<PAGE>
As filed with the Securities and Exchange Commission on November 29, 1994.
Registration No. 33-55923
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 3
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------------------
FIRST BANK SYSTEM, INC.
(Exact name of registrant as specified in its charter)
Delaware 6711 41-0255900
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Classification Identification
incorporation or Code Number) Number)
organization)
First Bank Place
601 Second Avenue South
Minneapolis, Minnesota 55402-4302
(612) 973-1111
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
Richard A. Zona
First Bank Place
601 Second Avenue South
Minneapolis, Minnesota 55402-4302
(612) 973-1111
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
----------------------------
COPIES TO:
Lee R. Mitau, Esq. Bruce A. Machmeier, Esq.
Dorsey & Whitney Oppenheimer Wolff & Donnelly
220 South Sixth Street 45 South Seventh Street
Minneapolis, Minnesota 55402-1498 Minneapolis, Minnesota 55402
----------------------------
Approximate date of commencement of proposed sale to the public: As soon
as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
FIRST BANK SYSTEM, INC.
---------------------
CROSS REFERENCE SHEET
PURSUANT TO ITEM 501(b) OF REGULATION S-K
<TABLE>
<CAPTION>
ITEM NO. IN FORM S-4 LOCATION IN PROSPECTUS
<S> <C>
A. INFORMATION ABOUT THE TRANSACTION
1. Forepart of Registration Statement and Outside Facing page of registration statement; outside
Front Cover Page of Prospectus front cover page of Prospectus
2. Inside Front and Outside Back Cover Pages of Available Information; Incorporation of Certain
Prospectus Documents by Reference; Table of Contents
3. Risk Factors, Ratio of Earnings to Fixed Charges Summary
and Other Information
4. Terms of the Transaction Summary; The Merger
5. Pro Forma Financial Information Unaudited Pro Forma Combined Financial Information
6. Material Contacts with the Company Being Acquired The Merger
7. Additional Information Required for Reoffering by *
Persons and Parties Deemed to Be Underwriters
8. Interests of Named Experts and Counsel Legal Opinions
9. Disclosure of Commission Position on *
Indemnification for Securities Act Liabilities
B. INFORMATION ABOUT THE REGISTRANT
10. Information with Respect to S-3 Registrants Incorporation of Certain Documents by Reference;
Summary; Business of FBS; Description of FBS
Capital Stock
11. Incorporation of Certain Information by Reference Incorporation of Certain Documents by Reference
12. Information with Respect to S-2 or S-3 Registrants *
13. Incorporation of Certain Information by Reference *
14. Information with Respect to Registrants other than
S-3 or S-2 Registrants *
C. INFORMATION ABOUT THE COMPANY BEING ACQUIRED
15. Information with Respect to S-3 Companies Incorporation of Certain Documents by Reference;
Summary; Business of MFC; Description of MFC
Capital Stock
16. Information with Respect to S-2 or S-3 Companies *
17. Information with Respect to Companies other than *
S-3 or S-2 Companies
D. VOTING AND MANAGEMENT INFORMATION
18. Information if Proxies, Consents or Authorizations Incorporation of Certain Documents by Reference;
are to be Solicited Information Concerning the FBS Special Meeting;
Information Concerning the MFC Special Meeting;
The Merger; Management and Additional Information
19. Information if Proxies, Consents or Authorizations *
are not to be Solicited or in an Exchange Offer
<FN>
- -------------------------
* Answer is negative or item is not applicable.
</TABLE>
<PAGE>
[LOGO]
FIRST BANK SYSTEM, INC.
FIRST BANK PLACE
601 SECOND AVENUE SOUTH
MINNEAPOLIS, MINNESOTA 55402-4302
[DATE], 1994
Dear Shareholder:
A Special Meeting of Shareholders of First Bank System, Inc. ("FBS") has
been scheduled for Tuesday, January 24, 1995, at First Bank on Marquette Avenue,
10th floor auditorium, 90 South Sixth Street, Minneapolis, Minnesota, at 9:00
a.m. local time. The accompanying Notice of Special Meeting, Joint Proxy
Statement/Prospectus and Proxy Card set forth the formal business to be
transacted at the meeting. I encourage you to review these materials and to
attend the special meeting.
At the special meeting, FBS' common shareholders are being asked to approve
and adopt the Agreement of Merger and Consolidation by and between FBS and
Metropolitan Financial Corporation ("MFC") dated July 21, 1994 (the "Merger
Agreement"), and the transactions contemplated thereby, pursuant to which FBS
would acquire MFC through a merger of MFC into FBS. Based on the total number of
shares and rights to acquire shares of MFC common stock outstanding at November
28, 1994, and assuming there is no adjustment to the exchange ratio as described
in the enclosed materials, a maximum of 22,687,800 new shares of FBS common
stock could be issued to persons other than FBS in connection with the merger,
or approximately 16.5% of the total number of such shares outstanding at
November 28, 1994, after giving effect to such issuance. Under certain
circumstances described in the enclosed materials, the number of shares issued
by FBS in connection with the merger would exceed 20% of the FBS common stock
outstanding prior to the merger. In such event, Delaware law requires FBS
shareholders to approve the Merger Agreement and the rules of the New York Stock
Exchange require a vote of holders of FBS common stock to approve issuance of
the FBS common stock to be issued pursuant to the Merger Agreement. Therefore,
FBS is seeking shareholder approval of the Merger Agreement and the transactions
contemplated thereby. The affirmative vote of at least a majority of the total
number of outstanding shares of FBS common stock entitled to vote is required to
approve and adopt the Merger Agreement.
Consummation of the merger is conditioned upon, among other things, the
receipt of all required shareholder and regulatory approvals. FBS' shareholders
also are being asked to approve the adjournment of the special meeting to permit
further solicitation of proxies in the event there are not sufficient votes at
the time of the special meeting to approve and adopt the Merger Agreement and
the transactions contemplated thereby. Approval of the adjournment requires the
affirmative vote of at least a majority of the votes cast provided that a quorum
is present at the FBS special meeting.
It is expected that all of the 1,607,979 shares of FBS common stock
(excluding shares subject to stock options) beneficially owned by directors and
executive officers of FBS and their affiliates at the record date for the FBS
special meeting (1.4% of the total number of outstanding shares of FBS common
stock at such date) will be voted for approval and adoption of the Merger
Agreement and for adjournment of the FBS special meeting if necessary to permit
further solication of proxies.
If the accompanying Proxy Card is properly executed and returned to FBS in
time to be voted at the FBS special meeting, the shares represented thereby will
be voted in accordance with the instructions marked thereon. EXECUTED BUT
UNMARKED PROXIES WILL BE VOTED FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT
AND FOR THE PROPOSAL TO ADJOURN THE FBS SPECIAL MEETING IF NECESSARY TO PERMIT
FURTHER SOLICATION OF PROXIES. The presence of a shareholder at the FBS special
meeting will not automatically revoke such shareholder's proxy. A shareholder
may, however, revoke a proxy at any time prior to its exercise by filing a
written notice of revocation with, or by delivering a duly
<PAGE>
executed proxy bearing a later date to, Michael J. O'Rourke, Secretary, First
Bank System, Inc., First Bank Place, 601 Second Avenue South, Minneapolis,
Minnesota 55402-4302, or by attending the FBS special meeting and voting in
person.
