Chaska, Minnesota.
. 55 percent ownership of United Residential Mortgage, LLC which provides
mortgage lending services to customers primarily within the Twin Cities
Metro area. On September 30, 2000, the Company sold it's entire ownership
interest in United Residential Mortgage, LLC for $50. A net loss on sale
of United Residential Mortgage, LLC of $56 is recognized under other
income in the consolidated statement of net income.
Basis of financial statement presentation and accounting estimates: The
consolidated financial statements have been prepared in conformity with
generally accepted accounting principles. In preparing the financial
statements, management is required to make estimates and assumptions that
affect the reported amounts of assets and liabilities as of the date of the
balance sheet and revenues and expenses for the period. Actual results could
differ from those estimates. A material estimate that is particularly
susceptible to significant change relates to the determination of the allowance
for loan losses.
Principles of consolidation: The accompanying consolidated financial
statements include the accounts of Richfield State Agency, Inc., and its
wholly-owned subsidiaries Richfield Bank & Trust Co. and Eastwood Village, LLC.
These entities are collectively referred to hereafter as the Company. All
significant intercompany balances and transactions have been eliminated in
consolidation.
The Company's investment in The Oakes is reflected in the consolidated
financial statements using the equity method of accounting. Therefore, the
financial statements of The Oakes are not consolidated with the Company's
financial statements as the Company's management has determined that it does
not exercise significant influence over the operations of this entity.
Cash, cash equivalents, and cash flows: For purposes of reporting cash
flows, cash and cash equivalents includes cash on hand, amounts due from banks
and investments in commercial paper with maturities of three months or less.
Cash flows from loans, federal funds purchased and sold, deposits, and
short-term borrowings are reported net.
Investments in debt and marketable equity securities: The Company accounts
for debt and marketable equity securities in accordance with Financial
Accounting Standards Board (FASB) Statement No. 115. This statement requires
that management determine the appropriate classification of securities at the
date of adoption
D-26
RICHFIELD STATE AGENCY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands, except share and per share amounts)
and thereafter as each individual security is acquired. In addition, the
appropriateness of such classification is reassessed at each balance sheet
date. The classifications and related accounting policies under FASB Statement
No. 115 are as follows:
Held-to-maturity securities: Securities classified as held-to-maturity are
those debt securities the Company has both the intent and ability to hold to
maturity regardless of changes in market conditions, liquidity needs, or
changes in general economic conditions. These securities are carried at cost
adjusted for amortization of premiums and accretion of discounts, computed by
the interest method over their contractual lives. The sale of a security within
three months of its maturity date or after at least 85 percent of the principal
outstanding has been collected is considered a maturity for purposes of
classification and disclosure.
Available-for-sale securities: Securities classified as available-for-sale
are those debt securities that the Company intends to hold for an indefinite
period of time, but not necessarily to maturity. Any decision to sell a
security classified as available-for-sale would be based on various factors,
including significant movements in interest rates, changes in the maturity mix
of the Company's assets and liabilities, liquidity needs, regulatory capital
considerations, and other similar factors. Securities available for sale are
carried at fair value. Unrealized gains or losses, net of the related deferred
tax effect, are reported as increases or decreases in accumulated other
comprehensive income. Realized gains or losses, determined on the basis of the
cost of specific securities sold, are included in earnings.
Loans and allowance for loan losses: Loans are stated at the amount of
unpaid principal, reduced by an allowance for loan losses. Leases are stated at
an amount equal to their aggregate unpaid rentals less unearned discounts, fees
and other income. Lease financing contracts are accounted for under the direct
lease financing method of accounting. Under this method, the aggregate amount
of all lease payments and the estimated residual value of the equipment is
recorded as an asset. The excess of these assets over the investments in the
leased equipment is recorded as unearned income and recognized as income during
the lease terms in proportion to the unrecovered investment. For income tax
purposes, the equipment is depreciated and contract payments are treated as
rental income. Unearned discount on installment loans is recognized as income
over the terms of the loans by the interest method.
The Company also sells certain mortgage and commercial loans it originates
to outside parties and retains the right to service such loans over their
remaining life. FASB Statement No. 125, Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities, requires that an asset
or liability be recorded based on whether the benefits of servicing received by
the Company exceeds adequate compensation in the market place for such
activities. Management has assessed the impact that its servicing activities
has on its consolidated financial statements and has determined that such
activities are immaterial to the consolidated financial statements. Therefore,
neither a servicing asset nor a liability has been recorded for such activities.
FASB Statement No. 125 also requires transfers of assets to be recorded as
sales when control over the assets transferred has been surrendered. Control
over transferred assets is deemed to be surrendered when (1) the assets have
been isolated from the Company, (2) the transferee obtains the right (free of
conditions that constrain it from taking advantage of that right) to pledge or
exchange the transferred assets, and (3) the Company does not maintain
effective control over the transferred assets through an agreement to
repurchase them prior to maturity. Management believes that transfers of
Company assets are properly accounted for in accordance with the requirements
of FASB Statement No. 125.
The allowance for loan losses is established through a provision for loan
losses charged to expense. Loans are charged against the allowance for loan
losses when management believes that collectibility of the principal is
D-27
RICHFIELD STATE AGENCY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands, except share and per share amounts)
unlikely. The allowance is an amount that management believes will be adequate
to absorb estimated losses on existing loans that may become uncollectible,
based on evaluation of the collectibility of loans and prior loan loss
experience. This evaluation also takes into consideration such factors as
changes in the nature and volume of the loan portfolio, overall portfolio
quality, review of specific problem loans, and current economic conditions that
may affect the borrower's ability to pay. While management uses the best
information available to make its evaluation, future adjustments to the
allowance may be necessary if there are significant changes in economic
conditions.
The Company accounts for impaired loans in accordance with FASB Statement
No. 114, Accounting by Creditors for Impairment of a Loan, which defines a loan
as impaired when it is probable the Company will be unable to collect all
principal and interest payments due in accordance with the terms of the loan
agreement. The statement further requires that the impairment of loans that
have been separately identified for evaluation is to be measured based on the
present value of expected future cash flows or, alternatively, the observable
market price of the loans or the fair value of the collateral. However, for
those loans that are collateral dependent (that is, if repayment of those loans
is expected to be provided solely by the underlying collateral) and for which
management has determined foreclosure is probable, the measure of impairment of
those loans is to be based on the fair value of the collateral. As of December
31, 2000 and 1999, impaired loans were considered immaterial to the Company's
financial position and results of operations.
Interest on loans is recognized over the terms of the loans and is
calculated using the simple-interest method on principal amounts outstanding.
For impaired loans, accrual of interest is discontinued on a loan when
management believes, after considering collection efforts and other factors,
that the borrower's financial condition is such that collection of interest is
doubtful. Cash collections on impaired loans are credited to the loan
receivable balance, and no interest income is recognized on those loans until
the principal balance has been collected. Accrual of interest is generally
resumed when the customer is current on all principal and interest payments and
has been paying on a timely basis for a period of time.
Premises, equipment and rental real estate: Premises, equipment and rental
real estate are stated at cost less accumulated depreciation. Depreciation is
provided principally by the straight-line method over the estimated useful
lives of the assets. Leasehold improvements are amortized over the term of the
associated lease or the estimated useful life of the improvement, whichever is
shorter.
Income taxes: Effective January 1, 1998, the Company, with the consent of
its stockholders, elected to be taxed under sections of federal income tax law
(subchapter S Corporation), which provide that, in lieu of corporation income
taxes, the stockholders will separately account for their pro rata shares of
the Company's income, deductions, losses and credits. As a result of the Tax
Reform Act of 1986, the Company may be subject to income taxes at the maximum
corporate rate if certain assets are sold at a gain for a ten year period
following the election. As a result of this election, no federal income tax
expense is recorded in the consolidated financial statements.
The State of Minnesota has not conformed to federal law with regard to
financial institution Subchapter S corporations. Deferred taxes are provided on
an asset and liability method whereby deferred tax assets are recognized for
deductible temporary differences and operating loss or tax credit carryforwards
and deferred tax liabilities are recognized for taxable temporary differences.
Temporary differences are the differences between the amounts of assets and
liabilities recorded for income tax and financial reporting purposes. Deferred
tax assets are reduced by a valuation allowance when management determines that
it is more likely than not that some portion or all of the deferred tax assets
will not be realized. Deferred tax assets and liabilities are adjusted for the
effects of changes in tax laws and rates on the date of enactment.
D-28
RICHFIELD STATE AGENCY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands, except share and per share amounts)
Employee benefit plans:
Salary reduction 401(k) plan: The Company provides a 401(k) plan which
covers substantially all of the Company's employees who are eligible as to age
and length of service. A participant may elect to make contributions of up to
15 percent of the participant's annual qualifying compensation. The Company
makes matching contributions of 50 percent of each participant's contribution
up to 3 percent of the participant's annual qualifying compensation. The
Company also makes an annual profit sharing contribution equal to 3 percent of
the participant's annual eligible compensation, regardless as to participation
in the 401(k) plan.
Executive long-term incentive plan: The subsidiary bank provides a
long-term incentive plan covering certain key executives of the bank. The
amount of the contribution to the long-term incentive plan for each individual
under the plan is determined annually at the discretion of the Board of
Directors and complies with the requirements of the plan agreement.
Deferred compensation agreements: The Company has entered into deferred
compensation agreements with certain key executives providing for payments upon
retirement, death or disability.
Trust assets: Assets that are held by the subsidiary bank in a fiduciary or
agency capacity are not included in the consolidated financial statements as
they are not assets of the Company. Total trust assets under management at
December 31, 2000 and 1999 were $586,147 and $562,871, respectively.
Net income per common share: Net income per common share is based on the
weighted average number of shares outstanding during each year and represents
both basic and fully-diluted earnings per share. Weighted average shares
outstanding were 85,681 for the years ended December 31, 2000 and 1999.
Fair value of financial instruments: The following methods and assumptions
were used by the Company in estimating the fair value of its financial
instruments:
Cash and cash equivalents: Fair values for cash and cash equivalents are
based on the carrying values reported on the consolidated balance sheets.
Federal funds sold: Fair value of federal funds sold is based on the
carrying value reported on the consolidated balance sheets.
Securities: Fair values for all securities are based on quoted market
prices, where available. If quoted market prices are not available, fair values
are based on quoted market prices of comparable instruments.
Loans: For variable-rate loans that reprice frequently and that have
experienced no significant change in credit risk, fair values are based on
carrying values. Fair values for all other loans are estimated based on
discounted cash flows, using interest rates currently being offered for loans
with similar terms to borrowers with similar credit quality.
Deposit liabilities: Fair values disclosed for demand deposits equal their
carrying amounts, which represent the amounts payable on demand. The carrying
amounts for variable-rate money market accounts and certificates of deposit
approximate their fair values at the reporting date. Fair values for fixed-rate
certificates of deposit are estimated using a discounted cash flow calculation
that applies interest rates currently being offered on certificates to a
schedule of aggregate expected monthly maturities on time deposits.
D-29
RICHFIELD STATE AGENCY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands, except share and per share amounts)
Short-term borrowings: The fair values of all short-term borrowings
approximate their carrying amounts.
Notes payable: The fair values of variable-rate, long-term borrowings
(other than deposits) are based on carrying values. Fair values for fixed-rate,
long-term borrowings (other than deposits) are estimated using a discounted
cash flow calculation that applies currently available market rates of interest
on similar debt instruments to a schedule of aggregate expected principal
payments on long-term, fixed rate debt.
Accrued interest receivable and payable: The fair values of both accrued
interest receivable and payable approximate their carrying amounts.
Off-balance sheet instruments: Since the majority of the Company's
off-balance sheet instruments consist of nonfee-producing, variable-rate
commitments, the Company has determined they do not have a distinguishable fair
value.
Comprehensive income: Effective January 1, 1998, the Company adopted FASB
Statement No. 130, Reporting Comprehensive Income. This statement established
standards for the reporting and display of comprehensive income and its
components and requires presentation in a full set of general-purpose financial
statements. Comprehensive income is the change in an enterprise's equity that
results from transactions during the period with nonowner sources; it includes
net income and specific items that bypass net income and are reported as a
separate component of equity. The adoption of this Statement had no impact on
the Company's financial position or results of operations.
Emerging Accounting Standards: In June 1998, the Financial Accounting
Standards Board issued Statement No.133, Accounting for Derivative Instruments
and Hedging Activities, which was originally required to be adopted in years
beginning after June 15, 1999. Subsequent to the issuance of this Statement,
the FASB amended the provisions of this Statement to defer its effective date
of adoption to years beginning after June 15, 2000.
Statement No. 133 will require the Company to recognize all derivative
instruments on the balance sheet at fair value. Derivatives that do not qualify
under Statement No. 133 as a hedge must be adjusted to fair value through the
income statement. If the derivative qualifies as a hedge, depending on the
nature of the hedge, changes in the fair value of the derivative will either be
offset against the change in fair value of the hedged assets, liabilities, or
firm commitments through earnings or recognized in other comprehensive income
until the hedge item is recognized in earnings. Any ineffective portion of a
derivative's change in fair value will be recognized immediately through a
charge to earnings.
Although the Company's use of derivatives is considered immaterial,
management continues to assess the potential effect that adoption of this
Statement will have on the Company's earnings and financial position.
Reclassifications: Certain of the 1999 amounts have been reclassified to
conform with the 2000 presentation. These reclassifications had no effect on
net income or stockholders' equity.
Note 2. Restrictions on Cash and Cash Equivalents
The subsidiary bank is required to maintain reserve balances, in cash or on
deposit with the Federal Reserve Bank, based upon a percentage of deposits. The
total required reserve balance as of December 31, 2000 and 1999 was
approximately $1,071 and $1,073, respectively.
D-30
RICHFIELD STATE AGENCY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands, except share and per share amounts)
Included within cash and cash equivalents as of December 31, 1999 was
commercial paper with a maturity of three months or less totaling $10,910.
There was no commercial paper outstanding at December 31, 2000.
