FIRST MANITOWOC BANCORP, INC.
INFORMATION STATEMENT
MERGER OF FIRST MANITOWOC BANCORP, INC.
WITH AND INTO
SOUTHEASTERN FIRST MANITOWOC BANCORP OF WISCONSIN, INC.
This information statement (this "Information Statement") and the
accompanying Transaction Statement on Schedule 13E-3 (the "Schedule 13E-3") is
provided to shareholders of First Manitowoc Bancorp, Inc. ("FMB") in connection
with the merger of FMB with and into Southeastern First Manitowoc Bancorp of
Wisconsin, Inc. ("Southeastern"), pursuant to a plan of merger adopted by the
boards of directors of FMB and Southeastern on February 22, 2005. Southeastern,
a wholly-owned subsidiary of FMB will be the surviving corporation in the merger
and the successor holding company of FMB's operating subsidiary, First National
Bank in Manitowoc. Upon completion of the merger, Southeastern will amend its
Articles of Incorporation and Bylaws to adopt the First Manitowoc Bancorp., Inc.
name.
At the effective time of the merger, without any action by shareholders,
(i) each share of FMB common stock, $1.00 par value per share ("FMB common
stock"), held by a shareholder who holds fewer than 1,000 shares of FMB common
stock will be converted into the right to receive $[ - ] in cash without
interest; and (ii) each share of FMB common stock held by a shareholder who
holds 1,000 or more shares of FMB common stock will be converted into the right
to receive one share of the common stock of Southeastern, $0.01 par value per
share.
Under Wisconsin law, your vote is not required to effect the merger.
Accordingly, this Information Statement is provided to you in accordance with
the requirements of the Securities Exchange Act of 1934, as amended, and
Wisconsin Business Corporation Law for information purposes only.
If you have any questions regarding this Information Statement, please
contact FMB at the address, telephone number or email address set forth on the
back cover of this Information Statement. If you would like additional copies of
this document, please contact FMB and copies will be furnished to you promptly,
free of charge.
No person has been authorized to give any information or to make any
representations in connection with the plan of merger or the merger other than
those contained in this Information Statement, the Schedule 13E-3 or in the
letter of transmittal. If made or given, any recommendation or other information
should not be relied upon as having been authorized by us.
PLEASE READ THIS ENTIRE INFORMATION STATEMENT.
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
MERITS OR FAIRNESS OF THIS TRANSACTION NOR UPON THE ADEQUACY OR ACCURACY OF THE
INFORMATION CONTAINED IN THIS INFORMATION STATEMENT. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The date of this Information Statement is April [ - ], 2005.
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TABLE OF CONTENTS
<Table>
<Caption>
PAGE
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INTRODUCTION................................................ 1
Certain Definitions....................................... 1
Forward-Looking Statements................................ 1
SUMMARY TERM SHEET.......................................... 2
Parties Involved in the Proposed Transaction.............. 2
Record Date............................................... 2
Structure of the Transaction.............................. 3
Purpose of the Merger..................................... 3
Our Reasons for Pursuing the Merger....................... 3
Certain Effects of the Merger............................. 4
Valuation of FMB Common Stock............................. 4
Shareholder Approval...................................... 4
Appraisal Rights.......................................... 5
Material U.S. Federal Income Tax Considerations........... 5
Contact Information....................................... 5
QUESTIONS AND ANSWERS....................................... 5
SPECIAL FACTORS............................................. 7
Background of the Merger Proposal......................... 7
Purpose of the Merger..................................... 9
Our Reasons For Pursuing the Merger....................... 10
Alternative Transactions Considered....................... 11
Effects of the Merger..................................... 12
Position of FMB as to the Fairness of the Merger to
Unaffiliated Shareholders.............................. 14
Position of Southeastern as to the Fairness of the Merger
to Unaffiliated Shareholders........................... 16
Approval of Security Holders.............................. 16
Provisions for Unaffiliated Shareholders.................. 16
Approval of FMB Directors................................. 17
Other Offers.............................................. 17
Interests of Certain Directors and Officers in the
Transaction............................................ 17
Financial Projections..................................... 17
Report of Financial Advisor............................... 18
RISK FACTORS................................................ 24
THE TRANSACTION............................................. 25
Material Terms............................................ 25
Dividends and Distributions............................... 26
Reasons for Engaging in Merger............................ 26
Vote Required............................................. 26
Regulatory Requirements................................... 26
Operations of FMB's Business Following the Merger......... 27
Termination of Exchange Act Registration.................. 27
Calculation of Minimum Share Ownership.................... 28
Exchange of Certificates.................................. 29
MATERIAL CHANGES IN RIGHTS OF CONTINUING SHAREHOLDERS....... 29
</Table>
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<Table>
<Caption>
PAGE
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SOURCE AND AMOUNTS OF FUNDS OR OTHER CONSIDERATION.......... 31
INFORMATION ABOUT FMB AND ITS AFFILIATES.................... 31
About FMB and Its Business................................ 31
About Southeastern........................................ 32
Directors and Executive Officers of FMB................... 32
Directors and Executive Officers of Southeastern.......... 34
Interest in Securities of FMB............................. 35
Use of Securities Acquired and Plans or Proposals......... 36
Market Price and Dividend Information..................... 36
Description of FMB Common Stock and Number of
Shareholders........................................... 37
Description of Surviving Corporation Common Stock and
Number of Shareholders................................. 37
Certain Relationships..................................... 39
Solicitation or Recommendation............................ 39
APPRAISAL RIGHTS AND DISSENTERS' RIGHTS; ESCHEAT LAWS....... 39
MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS............. 40
U.S. Federal Income Tax Withholding For Non-U.S.
shareholders........................................... 40
Backup Withholding........................................ 40
WHERE YOU CAN FIND ADDITIONAL INFORMATION................... 41
APPENDIX A TRANSACTION STATEMENT ON SCHEDULE 13E-3
APPENDIX B PLAN OF MERGER
APPENDIX C ARTICLES OF INCORPORATION OF SOUTHEASTERN
APPENDIX D ARTICLE VII OF SOUTHEASTERN'S BYLAWS
</Table>
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INTRODUCTION
We are furnishing this information statement (this "Information Statement")
and the accompanying Transaction Statement on Schedule 13E-3, which is attached
as Appendix A to this Information Statement, to holders of common stock, $1.00
par value per share, of FMB in connection with the merger of FMB with and into
Southeastern, a newly-formed, wholly-owned subsidiary of FMB. Southeastern will
be the surviving corporation in the merger. Our board of directors and the board
of directors of Southeastern approved the plan of merger and the merger
transaction described in this Information Statement on February 22, 2005. The
merger is designed to allow us to pursue the future operations of our business
as a private corporation without being subject to registration under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). By effecting
the merger, we expect to reduce the number of persons holding an equity interest
in our business to less than 300, thereby allowing us to terminate registration
of our common stock under the Exchange Act.
We do not expect our business or corporate image to change following the
merger, except as described in this Information Statement. For example, when the
merger is completed, all of FMB's directors and officers will serve in identical
capacities as directors and officers of the surviving corporation. In addition,
the day-to-day operations of our subsidiary, First National Bank in Manitowoc, a
national banking association, will remain the same. We do not expect the merger
to have any impact on First National Bank's employees or customer service.
Finally, following completion of the merger, the surviving corporation will
adopt FMB's corporate name, logos and other identifying marks by filing articles
of amendment with the State of Wisconsin, changing the surviving corporation's
name from "Southeastern First Manitowoc Bancorp of Wisconsin, Inc." to "First
Manitowoc Bancorp, Inc."
CERTAIN DEFINITIONS
In this Information Statement, when we refer to "FMB," "the company," "our
company," "we," "our" and "us," we are referring to First Manitowoc Bancorp,
Inc., a Wisconsin corporation and registered bank holding company under the Bank
Holding Company Act of 1956, as amended. When we refer to "First National Bank,"
we are referring to First National Bank in Manitowoc, a national banking
association and a wholly-owned subsidiary of FMB. When we refer to "the merger
subsidiary," "the surviving corporation" or "Southeastern," we are referring to
Southeastern First Manitowoc Bancorp of Wisconsin, Inc., a Wisconsin corporation
and wholly-owned subsidiary of FMB. We may refer to the board of directors of
FMB as "our board of directors" or "the FMB board of directors." We refer to the
common stock of FMB, $1.00 par value per share, as "FMB common stock," or
"surviving corporation common stock" and the common stock of Southeastern, par
value $0.01 per share, as "Southeastern common stock." When we refer to "the
plan of merger," we are referring to the plan of merger set forth in the
Articles of Merger approved by our board of directors on February 22, 2005,
which will be filed with the Wisconsin Department of Financial Institutions on
the closing date of the merger. We refer to the merger of FMB with and into
Southeastern as "the merger."
You are "a redeeming shareholder" if you hold fewer than 1,000 shares of
FMB common stock on the record date. You are "a continuing shareholder" if you
hold 1,000 or more shares of FMB common stock on the record date. In addition,
we consider you a continuing shareholder with respect to all shares you hold in
the First National Bank in Manitowoc 401(k) Profit Sharing Plan (the "Profit
Sharing Plan"), as we will deem the nominee for the Profit Sharing Plan to be
the beneficial owner of all shares held in individual shareholder accounts. If
you otherwise hold FMB common stock in a street name account, each such account
will be treated separately as a redeeming shareholder or a continuing
shareholder depending on the number of shares in each account.
FORWARD-LOOKING STATEMENTS
This Information Statement contains forward-looking statements. The
forward-looking statements are based on management's beliefs, assumptions,
current expectations, estimates and projections about the merger, the plan of
merger, the company itself, the economy and the banking industry. Words such as
"anticipates," "believes," "expects," "forecasts," "intends," "is likely,"
"plans," "predicts," "projects," variations of such words and similar
expressions are intended to identify such forward-looking statements.
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These statements include financial forecasts, which are of limited value as they
are only judgments and are dependent upon many assumptions and factors beyond
the control of FMB; and FMB makes no representations or warranties regarding the
accuracy of these forecasts. The forward-looking statements are not guarantees
of future performance and involve certain risks, uncertainties and assumptions
("risk factors") that are difficult to predict with regard to timing, extent,
likelihood and degree of occurrence. Actual results and outcomes may materially
differ from what may be expressed or forecast. Risk factors include, but are not
limited to, changes in banking laws and regulations; changes in securities and
tax laws; changes in governmental and regulatory policy; changes in the national
and local economy; changes in costs and other assumptions used in forecasting
management's expectations concerning the costs and cost savings associated with
the merger; the ability of the company to effectively implement the merger; and
whether and how quickly the company is able to achieve all of the cost savings
anticipated from the merger.
SUMMARY TERM SHEET
This summary term sheet briefly describes the most material terms of the
proposed merger and may not contain all of the information that is important to
you. We urge you to read carefully the entire Information Statement, including
the information incorporated by reference and the annexes. You may obtain copies
of documents incorporated by reference in this Information Statement without
charge by following the instructions under "WHERE YOU CAN FIND MORE
INFORMATION," beginning on page 41.
PARTIES INVOLVED IN THE PROPOSED TRANSACTION (PAGE 31)
- First Manitowoc Bancorp, Inc. -- FMB is a Wisconsin corporation and
registered bank holding company. FMB engages in its business through its
subsidiary, First National Bank in Manitowoc, a national banking
association. First National Bank and the merger subsidiary are FMB's only
subsidiaries. Our principal executive offices are located at 402 North
Eighth Street, Manitowoc, Wisconsin 54221-0010. Our main telephone number
is (920)684-6611.
- Southeastern First Manitowoc Bancorp of Wisconsin, Inc. -- Southeastern
is a recently formed Wisconsin corporation established by FMB solely for
the purpose of effecting the merger. Prior to the merger, FMB will be the
sole shareholder of Southeastern. Southeastern's principal executive
offices are located at 402 North Eighth Street, Manitowoc, Wisconsin
54221-0010. Its telephone number is (920) 684-6611.
RECORD DATE
If you owned shares of FMB common stock at the close of business on
February 25, 2005, the record date for the merger (the "record date"), you are
entitled to notice of the merger, to participate in the merger, and to receive
the merger consideration described in this Information Statement. As of the
close of business on February 25, 2005, there were 6,937,268 shares of FMB
common stock outstanding and entitled to notice of the merger, to participate in
the merger and to receive the merger consideration.
- If you hold fewer than 1,000 shares of FMB common stock on the record
date, you are classified as a "redeeming shareholder" and you will
receive $[ - ] in cash, without interest, in exchange for each share of
FMB common stock held upon consummation of the merger.
- If you hold 1,000 or more shares of FMB common stock on the record date,
you are classified as a "continuing shareholder" and you will receive one
share of the surviving corporation's common stock in exchange for each
share of FMB common stock held upon consummation of the merger.
- If your shares of FMB common stock are held in "street name," we will
determine whether you meet the 1,000 share minimum based on the number of
shares that you hold in each discrete account maintained with the nominee
appearing on the books and records of FMB.
- If you hold shares of FMB common stock through your participation in the
Profit Sharing Plan, you will be deemed a "continuing shareholder" with
respect to such shares and will receive one share of
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surviving corporation common stock in exchange for each share of FMB
common stock held for your benefit by the Profit Sharing Plan trustee.
STRUCTURE OF THE TRANSACTION (PAGE 25)
- The transaction is structured as a merger of FMB with and into
Southeastern, which will be the surviving corporation in the merger.
- The merger will be effective when articles of merger are filed with the
Wisconsin Department of Financial Institutions, which we anticipate will
occur, on or about March 31, 2005.
- Each share of FMB common stock issued and outstanding immediately before
the merger becomes effective and held by a redeeming shareholder will be
converted into the right to receive $[ - ] in cash without interest.
- Each share of FMB common stock issued and outstanding immediately before
the merger becomes effective and held by a continuing shareholder will be
converted into the right to receive one share of common stock of the
surviving corporation.
PURPOSE OF THE MERGER (PAGE 9)
- The merger will enable us to operate our business without being subject
to the annual and periodic reporting requirements of the Exchange Act. In
addition, the transaction will provide liquidity, without accompanying
brokerage or transaction fees, to shareholders who hold a relatively
small number of shares of FMB common stock. We can accomplish this
objective by merging with Southeastern in a transaction structured to
ensure that following the effective time of the merger, the surviving
corporation will have less than 300 shareholders of record, will no
longer be required to be registered under the Exchange Act and will not
be subject to the Exchange Act's reporting requirements.
- The merger also enables us to place restrictions on the future transfer
of shares of the surviving corporation without the expense and
administrative burden of obtaining shareholder approval. These
restrictions are important to ensure that the surviving corporation's
future operations will not become subject to the requirements of the
Exchange Act due solely to an increase in the number of shareholders.
- The redeeming shareholders will realize the value of their investment in
FMB in cash at a price of $[ - ], which represents a premium to the
market price of FMB common stock before the public announcement of the
merger transaction and a premium to the fair value per share of $[ - ]
(rounded) as determined by FMB's financial adviser, American Appraisal
Associates, Inc. ("American Appraisal").
OUR REASONS FOR PURSUING MERGER (PAGE 10)
- The significant costs associated with filing periodic reports under the
Exchange Act with the SEC will be eliminated.
- The costs of compliance with the Sarbanes-Oxley Act of 2002
("Sarbanes-Oxley") and related regulations will be eliminated.
- Direct and indirect costs of administering shareholder accounts and
responding to shareholder requests will be substantially reduced.
- The funds saved from eliminating these expenses can be utilized to
further strengthen the capital of our principal subsidiary and permit
continued growth in and expansion of service to our community.
- As a bank holding company and national bank, we and First National Bank
are and will remain subject to Federal examination, regulation and
reporting requirements implemented through the Federal Reserve, Office of
the Comptroller of the Currency and Federal Deposit Insurance
Corporation. Spending substantial funds on an annual basis to satisfy
additional Sarbanes-Oxley and SEC reporting
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requirements provides little added benefit to our shareholders and
detracts from our mission as a community bank.
- Shareholders who hold a relatively small number of shares of FMB common
stock will have their interests liquidated without having to incur
brokerage and other transaction fees. While the redemption will reduce
the number of shareholders of record from [ - ] to less than 300, the
total number of redeemed shares will be less than 3% of the total FMB
shares outstanding prior to the merger.
CERTAIN EFFECTS OF THE MERGER (PAGE 12)
- FMB will cease to exist as a corporate entity. As a result, FMB common
stock will no longer be publicly traded or quoted on the Pink Sheets and
FMB will no longer file annual and periodic reports with the SEC.
- Redeeming shareholders will have no interest in, will not be shareholders
of, and will not participate in any future earnings or growth of the
surviving corporation.
- The continuing shareholders will own all of the outstanding shares of the
surviving corporation.
- The officers and directors of FMB immediately prior to the effective time
of the merger will be the officers and directors of the surviving
corporation.
- The articles and bylaws of the surviving corporation will restrict future
share transfers by giving the surviving corporation a right of first
refusal with respect to any proposed sale of shares and other rights.
These restrictions are intended to give the surviving company a means to
prevent its number of shareholders from increasing to the point where the
reporting and compliance requirements of the Exchange Act and
Sarbanes-Oxley would become applicable.
- The articles of incorporation and the bylaws of Southeastern, as in
effect immediately prior to the effective time of the merger, will be the
articles of incorporation and bylaws of the surviving corporation. Those
articles and bylaws will be amended as soon as practicable following the
merger to change the name of the surviving corporation to "First
Manitowoc Bancorp, Inc."