The FBS Board of Directors has unanimously approved the Merger Agreement and
the transactions contemplated thereby, and believes that these actions are in
the best interests of FBS and its shareholders. Accordingly, the Board
recommends that you vote in favor of the Merger Agreement and in favor of
adjournment of the special meeting as described above. I urge you to complete,
sign, date and return the accompanying proxy card as soon as possible, even if
you plan to attend the special meeting. This procedure will not prevent you from
voting in person, but will ensure that your vote is counted if you are unable to
attend.
Very truly yours,
[SIGNATURE]
John F. Grundhofer
CHAIRMAN, PRESIDENT AND CHIEF
EXECUTIVE OFFICER
<PAGE>
FIRST BANK SYSTEM, INC.
FIRST BANK PLACE
601 SECOND AVENUE SOUTH
MINNEAPOLIS, MINNESOTA 55402-4302
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON JANUARY 24, 1995
NOTICE IS HEREBY GIVEN that a Special Meeting (the "Special Meeting") of
holders of Common Stock of First Bank System, Inc. ("FBS") will be held on
Tuesday, January 24, 1995, at First Bank on Marquette Avenue, 10th floor
auditorium, 90 South Sixth Street, Minneapolis, Minnesota, at 9:00 a.m. local
time. A Proxy Card and Joint Proxy Statement/Prospectus for the Special Meeting
are enclosed.
The Special Meeting is for the purpose of considering and acting upon:
1. A proposal to approve and adopt the Agreement of Merger and Consolidation
by and between FBS and Metropolitan Financial Corporation ("MFC") dated
July 21, 1994 (the "Merger Agreement"), and the transactions contemplated
thereby. Pursuant to the Merger Agreement, among other things, MFC will
be merged with and into FBS (the "Merger"), and each outstanding share of
MFC Common Stock will be exchanged for 0.6803 share of FBS Common Stock
(with cash paid in lieu of fractional shares) and each outstanding share
of MFC Series B Preferred Stock will be converted into the right to
receive $27.00 (plus accumulated and unpaid dividends) in cash, except
shares of MFC Series B Preferred Stock as to which statutory dissenters'
rights have been exercised and not effectively withdrawn or otherwise
lost. The exchange ratio for the MFC Common Stock will be adjusted if the
average closing price of FBS Common Stock during the 20 trading days
ending three business days before the last date of the meetings of
shareholders of MFC and FBS scheduled to consider the Merger is less than
$33.00 or more than $40.50.
2. A proposal to adjourn the Special Meeting to a later date to permit
further solicitation of proxies in the event an insufficient number of
shares is present in person or by proxy at the Special Meeting to approve
and adopt the Merger Agreement and the transactions contemplated thereby.
3. Such other matters as may properly come before the Special Meeting or any
adjournments thereof.
The Board of Directors is not aware of any other business to come before the
Special Meeting.
Any action may be taken on any one of the foregoing proposals at the Special
Meeting on the date specified above or on any date to which the Special Meeting
may properly be adjourned. Pursuant to the Bylaws, the Board has fixed the close
of business on November 28, 1994 as the record date for determination of the
shareholders entitled to vote at the Special Meeting and any adjournments
thereof.
You are requested to complete and sign the accompanying Proxy Card, which is
solicited by the Board of Directors, and mail it promptly in the enclosed
envelope. All proxies are important, so please complete each Proxy Card sent to
you and return it in the envelope provided. No proxy will be used if you attend
and vote at the Special Meeting in person.
BY ORDER OF THE BOARD OF DIRECTORS
[SIGNATURE]
Michael J. O'Rourke
SECRETARY
Minneapolis, Minnesota
[DATE], 1994
IMPORTANT: PLEASE RETURN EACH PROXY CARD SENT TO YOU. THE PROMPT RETURN OF
PROXIES WILL SAVE FBS THE EXPENSE OF FURTHER REQUESTS FOR PROXIES IN ORDER TO
ASSURE A QUORUM. AN ADDRESSED ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE. NO
POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES.
<PAGE>
[LOGO]
[DATE], 1994
Dear Fellow Stockholder:
You are cordially invited to attend a Special Meeting of Stockholders
("Special Meeting") of Metropolitan Financial Corporation ("MFC") to be held on
Tuesday, January 24, 1995 at 9:00 a.m., local time, at the Radisson Plaza Hotel,
Minnesota Room, 35 S. Seventh St., Minneapolis, Minnesota.
At the Special Meeting you will be asked to consider and vote upon a
proposed Agreement of Merger and Consolidation dated July 21, 1994 (the "Merger
Agreement"), and the transactions contemplated thereby, pursuant to which MFC
will be merged with and into First Bank System, Inc. ("FBS") (the "Merger"). If
the proposed Merger described in the accompanying Joint Proxy
Statement/Prospectus becomes effective, stockholders of MFC will receive .6803
of a share of FBS Common Stock for each share of MFC Common Stock and the right
to receive $27.00 (plus accumulated and unpaid dividends) in cash for each share
of Series B Preferred Stock of MFC owned by them. The exchange ratio for the MFC
Common Stock will be adjusted if the average closing price of FBS Common Stock
during the 20 trading days ending three business days before the last date of
the meetings of stockholders of MFC and FBS scheduled to consider the Merger
(the "Average Price") is less than $33.00 or more than $40.50. Thus, if the
Average Price is less than $33.00, the exchange ratio would increase and result
in the receipt by MFC shareholders of more than .6803 share of FBS Common Stock
for each share of MFC Common Stock, and, if the Average Price is greater than
$40.50, the exchange ratio would decrease and result in the receipt by MFC
shareholders of less than .6803 share of FBS Common Stock for each share of MFC.
Any fractional share of FBS resulting from the application of the exchange ratio
will be paid in cash. Based on the last reported sale price of FBS Common Stock
on the New York Stock Exchange on November 28, 1994, the exchange ratio would
result in a per share purchase price for a share of MFC Common Stock of $23.13.
If the Merger is completed, MFC stockholders will no longer hold any interest in
MFC following the Merger other than through their interest in shares of FBS
Common Stock.
The proposed Merger has been approved by the Boards of Directors of MFC and
FBS and is subject to approval by holders of a majority of the outstanding MFC
Common Stock and FBS Common Stock in addition to the approval of bank and thrift
regulators. MFC shareholders also are being asked to approve the adjournment of
the Special Meeting to permit the further solicitation of proxies in the event
there are not sufficient votes at the time of the Special Meeting to approve the
Merger. Approval of the adjournment requires the affirmative vote of at least a
majority of the votes cast, provided that a quorum is present at the Special
Meeting.