Note 3. Available-for-Sale Securities
Summary of securities:
December 31, 2000
------------------------------------------
Gross Gross
Amortized Unrealized Unrealized
Cost Gains Losses Fair Value
--------- ---------- ---------- ----------
U.S. government corporations and agencies....... $ 991 $ -- $ (31) $ 960
Obligations of states and political subdivisions 60,156 761 (696) 60,221
Mortgage-backed securities...................... 59,293 208 (427) 59,074
Corporate securities............................ 7,604 64 (338) 7,330
Other equity securities......................... 4,268 -- -- 4,268
-------- ------ ------- --------
$132,312 $1,033 $(1,492) $131,853
======== ====== ======= ========
December 31, 1999
------------------------------------------
Gross Gross
Amortized Unrealized Unrealized
Cost Gains Losses Fair Value
--------- ---------- ---------- ----------
U.S. government corporations and agencies....... $ 13,531 $ -- $ (125) $ 13,406
Obligations of states and political subdivisions 70,620 360 (3,767) 67,213
Mortgage-backed securities...................... 53,448 10 (2,950) 50,508
Corporate securities............................ 3,269 -- (292) 2,977
Other equity securities......................... 4,269 -- -- 4,269
-------- ------ ------- --------
$145,137 $ 370 $(7,134) $138,373
======== ====== ======= ========
Contractual maturities:
December 31, 2000
--------------------
Amortized
Cost Fair Value
--------- ----------
Due in one year or less............... $ 1,507 $ 1,529
Due after one year through five years. 4,727 4,860
Due after five years through ten years 16,056 15,716
Due after ten years................... 46,461 46,406
-------- --------
68,751 68,511
Mortgage-backed securities............ 59,293 59,074
Other equity securities............... 4,268 4,268
-------- --------
$132,312 $131,853
======== ========
Anticipated maturities on mortgage-backed securities are not readily
determinable since they may be prepaid without penalty and other equity
securities do not have stated maturity dates.
D-31
RICHFIELD STATE AGENCY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands, except share and per share amounts)
Realized gains and losses:
Years Ended
December 31,
-----------
2000 1999
---- ----
Gross gains. $597 $398
Gross losses (12) (1)
---- ----
$585 $397
==== ====
Pledged securities: Available-for-sale securities with a carrying value of
$54,054 and $57,743 at December 31, 2000 and 1999, respectively, were pledged
to secure short-term borrowings, public deposits and for other purposes as
required or permitted by law.
Changes in accumulated other comprehensive income: The Company presently
has only one component of accumulated other comprehensive income which
represents the change in the unrealized gain (loss) on available-for-sale
securities. The changes representing this component are as follows:
Years Ended
December 31,
----------------
2000 1999
------- -------
Balance, beginning......................................... $(6,101) $ 1,948
Unrealized gain (loss) during the year.................. 6,512 (8,711)
Deferred tax effect related to unrealized (gain) loss... (532) 1,020
Reclassification of realized (gains) losses, net of tax. (293) (358)
------- -------
Balance, ending............................................ $ (414) $(6,101)
======= =======
Note 4. Held-to-Maturity Securities
Summary of securities:
December 31, 2000
---------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- -------
U.S. Treasury securities........................ $ 201 $ -- $ (1) $ 200
U.S. government corporations and agencies....... 4,289 5 (7) 4,287
Obligations of states and political subdivisions 8,282 205 (34) 8,453
Mortgage-backed securities...................... 6,047 128 (10) 6,165
Corporate securities............................ 29 4 -- 33
------- ---- ----- -------
$18,848 $342 $ (52) $19,138
======= ==== ===== =======
December 31, 1999
---------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- -------
U.S. Treasury securities........................ $ 201 $ -- $ (2) $ 199
U.S. government corporations and agencies....... 4,057 -- (119) 3,938
Obligations of states and political subdivisions 6,498 123 (54) 6,567
Mortgage-backed securities...................... 3,149 45 (9) 3,185
------- ---- ----- -------
$13,905 $168 $(184) $13,889
======= ==== ===== =======
D-32
RICHFIELD STATE AGENCY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands, except share and per share amounts)
Contractual maturities:
December 31, 2000
-----------------
Amortized Fair
Cost Value
--------- -------
Due in one year or less............... $ 1,589 $ 1,603
Due after one year through five years. 3,791 3,849
Due after five years through ten years 7,020 7,083
Due after ten years................... 401 438
------- -------
12,801 12,973
Mortgage-backed securities............ 6,047 6,165
------- -------
$18,848 $19,138
======= =======
Anticipated maturities on mortgage-backed securities are not readily
determinable since they may be prepaid without penalty.
Pledged securities: Held-to-maturity securities with carrying values of
$13,115 and $9,182 at December 31, 2000 and 1999, respectively, were pledged to
secure short-term borrowings, public deposits and for other purposes as
required or permitted by law.
Note 5. Loans
Composition of loans:
December 31,
-----------------
2000 1999
-------- --------
Commercial................... $191,258 $139,276
Commercial real estate....... 113,531 90,223
Home equity.................. 98,677 64,253
Auto dealer financing........ 50,217 66,640
Direct lease financing....... 12,504 11,896
Residential real estate...... 10,423 10,561
Auto lease financing......... 9,705 16,098
Installment.................. 9,212 5,705
Consumer open lines of credit 9,169 6,727
Other........................ 702 73
-------- --------
505,398 411,452
Allowance for loan losses.... 5,053 4,123
-------- --------
$500,345 $407,329
======== ========
Allowance for loan losses:
Years Ended
December 31,
----------------
2000 1999
------- -------
Balance, beginning............. $ 4,123 $ 4,879
Provision charged to operations 1,483 834
Loans charged off.............. (1,074) (2,388)
Recoveries..................... 521 798
------- -------
Balance, ending................ $ 5,053 $ 4,123
======= =======
D-33
RICHFIELD STATE AGENCY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands, except share and per share amounts)
Pledged loans: Eligible one to four-family residential real estate loans
with total outstanding balances approximating $60,821 and $66,259 at December
31, 2000 and 1999, respectively, were pledged to secure advances available
under a blanket line-of-credit agreement with the Federal Home Loan Bank of Des
Moines. See Note 8 for additional information.
Loan servicing: Loans serviced for others by the subsidiary bank, which
consist of mortgage and small business administration loans, are not included
in the consolidated financial statements. The unpaid principal balances of
these loans are as follows:
December 31,
---------------
2000 1999
------- -------
Loan portfolios serviced for:
Federal National Mortgage Association (FNMA)... $12,864 $12,305
Small Business Administration (SBA)............ 14,744 1,679
------- -------
$27,608 $13,984
======= =======
Outstanding commitments to sell loans at year end:
Small Business Administration (SBA)............ $ 1,923 $ 425
======= =======
There were no outstanding commitments to sell loans to FNMA at December 31,
2000 and 1999, respectively.
Loans held for sale, which are included in the consolidated balance sheets,
were immaterial at December 31, 2000 and 1999.
Note 6. Premises and Equipment
December 31,
---------------
2000 1999
------- -------
Land...................... $ 1,119 $ 1,119
Buildings and improvements 4,831 4,298
Equipment................. 12,152 10,535
------- -------
18,102 15,952
Accumulated depreciation.. 11,543 9,937
------- -------
$ 6,559 $ 6,015
======= =======
Rental real estate: Rental real estate consists of the subsidiary banks'
Richfield and Chanhassen locations which are leased from the Company. Remaining
properties consist of a 78 unit assisted-living apartment complex, a medical
building, and a restaurant franchise building all located in Richfield and
leased to non-related parties. A 78 unit low-income apartment complex in
Oakdale, Minnesota leased to various non-related parties is also included. As
of December 31, 2000 and 1999, net book values of $45,816 and $21,771 related
to rental real estate are included in the consolidated financial statements, of
which $2,603 represents land. Construction in progress, included in rental real
estate, was $17,120 and $7,864 as of December 31, 2000 and 1999, respectively.
D-34
RICHFIELD STATE AGENCY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands, except share and per share amounts)
Note 7. Deposits
December 31,
-----------------
2000 1999
-------- --------
Demand deposits.................... $106,881 $101,941
NOW and money market accounts...... 163,679 121,394
Savings deposits................... 34,367 40,951
Time certificates, $100,000 or more 85,461 50,738
Other time deposits................ 171,086 164,957
-------- --------
$561,474 $479,981
======== ========
At December 31, 2000, the scheduled maturities of time certificates are as
follows:
2001...... $203,503
2002...... 47,272
2003...... 4,680
2004...... 564
2005...... 523
Thereafter 5
--------
$256,547
========
Wholesale and brokered deposits: Included in total time deposits above are
wholesale and broker deposits totaling $47,080 and $18,312 as of December 31,
2000 and 1999, respectively. The majority of these deposits were obtained
through sources outside of the subsidiary bank's normal trade area and
generally consist of maturities of three-months or less.
These deposits are intended to be an incremental source of alternate funding
primarily utilized to match fund-particular assets, meet seasonal funding
needs, and to take advantage of pricing opportunities in the market.
As of December 31, 2000 and 1999, these deposits represented 8.5 and 3.8
percent of total deposits, respectively, and are considered insignificant to
the subsidiary bank's financial position and operations.
Note 8. Short-Term Borrowings
December 31,
---------------
2000 1999
------- -------
Federal funds purchased........ $ 8,000 $19,100
Repurchase agreements.......... 25,529 13,105
Federal Home Loan Bank advances 45,102 46,900
Revolving line of credit....... 5,000 7,464
------- -------
$83,631 $86,569
======= =======
Securities sold under agreements to repurchase generally consist of
maturities of three months or less.
Federal Home Loan Bank advances: The subsidiary bank is a member of the
Federal Home Loan Bank of Des Moines. As a member, the bank may from time to
time apply for an advance or advances which may be
D-35
RICHFIELD STATE AGENCY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands, except share and per share amounts)
available to it. These advances are secured by all stock of the Federal Home
Loan Bank of Des Moines owned by the Bank, and essentially all eligible one to
four-family residential real estate loans under a blanket lien pledge.
As of December 31, 2000, the subsidiary bank had approximately $1,553 of
available funds to advance upon.
Revolving line of credit: The Company has a revolving line of credit with a
bank for $7,500 which expires in May, 2001. Borrowings under this line of
credit are secured by 48,000 shares of Richfield Bank & Trust Co. common stock
owned by the Company. The outstanding balance on this line of credit was $5,000
and $7,464 at December 31, 2000 and 1999, respectively.
Note 9. Notes Payable
2000 1999
------- ------
Term note payable to a bank, interest at 8.15%, monthly installments of $28
plus interest; due August, 1, 2006; secured by 48,000 shares of Richfield
Bank & Trust Co. common stock.............................................. $ 3,513 $3,846
Construction loan payable to a bank, interest at 7.4%, principal and interest
due upon completion of construction, secured by 48,000 shares of Richfield
Bank & Trust Co. common stock and first mortgage on Richfield Urban
Village.................................................................... 9,423 4,544
Term note payable to a bank, interest at 7.05 percent, interest and principal
payments of $149 due monthly with balloon at maturity, due January 1,
2021, secured by first mortgage on Richfield Urban Village................. 21,000 --
Term note payable to a stockholder, interest at 4.98%, outstanding principal
and remaining interest due March 1, 2001, unsecured........................ 1,300 1,300
------- ------
Total..................................................................... $35,236 $9,690
======= ======
Restrictive covenants: The Company is subject to certain restrictive
covenants relating to its subsidiary bank including, but not limited to, the
maintenance of a minimum ownership percentage of the outstanding common stock,
limitations on outstanding indebtedness, and the maintenance of certain
financial statement ratio minimum thresholds. At December 31, 2000 and 1999,
the Company was in compliance with these covenants.
Future annual maturities:
Amount
Years ending December 31, -------
2001............ $11,347
2002............ 673
2003............ 698
2004............ 724
2005............ 753
Thereafter........ 21,041
-------
$35,236
=======
D-36
RICHFIELD STATE AGENCY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands, except share and per share amounts)
Note 10. Income Taxes
The Company, with the consent of its stockholders, has elected to be taxed
under sections of federal income tax law, which provide that, in lieu of
corporation federal income taxes, the stockholders separately account for their
pro rata shares of the Company's items of income, deductions, losses and
credits. As a result of this election, no federal income tax expense has been
recognized in the accompanying consolidated financial statements.
As stated in Note 1, the State of Minnesota has not conformed to federal law
with regard to financial institutions who elect to be taxed in this manner for
federal purposes. Therefore, provisions for state income tax expense have been
recognized in the consolidated financial statements. The cumulative tax effects
of the primary temporary differences resulting in a net deferred tax asset in
the consolidated financial statements are composed of the net effect of the
unrealized loss on available-for-sale securities, loan loss allowance, trust
loss allowance, deferred compensation accruals, and property and equipment.
The provision for state income taxes charged to operations consists of the
following:
Years Ended
December 31,
------------
2000 1999
---- ----
Current tax expense. $925 $867
Deferred tax expense 64 70
---- ----
$989 $937
==== ====
Note 11. Commitments, Contingencies, and Credit Risk
Contingencies: In the normal course of business, the Company 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.
Financial instruments with off-balance sheet risk: The subsidiary bank is
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.
They involve, to varying degrees, elements of credit risk in excess of amounts
recognized on the consolidated balance sheets.
The subsidiary bank's exposure to credit loss in the event of nonperformance
by the other parties to the financial instruments for these commitments is
represented by the contractual amounts of the instruments. The subsidiary bank
uses the same credit policies in making commitments as it does for on-balance
sheet instruments. These commitments were as follows:
Years Ended December 31,
------------------------
2000 1999
-------- --------
Commitments to extend credit $102,506 $120,518
Standby letters of credit... 5,297 1,197
-------- --------
$107,803 $121,715
======== ========
D-37
RICHFIELD STATE AGENCY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands, except share and per share amounts)
Commitments to extend credit: 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. 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 subsidiary bank evaluates
each customer's creditworthiness on a case-by-case basis. If deemed necessary
upon extension of credit, the amount of collateral obtained is based on
management's credit evaluation of the party. Collateral held varies, but may
include accounts receivable, inventory, property and equipment, and
income-producing commercial properties.