VALUATION OF FMB COMMON STOCK (PAGE 18)
- American Appraisal has delivered to FMB's board of directors a written
valuation, dated February [ - ], 2005, to the effect that the fair value
of the common stock of FMB is $[ - ] (rounded) per share based on a
valuation date of February [ - ]. American Appraisal confirmed its
valuation immediately prior to the furnishing of this Information
Statement to our shareholders. Prior to the mailing of this Information
Statement to Shareholders, American Appraisal will provide our board of
directors with an update regarding the fair value of FMB common stock as
of a date immediately prior to the mailing. Our board of directors will
have considered the updated valuation in addition to other factors prior
to making a final determination of the amount of cash merger
consideration.
THE FULL TEXT OF THE WRITTEN VALUATION REPORT OF AMERICAN APPRAISAL, WHICH SETS
FORTH THE ASSUMPTIONS MADE, PROCEDURES FOLLOWED, MATTERS CONSIDERED AND
LIMITATIONS ON THE REVIEW UNDERTAKEN IN CONNECTION WITH THE VALUATION REPORT, IS
ATTACHED AS EXHIBIT (C) TO THE SCHEDULE 13E-3 FILED BY US WITH THE SEC AND THE
SUMMARY OF THE REPORT BEGINS ON PAGE 17. AMERICAN APPRAISAL PROVIDED ITS
VALUATION REPORT FOR THE INFORMATION AND ASSISTANCE OF OUR BOARD OF DIRECTORS IN
CONNECTION WITH ITS CONSIDERATION OF THE MERGER. WE URGE YOU TO READ THE
VALUATION REPORT IN ITS ENTIRETY.
SHAREHOLDER APPROVAL (PAGE 16)
- Your vote is not required to authorize the merger. The merger will be
effected pursuant to Section 180.1104 of the Wisconsin Business
Corporation Law ("WBCL"), which generally provides for the merger of a
parent corporation and a subsidiary of the parent corporation upon the
approval of the parent corporation's board of directors. Article IX of
FMB's existing articles of incorporation also permit it to merge into a
subsidiary of which it owns at least 80% of the outstanding shares upon
action
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by its Board of Directors and without shareholder approval. Accordingly, only
the authorization of FMB's and Southeastern's boards of directors are required
to approve the merger of FMB with and into Southeastern, a wholly-owned
subsidiary of FMB.
APPRAISAL RIGHTS (PAGE 39)
- Under Wisconsin law, you are not entitled to appraisal rights in
connection with the merger.
MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS (PAGE 40)
- If you are a redeeming shareholder, your receipt of cash in exchange for
your shares will be a taxable transaction for United States federal
income tax purposes and may be such for state and local income tax
purposes as well. You should consult with your own tax advisor.
CONTACT INFORMATION
You may contact us at the address, telephone number or email address set
forth on the back cover of this Information Statement if you have questions or
need additional copies of this Information Statement, the documents attached
hereto, or any documents containing information incorporated by reference in
this document. See "WHERE YOU CAN FIND MORE INFORMATION," beginning on page 41.
Our principal executive offices are located at 402 North Eighth Street,
Manitowoc, Wisconsin 54221-0010. Our main telephone number is (920) 684-6611.
QUESTIONS AND ANSWERS
The following questions and answers briefly describe select material terms
of the proposed merger and may not contain all of the information that is
important to you. We urge you to read carefully the entire Information
Statement, including the information incorporated by reference and the annexes.
You may obtain without charge copies of documents incorporated by reference into
this Information Statement by following the instructions under "WHERE YOU CAN
FIND MORE INFORMATION," beginning on page 41.
Q: WHY HAS OUR BOARD OF DIRECTORS CHOSEN THIS COURSE OF ACTION?
A: Our board of directors has approved the merger so that FMB will no longer
incur the burdens and costs associated with its obligations as a reporting
company under the Exchange Act. The merger also provides shareholders with a
relatively small number of shares an opportunity to cash out at a premium to
the recent market price of FMB common stock without incurring brokerage or
other transaction fees.
Q: WHAT DOES IT MEAN TO "DEREGISTER" OR "TERMINATE REGISTRATION" OF FMB COMMON
STOCK?
A: Currently, FMB is registered under the Exchange Act and is considered a
"reporting" or "publicly traded" company. This means that FMB must make
certain annual and periodic filings with the SEC and comply with the
requirements of Sarbanes-Oxley. FMB may terminate its registration under the
Exchange Act if it has 300 or less holders of its common stock. The merger is
designed to ensure that the surviving corporation in the merger will have
less than 300 shareholders. Accordingly, at the effective time of the merger,
the surviving corporation (as the successor to FMB) will terminate the
registration of FMB common stock. When the termination of registration is
effective, generally within 90 days of filing Form 15 with the SEC, FMB will
no longer be subject to the reporting requirements of the Exchange Act or
most of the provisions of Sarbanes-Oxley.
Q: WHAT IS "GOING PRIVATE?"
A: The term "going private" is used within this Information Statement to mean
the transformation of FMB from a "public" or "reporting" company, filing
detailed annual and periodic reports under the Exchange Act, to an entity
with less than 300 shareholders that is no longer subject to those reporting
requirements. "Going private" is also sometimes used colloquially to describe
a transaction in which management acquires a company and deregisters its
stock. In that context, there are inherent conflicts of interest
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between management and shareholders. That situation does not exist in this
case, since management's relative ownership interest in the Company will be
consistent with that of the other continuing shareholders.
Q: HOW WILL THE TERMINATION OF REGISTRATION UNDER THE EXCHANGE ACT BENEFIT
CONTINUING SHAREHOLDERS?
A. We anticipate that the deregistration will allow us to operate more
profitably. The reduction, and in certain instances elimination, of certain
administrative and operational expenses attributable to being a public
company will result in more available resources to invest in our business,
products and people. We expect the reduction in regulatory compliance
burdens, combined with the availability of additional resources, will allow
us to generate higher rates of return for investors than if FMB remained a
public company.
Q: WHEN WILL THE MERGER BE COMPLETED?
A: We hope to complete the merger by the end of April of 2005.
Q: WHAT WILL HAPPEN IF I OWN FEWER THAN 1,000 SHARES?
A: If you own less than 1,000 shares of FMB common stock on the record date, you
will receive $[ - ] in cash without interest per share. You will no longer be
a shareholder of FMB and will not become a shareholder of the surviving
corporation in the merger. This means that you will not have voting rights or
receive dividends or distributions from the surviving corporation.
Q: WHAT WILL HAPPEN IF I OWN 1,000 OR MORE SHARES?
A: If you own 1,000 or more shares of FMB common stock on the record date, you
will receive one share of the surviving corporation's common stock in
exchange for each share of FMB common stock held. You will have voting rights
and will receive dividends or distributions from the surviving corporation.
You will not receive cash in connection with the merger. Your rights to
transfer the new shares issued to you will be subject to certain restrictions
described below.
Q: IF I HAVE MORE THAN 1,000 SHARES OF FMB COMMON STOCK, CAN I STILL CHOOSE TO
RECEIVE CASH?
A: No. Under the plan of merger, only holders of fewer than 1,000 shares are
eligible to receive the merger consideration in cash.
Q: WHAT IS THE PURPOSE OF THE SHARE TRANSFER RESTRICTIONS BEING CREATED IN THE
MERGER?
A: The transfer restrictions included in Southeastern's articles of
incorporation are intended to permit the surviving corporation to limit or
slow future increases in its number of shareholders and to keep that number
below the level where Exchange Act registration requirements would again
become applicable.
Q: WHAT ARE THE TRANSFER RESTRICTIONS AND HOW WILL THEY APPLY?
A: The transfer restrictions will apply immediately to all shares of
Southeastern upon issuance. The restrictions will prevent sales of shares to
third parties unless the corporation is first given a 20 day period in which
to purchase the shares at the same price proposed to be paid by the third
party. If the corporation decides not to purchase the shares, they may be
sold to the third party at the proposed price. Transfer restrictions will
also apply in other limited situations. See "MATERIAL CHANGES IN RIGHTS OF
CONTINUING SECURITIES HOLDERS" beginning on page 29.
Q: SHOULD I SEND IN MY SHARE CERTIFICATES NOW?
A: No. After the merger and the amendment to the articles of incorporation of
Southeastern changing the name of the surviving corporation to "First
Manitowoc Bancorp, Inc.", we will send instructions on how to receive any
cash payments or new share certificates you may be entitled to receive.
Q: WHAT SHOULD I DO IF MY SHARES ARE REGISTERED IN STREET NAME?
A: If your shares are registered in street name, your bank, broker, or other
nominee will receive these materials and a Transmittal Letter, which will be
forwarded to you for action. As a beneficial owner whose shares are held in
street name, your rights and the treatment of your shares (as being exchanged
for cash or newly issued shares) will be the same as if you were the record
holder of that number of shares.
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Q: WHEN WILL I RECEIVE MY NEW SHARES OR CASH?
A: You will receive new shares if you owned 1000 or more shares of FMB and cash
if you owned 999 or fewer shares. In either case, your shares or cash will be
provided promptly (within 5 days) after the surviving corporation receives
your properly completed Transmission Letter.
Q: WILL THE MERGER AFFECT FIRST NATIONAL BANK?
A: No. Following completion of the merger, First National Bank will operate as a
wholly-owned subsidiary of the surviving corporation in exactly the same
manner and with the same employees as before.
Q: IF I HAVE ADDITIONAL QUESTIONS, WHO CAN I CONTACT?
A: If you have additional questions regarding this Information Statement, the
merger, or related matters, you should contact Thomas J. Bare, Chief
Executive Officer of FMB, at (920) 684-6611.
SPECIAL FACTORS
BACKGROUND OF THE MERGER PROPOSAL
FMB became a "reporting company" under the Exchange Act in 1998 when its
number of shareholders increased to more than 500 shareholders. The expense and
management burden of complying with Exchange Act requirements, while
substantial, was not previously considered by management or our board of
directors to be unacceptable. With the passage of Sarbanes-Oxley in 2002,
however, the expense and administrative burden resulting from being registered
under the Exchange Act increased markedly.
Beginning in 2003, management and our board of directors considered the
benefits of going private, as that option was presented in conferences, business
publications and discussed very generally with FMB's advisers. In 2004,
management became aware of going private proposals being presented by other
similarly situated community bank holding companies. In addition, in late 2004,
Wipfli LLP ("Wipfli"), FMB's registered public accounting firm, advised
management that FMB should expect to spend at least 3,000 management hours
documenting and testing internal controls, that it should expect audit fees for
complying with Section 404 of Sarbanes-Oxley to be in the range of an additional
50% to 100% of current annual audit fees, and that fees associated with initial
implementation would be even higher.
On November 4, 2004, Messrs, Thomas Bare and Paul Wojta, the Chief
Executive Officer and Chief Financial Officer of FMB, respectively, met with K.
Thor Lundgren, Esq. and W. Charles Jackson, Esq. of Michael Best & Friedrich LLP
("Michael Best"), FMB's outside corporate legal counsel to discuss whether a
going-private transaction would be in the best interests of the Corporation. Mr.
Lundgren advised management that FMB would be eligible to terminate its
registration under the Exchange Act, if it reduced the number of shareholders of
FMB common stock to fewer than 300. The feasibility of a going private
transaction was discussed and various alternative structures considered. FMB
management then engaged Michael Best to further investigate both the legal
issues that would be involved if FMB were to undertake a going private
transaction to reduce its number of shareholders to below 300 for the purpose of
eliminating the need to comply with SEC reporting requirements and the possible
structures for such a transaction.
Following several board meetings at which the going private alternative was
discussed informally, the board of directors met on November 9, 2004 and
authorized management to engage outside consultants to explore advantages and
disadvantages to the Corporation and its shareholders of going private and to
report to the board of directors at a later meeting.
On the suggestion of counsel, management considered engaging an independent
third-party organization to determine the fair value of FMB common stock for
purposes of evaluating the proposed transaction. Mr. Jackson met with
representatives of American Appraisal Associates, and of Marshall Financial
Consulting LLC, two respected valuation firms with strong reputations. After
receiving proposals from both valuation firms, management elected to engage
American Appraisal, primarily because the depth of its organization was
perceived to provide the level of industry expertise vital to a fair valuation.
On December 21, 2004, American Appraisal was engaged to determine the fair value
of FMB common stock.
7
At a special meeting of our board of directors held February 1, 2005, Mr.
Lundgren advised our board of directors that going private would eliminate much
of the expense and executive time involved in preparing annual reports,
quarterly reports, and other documents filed by public companies, significantly
reduce accounting expense and eliminate the need to comply with most of the
provisions of Sarbanes-Oxley, including the upcoming need for an independent
auditor's report on the attestation of internal controls over financial
reporting. Mr. Brian Blaha of Wipfli, also present at the February 1 meeting,
concurred with Mr. Lundgren and advised our board of directors that expenses
associated with Exchange Act registration did not create value for FMB and that
funds saved could be deployed to further strengthen FMB's capital position and
for additional productive investments.
Various methods to reduce the number of shareholders to the level necessary
to deregister, including a stock purchase plan, an issuer tender offer and a
reverse stock split, were discussed. Mr. Lundgren discussed advantages and
disadvantages of the alternatives with the board of directors. He then outlined
the structure for a transaction pursuant to Section 180.1104 of Wisconsin
Business Corporation Law that would involve the merger of FMB into a newly
created and wholly-owned subsidiary of FMB and, as part of the merger, the
redemption of shares of FMB common stock held by holders of less than a minimum
share amount as determined by the board of directors. Mr. Lundgren explained
that such a transaction would not require shareholder approval. Mr. Lundgren
stressed that an important element of the transaction was that the purchase
price be fair to those shareholders who would receive cash. Mr. Jackson reviewed
with the board of directors a potential timeline for the transaction should they
decide to continue, and the board of directors then determined that the merger
pursuant to Section 180.1104 appeared to be the preferable approach. Also
discussed was the desire to place transfer restrictions on the common stock of
the surviving corporation to limit the number of transferees which could
inadvertently or by design increase the number of shareholders to the point
where the company might again become subject to Exchange Act reporting
requirements.
Mses. Alla Royfman and Kimberly Russell, representatives of American
Appraisal, were present at the February 1 meeting to provide a preliminary oral
report valuing FMB shares at $[ - ] (rounded). The presentation included
discussion of the valuation methods employed, including income and market
approaches, in order to arrive at fair value with no discounts being applied for
either (i) lack of marketability, or (ii) lack of control. The Board questioned
Mses. Royfman and Russell concerning the valuation assumptions and the
appropriateness of the comparables selected. The board of directors indicated a
strong preference that if they were to proceed with the transaction any rounding
of share price be done upwards, in order to further assure fairness to those
shareholders whose shares were being purchased for cash.
Following the presentations and questions, Mr. Bare noted that a
transaction purchasing the shares of shareholders with less than 1,000 shares
would be sufficient to reduce the number of shareholders from approximately 663
down to 269, but that it would affect less than 1.40% of the total FMB shares
outstanding. Further discussion followed concerning the long-term benefit of the
transaction to FMB and the substantial majority of its shareholders, the
relatively small number of shareholders who would be required to sell shares,
the structure of the transaction and possible alternatives, the initial
valuation as provided by American Appraisal, the potential impact of delisting
and stock transfer restrictions on shareholder liquidity, and a variety of other
matters.
After further discussion and consideration, our board of directors
authorized legal counsel to prepare the documents that would be necessary to
proceed with the merger transaction and deregistration process for review and
further consideration by the board of directors at its next meeting.
The board of directors held a special meeting on February 8 of 2005 to
further consider the going-private transaction. Mr. Jackson presented the
directors with additional details regarding the structure of the transaction,
devoting particular attention to the stock transfer restrictions that would
apply to newly issued shares in the merged corporation. The Board discussed the
potential effect of delisting and share transfer restrictions on shareholder
liquidity. It was noted that being listed had not created any significant degree
of liquidity, since FMB's average trading volume was less than 300 shares per
day and the share price had been essentially unchanged in the area of $15.50 per
share for the past year. The consensus was that whatever inconvenience the
delisting and stock transfer restrictions might cause would be more than offset
by the
8
longer-term benefits to the merged company and its shareholders from (i) savings
that would result from elimination of reporting requirements, and (ii) the
additional capital available for investment. Following presentations on the
proposed transaction by Mr. Bare and Mr. Jackson, our board of directors
expressed its interest in continuing review of the transaction structure and
pursuit of an updated valuation opinion.
Our board of directors held a special meeting on February 22, 2005 to
consider further the going-private transaction. American Appraisal had delivered
to the directors an updated valuation report and opinion based on a valuation
date of February 14, 2005.
Following a presentation by Mr. Jackson and after extensive discussion of
the timing and mechanics of the transaction, as well as the American Appraisal
fair value assessment, our board of directors decided to authorize the
transaction. Our board of directors then determined the price to be paid for
shares held by those shareholders who would receive cash for their shares as a
result of the transaction. Our board of directors considered the appraised share
value of $19.43 as arrived at by American Appraisal in their fair value
assessment, as well as the trading history for the stock during the past year.