The Board of Directors of MFC believes that the Merger is in the best
interests of MFC and its stockholders and therefore recommends that you vote in
favor of the Merger. Details of the background and reasons for the proposed
Merger appear and are explained in the Joint Proxy Statement/Prospectus.
Additional information regarding MFC and FBS also is set forth in the Joint
Proxy Statement/Prospectus or is incorporated by reference therein from other
documents. I urge you to read this material carefully.
MFC's Board of Directors has received opinions of Dain Bosworth Incorporated
and Montgomery Securities, MFC's financial advisers, that the consideration
being offered in the Merger is fair from a financial point of view to MFC's
common stockholders. A copy of these opinions are included as Appendices B and C
to the Joint Proxy Statement/Prospectus.
It is expected that all of the 1,934,819 shares of MFC Common Stock
(excluding shares subject to stock options) beneficially owned by directors and
executive officers of MFC and their affiliates at the record date for the
Special Meeting (6.1% of the total number of outstanding shares of MFC Common
Stock at such date) will be voted for approval and adoption of the Merger
Agreement and for adjournment of the Special Meeting if necessary to permit
further solication of proxies.
If the accompanying Proxy Card is properly executed and returned to MFC in
time to be voted at the Special Meeting, the shares represented thereby will be
voted in accordance with the instructions marked thereon.
<PAGE>
EXECUTED BUT UNMARKED PROXIES WILL BE VOTED FOR APPROVAL AND ADOPTION OF THE
MERGER AGREEMENT AND FOR THE PROPOSAL TO ADJOURN THE SPECIAL MEETING IF
NECESSARY TO PERMIT FURTHER SOLICATION OF PROXIES. The presence of a shareholder
at the Special Meeting will not automatically revoke such shareholder's proxy. A
shareholder may, however, revoke a proxy at any time prior to its exercise by
filing a written notice of revocation with, or by delivering a duly executed
proxy bearing a later date to, Charles D. Kalil, Secretary, Metropolitan
Financial Corporation, 1000 Metropolitan Centre, 333 South Seventh Street,
Minneapolis, Minnesota 55402, or by attending the Special Meeting and voting in
person.
It is important that you consider carefully the terms of the proposed Merger
which are described in the Joint Proxy Statement/Prospectus. In order to ensure
that your vote is represented at the meeting, please indicate your choice on the
enclosed proxy form, date and sign it, and return it in the enclosed envelope.
You are welcome to attend the Special Meeting and vote in person even if you
have previously returned the proxy card.
Please do not send in any stock certificates at this time. If the Merger is
adopted you will be sent instructions regarding the surrender of your existing
stock certificates.
Sincerely,
[SIGNATURE]
Norman M. Jones
CHAIRMAN OF THE BOARD
AND CHIEF EXECUTIVE OFFICER
<PAGE>
METROPOLITAN FINANCIAL CORPORATION
1000 METROPOLITAN CENTRE
333 SOUTH SEVENTH STREET
MINNEAPOLIS, MINNESOTA 55402
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON JANUARY 24, 1995
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders of
Metropolitan Financial Corporation ("MFC") will be held at the Radisson Plaza
Hotel, Minnesota Room, 35 S. Seventh St., Minneapolis, Minnesota at 9:00 a.m.,
local time, on Tuesday, January 24, 1995 to consider and take action on the
following:
1. A proposal to approve and adopt the Agreement of Merger and Consolidation
by and between First Bank System, Inc. ("FBS") and MFC dated July 21,
1994 (the "Merger Agreement") and the transactions contemplated thereby.
Pursuant to the Merger Agreement, among other things, MFC will be merged
with and into FBS (the "Merger"), and each outstanding share of MFC
Common Stock will be exchanged for 0.6803 share of FBS Common Stock (with
cash paid in lieu of fractional shares) and each outstanding share of MFC
Series B Preferred Stock will be converted into the right to receive
$27.00 (plus accumulated and unpaid dividends) in cash, except shares of
MFC Series B Preferred Stock as to which statutory dissenters' rights
have been exercised and not effectively withdrawn or otherwise lost. The
exchange ratio for the MFC Common Stock will be adjusted if the average
closing price of FBS Common Stock during the 20 trading days ending three
business days before the last date of the meetings of stockholders of MFC
and FBS scheduled to consider the Merger is less than $33.00 or more than
$40.50.
2. A proposal to adjourn the Special Meeting to a later date to permit
further solicitation of proxies in the event an insufficient number of
shares is present in person or by proxy at the Special Meeting to approve
and adopt the Merger Agreement and the transactions contemplated thereby.
3. Such other matters as may properly come before the Special Meeting or any
adjournments thereof.
The Board of Directors is not aware of any other business to come before the
Special Meeting.
Only stockholders of record of MFC Common Stock at the close of business on
November 28, 1994 are entitled to notice of, and to vote at, the meeting.
It is important that all stockholders of MFC Common Stock be represented at
the meeting. We urge you to sign and return the enclosed Proxy as promptly as
possible--whether or not you plan to attend the meeting. The Proxy should be
returned in the enclosed envelope. The Proxy may be revoked at any time prior to
its exercise. No proxy will be used if you attend and vote at the Special
Meeting in person.
By Order of the Board of Directors
[SIGNATURE]
Charles D. Kalil
SECRETARY
Date: [DATE], 1994
<PAGE>
FIRST BANK SYSTEM, INC.
AND
METROPOLITAN FINANCIAL CORPORATION
JOINT PROXY STATEMENT
------------------------
PROSPECTUS
OF
FIRST BANK SYSTEM, INC.
COMMON STOCK, $1.25 PAR VALUE
------------------------
This Joint Proxy Statement/Prospectus (the "Proxy Statement/Prospectus") is
being furnished to the holders of common stock of First Bank System, Inc.
("FBS") and of Metropolitan Financial Corporation ("MFC") in connection with the
solicitation of proxies by the respective Board of Directors of FBS and MFC for
use at special meetings of such holders (respectively, the "FBS Special Meeting"
and the "MFC Special Meeting," and collectively, the "Special Meetings") to be
held on January 24, 1995. At the Special Meetings, MFC and FBS common
shareholders will be asked to consider and act upon a proposal to approve and
adopt the Agreement of Merger and Consolidation by and between FBS and MFC dated
July 21, 1994 (the "Merger Agreement"), and the transactions contemplated
thereby, pursuant to which, among other things, MFC would be acquired by FBS by
means of a merger of MFC into FBS (the "Merger"). A copy of the Merger Agreement
is attached hereto as Appendix A and is incorporated herein by reference.