Standby letters of credit: Standby letters of credit are conditional
commitments issued by the subsidiary 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. Collateral held varies as specified above and is
required in instances which the subsidiary bank deems necessary. At December
31, 2000, a majority of these standby letters of credit were collateralized.
Financial instruments with concentrations of credit risk:
Concentrations over insured limits: The nature of the subsidiary bank's
business requires that it maintain amounts due from banks which, at times, may
exceed federally insured limits. The Company has not experienced any losses in
such accounts.
Concentration by geographic location: The subsidiary bank makes commercial,
commercial real estate, residential, dealer financing and other consumer loans
to customers primarily in the Twin Cities' area. Although the subsidiary bank's
loan portfolio is diversified, a substantial portion of the subsidiary bank's
customers' abilities to honor their contracts is dependent upon the business
economy in the seven county metro area. See Note 5 above for concentrations of
loans by type of loan.
Employment commitments:
Severance agreements: The subsidiary bank has entered into severance
agreements with certain key executives of the bank. These severance agreements
are triggered by a change of control in Company ownership or by termination of
employment for reasons other than cause. The terms of these agreements range
from three to five years. Management has determined that the maximum liability
which would result in the event of a change in ownership control would be
approximately $1,541. In the event that all severance agreements were executed
for reasons other than cause, the maximum liability would be approximately
$798. Since certain events are required to occur before the Company is liable,
no amounts have been recorded in the consolidated financial statements for
amounts potentially owed under these agreements.
Multi-housing development project:
At December 31, 2000, the Company is committed to a significant development
project in Chaska, Minnesota. The Company, through its fifty-seven percent
ownership interest in Sun Lake, LLC, will control the operations of this 78
unit apartment complex upon completion. Construction is estimated to be
completed in August 2001 with operations commencing shortly thereafter.
Estimated costs upon completion of this project are $7,500. As of December 31,
2000, the Company has an investment of $450 recorded in other assets. In
addition, the Company has committed to purchase an additional $300 investment
during 2001.
D-38
RICHFIELD STATE AGENCY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands, except share and per share amounts)
Note 12. Benefit Plans
Profit sharing plan: Company contributions to the plan were $569 and $445
in 2000 and 1999, respectively.
Executive long-term incentive plan: Expense recognized by the Company under
the plan was $163 for 2000 and none in 1999 as the plan was not effective until
January 1, 2000.
Deferred compensation agreements: Expense recognized by the Company under
these agreements was $728 and $110 for 2000 and 1999, respectively.
Self-insured health plan: The Company offers health insurance to its
employees under a self-insured plan with stop-loss limits of $40 per individual
employee per year and $1,155 of expected claims in aggregate based on the
actual number of employees participating in the plan. Any amounts exceeding the
aggregate limit are covered under a stop-loss insurance policy with a limit of
$2,000. The Company accrued $79 and $150 for amounts due and payable on
existing claims for which the Company is liable as of December 31, 2000 and
1999, respectively.
Note 13. Loans and Other Transactions With Related Parties
Shareholders of the Company, and officers and directors, including their
families and companies of which they are principal owners, are considered to be
related parties. These related parties were loan customers of, and had other
transactions with, the Company in the ordinary course of business. In
management's opinion, these loans and transactions were on the same terms as
those for comparable loans and transactions with nonrelated parties.
Loans: Total loans to related parties were approximately $4,849 and $3,097
at December 31, 2000 and 1999, respectively.
Leases: The subsidiary bank leases its Richfield and Chanhassen office
space from the Company through various non-cancelable operating leases. These
leases call for base rental payments plus the subsidiary bank's share of
property taxes and operating expenses. Total intercompany rental payments from
the subsidiary bank to the Company, which have been eliminated upon
consolidation, were $1,088 and $977 for 2000 and 1999, respectively.
Note 14. Regulatory Capital Requirements
The Company on a consolidated basis and its subsidiary bank are 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 Company's consolidated
financial statements. Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, the Company and its subsidiary bank
must meet specific capital guidelines that involve quantitative measures of
assets, liabilities and certain off-balance sheet items as calculated under
regulatory accounting practices. The capital amounts and classification are
also subject to qualitative judgments by the regulators about components, risk
weightings, and other factors. Prompt corrective action provisions are not
applicable to bank holding companies.
Quantitative measures established by regulation to ensure capital adequacy
require the Company and its subsidiary bank to maintain minimum ratios (set
forth in the table below) of total and Tier I capital, and of Tier I capital to
average assets (all as defined in the regulations). Management believes, as of
December 31, 2000, that the Company and its subsidiary bank meet all capital
adequacy requirements to which they are subject.
D-39
RICHFIELD STATE AGENCY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands, except share and per share amounts)
As of December 31, 2000, the most recent notification dated September 30,
2000, from the subsidiary bank's primary regulator, the Federal Deposit
Insurance Corporation, categorized the subsidiary bank as well capitalized
under the regulatory framework for prompt corrective action. To be categorized
as well capitalized, the subsidiary bank must maintain minimum total
risk-based, Tier I risk-based, and Tier I leverage ratios as set forth in the
table below. There are no conditions or events since that notification that
management believes have changed the subsidiary bank's category.
To Be Well
For Capital Capitalized Under
Adequacy Prompt Corrective
Actual Purposes Action Provisions
------------ ------------------------- --------------------------
Amount Ratio Amount Ratio Amount Ratio
------- ----- ------- ----------------- ------- ------------------
As of December 31, 2000:
Total capital (to risk-weighted assets):
Consolidated.......................... $70,296 11.3% $49,671 (greater or =)8.0% $ N/A N/A
Richfield Bank & Trust Co............. 60,009 10.5% 45,599 (greater or =)8.0% 56,999 (greater than)10.0%
Tier I capital (to risk-weighted assets):
Consolidated.......................... 65,243 10.5% 24,836 (greater or =)4.0% N/A N/A
Richfield Bank & Trust Co............. 54,956 9.6% 22,800 (greater or =)4.0% 34,200 (greater than)6.0%
Tier I capital (to average assets):
Consolidated.......................... 65,243 9.4% 20,806 (greater or =)3.0% N/A N/A
Richfield Bank & Trust Co............. 54,956 8.0% 26,213 (greater or =)4.0% 32,767 (greater than)5.0%
As of December 31, 1999:
Total capital (to risk-weighted assets):
Consolidated.......................... $62,718 12.6% $39,908 (greater or =)8.0% $ N/A N/A
Richfield Bank & Trust Co............. 54,665 11.5% 37,886 (greater or =)8.0% 47,358 (greater than)10.0%
Tier I capital (to risk-weighted assets):
Consolidated.......................... 58,595 11.7% 19,954 (greater or =)4.0% N/A N/A
Richfield Bank & Trust Co............. 50,542 10.7% 18,943 (greater or =)4.0% 28,415 (greater than)6.0%
Tier I capital (to average assets):
Consolidated.......................... 58,595 9.9% 17,748 (greater or =)3.0% N/A N/A
Richfield Bank & Trust Co............. 50,542 8.9% 22,801 (greater or =)4.0% 28,501 (greater than)5.0%
Note 15. Additional Cash Flow Information
Cash flows from securities:
Years Ended
December 31,
-------------------
2000 1999
-------- ---------
Available-for-sale securities:
Maturities................. $ 11,523 $ 150
Sales...................... 84,091 43,040
Purchases.................. (81,219) (101,938)
Held-to-maturity securities:
Maturities................. 1,796 833
Purchases.................. (6,419) (3,414)
-------- ---------
$ 9,772 $ (61,329)
======== =========
D-40
RICHFIELD STATE AGENCY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands, except share and per share amounts)
Supplemental disclosures of cash flow information:
Years Ended
December 31,
---------------
2000 1999
------- -------
Cash payments for interest.... $23,540 $16,405
Cash payments for income taxes 1,144 4,173
======= =======
Supplemental schedule of noncash investing and financing activities:
Years Ended
December 31,
---------------
2000 1999
------- -------
Net change in unrealized gain (loss) on securities available for sale (Note 3) $ 5,687 $(8,049)
Note receivable financed through issuance of notes payable.................... 1,091 --
Property and equipment additions financed through issuances of notes payable.. 24,788 4,544
======= =======
Note 16. Fair Values of Financial Instruments and Interest Rate Risk
The fair values of the Company's financial instruments are as follows:
December 31,
---------------------------------------
2000 1999
------------------- -------------------
Carrying Carrying
Amount Fair Value Amount Fair Value
-------- ---------- -------- ----------
Financial assets:
Cash and cash equivalents... $ 21,934 $ 21,934 $ 27,203 $ 27,203
Securities.................. 150,588 150,991 152,278 152,262
Loans, net.................. 500,345 497,924 407,329 404,991
Accrued interest receivable. 4,460 4,460 3,415 3,415
Financial liabilities:
Deposits.................... 561,474 561,938 479,981 480,312
Short-term borrowings....... 83,631 78,623 86,569 86,569
Notes payable............... 35,236 31,167 9,690 9,617
Accrued interest payable.... 4,139 4,139 2,565 2,565
D-41
INDEPENDENT AUDITOR'S REPORT ON CONSOLIDATING INFORMATION
Board of Directors
Richfield Bank & Trust Co.
Richfield, Minnesota
Our reports on our audits of the consolidated financial statements of
Richfield State Agency, Inc. and Subsidiaries for the years ended December 31,
2000 and 1999 appears on page 1. Those audits were made for the purpose of
forming an opinion on the consolidated financial statements taken as a whole.
The consolidating information on pages 24 through 27 is presented for purposes
of additional analysis of the consolidated financial statements rather than to
present the financial position, results of operations, and cash flows of the
individual companies. Such information has been subjected to the auditing
procedures applied in the audits of the consolidated financial statements and,
in our opinion, is fairly stated in all material respects in relation to the
consolidated financial statements taken as a whole.