It was noted that the stock had only traded in excess of $16.00 on two occasions
in the past year, once at $16.10 and once at $16.25 per share, with all trades
in the past three months being in the range of $15.22 to $15.75 per share. Our
board of directors also considered that the stock was thinly traded, relatively
illiquid and that the trading history seemed to show particular illiquidity for
small lot trades. Our board of directors then determined to set the price paid
to shareholders receiving cash at $[ - ] per share, subject to possible
adjustment if the fair value as determined by American Appraisal were to differ
significantly in its final valuation as provided immediately prior to the
mailing of materials to shareholders. Our board of directors chose a price in
excess of both FMB common stock fair value per share (as determined by American
Appraisal) and current trading price because of its desire to be fair to those
shareholders who would receive cash for their shares. In addition, our board of
directors wanted to compensate these shareholders to some extent for being
required to sell and for possible tax consequences. The directors believed that
paying a price in excess of fair value would be fair to other shareholders as
well because of the expected overall favorable long-term impact of the
transaction on FMB and its remaining shareholders resulting from the elimination
of expenses related to SEC reporting and other compliance requirements, the
immaterial effect of paying a premium for the small number of shares being
cashed out, and a belief that the price selected would serve to reduce the risk
of dissatisfaction among shareholders being cashed out and also mitigate any
potential for loss of good will among cashed-out shareholders who might also be
customers and employees of First National Bank.
Our board of directors determined in its judgment that $[ - ] per share
price was a fair price and that the transaction would be in the best interests
of FMB and both its continuing shareholders and those shareholders representing
less than 3% of the total shares outstanding who would be able to liquidate
their otherwise relatively illiquid small lot holdings at a fair value
substantially in excess of recent trading prices and without incurring brokerage
or other transaction fees. The directors then adopted the plan of merger and
authorized management, in consultation with legal counsel, to proceed with the
transaction. This action of our board of directors was unanimous.
PURPOSE OF THE MERGER
The primary purposes of the merger are: (i) to enable the future operation
of our business as a non-public corporation that is not subject to the annual
and periodic reporting requirements of the Exchange Act, and (ii) to provide
liquidity to redeeming shareholders at a fair price.
At the effective time of the merger, we will cash-out the FMB equity
interests of shareholders who hold fewer than 1,000 shares of FMB common stock
in any discrete account or in street name at a price determined to be fair by
our board of directors. Following the completion of the merger, we expect the
surviving corporation to have less than 300 shareholders as a result of the
redemptions. If we are successful, the surviving corporation will terminate the
registration of FMB common stock under the Exchange Act and thus terminate the
surviving corporation's obligation, as the successor to FMB, to file annual and
periodic reports and make other filings with the SEC. Termination of
registration would also significantly reduce the surviving corporations
compliance obligations under Sarbanes-Oxley.
9
OUR REASONS FOR PURSUING THE MERGER
During 2004, our board of directors considered strategic means of
terminating the registration of FMB under the Exchange Act and providing
liquidity to holders of small amounts of FMB common stock. Our board of
directors determined that the merger is an effective and efficient means of
achieving these goals.
Termination of Registration Considerations. FMB's management and board of
directors have explored the benefits and detriments of terminating our
registration under the Exchange Act. Among the benefits are the elimination of
the substantial burdens associated with being a "reporting company" or publicly
traded company under the Exchange Act. For example:
- FMB is obligated to prepare and file with the SEC annual, quarterly and
current reports and proxy statements that comply with Section 14 of the
Exchange Act, in addition to other reports and forms.
- Our management has reported that being subject to the Exchange Act
presently causes FMB to incur incremental expense for legal, accounting
and other direct and indirect costs. Anticipated expenses for 2005
associated with being a reporting company (including an estimated
$150,000 of one-time direct and indirect costs relating primarily to
implementing the controls, procedures and auditor review required to
comply with Section 404 of Sarbanes-Oxley) are expected to be more than
$510,000. Costs for 2003, before the full implementation of
Sarbanes-Oxley requirements, were approximately $165,000; the 2004 costs
were $660,000.
As highlighted by the costs of Sarbanes-Oxley discussed above, our board of
directors recognized that Sarbanes-Oxley has subjected, and will subject, FMB
and its directors and officers to additional burdens and expense that are
substantial in scope. The new corporate governance, accounting, internal control
and liability provisions of Sarbanes-Oxley, while arguably appropriate for large
public companies, are believed by our board of directors to place a
disproportionately high burden on the management and financial resources of
relatively small companies such as FMB. Bank holding companies and banks, such
as FMB and its subsidiary First National Bank, are already subject to a
comparatively high degree of supervision, regulation and examination by federal
bank regulatory agencies. Bank regulatory requirements are in some cases similar
to those of Sarbanes-Oxley. As a community bank, our directors believed that the
substantial funds spent on reporting could be better used for investment in our
community.
Our board of directors also recognized that termination of registration
would have certain detrimental effects on continuing shareholders. Among these
disadvantages will be a reduction in the amount of information about the
surviving corporation, and the relative limited liquidity of the surviving
corporation's common stock. See "SPECIAL FACTORS -- Negative Aspects of the
Merger" beginning on page 15.
Ultimately, our board of directors has determined that costs and other
disadvantages associated with registration under the Exchange Act outweigh its
benefits.
Shareholder Liquidity and Servicing Consideration. FMB's management and
board of directors also considered the advantage to redeeming shareholders of
cashing out their shares. Currently, FMB common stock is not listed on any
national securities exchange and, to our knowledge, there are no active market
makers in FMB common stock. This limited trading market has not allowed FMB
shareholders to recognize the primary benefit which should be available to
shareholders of a publicly traded company, namely the ability to buy and sell
stock in a liquid market in which accurate and timely pricing information is
readily available.
Another factor recognized by our board of directors favorable to the
redemption of shareholders with small holdings is the expense of administering
the accounts of shareholders with fewer than 1,000 shares. Our board of
directors determined that such expenses are disproportionate to those
shareholders' ownership interest in FMB. As of February 25, 2005, we had
6,937,268 shares issued and outstanding. We had approximately 402 shareholders
of record that held fewer than 1,000 shares, holding an aggregate of
approximately 94,600 shares. As of the same date, an estimated 263 shareholders
of record held 1,000 or more shares, holding an aggregate of approximately
6,842,700 shares. As a result, approximately 60% of the administrative expense
relating to our shareholder accounts relates to the administration of
shareholder accounts constituting less than 3% of our issued and outstanding
shares.
10
In making its determination regarding the redeeming shareholders, our board
of directors recognized that some redeeming shareholders might prefer to receive
shares of Southeastern in the merger in lieu of cash. It was concluded however,
that such shareholders would be adequately compensated by a cash out price of
$[ - ], which exceeded both the then current trading price and the fair value
per share (as determined by American Appraisal Associates, Inc.). Our board of
directors believes that the cash out price is fair to the redeeming
shareholders. See "SPECIAL FACTORS -- Background of the Merger" beginning on
page 7.
Anticipated Results. Ultimately, our board of directors concluded that the
merger would be an efficient and effective means of:
- eliminating the costs and administrative burden associated with filing
periodic reports and other documents under the Exchange Act with the SEC;
- eliminating the costs and investment of management time associated with
compliance with Sarbanes-Oxley and related regulations;
- reducing the direct and indirect costs of administering shareholder
accounts and responding to shareholder requests by reducing the number of
small shareholder accounts;
- affording shareholders holding fewer than 1,000 shares the opportunity to
receive cash for their shares at a price that represents a premium of
[ - ]% and [ - ]% over the average 30 and 60 day closing prices of our
common stock, respectively, before the public announcement of the
proposed transaction, without having to pay brokerage commissions and
other transaction costs.
We are pursuing the merger at this time because the sooner the proposal can be
implemented, the sooner FMB will cease to incur the expenses and burdens of
public reporting and the sooner shareholders who are entitled to receive cash in
the merger can make use of such cash payments.
ALTERNATIVE TRANSACTIONS CONSIDERED
In determining the structure of the transaction, our board of directors
considered other means of achieving the same result. Those alternatives were
rejected in favor of the merger because our board of directors believed that the
merger would be the more effective and cost efficient method of effecting the
going private transaction. Alternatives considered and ultimately rejected are
discussed briefly below:
- Tender Offer. This alternative would require shareholders to respond to
an offer by FMB to purchase their shares. Our board of directors was
uncertain as to whether this alternative would result in shares being
tendered by a sufficient number of record shareholders so as to
accomplish the going private objective and reducing recurring costs. The
directors found it unlikely that many holders of small numbers of shares
would make the effort to tender their shares.
- Reverse Stock Split. This alternative would accomplish the objective of
reducing the number of record shareholders, assuming approval of the
reverse stock split by FMB shareholders. In a reverse stock split, FMB
would acquire the interests of the cashed-out shareholders by means of an
amendment to FMB's articles of incorporation, as amended, to reduce the
number of issued and outstanding shares of common stock such that the
cashed-out shareholders would own less than one full share of FMB common
stock. FMB would then distribute cash for the resulting fractional share
interests. This alternative was not favored because it did not enable FMB
to impose restrictions on the future transfer of FMB common stock without
undertaking the costs of submitting the matter to a vote of shareholders.
- Stock Repurchase Plan. Our board of directors also considered going into
the open market and repurchasing stock from shareholders willing to sell
their shares. However, any repurchase plan must comply with Rule 10b-18
of the Exchange Act which restricts when an issuer may repurchase its
shares, the manner in which the repurchase is effected, the volume of
shares purchased and the price paid. As a result of these restrictions,
there is no guaranty that a stock repurchase plan would result in any
reduction of the number of record shareholders within the time period
required to accomplish our objectives.
11
Although a reverse stock split, tender offer or stock purchase plan could
achieve the desired result of reducing the number of record shareholders, our
board of directors chose to engage in a merger transaction pursuant to Section
180.1104 of WBCL because it believed this transaction structure was the most
efficient means to both reduce the number of shareholders of the surviving
corporation and provide liquidity to small shareholders. Among other things, our
board of directors favored a merger pursuant to Section 180.1104 of the WBCL
because:
- no shareholder vote is required in connection with such a merger,
allowing the company to avoid the significant costs associated with
preparation and mailing of a proxy statement, shareholder solicitation,
shareholder voting, or holding a shareholder meeting;
- our board of directors believed that placing limitations on future
transfers of the corporation's stock was critical to the surviving
corporation's ability to remain exempt from registration under the
Exchange Act, and a merger under Section 180.1104 of WBCL gives FMB the
flexibility to place such limitations in the articles of incorporation of
the surviving corporation;
- the merger provides cash to the redeeming shareholders without any action
on the part of the shareholders and without their needing to incur
brokerage or other transaction fees.
After consideration of the various alternatives described above, our board of
directors determined that a merger structured in accordance with Section
180.1104 was the best choice for the shareholders and FMB. FMB estimates that,
following the merger, the surviving corporation will have 269 or fewer holders
of record of common stock, comfortably below the 300 shareholder level at which
registration under federal securities laws can be discontinued. FMB does not
believe that there exists a material difference between the tax consequences of
the proposed transaction to affiliates of FMB and unaffiliated shareholders of
FMB. Accordingly, our board of directors did not identify differing tax
consequences as a reason for the structure or timing of the transaction.
Our board of directors has recognized and has carefully considered the
possibility that some holders of fewer than 1,000 shares might prefer to receive
shares of the surviving corporation in the merger in lieu of cash. Our board of
directors also has been mindful of the fact that some of its smaller
shareholders are both shareholders and First National Bank customers and/or
employees. With this in mind, our board of directors elected to pay a price for
shares redeemed in the merger which is in excess of both the trading price for
FMB shares immediately prior to public disclosure of the merger and the share
valuation provided by American Appraisal. Our board of directors, in part,
desired to compensate shareholders with small holdings for having their shares
purchased at this time.
Our board of directors did not consider other methods to reduce expenses as
an alternative to going private. Nor did our board of directors consider the
possibility of a third party buy-out to be an alternative. It considers a
buy-out to be a fundamentally different transaction and not an alternative. The
merger in no way limits the ability of the board of directors to consider a full
range of strategies and strategic alternatives in the future.
EFFECTS OF THE MERGER
Effect on FMB and Southeastern. At the effective time of the merger, FMB
will be merged with and into Southeastern, which will be the surviving
corporation in the merger. When the merger is consummated, FMB will cease to
exist as a corporate entity.
Conversion of Outstanding FMB Common Stock. At the effective time of the
merger, (i) each share of FMB common stock issued and outstanding immediately
prior to the effective time of the merger and held by a redeeming shareholder,
will be converted into the right to receive $[ - ] in cash without interest, and
(ii) each share of FMB common stock issued and outstanding immediately prior to
the effective time of the merger and held by a continuing shareholder will be
converted into the right to receive one share of the surviving corporation's
common stock.
12
Effect on Ownership Structure of the Surviving Corporation. At the
effective time of the merger, 100 percent of the surviving corporation's common
stock will be held directly or indirectly by the continuing shareholders. The
redeeming shareholders will cease to have ownership interests in FMB or rights
as FMB shareholders. In addition, redeeming shareholders will have no right to
receive ownership interests in Southeastern or rights as Southeastern
shareholders. As a result, redeeming shareholders will not participate in any
earnings or growth of the surviving corporation following the merger and will
not benefit from any increase in the value of the surviving corporation
following the merger.
Effect on Shareholder Transfer Rights. The articles of incorporation and
bylaws of Southeastern include certain transfer restrictions that are not
included in FMB's charter document. Following the effective time of the merger,
Southeastern's articles of incorporation and bylaws will be the articles of
incorporation and bylaws of the surviving corporation. As a result, the shares
of continuing shareholders will be subject to these transfer restrictions. In
general, the restrictions will prevent sales of shares to third parties unless
the surviving corporation is first given an opportunity to purchase such shares.
If the corporation decides not to purchase the shares, they may be sold to the
third party, subject to any applicable restrictions described in the bylaws. If
an attempt is made to transfer shares without complying with the bylaw transfer
restrictions, the surviving corporation will refuse to recognize the transfer
for any purpose, including voting of the shares in question. See "MATERIAL
CHANGES IN RIGHTS OF CONTINUING SHAREHOLDERS," beginning on page 29.
Effect on Listing, Registration and Status of FMB Common Stock. FMB common
stock is currently registered under the Exchange Act and is quoted on the Pink
Sheets under the symbol "FWBW." Following the merger, FMB common stock will
cease to be quoted on the Pink Sheets. In addition, registration of FMB common
stock under the Exchange Act will be terminated.
After the merger, the surviving corporation will be a privately held
company, and there will be no public market for its common stock. In general,
price quotations with respect to sales of shares of the surviving corporation's
common stock in the public market are unlikely to be available. While no
assurances can be given, it is possible the surviving corporation's common stock
may be quoted in the over-the-counter market on the Pink Sheets. The provisions
of the Exchange Act, such as the requirement of furnishing a proxy or
information statement in connection with shareholders' meetings, will not apply
to the surviving corporation, and the surviving corporation will not be required
to file either annual or periodic reports with the SEC.
Effect on Organization and Management of the Surviving Corporation. At the
effective time of the merger, officers and directors of FMB will become the
officers and directors of the surviving corporation in the merger. It is
expected that the executive officers of FMB immediately prior to the effective
time of the merger will remain the executive officers of the surviving
corporation.
It is expected that, upon consummation of the merger, the management and
operations of First National Bank will be conducted substantially as they
currently are being conducted; however, the surviving corporation of the merger
will not be subject to the obligations, constraints, and the related direct and
indirect costs and personnel requirements, associated with being a public
company. Management of Southeastern does not have any present plans or proposals
that relate to, or would result in, any form of extraordinary corporate
transaction (such as a merger, reorganization, liquidation, relocation of any
operations or sale or transfer of a material amount of assets) following the
merger. It is expected, however, that following the merger management of the
surviving corporation will:
- terminate FMB's filing obligations under the Exchange Act by filing Form
15 with the SEC;
- file articles of amendment to Southeastern's articles of incorporation
with the State of Wisconsin, changing the surviving corporation's name
from "Southeastern First Manitowoc Bancorp of Wisconsin, Inc." to "First
Manitowoc Bancorp, Inc.;" and
- continuously evaluate and review the surviving corporation's business,
operations and strategies, and may develop new plans and strategies as
appropriate to maximize the value of the surviving corporation.
13
Certain Beneficial and Detrimental Effects. A benefit of the merger to the
continuing shareholders is that the surviving corporation's future earnings and
growth will be solely for their benefit and not for the benefit of the redeeming
shareholders. Detriments of the merger to the continuing shareholders are the
lack of liquidity for the common stock of the surviving corporation following
the merger, the risk that the surviving corporation will decrease in value
following the merger, and the payment by FMB of approximately $217,000 in
transaction costs and estimated fees and expenses related to the merger.
The benefit of the merger to the redeeming shareholders is the right to
receive $[ - ] per share for their shares of FMB Common Stock. The detriments of
the merger to such shareholders are that they will cease to participate in the
surviving corporation's future earnings and growth, if any, and that the receipt
of the payment for their shares in the merger will be a taxable event for
federal income tax purposes.
Effect on Continuing Shareholders' Interest in Net Book Value and Net
Earnings. After consummation of the merger, the continuing shareholders'
interests in the net book value and net earnings of the surviving corporation
will be 100% based on their holdings of capital stock of the surviving
corporation. The redeeming shareholders will hold no direct or indirect equity
interest in the surviving corporation and therefore will own no interest in its
net book value or net earnings.
Certain Federal Income Tax Effects of the Transaction on Affiliate and
Unaffiliated Shareholders. In connection with the transaction, shareholders of
FMB who qualify as redeeming shareholders will receive cash consideration in
exchange for their shares of FMB common stock without regard to whether they are
affiliated or unaffiliated shareholders of FMB. In general, the federal income
tax rules that determine the consequences of the transaction with respect to
individual redeeming shareholders are the same (generally contained in Internal
Revenue Code Section 302), and apply without regard to whether such redeeming
shareholder is an affiliate of FMB or is an unaffiliated shareholder of FMB. For
those shareholders who receive solely shares of surviving corporation common
stock in the transaction, the receipt of stock should be a nontaxable
transaction, and this is true regardless of whether the shareholder is an
affiliated or unaffiliated shareholder of FMB.