In the Merger, each outstanding share of MFC common stock, par value $.01
("MFC Common Stock"), will be converted into .6803 share of FBS common stock,
par value $1.25 per share ("FBS Common Stock"), subject to certain adjustments
as described below, and each outstanding share of MFC preferred stock, par value
$.01 ("MFC Preferred Stock"), other than shares of MFC Preferred Stock as to
which dissenter's rights have been perfected, will be converted into the right
to receive $27.00 (plus accumulated and unpaid dividends) in cash. The
outstanding shares of FBS Common Stock are, and it is a condition to
consummation of the Merger that the shares of FBS Common Stock to be issued in
the Merger have been, listed on the New York Stock Exchange (the "NYSE") under
the symbol "FBS." The last reported sale price of FBS Common Stock on the NYSE
Composite Tape on November 28, 1994 was $34.00 per share. Based on such last
reported sale price, the exchange ratio resulted in a per share purchase price
for the MFC Common Stock of $23.13. Because the number of shares of FBS Common
Stock to be received for each share of MFC Common Stock is fixed, except as
described below, a change in the market price of FBS Common Stock before the
Merger would affect the value of the FBS Common Stock to be received in the
Merger in exchange for MFC Common Stock.
(CONTINUED ON NEXT PAGE)
--------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THE SHARES OF FBS COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS,
DEPOSITS OR OTHER OBLIGATIONS OF ANY BANK OR SAVINGS ASSOCIATION AND ARE
NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, BANK
INSURANCE FUND, SAVINGS ASSOCIATION INSURANCE FUND OR ANY
OTHER GOVERNMENTAL AGENCY.
THE DATE OF THIS JOINT PROXY STATEMENT/PROSPECTUS IS [ ], 1994.
<PAGE>
Notwithstanding the foregoing, if the average of the closing prices of FBS
Common Stock as quoted on the NYSE for the 20 trading days ending three business
days prior to the last date of the Special Meetings (the "Average Price") is
less than $33.00, then the exchange ratio of .6803 share of FBS Common Stock for
each share of MFC Common Stock will be adjusted by multiplying .6803 by the
quotient of (i) $33.00 divided by (ii) the Average Price. Thus, if the Average
Price is less than $33.00, the exchange ratio would increase and result in the
receipt by MFC shareholders of more than .6803 share of FBS Common Stock for
each share of MFC Common Stock. If the Average Price is greater than $40.50,
then the exchange ratio of .6803 share of FBS Common Stock for each share of MFC
Common Stock will be adjusted by multiplying .6803 by the quotient of (i) $40.50
divided by (ii) the Average Price. Thus, if the Average Price is greater than
$40.50, the exchange ratio would decrease and result in the receipt by MFC
shareholders of less than .6803 share of FBS Common Stock for each share of MFC
Common Stock. Each of FBS and MFC may, at their respective options, abandon and
terminate the Merger Agreement before it takes effect if the Average Price is
less than $29.50. For additional information regarding the terms of the Merger,
see the Merger Agreement and "The Merger" herein.
Consummation of the Merger is conditioned upon, among other things, receipt
of all required shareholder and regulatory approvals. If there are not
sufficient votes at the time of the MFC Special Meeting or the FBS Special
Meeting to approve and adopt the Merger Agreement, the shareholders of the
applicable company may be asked to approve adjournment of such company's Special
Meeting to permit further solicitation of proxies. See "Adjournment of Special
Meetings" herein. Because of the uncertainty of the timing of the receipt of
regulatory approvals, the Merger may not be consummated for a substantial period
of time after approval of the Merger by the shareholders of FBS and MFC. See
"The Merger--Regulatory Approvals Required."
J.P. Morgan Securities Inc. has rendered its opinions dated July 25, 1994
and November 28, 1994 to the Board of Directors of FBS that the exchange ratio
is fair to holders of FBS Common Stock from a financial point of view. See "The
Merger--Opinion of FBS Financial Adviser" herein. Dain Bosworth Incorporated has
rendered its opinions dated July 21, 1994 and the date of this Proxy
Statement/Prospectus, and Montgomery Securities has rendered its opinion dated
July 20, 1994, to the Board of Directors of MFC that the consideration being
offered in the Merger is fair from a financial point of view to MFC's common
shareholders (other than FBS and its affiliates). See "The Merger--Opinions of
MFC Financial Advisers" herein.
THE BOARD OF DIRECTORS OF FBS UNANIMOUSLY RECOMMENDS THAT FBS SHAREHOLDERS
VOTE FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT. THE BOARD OF DIRECTORS
OF MFC UNANIMOUSLY RECOMMENDS THAT MFC SHAREHOLDERS VOTE FOR APPROVAL AND
ADOPTION OF THE MERGER AGREEMENT.
This Proxy Statement/Prospectus and the forms of proxies for the respective
Special Meetings are first being mailed to the shareholders of FBS and MFC on or
about December 5, 1994.
This Proxy Statement/Prospectus is included as part of a Registration
Statement on Form S-4 (together with all amendments and exhibits thereto,
including documents and information incorporated by reference, the "Registration
Statement") filed with the Securities and Exchange Commission by FBS, relating
to the registration under the Securities Act of 1933, as amended, of up to
25,481,326 shares of FBS Common Stock to be issued in connection with the
Merger.
<PAGE>
AVAILABLE INFORMATION
FBS and MFC are subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and, in accordance
therewith, file reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Reports, proxy statements
and other information concerning FBS and MFC can be inspected and copied at the
public reference facilities of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Commission's Regional Offices at Seven World
Trade Center, 13th Floor, New York, New York 10048 and 1400 Northwestern Atrium
Center, 500 Madison Street, Chicago, Illinois 60661. Copies of such materials
can be obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. Reports, proxy
statements and other information concerning FBS and MFC also can be inspected at
the offices of the New York Stock Exchange, 20 Broad Street, New York, New York
10005.
FBS has filed a registration statement on Form S-4 (together with all
amendments and exhibits thereto, including documents and information
incorporated by reference, the "Registration Statement") with the Commission
under the Securities Act of 1933, as amended (the "Securities Act"), relating to
the shares of FBS Common Stock to be issued in connection with the Merger. This
Proxy Statement/Prospectus does not contain all the information set forth in the
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the Commission. For further information, reference
is hereby made to the Registration Statement. Statements contained in this Proxy
Statement/Prospectus as to the contents of any document are not necessarily
complete, and in each instance reference is made to such document itself, each
such statement being qualified in all respects by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH
ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. DOCUMENTS RELATING TO FBS
(EXCLUDING EXHIBITS UNLESS SPECIFICALLY INCORPORATED THEREIN) ARE AVAILABLE
WITHOUT CHARGE UPON WRITTEN OR ORAL REQUEST TO KARIN GLASGOW, FIRST BANK SYSTEM,
INC., FIRST BANK PLACE, 601 SECOND AVENUE SOUTH, MINNEAPOLIS, MINNESOTA
55402-4302, TELEPHONE NUMBER (612) 973-2264. DOCUMENTS RELATING TO MFC
(EXCLUDING EXHIBITS UNLESS SPECIFICALLY INCORPORATED THEREIN) ARE AVAILABLE
WITHOUT CHARGE UPON WRITTEN OR ORAL REQUEST TO PATRICIA HENNING, METROPOLITAN
FINANCIAL CORPORATION, 1000 METROPOLITAN CENTRE, 333 SOUTH SEVENTH STREET,
MINNEAPOLIS, MINNESOTA 55402, TELEPHONE NUMBER (612) 399-6000. IN ORDER TO
ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE BY JANUARY
17, 1995.