LARSON, ALLEN, WEISHAIR & CO., LLP
Minneapolis, Minnesota
January 26, 2001
D-42
RICHFIELD STATE AGENCY, INC AND SUBSIDIARIES
CONSOLIDATING BALANCE SHEETS
(In thousands, except share and per share amounts)
December 31, 2000 and 1999
2000 1999
----------------------------------------------------- ------------------------------------------
Richfield Richfield
State Richfield Eastwood State Richfield Eastwood
Agency, Bank & Village, Agency, Bank & Village,
Inc. Trust Co. LLC Eliminations Consolidated Inc. Trust Co. LLC Eliminations
--------- --------- -------- ------------ ------------ --------- --------- -------- ------------
ASSETS
Cash and cash equivalents.... $ 202 $ 21,934 $ (2) $ (200) $ 21,934 $ 347 $ 27,339 $ 10 $ (493)
Available-for-sale securities -- 131,853 -- -- 131,853 -- 138,373 -- --
Held-to-maturity securities.. -- 18,848 -- -- 18,848 -- 13,905 -- --
Loans, net................... -- 500,345 -- -- 500,345 -- 407,329 -- --
Premises and equipment, net.. 151 6,187 221 -- 6,559 25 5,748 242 --
Rental real estate, net...... 41,775 -- 4,041 -- 45,816 17,619 -- 4,152 --
Cash value of life insurance. 1,547 16,221 -- -- 17,768 1,484 11,394 -- --
Accrued interest receivable
and other assets............ 4,784 5,811 -- -- 10,595 3,669 5,379 -- --
Investment in subsidiaries... 58,745 -- -- (58,745) -- 48,798 -- -- (48,798)
-------- -------- ------ -------- -------- -------- -------- ------ --------
$107,204 $701,199 $4,260 $(58,945) $753,718 $71,942 $609,467 $4,404 $(49,291)
======== ======== ====== ======== ======== ======== ======== ====== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits:
Noninterest-bearing....... $ -- $107,081 $ -- $ (200) $106,881 $ -- $102,427 $ -- $ (486)
Interest-bearing.......... -- 454,593 -- -- 454,593 -- 378,047 -- (7)
-------- -------- ------ -------- -------- -------- -------- ------ --------
Total deposits........... -- 561,674 -- (200) 561,474 -- 480,474 -- (493)
Short-term borrowings...... 5,000 78,631 -- -- 83,631 7,464 79,105 -- --
Notes payable.............. 35,236 -- -- -- 35,236 9,690 -- -- --
Accrued interest payable
and other liabilities..... 532 6,353 56 -- 6,941 747 5,447 47 --
-------- -------- ------ -------- -------- -------- -------- ------ --------
Total liabilities........ 40,768 646,658 56 (200) 687,282 17,901 565,026 47 (493)
-------- -------- ------ -------- -------- -------- -------- ------ --------
Stockholders' Equity
Common stock............... 1,183 37,500 -- (37,500) 1,183 1,183 35,000 -- (35,000)
Retained earnings.......... 65,667 17,455 4,204 (21,659) 65,667 58,959 15,542 4,357 (19,899)
Accumulated other
comprehensive income...... (414) (414) -- 414 (414) (6,101) (6,101) -- 6,101
-------- -------- ------ -------- -------- -------- -------- ------ --------
Total stockholders'
equity.................. 66,436 54,541 4,204 (58,745) 66,436 54,041 44,441 4,357 (48,798)
-------- -------- ------ -------- -------- -------- -------- ------ --------
$107,204 $701,199 $4,260 $(58,945) $753,718 $71,942 $609,467 $4,404 $(49,291)
======== ======== ====== ======== ======== ======== ======== ====== ========
Consolidated
------------
ASSETS
Cash and cash equivalents.... $ 27,203
Available-for-sale securities 138,373
Held-to-maturity securities.. 13,905
Loans, net................... 407,329
Premises and equipment, net.. 6,015
Rental real estate, net...... 21,771
Cash value of life insurance. 12,878
Accrued interest receivable
and other assets............ 9,048
Investment in subsidiaries... --
--------
$636,522
========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits:
Noninterest-bearing....... $101,941
Interest-bearing.......... 378,040
--------
Total deposits........... 479,981
Short-term borrowings...... 86,569
Notes payable.............. 9,690
Accrued interest payable
and other liabilities..... 6,241
--------
Total liabilities........ 582,481
--------
Stockholders' Equity
Common stock............... 1,183
Retained earnings.......... 58,959
Accumulated other
comprehensive income...... (6,101)
--------
Total stockholders'
equity.................. 54,041
--------
$636,522
========
D-43
RICHFIELD STATE AGENCY, INC AND SUBSIDIARIES
CONSOLIDATING STATEMENTS OF INCOME
(In thousands, except share and per share amounts)
Years Ended December 31, 2000 and 1999
2000
------------------------------------------------------ ----------------------------
Richfield Richfield
State Richfield Eastwood State Richfield Eastwood
Agency, Bank & Village, Agency, Bank & Village,
Inc. Trust Co. LLC Eliminations Consolidated Inc. Trust Co. LLC
--------- --------- -------- ------------ ------------ --------- --------- --------
Interest income:
Loans.............................. $ -- $41,391 $ -- $ -- $41,391 $ -- $31,719 $ --
Securities:
Taxable........................... -- 5,834 -- -- 5,834 -- 4,400 --
Tax-exempt........................ -- 3,940 -- -- 3,940 -- 2,948 --
Federal funds sold................. -- 46 -- -- 46 -- 421 --
------- ------- ---- ------- ------- ------- ------- ----
-- 51,211 -- -- 51,211 -- 39,488 --
------- ------- ---- ------- ------- ------- ------- ----
Interest expense:
Deposits........................... -- 19,463 -- -- 19,463 -- 13,334 --
Short-term borrowings.............. 167 5,031 -- -- 5,198 418 1,822 --
Notes payable...................... 376 -- -- -- 376 457 -- --
------- ------- ---- ------- ------- ------- ------- ----
543 24,494 -- -- 25,037 875 15,156 --
------- ------- ---- ------- ------- ------- ------- ----
Net interest income.............. (543) 26,717 -- -- 26,174 (875) 24,332 --
Provision for loan losses............ -- 1,483 -- -- 1,483 -- 834 --
------- ------- ---- ------- ------- ------- ------- ----
Net interest income after
provision for loan losses....... (543) 25,234 -- -- 24,691 (875) 23,498 --
------- ------- ---- ------- ------- ------- ------- ----
Other income:
Service charges and other fees..... -- 4,806 -- -- 4,806 -- 5,083 --
Trust fees......................... -- 3,727 -- -- 3,727 -- 3,694 --
Securities gains, net.............. -- 585 -- -- 585 -- 397 --
Other income....................... 1,988 -- 617 (1,088) 1,517 2,311 -- 600
------- ------- ---- ------- ------- ------- ------- ----
1,988 9,118 617 (1,088) 10,635 2,311 9,174 600
------- ------- ---- ------- ------- ------- ------- ----
Other expenses:
Salaries and employee benefits..... 320 15,863 -- -- 16,183 303 13,739 --
Occupancy expenses................. 1,392 3,265 -- (1,088) 3,569 1,175 3,160 --
Other expenses..................... 864 4,740 398 6,002 1,170 4,099 484
------- ------- ---- ------- ------- ------- ------- ----
2,576 23,868 398 (1,088) 25,754 2,648 20,998 484
Income (loss) before income
taxes........................... (1,131) 10,484 219 -- 9,572 (1,212) 11,674 116
Income tax expense................... (85) 1,053 21 -- 989 (119) 1,045 11
------- ------- ---- ------- ------- ------- ------- ----
Income (loss) before equity in
income of subsidiaries.......... (1,046) 9,431 198 -- 8,583 (1,093) 10,629 105
Equity in income of subsidiaries..... 9,629 -- -- (9,629) -- 10,725 -- --
------- ------- ---- ------- ------- ------- ------- ----
Net income....................... $ 8,583 $ 9,431 $198 $(9,629) $ 8,583 $ 9,632 $10,629 $105
======= ======= ==== ======= ======= ======= ======= ====
R Security
Systems,
Inc. Eliminations Consolidated
---------- ------------ ------------
Interest income:
Loans.............................. $ -- $ -- $31,719
Securities:
Taxable........................... -- -- 4,400
Tax-exempt........................ -- -- 2,948
Federal funds sold................. -- -- 421
---- -------- -------
-- -- 39,488
---- -------- -------
Interest expense:
Deposits........................... -- -- 13,334
Short-term borrowings.............. -- -- 2,240
Notes payable...................... -- -- 457
---- -------- -------
-- -- 16,031
---- -------- -------
Net interest income.............. -- -- 23,457
Provision for loan losses............ -- -- 834
---- -------- -------
Net interest income after
provision for loan losses....... -- -- 22,623
---- -------- -------
Other income:
Service charges and other fees..... -- -- 5,083
Trust fees......................... -- -- 3,694
Securities gains, net.............. -- -- 397
Other income....................... 214 (977) 2,148
---- -------- -------
214 (977) 11,322
---- -------- -------
Other expenses:
Salaries and employee benefits..... -- -- 14,042
Occupancy expenses................. -- (977) 3,358
Other expenses..................... 223 -- 5,976
---- -------- -------
223 (977) 23,376
Income (loss) before income
taxes........................... (9) -- 10,569
Income tax expense................... -- -- 937
---- -------- -------
Income (loss) before equity in
income of subsidiaries.......... (9) -- 9,632
Equity in income of subsidiaries..... -- (10,725) --
---- -------- -------
Net income....................... $ (9) $(10,725) $ 9,632
==== ======== =======
D-44
RICHFIELD STATE AGENCY, INC. AND SUBSIDIARIES
Consolidated Financial Report
December 31, 1999
D-45
CONTENTS
FINANCIAL STATEMENTS
Independent auditor's report.............................. 47
Consolidated balance sheets............................... 48
Consolidated statements of income......................... 49
Consolidated statements of stockholders' equity........... 50
Consolidated statements of cash flows..................... 51
Notes to consolidated financial statements................ 52-67
SUPPLEMENTARY INFORMATION
Independent auditor's report on consolidating information. 68
Consolidating balance sheets.............................. 70-71
Consolidating statements of income........................ 72-73
D-46
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Richfield Bank & Trust Co.
Richfield, Minnesota
We have audited the accompanying consolidated balance sheets of Richfield
State Agency, Inc. and Subsidiaries as of December 31, 1999 and 1998, and the
related consolidated statements of income, changes in stockholders' equity, and
cash flows for the years 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Richfield State Agency, Inc. and Subsidiaries as of December 31, 1999 and
1998, and the results of their operations and their cash flows for the years
then ended, in conformity with generally accepted accounting principles.
LARSON, ALLEN, WEISHAIR & CO., LLP
Minneapolis, Minnesota
January 25, 2000
D-47
RICHFIELD STATE AGENCY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (In thousands, except share and per share amounts)
December 31, 1999 and 1998
1999 1998
- -------- --------
ASSETS
Cash and cash equivalents (Note 2)............................................ $ 27,203 $ 39,816
Federal funds sold............................................................ -- 11,000
Available-for-sale securities (Note 3)........................................ 138,373 86,350
Held-to-maturity securities (Note 4).......................................... 13,905 12,114
Loans, net (Notes 5, 11, and 13).............................................. 407,329 360,647
Premises and equipment, net (Note 6).......................................... 27,786 21,513
Cash value of life insurance.................................................. 12,878 11,585
Accrued interest receivable and other assets (Note 10)........................ 9,048 6,830
-------- --------
$636,522 $549,855
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities...................................................................
Deposits (Notes 3, 4, and 7):
Noninterest-bearing.................................................... $101,941 $ 91,754
Interest-bearing....................................................... 378,040 356,281
-------- --------
Total deposits...................................................... 479,981 448,035
Short-term borrowings (Note 8)............................................. 86,569 26,657
Notes payable (Note 9)..................................................... 9,690 6,463
Accrued interest payable and other liabilities (Note 12)................... 6,241 11,106
-------- --------
Total liabilities................................................... 582,481 492,261
-------- --------
Commitments, Contingencies, and Credit Risk (Note 11)
Stockholders' Equity (Notes 14 and 15)........................................
Common stock, no par value; 92,000 shares authorized; 85,681 shares issued. 1,183 1,183
Retained earnings.......................................................... 58,959 54,463
Accumulated other comprehensive income..................................... (6,101) 1,948
-------- --------
Total stockholders' equity.......................................... 54,041 57,594
-------- --------
$636,522 $549,855
======== ========
See accompanying Notes to Consolidated Financial Statements.
D-48
RICHFIELD STATE AGENCY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except share and per share amounts)
Years Ended December 31, 1999 and 1998
1999 1998
- ------- -------
Interest income:
Loans............................................................. $31,719 $30,617
Securities:
Taxable....................................................... 2,948 1,901
Tax-exempt.................................................... 4,400 3,846
Federal funds sold................................................ 421 1,324
------- -------
39,488 37,688
------- -------
Interest expense:
Deposits.......................................................... 13,334 14,101
Short-term borrowings............................................. 2,240 668
Notes payable..................................................... 457 638
------- -------
16,031 15,407
------- -------
Net interest income........................................ 23,457 22,281
Provision for loan losses (Note 5)................................... 834 1,079
------- -------
Net interest income after provision for loan losses........ 22,623 21,202
------- -------
Other income:
Service charges and other fees.................................... 5,083 2,806
Trust fees........................................................ 3,694 3,553
Securities gains, net (Notes 3)................................... 397 511
Other income...................................................... 2,148 1,970
------- -------
11,322 8,840
------- -------
Other expenses:
Salaries and employee benefits (Note 12).......................... 14,042 12,171
Occupancy expenses................................................ 3,358 2,237
Other expenses.................................................... 5,976 5,033
------- -------
23,376 19,441
------- -------
Income before income taxes................................. 10,569 10,601
Income tax expenses (Note 10)........................................ 937 1,278
------- -------
Net income................................................. 9,632 9,323
======= =======
Net income per common share................................ $112.42 $108.81
======= =======
See accompanying Notes Consolidated Financial Statements.
D-49
RICHFIELD STATE AGENCY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (In thousands, except share and
per share amounts)
Years Ended December 31, 1999 and 1998
Accumulated
Common Stock Other
------------- Retained Comprehensive
Shares Amount Earnings Income Total
------ ------ -------- ------------- -------
Balance, December 31, 1997................................... 85,681 $1,183 $47,913 $ 782 $49,878
Comprehensive Income:
Net income............................................ -- -- 9,323 --
Net change in unrealized gain (loss) on
available-for-sale securities, net of taxes and
reclassification adjustment (Note 3)................ -- -- -- 1,166
Comprehensive Income............................... 10,489
Cash dividends declared ($16.00 per share)................ -- -- (1,371) -- (1,371)
S-Corp shareholder tax payments........................... -- -- (1,200) -- (1,200)
Redemption of common stock (Note 15)...................... -- -- (202) -- (202)
------ ------ ------- ------- -------
Balance, December 31, 1998................................... 85,681 $1,183 $54,463 $ 1,948 $57,594
Comprehensive Income:
Net income............................................ -- -- 9,632 --
Net change in unrealized gain (loss) on
available-for-sale securities, net of taxes and
reclassification adjustment (Note 3)................ -- -- -- (8,049)
Comprehensive Income............................... 1,583
Cash dividends declared ($10.00 per share)................ -- -- (857) -- (857)
S-Corp shareholder tax payments........................... -- -- (4,279) -- (4,279)
------ ------ ------- ------- -------
Balance, December 31, 1999................................... 85,681 $1,183 $58,959 $(6,101) $54,041
====== ====== ======= ======= =======
See Accompanying Notes to Consolidated Financial Statements.
D-50
RICHFIELD STATE AGENCY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, except share and per share amounts)
Years Ended December 31, 1999 and 1998
1999 1998
- --------- --------
Cash Flows From Operating Activities
Net income...................................................................... $ 9,632 $ 9,323
Adjustments to reconcile net income to net cash provided by (used in) operating
activities:
Securities (gains) losses, net.............................................. (397) (511)
Net amortization and accretion of bond premiums and discounts............... (1,011) (733)
Provision for loan losses................................................... 834 1,079
Depreciation and amortization............................................... 2,051 1,788
Deferred income taxes....................................................... 70 253
(Gain) loss on disposal of property and equipment........................... 355 --
Other....................................................................... (3,224) (903)
--------- --------
Net cash provided by (used in) operating activities...................... 8,310 10,296
--------- --------
Cash Flows From Investing Activities
Cash flows from securities (Note 16)............................................ (61,329) (21,332)
Net (increase) decrease in federal funds sold................................... 11,000 (1,800)
Net (increase) decrease in loans................................................ (47,516) (38,001)
Purchases of premises and equipment............................................. (4,012) (2,622)
Change in cash value of life insurance.......................................... (1,293) (30)
--------- --------
Net cash provided by (used in) investing activities...................... (103,150) (63,785)
--------- --------
Cash Flows From Financing Activities
Net increase (decrease) in deposits............................................. 31,946 37,738
Increase (decrease) in short-term borrowings.................................... 59,912 6,248
Proceeds from notes payable and other borrowings................................ 1,300 --
Payments made on notes payable and other borrowings............................. (2,617) (1,110)
Dissenting shareholder supplemental payments (Note 15).......................... (3,178) --
Cash dividends paid............................................................. (857) (1,371)
S-Corp shareholder tax payments................................................. (4,279) (1,200)
Redemption of common stock (Note 15)............................................ -- (202)
--------- --------
Net cash provided by (used in) financing activities...................... 82,227 40,103
--------- --------
Increase (decrease) in cash and cash equivalents......................... (12,613) (13,386)
Cash and Cash Equivalents..........................................................