POSITION OF FMB AS TO THE FAIRNESS OF THE MERGER TO UNAFFILIATED SHAREHOLDERS
Our board of directors believes that the terms of the merger are
substantively and procedurally fair to and in the best interests of our
unaffiliated shareholders. In reaching this conclusion, our board of directors
considered a range of factors, including those described below.
Fairness to Redeeming Shareholders. After extensive discussion and
consultation with its financial advisors, our board of directors determined that
the shareholders who would receive cash for their shares as a result of the
transaction would be paid $[ - ] per share. Our board of directors chose a price
in excess of the then current trading price and the fair value as determined by
American Appraisal Associates, Inc. because it wished to assure fairness to the
shareholders who would receive cash for their shares. The board wanted to
compensate these shareholders to some extent for being required to sell as well
as for possible taxes involved. Our board of directors believed that paying a
price in excess of fair value would be fair to other shareholders as well
because of the expected overall favorable impact of the transaction on FMB's
business and the continuing shareholders, the immaterial effect of paying a
premium for the small number of shares being cashed out, and a belief that this
would reduce the risk of conflict with the shareholders being cashed out and
mitigate any loss of good will among cashed out shareholder customers and
employees of First National Bank.
In determining that the cash consideration of $[ - ] was fair to
shareholders receiving cash in the merger, our board of directors considered a
number of material factors, including:
- the opinion delivered by American Appraisal on February 14, 2005 that, as
of that date and based on and subject to the assumptions, limitations and
qualifications set forth in the opinion, that the fair value price for
FMB common stock is $[ - ] (rounded) per share;
- the fact that the merger consideration of $[ - ] per share in cash to be
received by redeeming shareholders represented, at the time of the board
of directors' determination, a [ - ]% premium to the average closing
price of FMB common stock for the 30 days prior to the February 25, 2005
announcement of the merger;
14
- the consideration is all cash, which provides (i) certainty of value to
redeeming shareholders; (ii) immediate liquidity in an otherwise thinly
traded security; and (iii) an opportunity to pursue other investment
alternatives; and
- no brokerage or other transaction costs are to be incurred by
shareholders who receive cash in the merger, unless a bond is required in
the event of a lost stock certificate.
Fairness to Continuing Shareholders. In considering the fairness of the
merger to continuing shareholders, our board of directors examined a number of
factors, including:
- the opportunity of continuing shareholders to realize the potential
benefits to our business of the termination of the registration of FMB
common stock under the Exchange Act, including reduced expenses as a
result of termination of registration with the SEC;
- the opportunity to participate in Southeastern's future growth and
earnings, if any; and
- the expected accretion of net income, earnings per share and return on
equity to Southeastern arising from the decrease in the number of shares
of common stock outstanding as a result of the merger as well as
anticipated shareholder servicing cost savings.
Negative Aspects of the Merger. Our board of directors also considered a
variety of risks and other potentially negative factors for redeeming
shareholders and continuing shareholders concerning the merger, including:
- the fact that, following the merger, redeeming shareholders will not
participate in any future earnings of or benefit from any increases in
the surviving corporation's value;
- the fact that, for U.S. federal income tax purposes generally, the merger
consideration will be taxable to redeeming shareholders;
- following the termination of FMB common stock's registration with the
SEC, continuing shareholders will have less access to information about
Southeastern, the surviving corporation;
- the stock of the surviving corporation, may not be quoted on the Pink
Sheets, which may result in reduced liquidity relative to that of FMB
common stock prior to the merger; and
- while the stock of the surviving corporation may be quoted on the Pink
Sheets no assurance can be given in that regard and historically trading
on the Pink Sheets has been limited and sporadic.
Although the board of directors considered the negative factors described
above, it concluded that the positive benefits outweighed the detriments of the
negative factors and that the proposed transaction was fair to and in the best
interest of FMB's shareholders, including its unaffiliated shareholders. See
"SPECIAL FACTORS -- Our Reasons for Pursuing the Merger" beginning on page 10.
This discussion of the information and factors considered by the board of
directors in reaching its conclusions includes all material factors considered
by the board of directors, but is not intended to be exhaustive. In view of the
wide variety of factors considered by the board of directors in evaluating the
plan of merger and the transactions contemplated by it, including the merger,
and the complexity of these matters, the board of directors did not find it
practicable, and did not attempt, to quantify, rank or otherwise assign relative
weight to those factors. In addition, different members of the board of
directors may have given different weight to different factors.
In evaluating the merger and related transactions, the board of directors
did not consider:
- the net book value of FMB, because it believed that net book value is not
a material indicator of the value of FMB as a going concern but rather is
indicative of historical costs;
- the liquidation value of FMB, because the board of directors considered
FMB as a viable going concern business, which as a whole, as the result
of its income generating capacity, has a greater value than the value of
the sum of its parts in the event of liquidation, and therefore did not
consider the liquidation value as a relevant valuation methodology; or
15
- a pre-merger going concern value for the equity of FMB because it does
not believe there is a single accepted method of determining going
concern value, although the valuation methods applied by American
Appraisal assumed, in totality, an ongoing stream of income and therefore
were reflective of value as a going concern.
POSITION OF SOUTHEASTERN AS TO THE FAIRNESS OF THE MERGER TO UNAFFILIATED
SHAREHOLDERS
The board of directors of Southeastern believes that the terms of the
merger are substantially and procedurally fair to the unaffiliated shareholders
of FMB for all the reasons discussed above in the section captioned "SPECIAL
FACTORS -- Position of FMB as to the Fairness of the Merger to Unaffiliated
Shareholders." Although not required under Wisconsin law, with the intent of
observing corporate procedures and exercising their independent fiduciary duty
to Southeastern with respect to the merger, the members of Southeastern's board
of directors considered and unanimously approved the plan of merger and the
merger.
APPROVAL OF SECURITY HOLDERS
No approval of securities holders is required in connection with the
transaction. The transaction is structured as the merger of a parent, FMB, with
and into its wholly-owned subsidiary, Southeastern. Under Section 180.1104 of
WBCL, such a merger may be consummated with the approval of the boards of
directors of the merging companies and without the approval of the shareholders
of either the parent corporation or the subsidiary. Accordingly, the approval of
at least a majority of unaffiliated security holders is not required in
connection with the merger.
PROVISIONS FOR UNAFFILIATED SHAREHOLDERS
The majority of directors of FMB who are not employees of FMB did not
retain an unaffiliated representative to act solely on behalf of the
unaffiliated shareholders for purposes of negotiating the plan of merger or
preparing a report concerning the fairness of the transaction. Our board of
directors did not consider this option because it relied in part upon the
assessment and recommendation of independent directors in reaching its decision.
The independent directors received the same information that the full board of
directors received and considered the same factors that the full board of
directors considered (as described above) when making their assessment of the
transaction. In addition, the board of directors believes that sufficient
substantive and procedural safeguards were and are present to ensure the
fairness of the merger and to permit the board of directors to represent
effectively the interests of FMB's unaffiliated shareholders. These safeguards
include the following:
- other than their receipt of board of directors fees and their
indemnification and liability insurance rights under the articles of
incorporation of FMB, members of the board of directors do not have an
interest in the merger different from that of FMB shareholders;
- the board of directors retained and received the advice and assistance of
American Appraisal Associates, Inc. as its financial advisor, and
requested and received from American Appraisal Associates, Inc. an
opinion, delivered orally and confirmed in writing on February 14, 2005,
with respect to the fair value of FMB stock as determined with no
discount for lack of control or for marketability as of the valuation
date;
- our board of directors unanimously determined that the plan of merger and
the merger are fair to and in the best interests of FMB's unaffiliated
shareholders and unanimously approved and adopted the plan of merger;
- the board of directors of Southeastern determined that the plan of merger
and the merger were fair to shareholders receiving cash consideration and
those receiving surviving corporation common stock in the merger;
- although not required under Wisconsin law, the board of directors of
Southeastern unanimously approved the plan of merger and the merger.
16
- the merger will be effected in accordance with the statutory procedures
described in Section 180.1104 of WBCL and all other applicable provisions
of Wisconsin law; and
- because of the structure of the transaction, following consummation of
the merger, each FMB shareholder who will be a continuing shareholder of
the surviving corporation will be in an essentially identical economic
position to that occupied prior to the transaction.
In light of our board of directors' consultation with independent directors
and the procedural safeguards described above, the board of directors did not
consider it necessary to retain an unaffiliated representative to act solely on
behalf of FMB's unaffiliated shareholders for purposes of negotiating the terms
of the plan of merger or preparing a report concerning the fairness of the
merger.
The only appraisal sought by FMB in connection with the merger was the
valuation report provided by American Appraisal Associates. Neither FMB nor
Southeastern has made any provision in connection with the merger to grant
unaffiliated shareholders access to FMB's or Southeastern's corporate files or
to obtain counsel or appraisal services for such shareholders at FMB's or
Southeastern's expense.
APPROVAL OF FMB DIRECTORS
The merger has been approved by all of the members of our board of
directors, including each of the directors who are not employees of FMB. The
merger has also been approved by all members of Southeastern's board of
directors, including each of the directors who are not employees of
Southeastern. Under Section 180.1104 of the WBCL, neither the approval of FMB's
or Southeastern's shareholders is required to effect the merger.
OTHER OFFERS
FMB has not received from any unaffiliated person any credible offers
during the last two years for mergers or acquisitions of the company for the
acquisition of its assets or a controlling interest in its common stock.
INTERESTS OF CERTAIN DIRECTORS AND OFFICERS IN THE TRANSACTION
The executive officers and directors of FMB who are also shareholders will
participate in the merger in the same manner and to the same extent as all other
shareholders of FMB. When the merger is completed, the respective ownership
percentages of each of the directors and executive officers who are classified
as "continuing shareholders" and retain shares will increase slightly in a
manner identical to the ownership interests of all other continuing shareholder.
As a group, directors and officers own approximately 14.5% of the outstanding
shares of FMB common stock. Following the effective time of the merger, the
directors and officers are expected to own approximately 14.7% of the
outstanding shares of the surviving corporation. As noted above, this increase
in percentage ownership will be shared proportionally by all continuing
shareholders.
Other than as described above and payments made to directors and officers
in their capacities as such, no payments or benefits will be paid or provided to
FMB's directors or officers as a result of the transaction.
FINANCIAL PROJECTIONS
In connection with American Appraisal's valuation report, FMB provided
American Appraisal with confidential, non-public business and financial
information. This non-public information included projections of FMB's future
operating performance presented in the following forms: (i) projected
consolidated balance sheet as of December 31, 2005, (ii) projected 2005
consolidated income statement, and (iii) summary of 2005 budget assumptions. The
projections provided to American Appraisal included estimates of fiscal year
2005 interest and non-interest income and expense items as well as assets,
liabilities and equity of FMB. Such projections were provided to American
Appraisal in its capacity as financial advisor to FMB. The projections did not
give effect to the anticipated positive economic impact of the merger, although
the expected reduction in cost was considered by American Appraisal in
connection with its valuation of FMB common stock.
17
REPORT OF FINANCIAL ADVISOR
Our board of directors engaged American Appraisal Associates, Inc.
("American Appraisal") to render its opinion with respect to the fair value per
share of FMB's common stock for purposes of assisting the board in evaluating
the proposed transaction. At the February 1, 2005 meeting of the board of
directors, American Appraisal presented an oral valuation report indicating that
a fair value for the stock of FMB with no discount for lack of control or for
marketability as of the valuation date would be $[ - ] per share (rounded).
American Appraisal subsequently presented the board of directors with an updated
valuation of $[ - ] per share (rounded) based on a valuation date of February
14, 2005. American Appraisal confirmed its valuation opinion with a written
report dated February 14, 2005.
For the purpose of the valuation, FMB furnished American Appraisal with
audited and unaudited financial statements and other records, documents, and
forecasts. American Appraisal reviewed these materials with FMB representatives
and accepted them as correctly representing the results of operations and the
financial condition of the enterprise without further verification. In addition,
American Appraisal performed a study of market conditions and an analysis of
published information concerning the economy and the industry in order to
evaluate FMB's past performance and to assess its ability and capacity to
generate future investment returns.
FMB selected American Appraisal as its financial advisor in connection with
the merger based upon American Appraisal's reputation and valuation expertise.
American Appraisal is the nation's largest independent valuation consulting
company and serves the valuation requirements of clients worldwide. American
Appraisal's expertise extends from the valuation of business enterprises to the
appraisal of an entity's underlying real and personal property assets for
purposes of sale/purchase, ESOPs, estate planning, buy-sell agreements, gifting
and tax reporting, as well as a variety of other needs and requirements.
The full text of American Appraisal's narrative report, dated February 14,
2005, is attached as Exhibit (c) to Schedule 13E-3 filed with the Securities and
Exchange Commission (the "SEC") in connection the merger. The summary of the
report set forth below is qualified in its entirety by reference to the full
report, and is subject to certain assumptions and limiting conditions, which are
incorporated by reference into the report. We urge shareholders to read the
entire report carefully.
SUMMARY OF REPORT OF FINANCIAL ADVISOR
FMB engaged American Appraisal to act as a financial advisor to its board
of directors in connection with the proposed merger. FMB requested that American
Appraisal render a report as to the fair value of 100% of FMB common stock on a
marketable, controlling, basis. American Appraisal's valuation report is limited
to the fair value per share of FMB common stock, as of the date of the valuation
report. The valuation report does not address the merits of the underlying
decision by FMB to engage in the merger or the amount of cash consideration to
be paid for shares of FMB common stock redeemed in the transaction. In addition,
American Appraisal's valuation report does not constitute a recommendation to
any holder of FMB common stock about the fairness of the merger or the amount of
cash consideration to be received by redeeming shareholders.
American Appraisal's report is intended to comply with the purpose and
reporting requirements set forth by the Uniform Standards of Professional
Appraisal Practice ("USPAP") for a summary appraisal report. As such, it
presents only summary discussions of the data, reasoning, and analyses that were
used in the appraisal process to develop the opinion of value of American
Appraisal. Supporting documentation concerning these matters has been retained
in American Appraisal's work papers. The depth of discussion contained in this
report is specific to FMB's needs as the client and for the intended use stated.
American Appraisal is not responsible for the unauthorized use of this report.
American Appraisal's valuation is intended to express an opinion as of
February 14, 2005 (the "valuation date") of the per-share fair value of 100% of
FMB's common stock on a marketable, controlling, basis for regulatory and
financial planning purposes and in connection with the merger. As a consequence
of the merger, the subsidiary will issue its shares in exchange for those of FMB
and also acquire, for cash, a sufficient number of shares to reduce the total
number of subsidiary shareholders to below the reporting threshold
18
established under the Exchange Act. It is not appropriate to use this summary
for any purpose other than the one stated herein.
As used in this summary, the term fair value is defined as the estimated
amount at which an asset (or liability) could be bought (or incurred) or sold
(or settled) in a current transaction between willing parties, that is, other
than in a forced or liquidation sale.
For the purpose of this valuation, American Appraisal was furnished with
audited and unaudited financial statements and other records, documents, and
forecasts. American Appraisal reviewed these materials with representatives of
FMB and accepted them without further verification as correctly representing the
results of operations and the financial condition of the enterprise. In
addition, a study of market conditions and an analysis of published information
concerning the economy and the industry were used to evaluate FMB's past
performance and to assess its ability and capacity to generate future investment
returns.
As a basis for rendering its estimate of the fair value of 100% of FMB
common stock, American Appraisal reviewed and considered the following:
- FMB's management, the nature of its business, and factors affecting its
business
- Balance sheets, income statements, statements of cash flow, and operating
financial projections
- Economic and operating outlook for FMB at the valuation date
- Companies whose stocks are publicly-traded and which are engaged in the
same or similar lines of business as that of FMB and considering such
publicly-traded companies for comparative purposes
- Recent sales of FMB's stock and the size of the block of stock to be
valued
- Transaction prices paid in mergers and acquisitions for similar public
and private companies
In completing the valuation of 100% of FMB common stock, American Appraisal
considered the three traditional approaches to value (cost, market, and income)
and applied the most appropriate methods.
Based on the investigation described, it is American Appraisal's opinion
that, as of the valuation date, the fair value of 100% of FMB common stock on
the controlling basis is reasonably represented in the amount of $[ - ] million
or $[ - ] (rounded) per share.
American Appraisal did not investigate the title to or any liabilities
against the equity appraised.
VALUATION APPROACHES
The methods used in estimating the fair value of FMB's equity included
consideration of the three traditional approaches to value -- cost, income, and
market.
The cost approach, as applied in the valuation of an equity interest,
establishes value based on the aggregate value of its underlying assets, both
tangible and intangible, less liabilities. The cost approach was considered, but
not employed for this valuation, because it does not adequately capture the
income-generating ability of FMB on an ongoing basis.
In the income approach, value is dependent on the present value of future
economic benefits to be derived from ownership of an equity interest. Central to
this method is an analysis of the earnings potential represented by the
appraised company and of the underlying risks associated with obtaining those
earnings. Value indications are developed by discounting future net cash flows
available for distribution to their present value at market-based rates of
return. The income approach was used in this analysis.
The market approach compares the subject company with guideline publicly
traded companies (the guideline company method) or with transactions that
involve sales of whole companies with similar operations (the guideline
transaction method). In applying these methods, valuation multiples are derived
from historical operating data of selected guideline companies or the targets of
selected transactions, then evaluated and adjusted, if necessary, based on the
strengths and weaknesses of the subject company relative to the derived market
data. These multiples are then applied to the appropriate historical and/or
projected operating data of the subject company to arrive at an indication of
fair value. The guideline company method and the guideline transaction method
were both employed in this analysis.