The following FBS documents which have been filed by FBS with the Commission
are hereby incorporated by reference in this Proxy Statement/Prospectus: (i)
Annual Report on Form 10-K for the year ended December 31, 1993; (ii) quarterly
reports on Form 10-Q for the quarters ended March 31, 1994, June 30, 1994 and
September 30, 1994; (iii) Current Reports on Form 8-K filed January 18, 1994,
March 22, 1994, April 20, 1994, July 6, 1994 and August 5, 1994; (iv) Current
Report on Form 8-K/A filed September 9, 1994 and Current Report on Form 8-K/A
filed November 14, 1994 (each amending Current Report on Form 8-K filed August
5, 1994); and (v) the description of FBS Common Stock contained in Item 1 of the
FBS Registration Statement on Form 8-A dated March 19, 1984, as amended in its
entirety by that Form 8 Amendment dated February 26, 1993 and that Form 8-A/A-2
dated October 6, 1994, and any amendment or report filed for the purpose of
updating such description filed subsequent to the date of this Proxy
Statement/Prospectus and prior to the termination of the offering described
herein; and the description of the rights to purchase preferred stock contained
in Item 1 of the FBS Registration Statement on Form 8-A dated December 21, 1988,
as amended by that Form 8 Amendment dated June 11, 1990 and as amended in its
entirety by that Form 8 Amendment dated February 26, 1993, and any amendment or
report filed for the purpose of updating such description filed subsequent to
the date of this Proxy Statement/Prospectus and prior to the termination of the
offering described herein.
The following MFC documents which have been filed by MFC with the Commission
are hereby incorporated by reference in this Proxy Statement/Prospectus: (i)
Annual Report on Form 10-K for the year ended December 31, 1993; (ii) quarterly
reports on Form 10-Q for the quarters ended March 31, 1994, June 30, 1994 and
September 30, 1994; (iii) Current Report on Form 8-K filed on July 26, 1994;
(iv) the description of MFC Common Stock contained in Item 1 of the MFC
Registration Statement on Form 8-A dated November 4, 1985, and any amendment or
report filed for the purpose of updating such description filed subsequent to
the date of this Proxy Statement/Prospectus and prior to the termination of the
offering described herein; and (v) the description of MFC's $2.875 Cumulative
Perpetual Preferred Stock, Series B, contained in Item 1 of the MFC Registration
Statement on Form 8-A dated October 4, 1990, as amended by that Form 8 Amendment
dated November 19, 1990, and any amendment or report filed for the purpose of
updating such description filed subsequent to the date of this Proxy
Statement/Prospectus and prior to the termination of the offering described
herein.
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All documents filed by FBS or MFC pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date hereof and before the respective
Special Meetings shall be deemed to be incorporated herein by reference and to
be a part hereof from the date of filing of such documents. Any statement
contained herein or in a document incorporated or deemed to be incorporated by
reference herein shall be deemed to be modified or superseded for purposes of
this Proxy Statement/Prospectus to the extent that a statement contained herein
or in another subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Proxy Statement/Prospectus.
ALL INFORMATION IN THIS PROXY STATEMENT/PROSPECTUS REGARDING MFC AND ITS
AFFILIATES HAS BEEN FURNISHED BY MFC, AND ALL INFORMATION HEREIN REGARDING FBS
AND ITS AFFILIATES HAS BEEN FURNISHED BY FBS. NO PERSON IS AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROXY
STATEMENT/PROSPECTUS IN CONNECTION WITH THE SOLICITATION OF PROXIES AND OFFERING
MADE HEREBY AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION SHOULD NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY FBS OR MFC. THIS PROXY
STATEMENT/PROSPECTUS DOES NOT CONSTITUTE THE SOLICITATION OF A PROXY, OR AN
OFFER TO SELL OR A SOLICITATION OF AN OFFER TO PURCHASE ANY SECURITIES, IN ANY
JURISDICTION IN WHICH SUCH SOLICITATION OR OFFER MAY NOT LAWFULLY BE MADE. THIS
PROXY STATEMENT/PROSPECTUS DOES NOT COVER ANY RESALES OF THE FBS COMMON STOCK
OFFERED HEREBY TO BE RECEIVED BY SHAREHOLDERS OF MFC DEEMED TO BE AFFILIATES OF
MFC OR FBS UPON THE CONSUMMATION OF THE MERGER. NEITHER THE DELIVERY OF THIS
PROXY STATEMENT/PROSPECTUS NOR ANY DISTRIBUTION OF SECURITIES MADE HEREUNDER
SHALL IMPLY THAT THERE HAS BEEN NO CHANGE IN THE INFORMATION SET FORTH HEREIN OR
IN THE AFFAIRS OF FBS OR MFC SINCE THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Available Information............................ 3
Incorporation of Certain Documents by
Reference...................................... 3
Summary.......................................... 5
The Companies.................................. 5
The Proposed Merger............................ 5
The Special Meetings........................... 6
Votes Required................................. 6
Recommendation of the FBS Board of Directors... 7
Recommendation of the MFC Board of Directors... 7
Interests of Certain Persons in the Merger..... 8
Opinion of FBS Financial Adviser............... 9
Opinions of MFC Financial Advisers............. 9
Limitation on Negotiations; Option Granted to
FBS; Termination Fee......................... 9
Regulatory Approvals Required.................. 10
Conditions, Waiver and Amendment, and
Termination.................................. 10
Effective Time of the Merger................... 11
Exchange of MFC Stock Certificates............. 11
Certain Federal Income Tax Consequences to MFC
Shareholders................................. 12
Resales of FBS Common Stock.................... 12
Accounting Treatment........................... 12
Dissenters' Rights of Appraisal................ 13
Market and Market Prices....................... 13
Differences in Rights of MFC Shareholders...... 14
Comparative Unaudited Per Share Data........... 15
Selected Historical and Unaudited Pro Forma
Financial Data............................... 17
Information Concerning the FBS Special Meeting... 23
General........................................ 23
Solicitation, Voting and Revocability of
Proxies...................................... 23
Information Concerning the MFC Special Meeting... 25
General........................................ 25
Solicitation, Voting and Revocability of
Proxies...................................... 25
The Merger....................................... 26
Background of the Merger....................... 26
Reasons of FBS for the Merger; Recommendation
of FBS Board of Directors.................... 28
Opinion of FBS Financial Adviser............... 29
Reasons of MFC for the Merger; Recommendation
of MFC Board of Directors.................... 32
Opinions of MFC Financial Advisers............. 33
Terms of the Merger; Consideration to be
Received by MFC Shareholders................. 42
Effective Time of the Merger................... 43
<CAPTION>
PAGE
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<S> <C>
Surrender of MFC Common Stock Certificates..... 43
Conditions to Consummation of the Merger....... 44