Beginning....................................................................... 39,816 53,202
--------- --------
Ending.......................................................................... $ 27,203 $ 39,816
========= ========
See accompanying Notes to Consolidated Financial Statements (Additional Cash
Flow Information--Note 16)
D-51
RICHFIELD STATE AGENCY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
Note 1. Summary of Significant Accounting Policies
Nature of business: Richfield State Agency, Inc. (the Company) is a
multi-entity holding company whose primary operations are the ownership of its
wholly-owned subsidiary bank, Richfield Bank & Trust Co. (the subsidiary bank),
and the leasing of banking facilities owned by the Company. The subsidiary bank
provides retail and commercial loan and deposit services, as well as fiduciary
and agency trust services, principally to customers within the Twin Cities
Metro area. In addition, the subsidiary bank provides brokerage services to
Bank customers through its wholly-owned subsidiary, R Community Investments,
Inc.
The Company's other activities consist of the following:
. 100 percent ownership of R Security Systems, Inc. (RSSI). RSSI is a
holding company whose primary investment was the 50 percent ownership of
Alarm Communications Company which provides security systems and support
services to customers primarily within the Twin Cities Metro area. On
November 17, 1999, RSSI sold its 50 percent interest in Alarm
Communications Company for $505. A net gain on sale of Alarm
Communications Company of $133 is recognized under other income in the
consolidated statement of net income. On December 28, 1999, RSSI was
dissolved and its remaining assets, which consisted of cash and a small
ownership percentage in Eastwood Village, LLC, was transferred to the
Company.
. 100 percent ownership of Eastwood Village, LLC which owns and operates a
low-income senior housing development in Oakdale, Minnesota.
. 55 percent ownership of United Residential Mortgage, LLC which provides
mortgage lending services to customers primarily within the Twin Cities
Metro area.
Basis of financial statement presentation and accounting estimates: The
consolidated financial statements have been prepared in conformity with
generally accepted accounting principles. In preparing the financial
statements, management is required to make estimates and assumptions that
affect the reported amounts of assets and liabilities as of the date of the
balance sheet and revenues and expenses for the period. Actual results could
differ from those estimates. A material estimate that is particularly
susceptible to significant change relates to the determination of the allowance
for loan losses.
Principles of consolidation: The accompanying consolidated financial
statements include the accounts of Richfield State Agency, Inc. and its
wholly-owned subsidiaries Richfield Bank & Trust Co., R Security Systems, Inc.
and Eastwood Village, LLC. These entities are collectively referred to
hereafter as the Company. All significant intercompany balances and
transactions have been eliminated in consolidation.
The Company's investment in United Residential Mortgage, LLC is reflected in
the consolidated financial statements using the equity method of accounting.
Therefore, the financial statements of United Residential Mortgage, LLC are not
consolidated with the Company's financial statements as the Company's
management has determined that it does not exercise significant influence over
the operations of this entity.
Cash, cash equivalents, and cash flows: For purposes of reporting cash
flows, cash and cash equivalents includes cash on hand, amounts due from banks
and investments in commercial paper with maturities of three months or less.
Cash flows from loans, federal funds purchased and sold, deposits, and
short-term borrowings are reported net.
Investments in debt and marketable equity securities: The Company accounts
for debt and marketable equity securities in accordance with Financial
Accounting Standards Board (FASB) Statement No. 115. This
D-52
RICHFIELD STATE AGENCY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands, except share and per share amounts)
statement requires that management determine the appropriate classification of
securities at the date of adoption and thereafter as each individual security
is acquired. In addition, the appropriateness of such classification is
reassessed at each balance sheet date. The classifications and related
accounting policies under FASB Statement No. 115 are as follows:
Held-to-maturity securities: Securities classified as held-to-maturity are
those debt securities the Company has both the intent and ability to hold to
maturity regardless of changes in market conditions, liquidity needs, or
changes in general economic conditions. These securities are carried at cost
adjusted for amortization of premiums and accretion of discounts, computed by
the interest method over their contractual lives. The sale of a security within
three months of its maturity date or after at least 85 percent of the principal
outstanding has been collected is considered a maturity for purposes of
classification and disclosure.
Available-for-sale securities: Securities classified as available-for-sale
are those debt securities that the Company intends to hold for an indefinite
period of time, but not necessarily to maturity. Any decision to sell a
security classified as available-for-sale would be based on various factors,
including significant movements in interest rates, changes in the maturity mix
of the Company's assets and liabilities, liquidity needs, regulatory capital
considerations, and other similar factors. Securities available for sale are
carried at fair value. Unrealized gains or losses, net of the related deferred
tax effect, are reported as increases or decreases in stockholders' equity.
Realized gains or losses, determined on the basis of the cost of specific
securities sold, are included in earnings.
Loans and allowance for loan losses: Loans are stated at the amount of
unpaid principal, reduced by an allowance for loan losses. Leases are stated at
an amount equal to their aggregate unpaid rentals less unearned discounts, fees
and other income. Lease financing contracts are accounted for under the direct
lease financing method of accounting. Under this method, the aggregate amount
of all lease payments and the estimated residual value of the equipment is
recorded as an asset. The excess of these assets over the investments in the
leased equipment is recorded as unearned income and recognized as income during
the lease terms in proportion to the unrecovered investment. For income tax
purposes, the equipment is depreciated and contract payments are treated as
rental income. Unearned discount on installment loans is recognized as income
over the terms of the loans by the interest method.
The Company also sells certain mortgage and commercial loans it originates
to outside parties and retains the right to service such loans over their
remaining life. FASB Statement No. 125, Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities, requires that an asset
or liability be recorded based on whether the benefits of servicing received by
the Company exceeds adequate compensation in the market place for such
activities. Management has assessed the impact that its servicing activities
has on its consolidated financial statements and has determined that such
activities are immaterial to the consolidated financial statements. Therefore,
neither a servicing asset nor a liability has been recorded for such activities.
The allowance for loan losses is established through a provision for loan
losses charged to expense. Loans are charged against the allowance for loan
losses when management believes that collectibility of the principal is
unlikely. The allowance is an amount that management believes will be adequate
to absorb estimated losses on existing loans that may become uncollectible,
based on evaluation of the collectibility of loans and prior loan loss
experience. This evaluation also takes into consideration such factors as
changes in the nature and volume of the loan portfolio, overall portfolio
quality, review of specific problem loans, and current economic conditions that
may affect the borrower's ability to pay. While management uses the best
information available to make its evaluation, future adjustments to the
allowance may be necessary if there are significant changes in economic
conditions.
D-53
RICHFIELD STATE AGENCY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands, except share and per share amounts)
The Company accounts for impaired loans in accordance with FASB Statement
No. 114, Accounting by Creditors for Impairment of a Loan, which defines a loan
as impaired when it is probable the Company will be unable to collect all
principal and interest payments due in accordance with the terms of the loan
agreement. The statement further requires that the impairment of loans that
have been separately identified for evaluation is to be measured based on the
present value of expected future cash flows or, alternatively, the observable
market price of the loans or the fair value of the collateral. However, for
those loans that are collateral dependent (that is, if repayment of those loans
is expected to be provided solely by the underlying collateral) and for which
management has determined foreclosure is probable, the measure of impairment of
those loans is to be based on the fair value of the collateral. As of December
31, 1999 and 1998, impaired loans were considered immaterial to the Company's
financial position and results of operations.
Interest on loans is recognized over the terms of the loans and is
calculated using the simple-interest method on principal amounts outstanding.
For impaired loans, accrual of interest is discontinued on a loan when
management believes, after considering collection efforts and other factors,
that the borrower's financial condition is such that collection of interest is
doubtful. Cash collections on impaired loans are credited to the loan
receivable balance, and no interest income is recognized on those loans until
the principal balance has been collected. Accrual of interest is generally
resumed when the customer is current on all principal and interest payments and
has been paying on a timely basis for a period of time.
Premises and equipment: Premises and equipment are stated at cost less
accumulated depreciation. Depreciation is provided principally by the
straight-line method over the estimated useful lives of the assets. Leasehold
improvements are amortized over the term of the associated lease or the
estimated useful life of the improvement, whichever is shorter.
Income taxes: Effective January 1, 1998, the Company, with the consent of
its stockholders, elected to be taxed under sections of federal income tax law,
which provide that, in lieu of corporation income taxes, the stockholders will
separately account for their pro rata shares of the Company's income,
deductions, losses and credits. As a result of the Tax Reform Act of 1986, the
Company may be subject to income taxes at the maximum corporate rate if certain
assets are sold at a gain for a ten year period following the election. As a
result of this election, no federal income tax expense is recorded in the
consolidated financial statements.
The State of Minnesota has not conformed to federal law with regard to
financial institution Subchapter S corporations. Deferred taxes are provided on
an asset and liability method whereby deferred tax assets are recognized for
deductible temporary differences and operating loss or tax credit carryforwards
and deferred tax liabilities are recognized for taxable temporary differences.
Temporary differences are the differences between the amounts of assets and
liabilities recorded for income tax and financial reporting purposes. Deferred
tax assets are reduced by a valuation allowance when management determines that
it is more likely than not that some portion or all of the deferred tax assets
will not be realized. Deferred tax assets and liabilities are adjusted for the
effects of changes in tax laws and rates on the date of enactment.
Employee benefit plans:
Salary reduction 401(k) plan: The Company provides a 401(k) plan which
covers substantially all of the Company's employees who are eligible as to age
and length of service. A participant may elect to make contributions of up to
15 percent of the participant's annual qualifying compensation.
Profit sharing plan: The Company provides a noncontributory profit sharing
plan covering substantially all employees eligible as to age and length of
service. The amount of the contribution to the profit sharing trust is
D-54
RICHFIELD STATE AGENCY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands, except share and per share amounts)
determined annually at the discretion of the Board of Directors and complies
with the requirements of the plan agreement.
Executive long-term incentive plan: The subsidiary bank provides a
long-term incentive plan covering certain key executives of the bank. The
amount of the contribution to the long-term incentive plan for each individual
under the plan is determined annually at the discretion of the Board of
Directors and complies with the requirements of the plan agreement. The amount
of expense associated with the Plan was immaterial to the 1999 consolidated
financial statements.
Deferred compensation agreements: The Company has entered into deferred
compensation agreements with certain key executives providing for payments upon
retirement, death or disability.
Trust assets: Assets that are held by the subsidiary bank in a fiduciary or
agency capacity are not included in the consolidated financial statements as
they are not assets of the Company. Total trust assets under management at
December 31, 1999 and 1998 was $562,871 and $617,085, respectively.
Net income per common share: Net income per common share is based on the
weighted average number of shares outstanding during each year and represents
both basic and fully-diluted earnings per share. Weighted average shares
outstanding were 85,681 for the years ended December 31, 1999 and 1998.
Fair value of financial instruments: The following methods and assumptions
were used by the Company in estimating the fair value of its financial
instruments:
Cash and cash equivalents: Fair values for cash and cash equivalents are
based on the carrying values reported on the consolidated balance sheets.
Federal funds sold: Fair value of federal funds sold is based on the
carrying value reported on the consolidated balance sheets.
Securities: Fair values for all securities are based on quoted market
prices, where available. If quoted market prices are not available, fair values
are based on quoted market prices of comparable instruments.
Loans: For variable-rate loans that reprice frequently and that have
experienced no significant change in credit risk, fair values are based on
carrying values. Fair values for all other loans are estimated based on
discounted cash flows, using interest rates currently being offered for loans
with similar terms to borrowers with similar credit quality.
Deposit liabilities: Fair values disclosed for demand deposits equal their
carrying amounts, which represent the amounts payable on demand. The carrying
amounts for variable-rate money market accounts and certificates of deposit
approximate their fair values at the reporting date. Fair values for fixed-rate
certificates of deposit are estimated using a discounted cash flow calculation
that applies interest rates currently being offered on certificates to a
schedule of aggregate expected monthly maturities on time deposits.
Short-term borrowings: The fair values of all short-term borrowings
approximate their carrying amounts.
Notes payable: The fair values of variable-rate, long-term borrowings
(other than deposits) are based on carrying values. Fair values for fixed-rate,
long-term borrowings (other than deposits) are estimated using a
D-55
RICHFIELD STATE AGENCY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands, except share and per share amounts)
discounted cash flow calculation that applies currently available market rates
of interest on similar debt instruments to a schedule of aggregate expected
principal payments on long-term, fixed rate debt.
Accrued interest receivable and payable: The fair values of both accrued
interest receivable and payable approximate their carrying amounts.
Off-balance sheet instruments: Since the majority of the Company's
off-balance sheet instruments consist of nonfee-producing, variable-rate
commitments, the Company has determined they do not have a distinguishable fair
value.
Comprehensive income: Effective January 1, 1998, the Company adopted FASB
Statement No. 130, Reporting Comprehensive Income. This statement established
standards for the reporting and display of comprehensive income and its
components and requires presentation in a full set of general-purpose financial
statements. Comprehensive income is the change in an enterprise's equity that
results from transactions during the period with nonowner sources; it includes
net income and specific items that bypass net income and are reported as a
separate component of equity. The adoption of this Statement had no impact on
the Company's financial position or results of operations.
Emerging Accounting Standards: In June 1998, the Financial Accounting
Standards Board issued Statement No.133, Accounting for Derivative Instruments
and Hedging Activities, which was originally required to be adopted in years
beginning after June 15, 1999. Subsequent to the issuance of this Statement,
the FASB amended the provisions of this Statement to defer its effective date
of adoption to years beginning after June 15, 2000.
Statement No. 133 will require the Company to recognize all derivative
instruments on the balance sheet at fair value. Derivatives that do not qualify
under Statement No. 133 as a hedge must be adjusted to fair value through the
income statement. If the derivative qualifies as a hedge, depending on the
nature of the hedge, changes in the fair value of the derivative will either be
offset against the change in fair value of the hedged assets, liabilities, or
firm commitments through earnings or recognized in other comprehensive income
until the hedge item is recognized in earnings. Any ineffective portion of a
derivative's change in fair value will be recognized immediately through a
charge to earnings.
Although the Company's use of derivatives is considered immaterial,
management is continuing to assess the potential effect that adoption of this
Statement will have on the Company's earnings and financial position.
Reclassifications: Certain of the 1998 amounts have been reclassified to
conform with the 1999 presentation. These reclassifications had no effect on
net income or stockholders' equity.