19
INCOME APPROACH
The most commonly used method of valuing a business under the income
approach is the discounted cash flow ("DCF") method.
DISCOUNTED CASH FLOW METHOD
The DCF method is based on the present value of two components: forecasted
cash flows and a residual value. In determining forecasted cash flows, future
revenue, operating expenses, and required regulatory capital adequacy reserves
are estimated based on historical operating and financial performance, company
and industry factors, and regulatory pronouncements.
Cash flow is calculated as follows:
Net Income
(less)
Increase in Required Equity
equals
Cash Flow
The residual value represents the present value of cash flows received
subsequent to the explicit forecast period. The annual net cash flow and the
residual value (value at the end of the estimation period) are then discounted
to derive their net present value using a risk-adjusted discount rate.
In applying the above methodology, American Appraisal analyzed the
following sources of information: (i) FMB historical financial data, (ii) FMB
management's projected financial results for FMB, (iii) published market data
and other available public information relating to FMB and industry, and (iv)
discussions with FMB management.
Management provided American Appraisal with FMB's 2005 consolidated
projections. The projected deposits are assumed to grow at 6.3%, while gross
loans are expected to grow 7.0% annually. Total assets are expected to increase
from $622 million in 2004, to $665 million in 2005. Over the projected period,
loan loss reserves are expected to remain unchanged from the five-year
historical average of 1.0%. Tangible equity to tangible assets is expected to be
maintained at an average of 9.5% for the projected period with any excess equity
assumed to be paid out. Interest on loans is expected to increase from $22
million in 2004 to $25 million in 2005. Net interest margin is forecast to
average 3.7% for the projected period, compared to the five-year historical
average of 3.6%. Another performance metric used is the efficiency ratio,
defined herein as noninterest expenses divided by total revenue less interest
expense. The efficiency ratio for FMB is projected to improve from a historical
average of 58.5% to a projected average of 55.5%.
Reserve for loan losses was estimated using a percent of gross loans
averaging 1.0%. Cash, interest-bearing liabilities, and other non-earning items
were estimated as a percent of assets. Interest income on loans and
interest-bearing investments and interest expense on interest bearing debt were
estimated using a historical average spread over the rate paid on deposits and
management's future rate estimates. The provision for loan loss of $900,000 in
2005, was estimated using the reserve for loan losses and an annual net
charge-off of 0.16%. Income taxes were estimated using an average effective
federal and state tax rate of 23.8%. The tax rate was reviewed by management and
deemed reasonable.
Adjustments were made to 2005 net income to eliminate a nonrecurring,
one-time gain on the sale of an ATM network in the amount of $125,000. After the
adjustments, 2005 after-tax net income equaled $8,600,000. The increase in the
shareholders' equity was then subtracted from net income to derive net cash flow
due to the fact that any annual cash flows available after funding necessary
growth in equity are assumed to be distributed to shareholders. The future net
cash flows were discounted using a risk-adjusted discount rate of 12.0% to
derive net present value.
The terminal value beyond the forecast period was calculated using the
Gordon growth model. In calculating terminal value, after-tax net income was
normalized by removing non-recurring items, such as intangible asset
amortization and after-tax expenses related to compliance with Sarbanes-Oxley
and SEC compliance. These expenses will not be incurred in the years following
2005, and therefore were removed from the residual value calculation.
20
The cash flow in the stabilized period was capitalized at a rate equal to
the concluded discount rate less the terminal growth rate. Given the current
industry conditions and the outlook for the industry, American Appraisal
concluded a long-term growth rate of 5% to be appropriate. This assumption was
reviewed by management and deemed to be reasonable.
The discount rate applied in this analysis was developed by analyzing the
returns investors require on investments in companies similar to FMB as of the
valuation date, as well as specific risk factors related to FMB. The discount
rate was derived using the cost of equity as determined by the capital asset
pricing model ("CAPM"). This method uses a risk-free rate of return and an
appropriate market risk premium for equity investments and the specific risks of
the investment.
The discount rate, or cost of equity, was computed using the following
formula:
<Table>
Cost of = Rf + (Rp)(LOGO) + Small Company Risk Premium
Equity
Where
Rf = Risk-free rate
The yield on the 20-year U.S. Treasury Bond as of February
10, 2005, was 4.52%, and was used as a proxy for the
risk-free rate.
Rp = Expected return on stocks over the risk-free rate. Stocks,
Bonds, Bills, and Inflation: 2004 Yearbook.
Ibbotson Associates calculates Rp as the average market risk
premium during the period from 1926 to 2003. The concluded
premium as reported in the 2004 Yearbook was 7.2%.
B = Beta, the measure of the sensitivity of a given company,
which fluctuates in relation to the overall stock market
A beta was computed based on the average beta of the
guideline companies, as presented by Bloomberg, and applied
in the discount rate calculation. The concluded beta for FMB
was 0.30.
Small Company = The premium necessary to capture additional risks associated
Risk Premium with companies below a certain market capitalization, based
on market risk premium for small companies as published by
Ibbotson Associates. The small company risk premium was
concluded at 5.0% for FMB
</Table>
Based upon the preceding analysis, the concluded cost of equity for FMB was
calculated as follows:
4.52%+(7.2%x 0.30)+5.0%=12.0% (Rounded)
The net present value of cash flows and the terminal value were added
together to determine the fair value of the equity of FMB using the income
approach. Based on American Appraisal's analysis, the fair value of 100% of
FMB's common stock on a marketable, controlling basis as of the valuation date
is $[ - ].
MARKET APPROACH
GUIDELINE COMPANY METHOD
The guideline company method of the market approach provides an indication
of value for the company appraised by relating the equity or invested capital
(interest-bearing debt plus equity) of guideline companies to measures of their
earnings and cash flow, then applying such multiples to the subject business.
The guideline company method makes use of market price data of stocks of
corporations engaged in the same or a similar line of business as that of the
subject company. Stocks of these corporations are actively traded in a public,
free, and open market, either on an exchange or over-the-counter. Although it is
clear no two companies are entirely alike, the only restrictive requirement
imposed by this method is that the corporations selected as guideline companies
be engaged in the same or a similar line of business, or be subject to similar
financial and business risks, including the opportunity for growth. Other
relevant factors may be considered in selecting and adjusting guideline
companies to make comparisons with the subject.
21
American Appraisal's primary sources for guideline company data were SNL
DataSource and public filings that provided historical financial information for
SEC registrants. Selection of guideline companies was based on both qualitative
and quantitative factors related to company size, line of business, operating
results, geographic focus, and other pertinent factors such as the amount of
published information or trading activity in the stock.
In the analysis of FMB's common stock, American Appraisal identified six
guideline companies. The following characteristics were required for
comparability:
- The corporation is classified as Commercial Bank or Bank Holding Company
in SNL DataSource.
- The corporation conducts its primary business in the United States, and
more specifically in the Midwest, and its common stock is actively traded
on the U.S. stock exchange.
- Adequate financial information about the corporation is publicly
available.
- Total assets of the corporation are between $300 million and $1.5
billion.
- Financial ratios including current equity-to-assets ratio, return on
average equity ("ROAE") and return on average assets ("ROAA") for the
past five years are similar.
To estimate the equity value of FMB, market multiples from the guideline
companies were used. After reviewing FMB and the guideline companies, as well as
the industry in which they operate, American Appraisal selected the average
multiples of market capitalization ("MC") to earnings, tangible book value and
book value of equity based on the comparability between the guideline companies'
and FMB's operating ratios, such as ROAA, ROAE, and tangible book value to
tangible assets. Multiples were calculated for the latest 12 months ("LTM").
The average MC to earnings, MC to tangible book equity and MC to book
equity multiples were adjusted upward by 5% to reflect the cost savings that FMB
will achieve as compared to that of the guideline companies. The cost savings
include expenses related to Sarbanes-Oxley and SEC compliance. The selected
multiples were then multiplied by the book equity, tangible book equity, and
earnings of FMB as reported on its balance sheet and income statement as of
December 31, 2004, to derive the market capitalization value of FMB.
Due to the nature of stock market transactions, market-derived ratios
inherently reflect the aggregate opinion of minority investors; therefore, the
MC multiples represent freely traded minority interests.
In order to arrive at equity value on a controlling basis, an equity
premium for control was applied. According to the Mergerstat Review 2003
published by Houlihan, Lokey, Howard, and Zukin, the average control premium for
the banking industry over the past eight-year period was 38.1%. Given the number
of shareholders of FMB, as well as the size of the guideline companies, the
control premium of 5% was applied.
After the control premium adjustment was applied, the indicated market
capitalization values derived by the selected multiples were weighted. American
Appraisal assigned a 50% weight to the earnings multiple and a 25% weight to
each of the two book equity multiples (book equity and tangible book equity) to
give equal consideration to the balance sheet (mix of assets and liabilities)
and income statement (yield, costs, and ability to manage and control expenses)
results. These weighted sub-totals were then summed to derive the fair value of
FMB's equity using the guideline company method. This process is summarized as
follows:
<Table>
<Caption>
APPLIED MARKET REPORTED INDICATED WEIGHTED
CAPITALIZATION AMOUNT SELECTED VALUE WEIGHT VALUE
("MC") MULTIPLES ($000) MULTIPLE ($000)[1] (%) ($000)
---------------- -------- -------- --------- ------ --------
Book Equity[2].......................... 55,073 2.07 130,953 25 32,738
Tangible Book Equity.................... 55,041 2.27 131,076 25 32,769
Earnings................................ 7,902 17.22 142,876 50 71,438
Indicated Fair Value of 100% of First Manitowoc Bancorp, Inc. Common Stock: $[ - ]
</Table>
22
---------------
[1] Includes a 5% control premium.
[2] Indicated fair value includes excess capitalization of $10,799.
Based on American Appraisal's analysis, the fair value of 100% of FMB's
common stock on a marketable, controlling basis as of the valuation date is
$[ - ]
GUIDELINE TRANSACTION METHOD
The guideline transaction method follows the same basic methodology as the
guideline company method. However, instead of deriving market multiples from
publicly traded share prices, multiples were derived from the purchase prices of
entire companies.
American Appraisal's primary sources for guideline transactions data were
SNL DataSource and publicly available financial data. Selection of guideline
transactions was based on both qualitative and quantitative factors related to
company size, line of business and operating results, geographic focus, and
other pertinent factors such as the amount of published information or trading
activity in the stock.
In the analysis of FMB's common stock, American Appraisal identified five
recent guideline transactions. The following characteristics were required for
comparability:
- The target company is classified as Commercial Bank or Bank Holding
Company in SNL DataSource.
- The target company conducts its primary business in the United States,
and more specifically is in the Midwest.
- Adequate financial information about the target corporation is publicly
available.
- Total assets of the target corporation are between $300 million and $1.5
billion.
- The acquisition was completed within two years prior to the valuation
date.
- Financial ratios including current equity-to-assets ratio, ROAE and ROAA
for the past two years are similar.
After reviewing the transactions and the relevant drivers of value, the
average multiples of MC to earnings, tangible book equity and book value of
equity were selected for this analysis based on the size, profitability, and
growth opportunities of the target companies when compared to those of FMB.
These multiples were adjusted upward by 5% to reflect the cost savings that FMB
will generate compared to guideline companies. The cost savings include expenses
related to Sarbanes-Oxley and SEC compliance. The selected multiples were
multiplied by the book equity, tangible book equity, and earnings of FMB as
reported on its balance sheet and income statement as of December 31, 2004, to
derive the market capitalization value of FMB.
MC ratios, representing a freely traded majority interest, were calculated
for each target company as of its effective transaction date. This method
inherently reflects a controlling interest in the equity because the prices paid
for the acquired companies already include the premium for control.
The indicated values as derived by the MC multiples from guideline
transactions were then weighted. American Appraisal assigned a 50% weight to the
earnings multiple and a 25% weight to each of the two book multiples (book
equity and tangible book equity) to give equal considerations to the balance
sheet (mix of assets and liabilities) and income statement (yield, costs, and
ability to manage and control expenses) results.
23
These weighted subtotals were then summed to derive the fair value of FMB using
the guideline transaction method. This process is summarized as follows:
<Table>
<Caption>
REPORTED INDICATED WEIGHTED
APPLIED AMOUNT SELECTED VALUE WEIGHT VALUE
MC MULTIPLES ($000) MULTIPLE ($000) (%) ($000)
------------ -------- -------- --------- ------ --------
Book Equity*............................ 57,273 2.17 133,082 25 33,270
Tangible Book Equity.................... 55,041 2.38 131,191 25 32,798
Earnings................................ 7,902 17.94 141,797 50 70,899
Indicated Fair Value of 100% of First Manitowoc Bancorp, Inc. Common Stock: $[ - ]
</Table>
---------------
* Indicated fair value includes excess capitalization of $8,599.
Based on American Appraisal's analysis, the fair value of 100% of FMB
common stock on a marketable, controlling basis as of the valuation date is
$[ - ].
CORRELATION AND CONCLUSION OF VALUE
This valuation was performed to express an opinion of the fair value of
100% of the common stock of FMB on a marketable, controlling basis. The
indications of value derived from the market approach were assigned a combined
60% weight, with equal weighting placed on the Guideline Company and Guideline
Transaction Methods. The indication of value derived from the income approach
was assigned a lower weight of 40% due to the fact that only one year of
projected data was available for use in this approach. Calculation of the
indication of the fair value based on these weightings is shown in the table
below.
<Table>
<Caption>
INDICATED
VALUE WEIGHTED
VALUATION SUMMARY ($000) WEIGHT VALUE ($000)
----------------- --------- ------ ------------
Income Approach
Discounted Cash Flow Method.......................... 131,012 40.0% 52,405
Market Approach
Guideline Company Method............................... 136,945 30.0% 41,084
Guideline Transaction Method......................... 136,967 30.0% 41,090
Indicated Fair Value................................... 134,578
Number of Shares Outstanding........................... 6,937,268
Fair Value per share on a marketable, controlling basis
(rounded)............................................ $ [ - ]
</Table>
Based on the analysis outlined and on the valuation techniques employed, it
is concluded that, as of February 14, 2005, the fair value of the equity of 100%
of the common stock of FMB on a marketable, controlling basis is reasonably
represented in the amount of $[ - ] million or $[ - ] per share.
American Appraisal did not investigate the title to or any liabilities
against the equity appraised.
RISK FACTORS
IF THE MERGER DOES NOT OCCUR, FMB WILL NOT BENEFIT FROM THE EXPENSES IT HAS
INCURRED IN PREPARATION FOR THE MERGER.
If the merger is not consummated, we will have incurred substantial
expenses for which no ultimate benefit will have been received by us. We
currently expect to incur significant out-of-pocket expenses for services in
connection with the merger, consisting of financial advisor, legal and
accounting fees and financial printing and other related charges, much of which
may be incurred even if the merger is not completed. In addition, FMB has
suspended the implementation of certain compliance undertakings required by
Sarbanes-Oxley, to pursue the merger. If the merger is not completed, FMB will
be required to implement these
24
regulatory requirements and the anticipated cost savings associated with
termination of registration under Exchange Act will not be realized.
THE ANNOUNCED MERGER MAY ADVERSELY AFFECT FMB'S RESULTS OF OPERATIONS.
In response to the announcement of the merger, it is possible that
customers of First National Bank and its subsidiaries could delay or defer
decisions regarding the use of services, which could have a material adverse
effect on FMB's business regardless of whether the merger is ultimately
completed. Focus on the merger and related matters has, and may continue to,
result in the diversion of management attention and resources. To the extent
that there is uncertainty about the closing of the merger, or if the merger does
not close, FMB's business may be harmed if others believe that FMB cannot
effectively compete in the marketplace without the merger or if there is
uncertainty surrounding the future profitability of the FMB as a reporting
company under the Exchange Act.
THE TRANSACTION
MATERIAL TERMS
The following is a summary of certain provisions of the plan of merger and
certain matters relating to the merger. The following summary does not purport
to be complete and is qualified in its entirety by reference to the plan of
merger which is attached as Appendix B to this Information Statement and is
incorporated into this Information Statement by reference. You are urged to read
the plan of merger in its entirety.
Summary Description of the Merger. At the effective time of the merger,
FMB will merge with and into the merger subsidiary. Each FMB shareholder who
holds of record fewer than 1,000 shares of FMB common stock will receive cash
for their shares. All other shareholders will become shareholders of the
surviving corporation.
Our board of directors has adopted the plan of merger and authorized
consummation of the merger. No shareholder approval is required in connection
with the merger. See "SPECIAL FACTORS -- Approval of Security Holders" on page
16.
The following events must occur to effect the merger:
- the articles of merger must be filed with the Wisconsin Department of
Financial Institutions; and
- the surviving corporation, must file a final amendment to its going
private Schedule 13E-3 with the SEC.
To implement the merger fully and achieve the desired goal of decreasing
the burdens, risks and expense associated with reporting companies by
terminating FMB's reporting obligations, and maintaining our business identity,
the following events must occur:
- the surviving corporation must terminate FMB's filing obligations under
the Exchange Act by filing a Form 15 with the SEC; and
- the board of directors of the surviving corporation, Southeastern, must
authorize and cause the filing of articles of amendment with Wisconsin
Department of Financial Institutions changing the name of the surviving
corporation from "Southeastern First Manitowoc Bancorp of Wisconsin" to
"First Manitowoc Bancorp, Inc. See "THE TRANSACTION -- Termination of
Exchange Act Registration" (page 27).