Regulatory Approvals Required.................. 46
Waiver and Amendment........................... 47
Termination.................................... 47
Limitation on Negotiations..................... 48
Option Granted to FBS.......................... 48
Conduct of MFC Business Pending the Merger..... 50
Management and Operations of MFC Following the
Merger....................................... 53
Interests of Certain Persons in the Merger..... 53
Effect on MFC Employee Benefit Plans and Stock
Option Plans................................. 55
MFC Warrants................................... 57
Rights of MFC Dissenting Shareholders.......... 57
No Dissenters' Rights of FBS Shareholders...... 57
Certain Federal Income Tax Consequences to MFC
Shareholders................................. 57
Stock Exchange Listing of FBS Common Stock..... 58
Resale of FBS Common Stock Received by MFC
Shareholders................................. 58
FBS Dividend Reinvestment and Common Stock
Purchase Plan................................ 59
Accounting Treatment........................... 59
Expenses....................................... 59
Certain Differences in Rights of MFC
Shareholders . 60
Business of FBS.................................. 61
Business of MFC.................................. 62
Description of FBS Capital Stock................. 63
General........................................ 63
Preferred Stock................................ 63
Common Stock................................... 65
Description of MFC Capital Stock................. 68
Adjournment of Special Meetings.................. 68
Legal Opinions................................... 69
Experts.......................................... 69
Independent Public Accountants................... 69
Shareholder Proposals............................ 69
Management and Additional Information............ 69
Unaudited Pro Forma Combined Financial
Information.................................... F-1
Appendix A--Agreement of Merger and
Consolidation.................................. A-1
Appendix B--Opinion of Dain Bosworth
Incorporated . B-1
Appendix C--Opinion of Montgomery Securities..... C-1
Appendix D--Opinion of J.P. Morgan Securities
Inc............................................ D-1
</TABLE>
4
<PAGE>
SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ALL RESPECTS BY THE MORE DETAILED
INFORMATION INCLUDED IN THIS PROXY STATEMENT/PROSPECTUS, THE APPENDICES HERETO
AND THE DOCUMENTS INCORPORATED HEREIN BY REFERENCE. AS USED IN THIS PROXY
STATEMENT/PROSPECTUS, THE TERMS "FBS" AND "MFC" REFER TO FIRST BANK SYSTEM, INC.
AND METROPOLITAN FINANCIAL CORPORATION, RESPECTIVELY, AND, WHERE THE CONTEXT SO
REQUIRES, TO SUCH CORPORATIONS AND THEIR RESPECTIVE SUBSIDIARIES. ALL
INFORMATION CONCERNING FBS INCLUDED HEREIN HAS BEEN FURNISHED BY FBS, AND ALL
INFORMATION INCLUDED HEREIN CONCERNING MFC HAS BEEN FURNISHED BY MFC.
THE COMPANIES
FBS. FBS is a regional bank holding company headquartered in Minneapolis,
Minnesota. FBS is comprised of 9 banks, and several trust and nonbank
subsidiaries with 225 offices primarily in Minnesota, Colorado, Illinois,
Montana, North Dakota, South Dakota and Wisconsin. Through its subsidiaries, FBS
provides commercial and agricultural finance, consumer banking, trust, capital
markets, cash management, investment management, data processing, leasing,
mortgage banking and brokerage services. At November 28, 1994, FBS and its
consolidated subsidiaries had consolidated assets of $26.3 billion, consolidated
deposits of $18.8 billion and shareholders' equity of $2.3 billion.
For further information concerning FBS, see "Business of FBS" herein and the
FBS documents incorporated by reference herein as described under "Incorporation
of Certain Documents by Reference." The principal executive offices of FBS are
located at First Bank Place, 601 Second Avenue South, Minneapolis, Minnesota
55402-4302 (telephone (612) 973-1111).
MFC. MFC is a regional thrift holding company organized as the parent of
Metropolitan Federal Bank, fsb, a federally chartered stock savings bank (the
"Bank") headquartered in Fargo, North Dakota, whose deposit accounts are insured
by the Federal Deposit Insurance Corporation (the "FDIC"). The Bank's primary
business is the solicitation of deposit accounts from the general public and the
origination and servicing of single family real estate mortgage and secured
consumer loans. MFC, through its subsidiaries, also conducts residential real
estate brokerage operations and residential real estate title closing services
and sells certain financial services products like annuities, uninsured
investments (such as mutual funds) and insurance. At September 30, 1994, MFC and
its consolidated subsidiaries had consolidated assets of $8.1 billion,
consolidated deposits of $5.5 billion and shareholders' equity of $497.7
million.
For further information concerning MFC, see "Business of MFC" herein and the
MFC documents incorporated by reference herein as described under "Incorporation
of Certain Documents by Reference." The principal executive offices of MFC are
located at 1000 Metropolitan Centre, 333 South Seventh Street, Minneapolis,
Minnesota 55402 (telephone (612) 399-6000).
THE PROPOSED MERGER
The Merger Agreement provides for the merger of MFC with and into FBS, with
FBS as the surviving corporation. Upon consummation of the Merger, each
outstanding share of MFC Common Stock will be converted into .6803 share of FBS
Common Stock, subject to certain adjustments as described below, with cash to be
paid in lieu of fractional shares of FBS Common Stock, and each outstanding
share of MFC Preferred Stock, other than shares of MFC Preferred Stock as to
which dissenters' rights have been perfected, will be converted into the right
to receive $27.00 (plus accumulated and unpaid dividends) in cash. If the Merger
is completed, MFC shareholders will no longer hold any interest in MFC other
than through their interest in shares of FBS Common Stock. See "The
Merger--Terms of the Merger; Consideration to be Received by MFC Shareholders."
Each outstanding share of FBS capital stock will remain outstanding and
unchanged following the Merger. Based on the number of shares of MFC Common
Stock actually outstanding on the record date for the MFC Special Meeting, and
assuming that there is no adjustment to the exchange ratio as described below,
holders of MFC Common Stock other than FBS would receive an aggregate of
21,051,103 shares of FBS Common Stock upon consummation of the Merger and would
hold in the aggregate approximately 15.5% of the FBS Common Stock outstanding
immediately after consummation of the Merger, based on the number of shares of
FBS Common Stock outstanding at November 28, 1994. Based on the total number of
shares and rights to acquire shares of MFC Common
5
<PAGE>
Stock outstanding on such record date, and assuming there is no adjustment to
the exchange ratio as described below, a maximum aggregate of 22,687,800 shares
of FBS Common Stock could be issued to persons other than FBS in the Merger, or
approximately 16.5% of the FBS Common Stock outstanding after consummation of
the Merger, based on the number of shares of FBS Common Stock outstanding at
November 28, 1994.