Note 2. Restrictions on Cash and Cash Equivalents
The subsidiary bank is required to maintain reserve balances, in cash or on
deposit with the Federal Reserve Bank, based upon a percentage of deposits. The
total required reserve balance as of December 31, 1999 and 1998 was
approximately $1,073 and $1,611, respectively.
Included within cash and cash equivalents as of December 31, 1999 and 1998
was commercial paper with a maturity of three months or less totaling $10,910
and $26,627, respectively.
D-56
RICHFIELD STATE AGENCY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands, except share and per share amounts)
Note 3. Available-for-Sale Securities
Summary of securities:
December 31, 1999
------------------------------------------
Gross Gross
Amortized Unrealized Unrealized
Cost Gains Losses Fair Value
--------- ---------- ---------- ----------
U.S. government corporations and agencies....... $ 13,531 $ -- $ (125) $ 13,406
Obligations of states and political subdivisions 70,620 360 (3,767) 67,213
Mortgage-backed securities...................... 53,448 10 (2,950) 50,508
Corporate securities............................ 3,269 -- (292) 2,977
Other equity securities......................... 4,269 -- -- 4,269
-------- ------ ------- --------
$145,137 $ 370 $(7,134) $138,373
======== ====== ======= ========
December 31, 1998
------------------------------------------
Gross Gross
Amortized Unrealized Unrealized
Cost Gains Losses Fair Value
--------- ---------- ---------- ----------
Obligations of states and political subdivisions $ 34,311 $1,314 $ (28) $ 35,597
Mortgage-backed securities...................... 47,338 808 -- 48,146
Corporate securities............................ 997 65 -- 1,062
Other equity securities......................... 1,545 -- -- 1,545
-------- ------ ------- --------
$ 84,191 $2,187 $ (28) $ 86,350
======== ====== ======= ========
Contractual maturities:
December 31, 1999
------------------
Amortized Fair
Cost Value
--------- --------
Due in one year or less............... $ 526 $ 532
Due after one year through five years. 6,505 6,743
Due after five years through ten years 17,505 16,921
Due after ten years................... 62,884 59,400
-------- --------
87,420 83,596
Mortgage-backed securities............ 53,448 50,508
Other equity securities............... 4,269 4,269
-------- --------
$145,137 $138,373
======== ========
Anticipated maturities on mortgage-backed securities are not readily
determinable since they may be prepaid without penalty and other equity
securities do not have stated maturity dates.
Realized gains and losses:
Years Ended
December 31,
-----------
1999 1998
---- ----
Gross gains. $398 $521
Gross losses (1) (10)
---- ----
$397 $511
==== ====
D-57
RICHFIELD STATE AGENCY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands, except share and per share amounts)
Pledged securities: Available-for-sale securities with a carrying value of
$57,743 and $26,481 at December 31, 1999 and 1998, respectively, were pledged
to secure short-term borrowings, public deposits and for other purposes as
required or permitted by law.
Changes in accumulated other comprehensive income: The Company presently
has only one component of accumulated other comprehensive income which
represents the change in the unrealized gain (loss) on available-for-sale
securities. The changes representing this component are as follows:
Years Ended December 31,
-----------------------
1999 1998
------- ------
Balance, beginning......................................... $ 1,948 $ 782
Unrealized gain (loss) during the year.................. (8,711) 1,786
Deferred tax effect related to unrealized gain (loss)... 1,020 (159)
Reclassification of realized (gains) losses, net of tax. (358) (461)
------- ------
Balance, ending............................................ $(6,101) $1,948
======= ======
Note 4. Held-to-Maturity Securities
Summary of securities:
December 31, 1999
---------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- -------
U.S. Treasury securities........................ $ 201 $ -- $ (2) $ 199
U.S. government corporations and agencies....... 4,057 -- (119) 3,938
Obligations of States and political subdivisions 6,498 123 (54) 6,567
Mortgage-backed securities...................... 3,149 45 (9) 3,185
------- ---- ----- -------
$13,905 $168 $(184) $13,889
======= ==== ===== =======
December 31, 1998
---------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- -------
U.S. government corporations and agencies....... $ 3,842 $ 55 $ (5) $ 3,892
Obligations of states and political subdivisions 5,589 358 -- 5,947
Mortgage-backed securities...................... 2,683 90 -- 2,773
------- ---- ----- -------
$12,114 $503 $ (5) $12,612
======= ==== ===== =======
D-58
RICHFIELD STATE AGENCY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands, except share and per share amounts)
Contractual maturities:
December 31, 1999
-----------------
Amortized Fair
Cost Value
--------- -------
Due in one year or less............... $ 859 $ 871
Due after one year through five years. 4,320 4,407
Due after five years through ten years 5,357 5,207
Due after ten years................... 220 219
------- -------
10,756 10,704
Mortgage-backed securities............ 3,149 3,185
------- -------
$13,905 $13,889
======= =======
Anticipated maturities on mortgage-backed securities are not readily
determinable since they may be prepaid without penalty.
Pledged securities: Held-to-maturity securities with carrying values of
$9,182 and $8,200 at December 31, 1999 and 1998, respectively, were pledged to
secure short-term borrowings, public deposits and for other purposes as
required or permitted by law.
Note 5. Loans
Composition of loans:
December 31,
-----------------
1999 1998
-------- --------
Commercial and commercial real estate $229,499 $163,748
Auto dealer financing................ 66,640 98,624
Home equity.......................... 64,253 45,084
Auto lease financing................. 16,098 23,410
Residential real estate.............. 10,561 13,927
Direct lease financing............... 11,896 10,332
Consumer............................. 5,705 6,023
Other................................ 6,800 4,378
-------- --------
411,452 365,526
Allowance for loan losses............ 4,123 4,879
-------- --------
$407,329 $360,647
======== ========
D-59
RICHFIELD STATE AGENCY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands, except share and per share amounts)
Allowance for loan losses:
Years Ended
December 31,
---------------
1999 1998
------- ------
Balance, beginning............. $ 4,879 $4,322
Provision charged to operations 834 1,079
Loans charged off.............. (2,388) (724)
Recoveries..................... 798 202
------- ------
Balance, ending................ $ 4,123 $4,879
======= ======
Pledged loans: Eligible one to four-family residential real estate loans
with total outstanding balances approximating $66,259 and $15,916 at December
31, 1999 and 1998, respectively, were pledged to secure advances available
under a blanket line-of-credit agreement with the Federal Home Loan Bank of Des
Moines. See Note 8 for additional information.
Loan servicing: Loans serviced for others by the subsidiary bank, which
consist of mortgage and small business administration loans, are not included
in the consolidated financial statements. The unpaid principal balances of
these loans are as follows:
December 31,
---------------
1999 1998
------- -------
Loan portfolios serviced for:
Federal National Mortgage Association (FNMA)... $12,305 $12,463
Small Business Administration (SBA)............ 1,679 152
------- -------
$13,984 $12,615
======= =======
Outstanding commitments to sell loans at year end:
Federal National Mortgage Association (FNMA)... $ -- $ --
Small Business Administration (SBA)............ 425 --
------- -------
$ 425 $ --
======= =======
Loans held for sale, which are included in the consolidated balance sheets,
were immaterial at December 31, 1999 and 1998.
Note 6. Premises and Equipment
December 31, 1999
-----------------
Amortized Fair
Cost Value
--------- -------
Land...................... $ 3,722 $ 3,745
Buildings and improvements 19,671 20,358
Equipment................. 11,060 9,629
Construction in progress.. 7,864 1,532
------- -------
42,317 35,264
Accumulated depreciation.. 14,531 13,751
------- -------
$27,786 $21,513
======= =======
D-60
RICHFIELD STATE AGENCY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands, except share and per share amounts)
Rental real estate: Included in the table above is rental real estate
properties with a net book value of $13,907 and $9,486 at December 31, 1999 and
1998, respectively.
Construction In Progress: At December 31, 1999, the Company is committed to
a significant development project on their main campus in Richfield, Minnesota.
Upon completion, the Company will own 100 percent of a 78 unit assisted-living
apartment complex, a six story parking ramp facility, a three story commercial
building, a commercial building leased by the Company to a restaurant
franchise, and a new drive-up facility for the subsidiary bank's Richfield
location. The Company will also own a 28.1% general partnership interest in a
138 unit upscale apartment complex (The Oakes). Construction is estimated to be
completed in November 2000 at an estimated cost of $50,000. The Company's share
of these total estimated costs is expected to be $40,000. As of December 31,
1999, total project costs incurred were $7,864.
Note 7. Deposits
December 31,
-----------------
1999 1998
-------- --------
Demand deposits.................... $101,941 $ 91,854
NOW and money market accounts...... 121,394 115,588
Savings deposits................... 40,951 45,154
Time certificates, $100,000 or more 50,738 23,053
Other time deposits................ 164,957 172,486
-------- --------
$479,981 $448,135
======== ========
At December 31, 1999, the scheduled maturities of time certificates are as
follows:
2000...... $158,336
2001...... 36,556
2002...... 16,239
2003...... 3,857
2004...... 703
Thereafter 4
--------
$215,695
========
Wholesale and brokered deposits: Included in total time deposits above are
wholesale and broker deposits totaling $18,312 and $1,500 as of December 31,
1999 and 1998, respectively. The majority of these deposits were obtained
through sources outside of the subsidiary bank's normal trade area and
generally consist of maturities of three-months or less.
These deposits are intended to be an incremental source of alternate funding
primarily utilized to match fund-particular assets, meet seasonal funding
needs, and to take advantage of pricing opportunities in the market.
As of December 31, 1999, these deposits represented 3.8 percent of total
deposits and are considered insignificant to the subsidiary bank's financial
position and operations.
D-61
RICHFIELD STATE AGENCY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands, except share and per share amounts)
Note 8. Short-Term Borrowings
December 31,
---------------
1999 1998
------- -------
Federal funds purchased........ $19,100 $11,500
Repurchase agreements.......... 13,105 11,432
Federal Home Loan Bank advances 46,900 --
Revolving line of credit....... 7,464 3,725
------- -------
$86,569 $26,657
======= =======
Securities sold under agreements to repurchase generally mature up to ninety
days from the transaction date.
Federal Home Loan Bank advances: The subsidiary bank is a member of the
Federal Home Loan Bank of Des Moines. As a member, the bank may from time to
time apply for an advance or advances which may be available to it. These
advances are secured by all stock of the Federal Home Loan Bank of Des Moines
owned by the Bank, and essentially all eligible one to four-family residential
real estate loans under a blanket lien pledge.
As of December 31, 1999, the subsidiary bank had approximately $528 of
available funds to advance upon.
Revolving line of credit: The Company has a revolving line of credit with a
bank for $7,500 which expires in May, 2000. Borrowings under this line of
credit are secured by 48,000 shares of Richfield Bank & Trust Co. common stock.
The outstanding balance on this line of credit was $7,464 and $3,725 at
December 31, 1999 and 1998, respectively.
Note 9. Notes Payable
December 31,
-------------
1999 1998
------ ------
Term note payable to a bank, interest at 8.15%, monthly installments of $28 plus
interest; due August, 1, 2006; secured by 48,000 shares of Richfield Bank &
Trust Co. common stock......................................................... $3,846 $4,179
Construction loan payable to a bank, interest at 7.4%, principal and interest due
upon completion of construction, secured by 48,000 shares of Richfield Bank &
Trust Co. common stock. See Note 6 for additional information.................. 4,544 --
Term note payable to a stockholder, interest at 4.98%, interest only payment due
March 1, 2000 and payment of outstanding principal and remaining interest due
March 1, 2001, unsecured....................................................... 1,300 --
Notes paid in full during 1999................................................... -- 2,284
------ ------
Total......................................................................... $9,690 $6,463
====== ======
Restrictive covenants: The Company is subject to certain restrictive
covenants relating to its subsidiary bank including, but not limited to, the
maintenance of a minimum ownership percentage of the outstanding common stock,
limitations on outstanding indebtedness, and the maintenance of certain
financial statement ratio minimum thresholds. At December 31, 1999 and 1998,
the Company was in compliance with these covenants.
D-62
RICHFIELD STATE AGENCY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands, except share and per share amounts)
Future annual maturities:
Years ending December 31, Amount
------------------------- ------
2000............ $4,877
2001............ 1,633
2002............ 333
2003............ 333
2004............ 333
Thereafter........ 2,181
------
$9,690
======
Note 10. Income Taxes
The Company, with the consent of its stockholders, has elected to be taxed
under sections of federal income tax law, which provide that, in lieu of
corporation federal income taxes, the stockholders separately account for their
pro rata shares of the Company's items of income, deductions, losses and
credits. As a result of this election, no federal income tax expense has been
recognized in the accompanying consolidated financial statements.
As stated in Note 1, the State of Minnesota has not conformed to federal law
with regard to financial institutions who elect to be taxed in this manner for
federal purposes. Therefore, provisions for state income tax expense have been
recognized in the consolidated financial statements. The cumulative tax effects
of the primary temporary differences resulting in a net deferred tax asset in
the consolidated financial statements are composed of the net effect of the
unrealized loss on available-for-sale securities, loan loss allowance, trust
loss allowance, deferred compensation accruals, and property and equipment.
The provision for state income taxes charged to operations consists of the
following:
Years Ended
December 31,
------------
1999 1998
---- ------
Current tax expense. $867 $1,025
Deferred tax expense 70 253
---- ------
$937 $1,278
==== ======
Note 11. Commitments, Contingencies, and Credit Risk
Contingencies: In the normal course of business, the Company 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.
Three claims have been asserted in Federal and State courts against the
subsidiary bank regarding negligence and breach of contract involving
misappropriation of funds by a former tenant of the subsidiary bank. The
probability and potential range of loss is not determinable at this time.
However, the subsidiary bank intends to defend the asserted claims vigorously
and believes any resolution of these claims will not have a material impact on
the financial position of the Company.
D-63
RICHFIELD STATE AGENCY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands, except share and per share amounts)
Financial instruments with off-balance sheet risk: The subsidiary bank is
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.