Consideration; Conversion and Exchange of Stock Certificates. Each
shareholder holding fewer than 1,000 shares of FMB common stock will be entitled
to receive $[ - ] per share in cash, without interest. Each share of FMB common
stock held by a shareholder having 1,000 or more shares or in the Profit Sharing
Plan will be exchanged for an equal number of shares of Southeastern common
stock, and the holder will not receive any cash. As soon as practicable
following the effective time of the merger, you (or, in the case of shares held
in street name, your bank, broker or other nominee) will receive a letter of
transmittal and
25
instructions for surrendering your FMB stock certificates. See "THE
TRANSACTION -- Exchange of Certificates" on page 29. When the merger is
completed, the shares of redeeming shareholders will automatically be converted
into the right to receive cash. PLEASE DO NOT SEND US YOUR STOCK CERTIFICATES AT
THIS TIME.
Effective Time of the Merger. We expect to complete the merger during late
March or early April of 2005. However, FMB cannot guarantee that the merger will
be completed by such time. The effective time of the merger will be the time of
the filing with and acceptance for recordation of the articles of merger by the
Wisconsin Department of Financial Institutions, or a later time specified in the
articles of merger. Southeastern presently intends to file the articles of
merger as soon as practicable after all regulatory notice periods have expired
and upon completion of the merger.
The Merger and Plan of Merger are not Contingent on Shareholder
Approval. Under Section 180.1104 of WBCL, no shareholder approval is required
to authorize the plan of merger or to consummate the merger. Therefore, your
vote will not be solicited and FMB and Southeastern will proceed with the
completion of the merger without any action by shareholders.
Amendment or Termination of the Plan of Merger. The plan of merger may be
amended by our board of directors prior to our filing of the articles of merger
with the Wisconsin Department of Financial Institutions, generally without the
necessity of action by shareholders. No amendments or modifications to the plan
of merger are presently contemplated. However, if there is any material
amendment to the plan of merger, FMB will notify you and provide you with
information relating to the amendments.
The merger may be abandoned and the plan of merger terminated by our board
of directors. At this time, our board of directors has no intention of
abandoning the plan of merger.
DIVIDENDS AND DISTRIBUTIONS
Each FMB shareholder will be entitled to dividends and distributions on
his, her or its FMB common stock declared with record dates prior to the
effective time. Redeeming shareholders will not be entitled to any future
dividends or distributions that are declared by the surviving corporation after
the merger is completed, regardless of whether the shareholder has or has not
surrendered his or her stock certificates in accordance with the letter of
transmittal. Continuing shareholders will receive dividends declared with
respect to common stock of the surviving corporation only upon surrender of each
such shareholder's FMB certificate(s) and issuance of certificates representing
ownership in the surviving corporation in accordance with the letter of
transmittal. See "TERMS OF THE MERGER -- Exchange of Certificates" (page 29).
REASONS FOR ENGAGING IN MERGER
See "Special Factors -- Our Reasons for Pursuing the Merger" (page 10).
VOTE REQUIRED
See "Special Factors -- Approval of Security Holders" (page 16).
REGULATORY REQUIREMENTS
Federal securities laws require that we prepare and file a Schedule 13E-3
with the SEC in connection with the merger. In addition, state and federal
securities law require that we prepare and deliver to our shareholders this
Information Statement in connection with the merger. Federal and state law
further require that we furnish this Information Statement to you at least 20
days prior to the closing of the transaction.
After satisfaction of the foregoing requirements, we must file articles of
merger with the Wisconsin Department of Financial Institutions and comply with
federal and state securities laws to effect the merger.
We have previously received written confirmation from the Federal Reserve
Bank of Chicago that we will not be required to file an application pursuant to
Section 3 of the Bank Holding Company Act. However, if for any reason the merger
fails to meet certain criteria outlined in Section 225.4(b)(6) of Regulation Y,
26
promulgated under the Bank Holding Company Act, we may be required to make a
filing pursuant to Section 225.4(b) of Regulation Y.
Except for the regulatory requirements described above, FMB is not aware of
any material United States federal or state or foreign governmental regulatory
requirement that must be complied with or approval that must be obtained to
complete the merger.
OPERATIONS OF FMB'S BUSINESS FOLLOWING THE MERGER
Following the merger, FMB's business operations will be conducted by the
surviving corporation in substantially the same manner as now conducted. The
executive officers and directors of FMB immediately prior to the merger will be
the executive officers and directors of the surviving corporation immediately
after the merger. Current directors of FMB whose terms expire in 2005 were
appointed to the surviving corporation's board of directors for full three-year
terms in conjunction with Southeastern's formation. The remaining directors were
appointed to terms that will expire in the same year their respective terms on
the FMB board of directors would have expired but for the merger.
No compensation increases or retention arrangements are contemplated in
connection with the merger. The compensation of persons who will serve as
directors and officers of Southeastern following the merger will be identical to
the compensation they received in their capacities as directors and officers of
FMB. Officers of FMB who currently have executive agreements with FMB will have
identical executive agreements with Southeastern following the merger.
The corporate existence of First National Bank will not be affected by the
merger and First National Bank will continue to conduct its operations in
substantially the same manner as now conducted. The executive officers and
directors of First National Bank immediately prior to the merger will continue
as the executive officers and directors of First National Bank immediately after
the merger. The deposits of First National Bank will continue to be insured by
the Federal Deposit Insurance Corporation.
Both the surviving corporation and First National Bank will continue to be
regulated by the same agencies that regulated FMB and First National Bank prior
to the merger.
TERMINATION OF EXCHANGE ACT REGISTRATION
FMB common stock is currently registered under the Exchange Act and quoted
on the Pink Sheets. The surviving corporation in the merger, as the successor to
FMB, may terminate the Exchange Act registration of FMB common stock if there
are fewer than 300 record holders of outstanding shares of surviving corporation
common stock following completion of the merger. Because we expect the surviving
corporation to have fewer than 300 shareholders of record, we anticipate that it
will terminate the registration of FMB common stock as promptly as possible
after the effective time of the merger. The deregistration of FMB common stock
is expected to be effected by filing with the SEC a Certification of Termination
of Registration of a Class of Security Under Section 12(g) or Notice of
Suspension of Duty to File Reports Pursuant to Sections 13 and 15(d) of the Act
on Form 15. The filing of Form 15 will immediately suspend the surviving
corporation's obligation, as successor to FMB, to comply with the reporting
requirements of the Exchange Act. The termination of registration will be
effective no later than 90 days following such filing.
The surviving corporation common stock may be quoted on the Pink Sheets,
but no assurances can be given in that regard. See "Information About FMB and
its Affiliates -- Market Price and Dividend Information" (page 36).
Termination of registration under the Exchange Act will substantially
reduce the information required to be furnished by the surviving corporation to
its shareholders and to the SEC, and would decrease greatly burdens placed upon
the surviving corporation. For example, certain provisions of the Exchange Act
would not apply to the surviving corporation. These provisions include the
requirement of furnishing a proxy or information statement in connection with
shareholder meetings under Section 14(a), the requirement to file Forms 10-K,
10-Q and similar reports with the SEC, the requirements of Rule 13e-3 regarding
"going private" transactions and the stock transaction reporting and short-swing
profit provisions of Section 16.
27
Sarbanes-Oxley also contains obligations that the surviving corporation will not
need to comply with following deregistration. Examples of these obligations
include CEO and CFO certification of certain matters in periodic reports filed
with the SEC, Section 404 compliance and expanded reporting obligations.
FMB estimates that termination of the registration of FMB common stock
under the Exchange Act will enable the surviving corporation to achieve
significant reductions in legal, accounting, printing, management time and other
expenses. The following chart provides a breakdown of our historical and
estimated future external expenses related to our SEC reporting obligations:
<Table>
<Caption>
ESTIMATED
2002 2003 2004 2005
-------- -------- -------- ---------
Audit fees................................. $ 50,000 $ 55,000 $105,000 $ 75,000
Legal counsel.............................. 25,000 25,000 40,000 50,000
Corporate communications................... 20,000 25,000 25,000 50,000
SEC filing expenses........................ 25,000 25,000 30,000 50,000
Certification of controls program.......... 20,000 25,000 450,000 275,000
Attestation fees........................... 10,000 10,000 10,000 10,000
TOTAL...................................... $150,000 $165,000 $660,000 $510,000
</Table>
Estimated internal costs rose from $100,000 in 2002 to $125,000 in 2003 and
$200,000 in 2004. It is estimated that those costs would have increased by
$175,000 in 2005 if FMB had continued as a reporting company for the entire
year. Compliance with Sarbanes-Oxley has subjected, and will subject, FMB and
its directors and officers to additional risks, burdens and expenses. A portion
of the anticipated expenses associated with being a reporting company include
one-time costs relating to compliance with Sarbanes-Oxley (the 2005 estimates
includes approximately $100,000 of one-time direct and indirect costs relating
primarily to implementing the controls, procedures and auditor review required
to comply with Section 404 of Sarbanes-Oxley).
CALCULATION OF MINIMUM SHARE OWNERSHIP
Number of Shares Held. We will determine the number of shares held by each
record holder by reference to the books and records of the corporation. Except
as described below, the number of shares attributable to each record holder will
be calculated separately from all other record shareholders. This means that if
you own shares of record in several capacities, we will not combine those shares
together for purposes of determining the ownership minimum. Rather, the shares
owned in each capacity will be considered independently.
With respect to all other shares of FMB common stock held in street name,
we will consider you the record holder of such shares for purposes of our
calculation of the share ownership minimum. We may determine the number of
shares attributable to the accounts of individual beneficial owners by relying
on "no object" lists provided by the nominee holders. We will calculate the
number of shares held in each street name account independent of all other
accounts represented by the same nominee. As a result, if you hold shares in
multiple street name accounts represented by a single nominee, we will not
combine the shares held in those separate accounts for purposes of determining
the ownership minimum.
We will aggregate those shares of FMB common stock held by the nominee for
the Profit Sharing Plan. On that basis, as of the record date, the nominee for
the Profit Sharing Plan will hold of record more than 1,000 shares of FMB common
stock. This means that any shares you own through the Profit Sharing Plan will
be exchanged for shares of surviving corporation common stock. You will not
receive cash consideration with respect to such shares.
Shares Held in Street Name. It is important that our shareholders
understand how shares held in "street name" will be treated in the merger. You
hold shares in "street name" if shares of FMB common stock that you own are held
for your benefit by a brokerage or custodial account. The broker or custodian
will typically hold all shares of FMB common stock deposited with it by multiple
clients through a single nominee. As a result of this arrangement, your name and
the names of other individual shareholders having deposits with the same broker
or custodian do not appear on our record books. Only the name of the nominee
appears as the holder of all shares of FMB common stock deposited with that
broker or custodian represented.
28
The form of merger consideration that you will receive with respect to your
shares held in street name, cash or the surviving corporation's common stock,
will be determined on an account by account basis. In other words, street name
accounts in which you hold fewer than 1,000 shares will receive cash for each
share of FMB common stock held, and street name accounts in which you hold 1,000
or more shares will receive shares of surviving corporation common stock in
exchange for each share of FMB common stock held.
EXAMPLE. If you have FMB common stock deposits of 500 shares with
Broker A and 1,200 shares with Broker B, you will receive the following
merger consideration: (i) your shares held by Broker A, upon surrender of
FMB issued stock certificates, will be cashed out in the merger and your
account with Broker A will receive cash in the amount of $ (500 shares
x $[ - ]); and (ii) each of your shares of FMB common stock held by Broker
B, upon the surrender of FMB issued stock certificates, will be exchanged
for one share of surviving corporation common stock.
EXCHANGE OF CERTIFICATES
The surviving corporation will send shareholders a letter of transmittal as
soon as reasonably practicable following completion of the merger with
instructions on how to surrender certificate(s) representing shares of FMB
common stock in exchange for the applicable merger consideration. If you are a
redeeming shareholder, you will receive payment in cash in an amount equal to
$[ - ] times the number of shares represented by the surrendered certificate(s),
without interest. If you are a continuing shareholder, you will receive a
certificate representing a number of shares of the surviving corporation's
common stock equal to the number of shares of FMB common stock represented by
the surrendered certificate(s).
You will not receive a stock certificate representing shares of the
surviving corporation's common stock or cash payment, as applicable, under the
plan of merger, until you surrender your FMB issued stock certificate(s) or
appropriate affidavits and indemnity assurances in accordance with the
instructions outlined in the letters of transmittal delivered to stockholders.
Until so surrendered, each certificate representing FMB common stock will, after
the effective time of the merger, represent for all purposes only the right to
receive merger consideration in accordance with the plan of merger.
If you are a continuing shareholder, you will not receive any dividends or
other distributions in respect of the surviving corporation's common stock until
you exchange your FMB stock certificate(s) for common stock of the surviving
corporation. Once you exchange your FMB stock certificate(s) for the merger
consideration, you will receive, without interest, any dividends or
distributions with a record date after the completion of the merger and payable
with respect to the shares of the surviving corporation's common stock which you
receive.
If any portion of the funds designated by the surviving corporation for
payment of cash to redeeming shareholders remains unclaimed by redeeming
shareholders promptly after the effective time of the merger, it will be
disposed of by the surviving corporation in accordance with applicable state
abandoned property or escheat laws. Any shareholders of FMB who have not
properly surrendered their stock certificates will thereafter look only to the
surviving corporation for payment of their claim for the amount due to them
(without interest) under the merger agreement for their shares of FMB common
stock. See "APPRAISAL RIGHTS AND DISSENTER'S RIGHTS; ESCHEAT LAWS," beginning on
page 39.
MATERIAL CHANGES IN RIGHTS OF CONTINUING SHAREHOLDERS
The articles of incorporation and bylaws of Southeastern will be the
articles of incorporation and bylaws of the surviving corporation, and will
govern the rights, preferences, privileges and limitations on shares of the
surviving corporation's common stock held by continuing shareholders. Continuing
shareholders should be aware that the articles of incorporation and the bylaws
of Southeastern include provisions that differ materially from the provisions of
the articles of incorporation and bylaws of FMB. The following discussion
summarizes those material differences. This discussion is qualified in its
entirety by reference to the text of Section C of Article III of Southeastern's
articles of incorporation, which are included as Appendix C to this Information
Statement and Article VII of Southeastern's bylaws which are included as
Appendix D to this Information Statement.
29
Section C of Article III of the articles of incorporation of the surviving
corporation provides that the surviving corporation's common stock is subject to
transfer restrictions contained in the bylaws of the surviving corporation at
the time of issuance of such stock or as may be subsequently imposed or created
in accordance with Section 180.0627 of the WBCL or any successor thereto.
Article VII of the bylaws generally restricts the ability of shareholders to
transfer their common stock in order to reduce the chances that the number of
shareholders in the surviving corporation might increase as the result of share
transfers to the point where the surviving corporation would again be required
to register and report under the Exchange Act. Specifically, the surviving
corporation's bylaws will:
- Substantially restrict the ability of shareholders to transfer shares by
providing the surviving corporation with a first option to purchase in
the event of a proposed sale. A shareholder wishing to transfer shares
(other than through a permitted transfer within the family, as described
in the bylaws) must first provide the surviving corporation with a
written notice of the proposed transfer, including the name of the
prospective purchaser, the price, and the number of shares proposed to be
transferred. The surviving corporation will then have 15 days in which to
hold a meeting of its board of directors (or in which the appropriate
corporate officer may act pursuant to a previously approved board policy)
to determine whether to exercise its purchase rights. Within 20 days
following receipt of such written notice, the surviving corporation must
notify the proposing shareholder whether it is electing to purchase some,
all, or none of the shares offered by the shareholder at the price at
which the shareholder offered such shares to the third party. If the
surviving corporation elects not to purchase all of the shares, the
shareholder will have 30 days in which to transfer the unpurchased shares
in accordance with the terms of the written notice of the proposed
transfer.
- Provide that in the event of a transfer occurring as a result of
bankruptcy, receivership, attachment, execution, levy, or similar
proceedings maintained against a shareholder or shareholder's spouse with
respect to shares (an "Involuntary Transfer"), the affected shareholder
must immediately notify the surviving corporation providing information
including the number of shares involved, the nature of the transaction,
and the name of the proposed transferee. The surviving corporation will
then have the same purchase rights as would apply to a proposed sale to a
third party.
- Permit shareholders to pledge or otherwise encumber their shares;
provided that no transfer of title or voting rights may accompany the
pledge or encumbrance. The shareholder must notify the surviving
corporation in advance to obtain consent to the pledge or encumbrance
and, if the shareholder defaults, the surviving corporation will have the
same purchase rights as would apply in the event of an Involuntary
Transfer.
- Permit shareholders to transfer shares to a spouse by gift or bequest
without restriction; provided that any further transfer by the recipient
will be subject to the Bylaw restrictions. The Bylaws contain additional
provisions relating to the transfer of shares between spouses in the
event of dissolution of a marriage.
- Allow shares to be transferred to the decedent spouse in the event of a
shareholder's death; provided, that any other transfer may occur only if
the surviving corporation does not elect to purchase such shares. The
surviving corporation's right to purchase in such cases may be exercised
in the same manner as in connection with proposed sales by shareholders
to third parties. Absent an offer by a proposed purchaser for a
decedent's shares, the purchase price is to be mutually agreed upon
between the surviving corporation and the transferring shareholder.
The surviving corporation will restrict the sale or assignment of the shares by
placing a legend on all certificates evidencing the shares stating that the
holders of such shares may not sell or assign the shares without compliance with
the provisions of the surviving corporation's bylaws. Transferred shares will
remain subject to the same transfer restrictions in the hands of their new
owners.
In the event of an attempted share transfer which does not comply with
Article VII of the bylaws, the surviving corporation will not recognize the
attempted transfer and will not record it in its stock transfer book.