Notwithstanding the foregoing, if the average of the closing prices of FBS
Common Stock as quoted on the New York Stock Exchange (the "NYSE") for the 20
trading days ending three business days prior to the last date of the Special
Meetings (the "Average Price") is less than $33.00, then the exchange ratio of
.6803 share of FBS Common Stock for each share of MFC Common Stock will be
adjusted by multiplying .6803 by the quotient of (i) $33.00 divided by (ii) the
Average Price. If the Average Price is greater than $40.50, then the exchange
ratio of .6803 share of FBS Common Stock for each share of MFC Common Stock will
be adjusted by multiplying .6803 by the quotient of (i) $40.50 divided by (ii)
the Average Price. Thus, if the Average Price is less than $33.00, the exchange
ratio would increase and result in the receipt by MFC shareholders of more than
.6803 share of FBS Common Stock for each share of MFC Common Stock, and, if the
Average Price is greater than $40.50, the exchange ratio would decrease and
result in the receipt by MFC shareholders of less than .6803 share of FBS Common
Stock for each share of MFC Common Stock. Each of FBS and MFC may, at their
respective options, abandon and terminate the Merger Agreement before it takes
effect if the Average Price is less than $29.50. See "--Market and Market
Prices," "The Merger--Terms of the Merger; Consideration to be Received by MFC
Shareholders" and "--Termination."
THE SPECIAL MEETINGS
FBS SPECIAL MEETING. The FBS Special Meeting to consider and vote upon the
Merger Agreement will be held in Minneapolis, Minnesota, on Tuesday, January 24,
1995 at 9:00 a.m. local time. Only holders of record of FBS Common Stock at the
close of business on November 28, 1994 (the "FBS Record Date"), will be entitled
to notice of and to vote at the Special Meeting. At the close of business on the
FBS Record Date, there were outstanding and entitled to vote 114,320,197 shares
of FBS Common Stock. Each share of FBS Common Stock is entitled to one vote on
the Merger Agreement. See "Information Concerning the FBS Special Meeting."
MFC SPECIAL MEETING. The MFC Special Meeting to consider and vote upon the
Merger Agreement will be held in Minneapolis, Minnesota, on Tuesday, January 24,
1995 at 9:00 a.m. local time. Only holders of record of MFC Common Stock at the
close of business on November 28, 1994 (the "MFC Record Date"), will be entitled
to notice of and to vote at the Special Meeting. At the close of business on the
MFC Record Date, there were outstanding and entitled to vote 31,629,954 shares
of MFC Common Stock. Each share of MFC Common Stock is entitled to one vote on
the Merger Agreement. See "Information Concerning the MFC Special Meeting."
VOTES REQUIRED
FBS VOTES REQUIRED. If the exchange ratio of .6803 share of FBS Common
Stock for each share of MFC Common Stock is increased, pursuant to the
adjustment described above, the number of shares of FBS Common Stock issued in
connection with the Merger may exceed 20% of the FBS Common Stock outstanding
prior to the Merger. In such event, shareholder approval of the Merger Agreement
and the transactions contemplated thereby would be required by Delaware law and
the rules of the NYSE. Pursuant to Delaware law, approval of the Merger
Agreement by shareholders of FBS requires the affirmative vote of at least a
majority of all shares of FBS Common Stock outstanding and entitled to vote at
the FBS Special Meeting. Under NYSE rules, the issuance of FBS Common Stock, as
contemplated by the Merger Agreement, must be approved by a majority of the
votes cast at the FBS Special Meeting, provided that over 50% of the shares of
FBS Common Stock entitled to vote do vote at the FBS Special Meeting. Approval
and adoption of the Merger Agreement by holders of FBS Common Stock will also
constitute the approval required by the NYSE of the issuance by FBS of the
shares of FBS Common Stock to be issued in connection with the Merger. Approval
of the adjournment of the FBS Special Meeting requires the affirmative vote of
at least a majority of the votes cast, provided that a quorum is present at the
FBS Special Meeting.
It is expected that all of the 1,607,979 shares of FBS Common Stock
(excluding shares subject to stock options) beneficially owned by directors and
executive officers of FBS and their affiliates at the FBS Record Date
6
<PAGE>
(1.4% of the total number of outstanding shares of FBS Common Stock at such
date) will be voted for adoption and approval of the Merger Agreement and for
adjournment of the FBS Special Meeting under the circumstances described herein.
As of the FBS Record Date, MFC and its directors and executive officers and
their affiliates beneficially owned less than 1% of the outstanding shares of
FBS Common Stock. See "Information Concerning the FBS Special
Meeting--Solicitation, Voting and Revocability of Proxies."
MFC VOTES REQUIRED. Pursuant to Delaware law, approval of the Merger
Agreement requires the affirmative vote of at least a majority of all shares of
MFC Common Stock outstanding and entitled to vote at the MFC Special Meeting.
Approval of the adjournment of the MFC Special Meeting requires the affirmative
vote of at least a majority of the votes cast, provided that a quorum is present
at the MFC Special Meeting.
It is expected that all of the 1,934,819 shares of MFC Common Stock
(excluding shares subject to stock options) beneficially owned by directors and
executive officers of MFC and their affiliates at the MFC Record Date (6.1% of
the total number of outstanding shares of MFC Common Stock at such date) will be
voted for approval and adoption of the Merger Agreement and for adjournment of
the MFC Special Meeting under the circumstances described herein. As of the MFC
Record Date, FBS beneficially owned 686,100 shares of MFC Common Stock
(excluding shares issuable to FBS under certain conditions as described under
"The Merger-- Option Granted to FBS"), and directors and executive officers of
FBS beneficially owned no shares of MFC Common Stock. FBS intends to vote all of
its shares of MFC Common Stock for approval and adoption of the Merger Agreement
and for adjournment of the MFC Special Meeting under the circumstances described
herein. See "Information Concerning the MFC Special Meeting--Solicitation,
Voting and Revocability of Proxies."
RECOMMENDATION OF THE FBS BOARD OF DIRECTORS
The Board of Directors of FBS considered a variety of factors in evaluating
the Merger, including that (i) the acquisition of MFC will expand FBS' retail
franchise in Minnesota, North Dakota, South Dakota and Wisconsin and is expected
to result in significant cost savings from personnel reductions, branch and
operational consolidations and general reductions in corporate and
administrative support functions; (ii) the acquisition of MFC will allow FBS to
enter four new states (Iowa, Nebraska, Kansas and Wyoming) which fall into FBS'
strategic market area, providing a base in such states which can be leveraged
through further acquisitions; (iii) the acquisition of MFC will provide FBS
access to over 300,000 additional households serving as a source for greater
market penetration with FBS' broader product and service offerings; and (iv) the
acquisition of MFC is expected to enhance the efficiency and increase the market
share of FBS Mortgage, as MFC is a significant originator and servicer of
residential mortgages. The Board of Directors of FBS also considered information
concerning the financial position, results of operations and stock prices of MFC
as well as the prospective financial performance of FBS and MFC on a combined
basis and the opinion of J.P. Morgan Securities Inc. that the exchange ratio of
FBS Common Stock for MFC Common Stock in the Merger is fair to holders of FBS
Common Stock from a financial point of view. On the basis of these factors, the
Board of Directors of FBS believes that the terms of the Merger are fair to and
in the best interest of FBS and its shareholders and unanimously recommends that
the shareholders of FBS vote FOR approval and adoption of the Merger Agreement.