They involve, to varying degrees, elements of credit risk in excess of amounts
recognized on the consolidated balance sheets.
The subsidiary bank's exposure to credit loss in the event of nonperformance
by the other parties to the financial instruments for these commitments is
represented by the contractual amounts of the instruments. The subsidiary bank
uses the same credit policies in making commitments as it does for on-balance
sheet instruments. These commitments were as follows:
Years Ended
December 31,
----------------
1999 1998
-------- -------
Commitments to extend credit $120,518 $97,235
Standby letters of credit... 1,197 2,038
-------- -------
$121,715 $99,273
======== =======
Commitments to extend credit: 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. 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 subsidiary bank evaluates
each customer's creditworthiness on a case-by-case basis. If deemed necessary
upon extension of credit, the amount of collateral obtained is based on
management's credit evaluation of the party. Collateral held varies, but may
include accounts receivable, inventory, property and equipment, and
income-producing commercial properties.
Standby letters of credit: Standby letters of credit are conditional
commitments issued by the subsidiary 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. Collateral held varies as specified above and is
required in instances which the subsidiary bank deems necessary. At December
31, 1999, a majority of these standby letters of credit were collateralized.
Financial instruments with concentrations of credit risk:
Concentrations over insured limits: The nature of the subsidiary bank's
business requires that it maintain amounts due from banks which, at times, may
exceed federally insured limits. The Company has not experienced any losses in
such accounts.
Concentration by geographic location: The subsidiary bank makes commercial,
commercial real estate, residential, dealer financing and other consumer loans
to customers primarily in the Twin Cities' area. Although the subsidiary bank's
loan portfolio is diversified, a substantial portion of the subsidiary bank's
customers' abilities to honor their contracts is dependent upon the business
economy in the seven county metro and surrounding areas. See Note 5 above for
concentrations of loans by type of loan.
Employment commitments:
Severance agreements: The subsidiary bank has entered into severance
agreements with certain key executives of the bank. These severance agreements
are triggered by a change of control in Company ownership
D-64
RICHFIELD STATE AGENCY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands, except share and per share amounts)
or by termination of employment for reasons other than cause. The terms of
these agreements range from three to five years. Management has determined that
the maximum liability which would result in the event of a change in ownership
control would be approximately $1,550. In the event that all severance
agreements were executed for reasons other than cause, the maximum liability
would be approximately $807. Since certain events are required to occur before
the Company is liable, no amounts have been recorded in the consolidated
financial statements for amounts potentially owed under these agreements.
Note 12. Benefit Plans
Profit sharing plan: Company contributions to the plan were $445 and $441
in 1999 and 1998, respectively.
Deferred compensation agreements: Expense recognized by the Company under
these agreements was $110 and $58 for 1999 and 1998, respectively.
Self-insured health plan: The Company offers health insurance to its
employees under a self-insured plan with stop-loss limits of $25 per individual
employee per year and $1,125 of expected claims in aggregate based on the
actual number of employees participating in the plan. Any amounts exceeding the
aggregate limit are covered under a stop-loss insurance policy with a limit of
$1,000. The Company accrued $150 and $228 for amounts due and payable on
existing claims for which the Company is liable as of December 31, 1999 and
1998, respectively.
Note 13. Loans and Other Transactions With Related Parties
Shareholders of the Company, and officers and directors, including their
families and companies of which they are principal owners, are considered to be
related parties. These related parties were loan customers of, and had other
transactions with, the Company in the ordinary course of business. In
management's opinion, these loans and transactions were on the same terms as
those for comparable loans and transactions with nonrelated parties.
Loans: Total loans to related parties were approximately $3,097 and $4,090
at December 31, 1999 and 1998, respectively.
Leases: The subsidiary bank leases its Richfield and Chanhassen office
space from the Company through various non-cancelable operating leases. These
leases call for base rental payments plus the subsidiary bank's share of
property taxes and operating expenses. Total intercompany rental payments from
the subsidiary bank to the Company, which have been eliminated upon
consolidation, were $1,183 and $1,017 for 1999 and 1998, respectively.
Note 14. Regulatory Capital Requirements
The Company's subsidiary bank is subject to various regulatory capital
requirements administered by the subsidiary bank's primary federal regulatory
agency. 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 Company's consolidated
financial statements. Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, the subsidiary bank must meet specific
capital guidelines that involve quantitative measures of assets and certain
off-balance sheet items as calculated under regulatory
D-65
RICHFIELD STATE AGENCY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands, except share and per share amounts)
accounting practices. The subsidiary 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 subsidiary bank to maintain minimum ratios (set forth in the table
below) of total and Tier I capital, and of Tier I capital to average assets
(all as defined in the regulations). Management believes, as of December 31,
1999, that the Company's subsidiary bank meets all capital adequacy
requirements to which it is subject.
As of December 31, 1999, the most recent notification, dated September 30,
1999, from the subsidiary bank's primary regulator, the Federal Deposit
Insurance Corporation, categorized the subsidiary bank as well capitalized
under the regulatory framework for prompt corrective action. To be categorized
as well capitalized, the subsidiary bank must maintain minimum total
risk-based, Tier I risk-based, and Tier I leverage ratios as set forth in the
table below. There are no conditions or events since that notification that
management believes have changed the subsidiary bank's category.
To Be Well
For Capital Capitalized Under
Adequacy Prompt Corrective
Actual Purposes Action Provisions
------------ ------------------------- --------------------------
Amount Ratio Amount Ratio Amount Ratio
------- ----- ------- ----------------- ------- ------------------
As of December 31, 1999:
Total capital (to risk-weighted assets):
Consolidated.......................... $62,718 12.6% $39,908 (greater or =)8.0% $ N/A N/A
Richfield Bank & Trust Co............. 54,665 11.5% 37,886 (greater or =)8.0% 47,358 (greater than)10.0%
Tier I capital (to risk-weighted assets):
Consolidated.......................... 58,595 11.7% 19,954 (greater or =)4.0% N/A N/A
Richfield Bank & Trust Co............. 50,542 10.7% 18,943 (greater or =)4.0% 28,415 (greater than)6.0%
Tier I capital (to average assets):
Consolidated.......................... 58,595 9.9% 17,748 (greater or =)3.0% N/A N/A
Richfield Bank & Trust Co............. 50,542 8.9% 22,801 (greater or =)4.0% 28,501 (greater than)5.0%
As of December 31, 1998:
Total capital (to risk-weighted assets):
Consolidated.......................... $58,871 13.8% $34,128 (greater or =)8.0% $ N/A N/A
Richfield Bank & Trust Co............. 52,153 12.3% 33,921 (greater or =)8.0% 42,401 (greater than)10.0%
Tier I capital (to risk-weighted assets):
Consolidated.......................... 53,992 12.7% 17,005 (greater or =)4.0% N/A N/A
Richfield Bank & Trust Co............. 47,274 11.1% 17,036 (greater or =)4.0% 25,554 (greater than)6.0%
Tier I capital (to average assets):
Consolidated.......................... 53,992 10.3% 15,726 (greater or =)3.0% N/A N/A
Richfield Bank & Trust Co............. 47,274 9.3% 20,333 (greater or =)4.0% 25,416 (greater than)5.0%
Note 15. Redemption of Common Stock
During 1998 and subsequent to December 31, 1998, settlement agreements were
reached with all dissenting shareholders in conjunction with the 1997 plan of
merger agreements of Richfield State Agency, Inc., Richfield Bank & Trust Co.,
and their respective shareholders. As of December 31, 1999, the Company and the
subsidiary bank have made all supplemental payments due to the dissenting
shareholders according to the terms of the settlement agreements.
D-66
RICHFIELD STATE AGENCY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands, except share and per share amounts)
Note 16. Additional Cash Flow Information
Cash flows from securities:
Years Ended December 31,
-----------------------
1999 1998
--------- --------
Available-for-sale securities:
Maturities................. $ 150 $ 9,350
Sales...................... 43,040 49,667
Purchases.................. (101,938) 92,489
Held-to-maturity securities:
Maturities................. 833 12,308
Purchases.................. (3,414) (168)
--------- --------
$ (61,329) $163,646
========= ========
Supplemental disclosures of cash flow information:
Years Ended December 31,
------------------------
1999 1998
------- -------
Cash payments for interest.... $16,405 $15,439
Cash payments for income taxes 4,173 1,146
======= =======
Supplemental schedule of noncash investing and financing activities:
Years Ended December 31,
------------------------
1999 1998
------- ------
Net change in unrealized gain (loss) on securities available for sale (Note 3) $(8,049) $1,166
Property and equipment additions financed through issuances of notes
payable..................................................................... 4,544 --
======= ======
Note 17. Fair Values of Financial Instruments and Interest Rate Risk
The fair values of the Company's financial instruments are as follows:
December 31,
---------------------------------------
1999 1998
------------------- -------------------
Carrying Carrying
Amount Fair Value Amount Fair Value
-------- ---------- -------- ----------
Financial assets:
Cash and cash equivalents... $ 27,203 $ 27,203 $ 39,816 $ 39,816
Federal funds sold.......... -- -- 11,000 11,000
Securities.................. 152,278 152,262 98,464 98,962
Loans, net.................. 407,329 404,991 360,647 363,646
Accrued interest receivable. 3,415 3,415 2,724 2,724
Financial liabilities:
Deposits.................... 479,981 480,312 448,035 448,653
Short-term borrowings....... 86,569 86,569 22,932 22,932
Notes payable............... 9,690 9,617 6,463 6,753
Accrued interest payable.... 2,565 2,565 3,014 3,014
D-67
INDEPENDENT AUDITOR'S REPORT ON CONSOLIDATING INFORMATION
Board of Directors
Richfield Bank & Trust Co.
Richfield, Minnesota
Our reports on our audits of the consolidated financial statements of
Richfield State Agency, Inc. and Subsidiaries for the years ended December 31,
1999 and 1998 appears on page 1. Those audits were made for the purpose of
forming an opinion on the consolidated financial statements taken as a whole.
The consolidating information on pages 24 through 27 is presented for purposes
of additional analysis of the consolidated financial statements rather than to
present the financial position, results of operations, and cash flows of the
individual companies. Such information has been subjected to the auditing
procedures applied in the audits of the consolidated financial statements and,
in our opinion, is fairly stated in all material respects in relation to the
consolidated financial statements taken as a whole.
LARSON, ALLEN, WEISHAIR & CO., LLP
Minneapolis, Minnesota
January 25, 2000
D-68
[PAGE INTENTIONALLY LEFT BLANK]
D-69
RICHFIELD STATE AGENCY, INC. AND SUBSIDIARIES
CONSOLIDATING BALANCE SHEETS
(In thousands, except share and per share amounts)
December 31, 1999 and 1998
1999
- --------------------------------------------------------------------
Richfield State Richfield Bank Eastwood
Agency, Inc. & Trust Co. Village, LLC Eliminations Consolidated
--------------- -------------- ------------ ------------ ------------
ASSETS
Cash and cash equivalents................... $ 347 $ 27,339 $ 10 $ (493) $ 27,203
Federal funds sold.......................... -- -- -- -- --
Available-for-sale securities............... -- 138,373 -- -- 138,373
Held-to-maturity securities................. -- 13,905 -- -- 13,905
Loans, net.................................. -- 407,329 -- -- 407,329
Premises and equipment, net................. 17,644 5,748 4,394 -- 27,786
Cash value of life insurance................ 1,484 11,394 -- -- 12,878
Accrued interest receivable and other.......