30
No share may be voted except by the shareholder shown as the owner of record of
such share in the surviving corporation's stock transfer book.
SOURCE AND AMOUNTS OF FUNDS OR OTHER CONSIDERATION
FMB anticipates that it will apply approximately $[ - ] for payment to
shareholders whose shares of FMB common stock are redeemed in the merger. These
funds will come from working capital and will reduce the equity of the
continuing shareholders.
FMB estimates that the following expenses will be incurred in connection
with the transaction:
<Table>
<Caption>
Legal Fees.................................................. $135,000
Accounting Fees............................................. $ 10,000
Financial Advisor Fees...................................... $ 41,000
Printing and Mailing Fees................................... $ 15,000
Miscellaneous (filing fees, etc.)........................... $ 16,000
Total....................................................... $217,000
</Table>
FMB will bear the expense of preparing, printing and mailing this
Information Statement, the Schedule 13E-3 and related documents to shareholders.
The preparation of this Information Statement, the Schedule 13E-3, the plan of
merger and related documents, and the formation of the merger subsidiary were
facilitated by certain management and non-management employees of First National
Bank and the following officers of the company: Thomas J. Bare, President and
Chief Executive Officer, Paul H. Wojta, Chief Financial Officer, and Rachel E.
Wiegert, Corporate Secretary. Officers of FMB and First National Bank and
employees of First National Bank may communicate with shareholders either in
person or by telephone regarding the terms of the proposed transaction. Neither
the officers of FMB nor the officers and employees of First National Bank will
receive additional compensation for the services that they provide in connection
with the transaction.
INFORMATION ABOUT FMB AND ITS AFFILIATES
ABOUT FMB AND ITS BUSINESS
FMB is a Wisconsin corporation and registered bank holding company. We
engage in our business through our subsidiary, First National Bank, which is a
national banking association. Our principal offices are located at 402 North
Eighth Street, Manitowoc, Manitowoc County, Wisconsin and our home page on the
Internet is www.bankfirstnational.com.
First National Bank has thirteen full service branch offices located in
Francis Creek, St. Nazianz, Two Rivers, Mishicot, Manitowoc, Kiel, Newton, New
Holstein, Plymouth, Bellevue, and Ashwaubenon, Wisconsin. First National Bank
and its branch network provides a broad range of financial services to
individuals and corporations in northeastern Wisconsin. These services include
demand, time, and savings deposits; commercial and retail lending; ATM
processing; trust services; and insurance services.
First National Bank also has a wholly-owned investment subsidiary, FNBM
Investment Corp. and a wholly-owned insurance subsidiary, The Vincent Group,
Inc. ("The Vincent Group"). The Vincent Group also operates offices in Manitowoc
and Green Bay, Wisconsin. The Vincent Group is an independent agency offering
commercial, personal, life and health insurance.
At the effective time of the merger, FMB will merge with and into
Southeastern and will cease to exist after the merger.
31
ABOUT SOUTHEASTERN
Southeastern is a newly formed Wisconsin corporation, and is a wholly-owned
subsidiary of FMB. Southeastern was organized solely for the purpose of
facilitating the merger. It is controlled by FMB and its directors and officers
are directors and officers of FMB. Southeastern has not conducted any activities
other than those incident to its formation, its execution of the plan of merger
and its assistance in preparing various SEC filings related to the going private
transaction. Southeastern has no significant assets, liabilities or
shareholders' equity. The address and telephone number of Southeastern's
business and principal executive offices are the same as those of FMB.
Southeastern has engaged in no independent analysis of the merger and it
expressly adopts the disclosures, conclusions and analyses of FMB.
At the effective time of the merger, FMB will merge with and into
Southeastern, with Southeastern surviving the merger and becoming the successor
in interest to the business and to all of the assets of FMB. As soon as
practicable following the merger, Southeastern will file articles of amendment
with the State of Wisconsin, changing its name from "Southeastern First
Manitowoc Bancorp of Wisconsin, Inc." to "First Manitowoc Bancorp, Inc."
DIRECTORS AND EXECUTIVE OFFICERS OF FMB
The following table sets forth, with respect to each director of FMB, all
of whom will continue as directors of the surviving corporation, (i) the current
principal occupation or employment, (ii) the principal business of any
corporation or other organization by which such director is employed by, (iii)
material occupations, positions, offices or employment during the past five
years, and (iv) the address of any corporation or other organization in which
the occupation, position, office or employment was conducted, as of February 24,
2005.
<Table>
<Caption>
NAME
AND POSITION EXPERIENCE
------------ ----------
TERMS EXPIRE IN 2005
THOMAS J. BARE............................ Mr. Bare serves as a director and President of FMB and
DIRECTOR, PRESIDENT First National Bank. He serves on the Compensation
Committees of the board of directors of FMB and First
National Bank, respectively. He also serves as a
director of FNBM Investment Corp., First National Bank's
investment subsidiary. Mr. Bare serves as a director of
United Financial Services, Inc, First National Bank's
data processing company, and as its Secretary and
Treasurer. He has been a director and Chief Executive
Officer of Southeastern since February 22, 2005. He is a
director and Chairman of the Board of The Vincent Group,
Inc., First National Bank's insurance subsidiary. Prior
to joining FMB in January 1977, Mr. Bare was employed by
the First National Bank of Portage from October 1967
through January 1977 where he was involved in various
operational and lending activities.
CRAIG A. PAULY............................ Mr. Pauly serves as the Business Administrator of St.
DIRECTOR Peter the Fisherman Catholic Parish, located in Two
Rivers, Wisconsin. Mr. Pauly has been a director of FMB
and the First National Bank since 1980. He has served as
a director of Southeastern since February 22, 2005.
KATHERINE M. REYNOLDS..................... Ms. Reynolds is a partner in the Manitowoc office of
DIRECTOR Michael Best & Friedrich LLP, a Milwaukee-based law
firm. Her practice includes estate planning, business,
real estate, and local government law. Ms. Reynolds has
been a director of FMB and First National Bank since
1992. She serves as a member of FMB's and First National
Bank's Compensation Committee. She has served as a
director of Southeastern since February 22, 2005.
</Table>
32
<Table>
<Caption>
NAME
AND POSITION EXPERIENCE
------------ ----------
TERMS EXPIRE IN 2006
JOHN M. JAGEMANN.......................... Mr. Jagemann is Vice President of Customer Relations of
DIRECTOR Arimon Technologies, Inc., a manufacturer of electrical
components. He is also a principal of Plan B LLC and
Lindbergh Properties LLC, real estate management
companies, and Courthouse Pub LLC, a food service
company. Since 1996, Mr. Jagemann has been a director of
FMB and First National Bank. He serves as Chairman of
FMB's and First National Bank's Compensation Committee.
He has served as a director of Southeastern since
February 22, 2005.
JOHN M. WEBSTER........................... Mr. Webster is President and Chief Executive Officer of
DIRECTOR Crescent Woolen Mills Co., a manufacturer of woolen and
synthetic yarns. In addition, he is Attorney of Counsel
at the Law Offices of Winter, Fox & Stangel, LLP. Since
1998, Mr. Webster has been a director of FMB and First
National Bank. He serves as a member of FMB's and First
National Bank's Audit Committee. He has served as a
director of Southeastern since February 22, 2005.
ROBERT S. WEINERT......................... Mr. Weinert is Chairman and Treasurer of Crafts, Inc., a
DIRECTOR commercial roofing company. He serves as a director and
CHAIRMAN OF THE BOARD Chairman of the respective boards of directors of FMB,
Southeastern and First National Bank. He has been a
director of FMB and First National Bank since 1979. Mr.
Weinert serves as a member of both the Audit and
Compensation Committees of FMB and First National Bank.
He has served as a director of Southeastern since
February 22, 2005.
TERMS EXPIRE IN 2007
JOHN C. MILLER............................ Mr. Miller is the President and Director of Miller-St.
DIRECTOR Nazianz, Inc., an agricultural equipment manufacturer.
He has been a director of FMB and First National Bank
since 1996. Mr. Miller serves as a member of FMB's and
First National Bank's Audit Committee. He has served as
a director of Southeastern since February 22, 2005.
JOHN E. NORDSTROM......................... Mr. Nordstrom is the co-founder and President of Omega
DIRECTOR Manufacturing Corporation, which provides the
international paper industry with innovative converting
machinery and the national window covering industry with
Adjust-A-View Window Treatment. Since 1992, Mr.
Nordstrom has been a director of FMB and First National
Bank. Mr. Nordstrom serves as a member of FMB's and
First National Bank's Compensation Committee. He has
served as a director of Southeastern since February 22,
2005.
JOHN J. ZIMMER............................ Mr. Zimmer is the President of Management Advisory
DIRECTOR Group, LLC, which provides management consulting
services to CEOs of growing companies. Mr. Zimmer first
served as a director of FMB and First National Bank from
1974 through 1980. In 1988, he again was elected to the
board of directors of FMB and First National Bank. He
serves as Chairman of FMB's and First National Bank's
Audit Committee and as a member of the Compensation
Committee. He has served as a director and Vice
President of Southeastern since February 22, 2005.
</Table>
33
The following table sets forth, with respect to each executive officer who
is not a director of FMB, (i) the current principal occupation or employment,
(ii) the principal business of any corporation or other organization which such
executive officer is employed by, (iii) material occupations, positions, offices
or employment during the past five years, and (iv) the address of any
corporation or other organization in which the occupation, position, office or
employment was conducted, as of February [ - ], 2005.
<Table>
<Caption>
NAME
AND POSITION EXPERIENCE
------------ ----------
PAUL H. WOJTA............................. Mr. Wojta has served as the Senior Vice President,
CHIEF FINANCIAL OFFICER Cashier and Bank Secrecy Account Officer of First
National Bank in Manitowoc since 2000. He was appointed
Chief Financial Officer of Southeastern on February 22,
2005.
RACHEL E. WIEGERT......................... Ms. Wiegert is the Corporate Secretary of First National
CORPORATE SECRETARY Bank of First Manitowoc and has served in that capacity
since 1990. She was appointed Secretary of Southeastern
on February 22, 2005.
</Table>
DIRECTORS AND EXECUTIVE OFFICERS OF SOUTHEASTERN
The following table sets forth the directors and executive officers of
Southeastern. Each such director and executive officer was appointed to his or
her respective position(s) on February 22, 2005. With respect to each
Southeastern director and executive officer, (i) the current principal
occupation or employment, (ii) the principal business of any corporation or
other organization by which such director is employed by, (iii) all material
occupations, positions, offices or employment during the past five years, and
(iv) the address of any corporation or other organization in which the
occupation, position, office or employment was conducted, as of February 22,
2005 are set forth in the table above under the caption "INFORMATION ABOUT FMB
AND ITS AFFILIATES -- Directors and Executive Officers of FMB."
<Table>
<Caption>
NAME POSITION
---- --------
Thomas J. Bare.................................... Director and Chief Executive Officer
John M. Jagemann.................................. Director
John E. Nordstrom................................. Director
Craig A. Pauley................................... Director
Katherine M. Reynolds............................. Director
John M. Webster................................... Director
Robert S. Weinert................................. Director and Chairman of the Board
John J. Zimmer.................................... Director and Vice President
Rachel E. Weigert................................. Secretary
Paul H. Wojta..................................... Chief Financial Officer
</Table>
34
INTEREST IN SECURITIES OF FMB
The following table sets forth the beneficial ownership (except as
otherwise indicated) of shares of FMB common stock as of December 31, 2004
(except as otherwise noted below) by (i) each shareholder known to FMB to
beneficially own more than 5% of the shares of FMB common stock outstanding as
disclosed in certain reports regarding such ownership filed with the SEC in
accordance with Sections 13(d) or 13(g) of the Exchange Act, (ii) each director
of FMB, (iii) each of the executive officers of FMB, and (iv) all directors and
executive officers as a group.
<Table>
<Caption>
COMMON STOCK
-----------------------------
PERCENT OF
BENEFICIAL OWNER NUMBER OF SHARES CLASS
---------------- ---------------- ----------
DIRECTORS:
Thomas J. Bare(1).......................................... 586,833 8.5%
John M. Jagemann........................................... 77,030 1.1
John C. Miller(2).......................................... 7,920 *
John E. Nordstrom.......................................... 100 *
Craig A. Pauly (30)........................................ 70,276 1.0
Katherine M. Reynolds...................................... 3,438 *
John M. Webster(4)......................................... 6,400 *
Robert S. Weinert.......................................... 90,482 1.3
John J. Zimmer(5).......................................... 17,448 *
EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS:
Joseph W. Debilzen(6)...................................... 43,892 *
Daniel J. Lalko(7)......................................... 29,991 *
Elizabeth Phillips-smith(8)................................ 5,988 *
Charles P. Riley........................................... 3,193 *
Paul H. Wojta(9)........................................... 64,467 *
ALL DIRECTORS AND EXECUTIVE OFFICERS OF FMB
AND FIRST NATIONAL BANK AS A GROUP....................... 1,007,458 14.5
</Table>
---------------
* Represents less than 1% of the total number of shares of FMB common stock
outstanding on the record date.
(1) Includes 300 shares held by Thomas J. Bare as an individual; 117,500 shares
held I/N/O Thomas J. Bare and Virginia S. Bare Living Trust; 73,693 shares
held in First National Bank 401(k) Profit Sharing F/B/ O Thomas J. Bare;
73,612 shares held I/N/O Suzanne E. Bare Trust; 51,680 shares held I/N/O
Joanna M. Bare; 55,254 shares held I/N/O Jonathan L. Bare; 55,834 shares
held I/N/O Michael A. Bare; 2,900 shares held in Manbank & Co. I/N/O Thomas
J. Bare Custodial IRA; 156,060 shares held I/N/O Virginia S. Bare Trust.
(2) Includes 308 shares held by John C. Miller as an individual; and 7,612
shares held F/B/O John C. Miller IRA.
(3) Includes 50,540 shares held by Craig A. Pauly as an individual; 4,824 shares
held I/N/O Craig A. and Cynthia Pauly JT; 13,936 shares held in Manbank &
Co. I/N/O Craig A. Pauly Custodial IRA; and 976 shares held in Manbank & Co.
I/N/O Cynthia Pauly Custodial IRA.
(4) Includes 4,800 shares held by John M. Webster as an individual; 1,300 shares
held F/B/O John M. Webster IRA; and 300 shares held I/N/O Karen Webster.
(5) Includes 14,448 shares held by John J. Zimmer as an individual; 2,000 shares
held F/B/O John J. Zimmer IRA; and 1,000 shares held F/B/O Bernadine Zimmer
IRA.
(6) Includes 40,976 shares held in First National Bank 401(k) Profit Sharing
Plan F/B/O Joseph W. Debilzen; 1,736 shares held in Manbank & Co. I/N/O
Janet Debilzen Custodial IRA; 652 shares held in Manbank & Co. I/N/O Joseph
W. Debilzen Custodial IRA; and 528 shares held I/N/O Janet L. Debilzen and
Joseph W. Debilzen.
35
(7) Includes 17,162 shares held by Daniel J. Lalko as an individual; 628 shares
held I/N/O Daniel J. Lalko and Ann E. Lalko JT; 5,895 shares held in Manbank
& Co. I/N/O Daniel J. Lalko Custodial IRA; 1,636 shares held in Manbank &
Co. I/N/O Ann E. Lalko Custodial IRA; and 4,670 shares held in First
National Bank 401(k) Profit Sharing Plan F/B/O Daniel J. Lalko.
(8) Includes 2,120 shares held in Manbank & Co. I/N/O Elizabeth Phillips-smith
IRA; and 3,868 shares held in First National Bank 401(k) Profit Sharing Plan
F/B/O Elizabeth Phillips-smith.
(9) Includes 29,018 shares held I/N/O of Paul H. and Jeanne C. Wojta; and 35,449
shares held in First National Bank 401(k) Profit Sharing Plan F/B/O Paul H.
Wojta.
Southeastern holds no interest in the common stock of FMB.
USE OF SECURITIES ACQUIRED AND PLANS OR PROPOSALS
Use of Securities. The surviving corporation will cancel shares of FMB
common stock surrendered in connection with the merger in exchange for (i) in
the case of redeeming shareholders, cash payment of the merger consideration,
and (ii) in the case of continuing shareholders, shares of the surviving
corporation's common stock.
Plans or Proposals. FMB and Southeastern have the following plan in
connection with the merger:
- If the surviving corporation has fewer than 300 shareholders following
the effective time of the merger, the surviving corporation will
terminate the registration of FMB's common stock under the Exchange Act
and thus eliminate its obligation to file reports (such as Form 10-Q
quarterly and Form 10-K annual reports) and forms with the SEC under the
Exchange Act, and its obligation to comply with most of the provisions of
Sarbanes-Oxley.
- The surviving corporation will effect the termination of registration by
filing with the SEC a Certification of Termination of Registration of a
Class of Security Under Section 12(g) or Notice of Suspension of Duty to
File Reports Pursuant to Sections 13 and 15(d) of the Act on Form 15,
immediately suspending the surviving corporation's obligation to comply
with the reporting requirements of the Exchange Act and most of the
requirements of Sarbanes-Oxley. We expect the termination of registration
to take effect no later than 90 days following such filing.
In the last 60 days, neither FMB nor Southeastern has had any plans,
proposals or negotiations that relate to or would result in: any purchase, sale
or transfer of a material amount of assets of FMB or any of its subsidiaries;
any material change in the present dividend rate or policy, or indebtedness or
capitalization of FMB; any change in the present board of directors or
management of FMB, including any plans or proposals to change the number or term
of directors or to fill any existing vacancies on the board or to change any
material term of the employment contract of any executive officer; or any other
material change in FMB's corporate structure or business.