assets.................................... 3,669 5,379 -- -- 9,048
Investment in subsidiaries.................. 48,798 -- -- (48,798) --
------- -------- ------ -------- --------
$71,942 $609,467 $4,404 $(49,291) $636,522
======= ======== ====== ======== ========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Liabilities
Deposits:
Noninterest-bearing.................. $ -- $102,427 $ -- $ (486) $101,941
Interest-bearing..................... -- 378,047 -- (7) 378,040
------- -------- ------ -------- --------
Total deposits.................... -- 480,474 -- (493) 479,981
Short-term borrowings.................... 7,464 79,105 -- -- 86,569
Notes payable............................ 9,690 -- -- -- 9,690
Accrued interest payable and other
liabilities............................ 747 5,447 47 -- 6,241
------- -------- ------ -------- --------
Total liabilities................. 17,901 565,026 47 (493) 582,481
------- -------- ------ -------- --------
Stockholders' Equity
Common stock............................. 1,183 35,000 -- (35,000) 1,183
Retained earnings........................ 58,959 15,542 4,357 (19,899) 58,959
Accumulated other comprehensive
income................................. (6,101) (6,101) -- 6,101 (6,101)
------- -------- ------ -------- --------
Total stockholders' equity........ 54,041 44,441 4,357 (48,798) 54,041
------- -------- ------ -------- --------
$71,942 $609,467 $4,404 $(49,291) $636,522
======= ======== ====== ======== ========
D-70
1998
-----------------------------------------------------------------------------------
Richfield State Richfield Bank Eastwood R Security
Agency, Inc. & Trust Co. Village, LLC Systems, Inc. Eliminations Consolidated
--------------- -------------- ------------ ------------- ------------ ------------
$ 109 $ 40,858 $ (22) $ -- $ (1,129) $ 39,816
-- 11,000 -- -- -- 11,000
-- 86,350 -- -- -- 86,350
-- 12,114 -- -- -- 12,114
-- 360,647 -- -- -- 360,647
11,141 5,768 4,604 -- -- 21,513
1,149 10,436 -- -- -- 11,585
3,371 3,411 16 45 (13) 6,830
53,506 -- -- -- (53,506) --
------- -------- ------ ----- -------- --------
$69,276 $530,584 $4,598 $ 45 $(54,648) $549,855
======= ======== ====== ===== ======== ========
$ -- $ 92,883 $ -- $ -- $ (1,129) $ 91,754
-- 356,281 -- -- -- 356,281
------- -------- ------ ----- -------- --------
-- 449,164 -- -- (1,129) 448,035
3,725 22,932 -- -- -- 26,657
6,463 -- -- -- -- 6,463
1,494 9,557 36 19 -- 11,106
------- -------- ------ ----- -------- --------
11,682 481,653 36 19 (1,129) 492,261
------- -------- ------ ----- -------- --------
1,183 25,000 -- 210 (25,210) 1,183
54,463 21,983 4,562 (184) (26,361) 54,463
1,948 1,948 -- -- (1,948) 1,948
------- -------- ------ ----- -------- --------
57,594 48,931 4,562 26 (53,519) 57,594
------- -------- ------ ----- -------- --------
$69,276 $530,584 $4,598 $ 45 $(54,648) $549,855
======= ======== ====== ===== ======== ========
D-71
RICHFIELD STATE AGENCY, INC. AND SUBSIDIARIES
CONSOLIDATING STATEMENTS OF INCOME
(In thousands, except share and per share amounts)
Years Ended December 31, 1999 and 1998
1999
-----------------------------------------------------------------------------------
Richfield State Richfield Bank Eastwood R Security
Agency, Inc. & Trust Co. Village, LLC Systems, Inc. Eliminations Consolidated
--------------- -------------- ------------ ------------- ------------ ------------
Interest income:
Loans....................... $ -- $31,719 $ -- $ -- $ -- $31,719
Securities:
Taxable................... -- 2,948 -- -- -- 2,948
Tax-exempt................ -- 4,400 -- -- -- 4,400
Federal funds sold.......... -- 421 -- -- -- 421
------- ------- ---- ---- -------- -------
-- 39,488 -- -- -- 39,488
------- ------- ---- ---- -------- -------
Interest expense:
Deposits.................... -- 13,334 -- -- -- 13,334
Short-term borrowings....... 418 1,822 -- -- -- 2,240
Notes payable............... 457 -- -- -- -- 457
------- ------- ---- ---- -------- -------
875 15,156 -- -- -- 16,031
------- ------- ---- ---- -------- -------
Net interest income..... (875) 24,332 -- -- -- 23,457
Provisions for loan losses... -- 834 -- -- -- 834
------- ------- ---- ---- -------- -------
Net interest income
after provision for
loan losses........... (875) 23,498 -- -- -- 22,623
------- ------- ---- ---- -------- -------
Other income:
Service charges and other
fees...................... -- 5,083 -- -- -- 5,083
Trust fees.................. -- 3,694 -- -- -- 3,694
Securities gains, net....... -- 397 -- -- -- 397
Other income................ 2,311 -- 600 214 (977) 2,148
------- ------- ---- ---- -------- -------
2,311 9,174 600 214 (977) 11,322
------- ------- ---- ---- -------- -------
Other expenses:
Salaries and employee
benefits.................. 303 13,739 -- -- -- 14,042
Occupancy expenses.......... 1,175 3,160 -- -- (977) 3,358
Other expenses.............. 1,170 4,099 484 223 -- 5,976
------- ------- ---- ---- -------- -------
2,648 20,998 484 223 (977) 23,376
Income (loss) before
income taxes.......... (1,212) 11,674 116 (9) -- 10,569
Income tax expense........... (119) 1,045 11 -- -- 937
------- ------- ---- ---- -------- -------
Income (loss) before
equity in income
of subsidiary......... (1,093) 10,629 105 (9) -- 9,632
Equity in income of
subsidiaries............... 10,725 -- -- -- (10,725) --
------- ------- ---- ---- -------- -------
Net income.............. $ 9,632 $10,629 $105 $ (9) $(10,725) $ 9,632
======= ======= ==== ==== ======== =======
D-72
1998
- -----------------------------------------------------------------------------------
Richfield State Richfield Bank Eastwood R Security
Agency, Inc. & Trust Co Village, LLC Systems, Inc. Eliminations Consolidated
- --------------- -------------- ------------ ------------- ------------ ------------
$ -- $30,617 $ -- $ -- $ -- $30,617
-- 1,901 -- -- -- 1,901
-- 3,846 -- -- -- 3,846
-- 1,324 -- -- -- 1,324
------ ------- ---- ---- ------- -------
-- 37,688 -- -- -- 37,688
------ ------- ---- ---- ------- -------
-- 14,102 -- -- (1) 14,101
5 663 -- -- -- 668
638 -- -- -- -- 638
------ ------- ---- ---- ------- -------
643 14,765 -- -- (1) 15,407
------ ------- ---- ---- ------- -------
(643) 22,923 -- -- 1 22,821
-- 1,079 -- -- -- 1,079
------ ------- ---- ---- ------- -------
(643) 21,844 -- -- 1 21,202
------ ------- ---- ---- ------- -------
-- 2,806 -- -- -- 2,806
-- 3,553 -- -- -- 3,553
-- 511 -- -- -- 511
2,029 -- 581 440 (1,080) 1,970
------ ------- ---- ---- ------- -------
2,029 6,870 581 440 (1,080) 8,840
------ ------- ---- ---- ------- -------
299 11,579 -- 293 -- 12,171
365 2,783 -- 136 (1,047) 2,237
1,060 3,485 451 69 (32) 5,033
------ ------- ---- ---- ------- -------
1,724 17,847 451 498 (1,079) 19,441
(338) 10,867 130 (58) -- 10,601
(353) 1,616 13 2 -- 1,278
------ ------- ---- ---- ------- -------
15 9,251 117 (60) -- 9,323
9,308 -- -- -- (9,308) --
------ ------- ---- ---- ------- -------
$9,323 $ 9,251 $117 $(60) $(9,308) $ 9,323
====== ======= ==== ==== ======= =======
D-73
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 20. Indemnification of Directors and Officers.
Sections 180.0850 to 180.0859 of the Wisconsin Business Corporation Law
require a corporation to indemnify a director or officer who is a party to any
threatened, pending or completed civil, criminal, administrative or
investigative action, suit, arbitration or other proceeding, whether formal or
informal, which involves foreign, federal, state or local law and which is
brought by or in the right of the corporation or by any other person. A
corporation's obligation to indemnify any such person includes the obligation
to pay any judgment, settlement, penalty, assessment, forfeiture or fine,
including any excise tax assessed with respect to an employee benefit plan, and
all reasonable expenses including fees, costs, charges, disbursements,
attorneys' and other expenses, except in those cases in which liability was
incurred as a result of the breach or failure to perform a duty which the
director or officer owes to the corporation and the breach or failure to
perform constitutes: (i) a willful failure to deal fairly with the corporation
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 person has reasonable cause to believe his conduct was lawful or had
no reasonable cause to believe his conduct was unlawful; (iii) a transaction
from which the person derived an improper personal profit; or (iv) willful
misconduct.
Unless otherwise provided in a corporation's articles of incorporation or
bylaws, or by written agreement, an officer or director seeking indemnification
is entitled to indemnification if approved in any of the following manners: (i)
by majority vote of a disinterested quorum of the board of directors, or if
such quorum of disinterested directors cannot be obtained, by a majority vote
of a committee of two or more disinterested directors; (ii) by independent
legal counsel; (iii) by a panel of three arbitrators; (iv) by affirmative vote
of shareholders; (v) by a court; or (vi) with respect to any additional right
to indemnification granted, by any other method permitted in Section 180.0858
of the Wisconsin Business Corporation Law.
Reasonable expenses incurred by a director or officer who is a party to a
proceeding may be reimbursed by a corporation at such time as the director or
officer furnishes to the corporation a written affirmation of his good faith
belief that he has not breached or failed to perform his duties and a written
undertaking to repay any amounts advanced if it is determined that
indemnification by the corporation is not required.
The indemnification provisions of Section 180.0850 to 180.0859 are not
exclusive. A corporation may expand an officer's or director's rights to
indemnification: (i) in its articles of incorporation or bylaws; (ii) by
written agreement; (iii) by resolution of its board of directors; or (iv) by
resolution of a majority of all of the corporation's voting shares then issued
and outstanding.
As permitted by Section 180.0858, Marshall & Ilsley has adopted
indemnification provisions in its bylaws which closely track the statutory
indemnification provisions with certain exceptions. In particular, Section 7.1
of Marshall & Ilsley's bylaws, among other items, provides that (i) an
individual shall be indemnified unless it is proven by a final judicial
adjudication that indemnification is prohibited and (ii) payment or
reimbursement of expenses, subject to certain limitations, will be mandatory
rather than permissive. Marshall & Ilsley has purchased directors' and
officers' liability insurance which insures Marshall & Ilsley's officers and
directors against certain liabilities which may arise under the Securities Act
of 1933.
Item 21. Exhibits and Financial Statement Schedules.
(a) Exhibits. See the Exhibit Index.
(b) Financial Statement Schedules. Not applicable.
(c) Report, Opinion or Appraisal. See Exhibits 5 and 8.
II-1
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. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the SEC pursuant to Rule 424(b) if in the aggregate, the changes in
volume and price represent no more than 20% change in the maximum
offering price set forth in the "Calculation of Registration Fee" table
in the effective 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.
(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.
(b) That, for purposes of determining any liability under the Securities Act
of 1933, each filing of the registrant's annual report pursuant to Section
13(a) or Section 15(d) of the Securities Exchange Act of 1934 (and, where
applicable, each filing of any employee benefit plan's annual report pursuant
to Section 15(d) of the Securities Exchange Act of 1934) that is incorporated
by reference in the registration statement shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(c) That prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this registration
statement, by any person or party who is deemed to be an underwriter within the
meaning of Rule 145(c), the issuer undertakes that such reoffering prospectus
will contain the information called for by the applicable registration form
with respect to reofferings by persons who may be deemed to be underwriters, in
addition to the information called for by the other items of the applicable
form.
(d) That every prospectus: (i) that is filed pursuant to paragraph (c)
immediately preceding, or (ii) that purports to meet the requirements of
Section 10(a)(3) of the Act and is used in connection with an offering of
securities subject to Rule 415, will be filed as a part of an amendment to the
registration statement and will not be used until such amendment is effective,
and that, for purposes of determining any liability under the Securities Act 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.
(e) 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 foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification
II-2
is against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer, or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer, or controlling person in connection with the securities
being registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(f) To respond to requests for information that is incorporated by reference
into the prospectus pursuant to Item 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.
(g) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein, that
was not the subject of and included in the registration statement when it
became effective.
II-3
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 1 to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Milwaukee, State of Wisconsin, on January 17, 2002.
MARSHALL & ILSLEY CORPORATION
/S/ D.J. KUESTER
By: _______________________________
D.J. Kuester,
President and Chief Executive
Officer (Principal Executive
Officer)
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated:
Signature Title Date
--------- ----- ----
/S/ M.F. FURLONG Executive Vice President and Date: January 17, 2002
-------------------- Chief Financial Officer
M.F. Furlong (Principal Financial Officer)
/S/ P.R. JUSTILIANO Senior Vice President and Date: January 17, 2002
-------------------- Corporate Controller (Principal
P.R. Justiliano Accounting Officer)
Directors:
Richard A. Abdoo, David L. Andreas, Oscar C. Boldt, Wendell F. Beuche, Jon
F. Chait, Timothy E. Hoeksema, Bruce E. Jacobs, Burleigh E. Jacobs, Donald
R. Johnson, Ted D. Kellner, James F. Kress, D.J. Kuester, Katharine C.
Lyall, Edward L. Meyer, Jr., San W. Orr, Jr., Peter M. Platten, III, Robert
A. Schaefer, John S. Shiely, James A. Urdan, George E. Wardeberg and J.B.
Wigdale.
/S/ M.F. FURLONG Date: January 17, 2002
*By: ________________________________
M.F. Furlong
As Attorney-in-Fact*
--------
* Pursuant to authority granted by powers of attorney, copies of which have
been previously filed.
II-4
EXHIBIT INDEX
(2)(a) Agreement and Plan of Merger between Richfield State Agency, Inc. and Marshall & Ilsley
Corporation dated as of November 18, 2001 (included as Appendix A to the Proxy Statement/
Prospectus included in this Registration Statement). (Certain exhibits and schedules to the Agreement
and Plan of Merger have been omitted. Such exhibits and schedules are described in the Agreement and
Plan of Merger. M&I hereby agrees to furnish to the Securities and Exchange Commission, upon its
request, any or all of such omitted exhibits or schedules)
(b) Plan of Merger between Richfield State Agency, Inc. and Marshall & Ilsley Corporation (included as
Appendix B to the Proxy Statement/Prospectus included in this Registration Statement)
(c) Shareholder Voting Agreement dated as of November 18, 2001 between Marshall & Ilsley Corporation
and each of the shareholders signatory thereto*
(3)(a) Restated Articles of Incorporation, as amended, incorporated by reference to M&I's Quarterly Report
on form 10-Q for the quarter ended September 30, 2000, SEC File No. 1-15403
(b) Bylaws, as amended, incorporated by reference to M&I's Quarterly Report on Form 10-Q for the
quarter ended March 31, 2000, SEC File No. 1-15403
(5) Opinion and consent of Godfrey & Kahn, S.C. as to the validity of the securities being registered*
(8)(a) Opinion and consent of Godfrey & Kahn, S.C. regarding the federal income tax consequences of the
merger*
(b) Opinion and consent of Fredrikson & Byron, P.A. regarding the federal income tax consequences of the
merger*
(23)(a) Consent of Arthur Andersen LLP, regarding the audited financial statements of Marshall & Ilsley
Corporation*
(b) Consent of Larson, Allen, Weishair & Co. LLP regarding the audited financial statements of Richfield
State Agency, Inc.*
(c) Consent of Godfrey & Kahn, S.C. (included in Exhibit 5 hereto)
(d) Consent of Godfrey & Kahn, S.C. (included in Exhibit 8(a) hereto)
(e) Consent of Fredrikson & Byron, P.A. (included in Exhibit 8(b) hereto)
(24) Powers of Attorney*
(99)(a) Form of Proxy to be used by Richfield State Agency, Inc.*
(99)(b) Form of Election to be used by Richfield State Agency, Inc.
M&I will provide a copy of any instrument defining the rights of holders of
long-term debt to the Commission upon request.
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* Previously filed.