MARKET PRICE AND DIVIDEND INFORMATION
FMB common stock is quoted in the over the counter market on the Pink
Sheets under the symbol "FWBW." The "Pink Sheets" is a centralized quotation
service that collects and publishes market maker quotes in real time primarily
through its website, Pinksheets.com, which provides stock and bond price quotes,
financial news and information about securities traded. Trading of our common
stock on the Pink Sheets has historically been limited and sporadic, and it is
possible that there may be occasional transactions among private parties that
are not reported on the Pink Sheets or to FMB.
36
The table below sets forth the high and low sales prices for FMB common
stock for each calendar quarter from December 31, 2002, through December 31,
2004, as reported by the Pink Sheets, for the calendar quarters indicated, and
the dividends declared on the stock in each quarter. These price quotations
reflect inter-dealer prices, without retail mark-up, markdown or commission, and
may not necessarily represent actual transactions.
<Table>
<Caption>
CASH DIVIDENDS
QUARTER ENDED HIGH BID LOW BID DECLARED
------------- -------- ------- --------------
March 31, 2003....................................... $14.50 $14.50 $0.050
June 30, 2003........................................ $15.75 $14.50 $0.050
September 30, 2003................................... $15.50 $14.50 $0.050
December 31, 2003.................................... $16.00 $14.00 $0.060
March 31, 2004....................................... $15.50 $14.05 $0.055
June 30, 2004........................................ $16.25 $14.90 $0.055
September 30, 2004................................... $16.00 $15.00 $0.055
December 31, 2004.................................... $16.00 $15.10 $0.065
</Table>
Following completion of the merger, FMB's common stock will no longer be
quoted on the Pink Sheets or be eligible for trading on an exchange or automated
quotation system operated by a national securities association. The surviving
corporation's common stock may be quoted on the Pink Sheets, but no assurances
can be made in that regard.
Based on First National Bank's balance sheet as of December 31, 2004, First
National Bank could pay a dividend to FMB in the amount of $16,000,000 without
prior regulatory approval. The payment of dividends by FMB and First National
Bank is affected by various regulatory requirements and policies, such as the
requirement to maintain adequate capital at or in excess of regulatory
guidelines. The "prompt corrective action" provisions of the Federal Deposit
Insurance Corporation Improvement Act of 1991 ("FDICIA") impose further
restrictions on the payment of dividends by insured banks which fail to meet
specified capital levels and, in some cases, their parent bank holding
companies. FDICIA generally prohibits a depository institution from making any
capital distribution (including payment of a dividend) or paying any management
fee to its holding company if the depository institution would thereafter be
undercapitalized. These regulations and restrictions may limit FMB's ability to
obtain funds from First National Bank for FMB's cash needs, including funds for
acquisitions, payments of dividends and interest, and the payment of operating
expenses. Following the completion of the merger, the surviving corporation will
be subject to the requirements of FDICIA.
DESCRIPTION OF FMB COMMON STOCK AND NUMBER OF SHAREHOLDERS
FMB is authorized to issue 10,000,000 shares of common stock, with a par
value of $1.00 per share. As of February 20, 2005, there were 6,937,268 shares
of FMB common stock outstanding. Each share of FMB common stock has equal voting
rights, preferences, privileges and limitations. Each share of FMB common stock
has the same rights and is identical in all respects with every other share of
FMB common stock. The holders of FMB common stock possess all voting rights with
respect to FMB. Each holder of FMB common stock is entitled to one vote for each
share held of record on all matters submitted to a vote of holders of common
stock.
DESCRIPTION OF SURVIVING CORPORATION COMMON STOCK AND NUMBER OF SHAREHOLDERS
The surviving corporation is authorized to issue 25,000,000 shares of
capital stock, of which 20,000,000 shares are designated common stock, with a
par value of $0.01 per share, and 5,000,000 shares are designated serial
preferred stock, with a par value $0.01 per share. Each share of surviving
corporation common stock has equal voting rights, preferences, privileges and
limitations. The holders of surviving corporation common stock will possess all
voting rights with respect to the surviving corporation. Each holder of
surviving corporation common stock is entitled to one vote for each share held
of record on all matters
37
submitted to a vote of holders of common stock, except where a class vote is
required by law or otherwise, or as provided in any resolutions adopted by the
surviving corporation's board of directors.
The following outlines briefly additional rights, preferences, privileges
and limitations with respect to the surviving corporation's common stock:
- DIVIDEND RIGHTS. Subject to any rights and preferences of any class of
stock having preferences over the common stock, holders of common stock
shall be entitled to such dividends as may be declared by the board of
directors out of funds lawfully available therefore.
- TRANSFER RESTRICTIONS AND REPURCHASE RIGHTS. The holders of common stock
are subject to such transfer restrictions and first purchase rights of
the corporation as may be contained in the bylaws of the surviving
corporation at the time of the issuance of their shares or as may be
subsequently imposed or created in accordance with Section 180.0627 of
WBCL or any successor thereto. See "MATERIAL CHANGES IN RIGHTS OF
CONTINUING SECURITY HOLDERS," beginning on page 29.
- VOTE REQUIRED FOR CERTAIN ACTIONS.
1. The affirmative vote of 80% of the outstanding shares entitled to vote
for the election of a director is required to remove such director from
office and to fill any vacancy so created.
2. The affirmative vote of the holders of 66 2/3% of all outstanding
shares entitled to vote on an amendment, alteration, change or repeal
to any of the provisions of the articles of incorporation, except for
certain permitted amendments or as otherwise provided in the articles
of incorporation is required to authorize any such amendment,
alteration, change or repeal.
3. The affirmative vote of at least 80% of the outstanding shares entitled
to vote is required in the case of an amendment to Articles V
[Directors], VII [Amendment], VIII [Shareholders Vote Required for
Merger], IX [Control Share Acquisitions] or X [Indemnification] of the
articles of incorporation.
4. The affirmative vote of the holders of at least 80% of the outstanding
shares entitled to vote on the matter is required for (i) a merger or
consolidation of the corporation with one or more other corporations
(regardless of which is the surviving corporation), or (ii) any sale,
lease or exchange of all or substantially all of the property and
assets of the corporation to or with one or more other corporations,
persons or other entities.
5. The affirmative vote of the holders of a majority of the outstanding
shares entitled to vote on a matter described in paragraphs 3 and 4
above, applies to any such transaction which is approved by resolution
adopted by the affirmative vote of the majority of the entire board of
directors in office at the time of such approval, at any time prior to
the mailing to shareholders of the notice of the meeting at which the
shareholders' vote on such matters is to be held.
6. Notwithstanding the foregoing, the surviving corporation may merge into
itself any corporation, of which it owns at least 90% of the
outstanding shares of each class, without approval by a vote of
shareholders of either corporation in accordance with the procedures
set forth in Section 180.1104 of WBCL, or any successor thereto.
- CLASSIFICATION OF THE BOARD OF DIRECTORS. The board of directors is
divided into three classes of not fewer than two nor more than five
directors each.
- CONTROL SHARE VOTING RIGHTS LIMITATIONS. The surviving corporation's
common stock is subject to the provisions of Section 180.1150 of WBCL,
including, without limitation, the limitations on voting rights contained
therein. In general, Section 180.1150 provides that the voting power of
shares of a resident domestic corporation held by any person, including
shares issuable upon conversion of convertible securities or upon
exercise of options or warrants, in excess of 20% of the voting power in
the election of directors shall be limited to 10% of the full voting
power of those shares, unless otherwise provided in the articles of
incorporation of the corporation or unless such voting right are restored
in accordance with Section 180.1150.
38
As of February 25, 2005, FMB was the sole shareholder of Southeastern.
CERTAIN RELATIONSHIPS
Michael Best, FMB's outside corporate legal counsel, provided our board of
directors with legal advice in connection with the merger, including without
limitation, consideration of the transaction structure, drafting of the plan of
merger, and preparation of this Information Statement and the Schedule 13E-3 to
be filed with the SEC. Katherine M. Reynolds, Esq. and K. Thor Lundgren, Esq.,
both partners with Michael Best, are members of the board of directors of FMB
and American Appraisal, respectively.
Ms. Reynolds participated in consideration of the merger and the plan of
merger in her capacity as a member of our board of directors. Mr. Lundgren has
been active in Michael Best's representation of FMB in connection with the
merger. American Appraisal has been engaged as FMB's financial adviser in
connection with the merger.
We do not believe that the relationships discussed above reflect a conflict
of interest for Ms. Reynolds or Mr. Lundgren or that any such conflict exists.
SOLICITATION OR RECOMMENDATION
The members of our board of directors have unanimously approved the plan of
merger and the merger and have determined that the merger is fair and in the
best interests of FMB shareholders, including all non-affiliated shareholders,
redeeming shareholders and continuing shareholders. Because no shareholder vote
is required in connection with the merger, our board of directors will not make
a recommendation regarding the merger to shareholders.
APPRAISAL RIGHTS AND DISSENTERS' RIGHTS; ESCHEAT LAWS
No appraisal or dissenters' rights are available under Wisconsin law to
shareholders. There may exist other rights or actions under Wisconsin law or
federal or state securities laws for shareholders who can prove a violation of
law and have been damaged by the merger. Although the nature and extent of these
rights or actions are uncertain and may vary depending upon facts or
circumstances, shareholder challenges to corporate actions in general are
related to the fiduciary responsibilities of corporate officers and directors
and to the fairness of corporate transactions.
The unclaimed property and escheat laws of each state provide that under
circumstances defined in that state's statutes, holders of unclaimed or
abandoned property must surrender that property to the state. Persons whose
shares are converted into the right to receive the merger consideration and
whose addresses are unknown to us, or who do not return their FMB common stock
certificate(s) and request either a cash payment or a stock certificate
representing shares of the surviving corporation, generally will have a period
of years (depending on applicable state law) from the effective date in which to
claim the cash payment payable to them in the case of a redeeming shareholder,
or the surviving corporation common stock certificate in the case of continuing
shareholders.
For example, with respect to shareholders whose last known addresses are in
Wisconsin, as shown by our records, the period is five years. Following the
expiration of that five-year period in certain circumstances, the escheat laws
of Wisconsin would likely cause the cash payments to escheat to the State of
Wisconsin. For shareholders who reside in other states or whose last known
addresses, as shown by our records, are in states other than Wisconsin, those
states may have abandoned property laws that call for the state to obtain either
custodial possession of property that has been unclaimed until the owner
reclaims it, or escheat of such property to the state. Under the laws of these
other jurisdictions, the "holding period" or the time period which must elapse
before the property is deemed to be abandoned may be shorter or longer than five
years. If we do not have an address for the record shareholder, then unclaimed
cash-out payments would be turned over to our state of principal business
location, Wisconsin, in accordance with its escheat laws.
39
MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS
In general, if you are a redeeming shareholder and receive cash in exchange
for your shares of FMB common stock, it will be a taxable transaction for U.S.
federal income tax purposes, unless the shares are owned by a nontaxable entity
such as a tax-qualified pension fund (as in the case of a typical section 401(k)
account) or a tax-qualified Individual Retirement Account. Subject to limited
exceptions, a redeeming shareholder will generally recognize a capital gain or
loss equal to the difference between the amount of cash received and the
holder's tax basis in the shares redeemed. Any capital gain or loss will
generally constitute a long-term capital gain or loss if the holding period for
the holder's shares redeemed is greater than one year as of the effective time
of the merger and a short-term capital gain or loss if the holding period is one
year or less as of the effective time of the merger. The federal income tax
treatment of a long-term capital gain or loss may be different from that of a
short-term capital gain or loss, depending on the holder's personal
circumstances. For example, for individuals, the federal income tax rate on
long-term capital gain is generally a maximum of 15%, whereas short term capital
gain generally is taxed at the same rates as ordinary income, which can be
significantly higher than the tax rates on long-term capital gain. This general
description is subject to several exceptions based on complex constructive
ownership rules that may treat persons as owning any shares that are owned
(actually or in some cases constructively) by related individuals and entities,
as well as shares that the person has the right to acquire by exercise of an
option or by conversion or exchange of a security. If one or more of these
exceptions apply, the entire amount of cash received in exchange for the shares
(without reduction for tax basis) may be taxable as dividend income. FMB
believes that, subject to certain exceptions, such dividends would constitute
"qualified dividends," meaning that the full amount received by an individual
generally would be subject to tax at a maximum federal income tax rate of 15%
(again, without reduction for tax basis in the shares). Different income tax
rules may apply if the holder is itself a corporation rather than an individual.
Among these different rules is that there is no special corporate tax rate for
"qualified dividends," although a corporate holder may, subject to certain
exceptions, qualify for some amount of a dividends received deduction with
respect to any dividend. All shareholders are urged to consult with their
personal tax advisers with respect to the particular federal, state, local, and
foreign tax consequences to them as a result of cashing out their shares
pursuant to the terms of the merger.
In general, if you are a continuing shareholder who receives shares of the
surviving corporation's common stock in the merger and you do not receive any
cash as part of the merger, you will not recognize gain or loss for U.S. federal
income tax purposes as a result of the Merger. The tax basis of the surviving
corporation's common stock received in exchange for shares of FMB common stock
will generally be equal to your adjusted tax basis in the FMB common stock that
you currently hold. Shares of the surviving corporation's common stock generally
will have a holding period that includes the holding period of the FMB shares
exchanged.
U.S. FEDERAL INCOME TAX WITHHOLDING FOR NON-U.S. SHAREHOLDERS. In general,
for purposes of this summary, the term "Non-U.S. shareholder" means a beneficial
owner of shares of FMB common stock that is neither a citizen nor a resident of
the United States. The depository generally will treat the cash received by
Non-U.S. shareholders as a dividend distribution from us. Accordingly, the
depository generally will withhold U.S. federal income taxes equal to 30% of the
gross proceeds payable to the Non-U.S. shareholder or his or her agent unless
the depository determines that a reduced rate of withholding is available
pursuant to a tax treaty or that an exemption from withholding is applicable
because the gross proceeds are effectively connected with the Non-U.S.
shareholder's conduct of a trade or business within the U.S. Non-U.S.
shareholders are urged to consult their tax advisors regarding the application
of U.S. federal income tax withholding, including eligibility for a withholding
tax reduction or exemption, and the refund procedure for any excess withholding.
BACKUP WITHHOLDING. By signing the letter of transmittal, you are
certifying that the number shown on the letter of transmittal is your correct
taxpayer identification number, you are a U.S. person, and you are not subject
to backup withholding. A U.S. person (which includes a U.S. citizen and a U.S.
resident, whether or not a citizen) may be subject to backup withholding at a
rate of 28% with respect to the number of shares redeemed in connection with the
merger to this unless such shareholder: (i) comes within certain exempt
categories (which generally include corporations) and, when required,
demonstrates this fact; or (ii) provides a correct United States taxpayer
identification number and certifies under penalty of perjury that the
40
shareholder is a U.S. person, the taxpayer identification number is correct, and
that the shareholder is not subject to backup withholding because of a failure
to report all applicable payments.
THE U.S. FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL
INFORMATION ONLY AND IS NOT TAX ADVICE. SHAREHOLDERS ARE URGED TO CONSULT WITH
THEIR OWN TAX ADVISORS TO DETERMINE THE FEDERAL, STATE, LOCAL, FOREIGN AND OTHER
TAX CONSEQUENCES OF THE MERGER IN VIEW OF THEIR OWN PARTICULAR CIRCUMSTANCES.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We file annual, quarterly and current reports, proxy statements and other
information with the SEC. We have also filed a Transaction Statement on Schedule
13E-3 with the SEC relating to the merger. You may read and copy this or any
other report or information that we file with the SEC at the SEC's Public
Reference Room located at 450 Fifth Street, N.W., Washington D.C. 20549. You may
also receive copies of these documents upon payment of a duplicating fee, by
writing to the SEC's Public Reference Section. Please call the SEC at
1-800-SEC-0330 for further information on the Public Reference Room in
Washington D.C. and other locations. Our filings are also available to the
public through the SEC's web site at http://www.sec.gov.
The SEC allows us to incorporate into this Information Statement by
reference information contained in our annual, quarterly and current reports.
This means that we can disclose this information to you by referring you to
other documents that we have previously filed separately with the SEC. The
information incorporated by reference is considered to be a part of this
Information Statement, except for any information that is modified or superseded
by information contained in this Information Statement or any other subsequently
filed document.
The following financial information has been filed by us with the SEC and
is incorporated by reference into this Information Statement:
- Annual Report on Form 10-K for the fiscal year ended December 31, 2003,
filed with the SEC on March 12, 2004; and
- Quarterly Report on Form 10-Q for the three months ended September 30,
2004, filed with the SEC on November 9, 2004; and
- Annual Report on Form 10-K for the fiscal year ended December 31, 2004,
filed with the SEC on March 15, 2005.
The financial information incorporated by reference is an important part of
this Information Statement and we urge you to read this financial information in
its entirety.
No person is authorized to give any information or represent anything not
contained in this Information Statement. The information contained in this
Information Statement, as well as any report or information we file with the
SEC, is only current as of the date of that information. Our business, financial
condition, results of operations and prospects may have changed since that date.
The documents containing information incorporated by reference into this
Information Statement are available without exhibits unless exhibits are also
incorporated by reference, without charge upon request to FMB. Any documents so
requested will be mailed to you by first class mail, or another equally prompt
means, within one business day after your request is received.
First Manitowoc Bancorp, Inc.
402 North Eighth Street
Manitowoc, Wisconsin 54221-0010
Additional copies of this Information Statement, the letter of transmittal
or other merger materials may be obtained from FMB.
41