See "The Merger--Reasons of FBS for the Merger; Recommendation of FBS Board of
Directors."
RECOMMENDATION OF THE MFC BOARD OF DIRECTORS
The Board of Directors of MFC considered a variety of factors in evaluating
the Merger, including: (i) MFC's business, results of operations, financial
position and future prospects as an independent entity; (ii) economic conditions
and prospects for future growth in the markets in which MFC operates in light
of, among other things, intensifying competitive pressures in the financial
services industry in general and, in particular, in MFC's markets; (iii) the
consideration to be received by MFC shareholders in the Merger in relation to
MFC's book value and earnings per share and the recent market prices of MFC
Common Stock; (iv) the management, business, results of operations and financial
condition of FBS; (v) the consideration to be received by MFC shareholders in
the Merger compared with the risk of obtaining a higher price at some time in
the future; (vi) the expectation that a business combination with FBS would
enhance MFC's competitiveness and ability to serve its customers and the
communities in which it operates; (vii) the future prospects of FBS and the
anticipated strengths and synergies (including cost savings and efficiencies)
anticipated from the combination of MFC and FBS; (viii) the expectation
7
<PAGE>
that the Merger will be a tax-free transaction to holders of MFC Common Stock;
(ix) the financial terms of other recent business combinations in the thrift
industry; and (x) the financial advice rendered by Dain Bosworth Incorporated
and Montgomery Securities and the opinions of Dain Bosworth and Montgomery
Securities that the consideration to be received by MFC shareholders in the
Merger was fair from a financial point of view. The MFC Board of Directors also
concluded that the Merger is preferable to the other alternatives available to
MFC, such as remaining independent and growing internally or through future
acquisitions, or remaining independent for a short period of time with a view
toward being acquired in the future, or engaging in a merger of equals
transaction with another party. Based on these factors the MFC Board of
Directors believes that the terms of the Merger are in the best interests of MFC
and its shareholders and unanimously recommends that the common shareholders of
MFC vote FOR the approval and adoption of the Merger Agreement. See "The
Merger--Reasons of MFC for the Merger; Recommendation of MFC Board of
Directors."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
SEVERANCE PLANS. The Merger Agreement requires that FBS assume and perform
the obligations under change in control severance pay plans of MFC adopted in
1993. Under these plans, after the Merger is effective, certain employees of
MFC, including all executive officers, will become entitled to specified
severance payments and benefit continuations if their employment is terminated
under specified circumstances. Several executive officers are expected to become
entitled to payments and benefits under such plans in connection with the
Merger. Under such plans, the total severance payments, including the cash value
of benefits, expected to be made in connection with the Merger are approximately
$30 million. Based on current base salaries and target bonuses, assuming
termination of employment qualifying for payments under the applicable plan, the
five most highly compensated executive officers of MFC for the year ended
December 31, 1993 would receive lump-sum cash payments (excluding tax "gross-up"
payments) as follows: Norman M. Jones, $1,914,000; Ronald Peltier, $1,154,250;
Jerry L. Record, $891,000; William P. Bartkowski, $830,250; and J. Michael
Nilles, $667,644. The executive will also be entitled to (a) continued coverage
under MFC's welfare benefit plans and certain perquisite policies for up to
three years ("grossed-up" for any additional taxes payable by the executive
relative to taxes payable by an active employee), (b) receive outplacement
counseling (for which MFC or its successors will pay up to 30% of the
executive's base salary), and (c) credit for three additional years of service
under any pension plan of MFC (or the value of such service credit if the credit
would cause the plan to lose its tax-qualified status). The executive will also
receive a "gross-up" payment which, net of all tax, is sufficient to pay any
excise tax on "excess parachute" payments. See "The Merger--Interests of Certain
Persons in the Merger--Severance Plans."
AGREEMENTS WITH MFC OFFICERS. Pursuant to the Merger Agreement, FBS has
agreed to use its best efforts to secure the election of Norman M. Jones, MFC
Chairman of the Board and Chief Executive Officer, to the FBS Board of Directors
for a term of at least three years, and has agreed to appoint Mr. Jones as
Chairman of the Board of Directors of the Bank and to enter into a consulting
agreement with Mr. Jones. FBS will pay Mr. Jones, for all of such services,
total compensation equal to $200,000 annually. The Merger Agreement specifies
that, on the effective date of the Merger, there shall exist a "termination" of
Mr. Jones' employment with MFC under the terms of the Executive Management
Change in Control Severance Pay Plan and FBS shall pay all benefits payable to
Mr. Jones pursuant to the terms of such plan upon such termination. Based on his
current base salary and target bonus, the total lump-sum cash payment to Mr.
Jones upon such termination pursuant to such plan would be approximately
$1,914,000 (assuming no tax "gross-up" payment). See "The Merger--Interests of
Certain Persons in the Merger--Agreements with Norman M. Jones." J. Michael
Nilles, Executive Vice President and General Counsel of MFC, has an employment
agreement with MFC expiring on December 31, 1995, which FBS has agreed does not
constitute a severance plan. If Mr. Nilles' employment were terminated and he
became eligible for payments and benefits under MFC's Executive Management
Change in Control Severance Pay Plan, he may also have claims for payments under
his employment agreement. Mr. Nilles annual base salary under the employment
agreement is currently $164,850.
STOCK OPTIONS. Upon effectiveness of the Merger, with the consent of the
holders of each outstanding option to purchase shares of MFC Common Stock issued
pursuant to the MFC 1984 Stock Option and Incentive Plan, the MFC 1990 Stock
Option Plan, the MFC 1993 Non-Employee Director Stock Option Plan and the MFC
1993 Stock Incentive Plan, each of such stock options will be converted into a
right to receive, in lieu of all other rights
8
<PAGE>
under such options (which will be terminated and canceled), shares of FBS Common
Stock with a value as of the effective date of the Merger equal to the "fair
value" of such option as determined by an independent third party expert to be
mutually selected by FBS and MFC. In the event that each of such stock options
is not so converted, then, as of the effective date of the Merger, such stock
options shall be assumed by FBS. See "The Merger--Effect on MFC Employee Benefit
Plans and Stock Option Plans."
INDEMNIFICATION AND INSURANCE. The Merger Agreement requires FBS, for a
period of five years after the Merger becomes effective, to indemnify present
and former officers, directors and employees of MFC (including its subsidiaries)
against certain losses and other expenses in connection with claims which arise
out of such persons' having served in such capacities and pertain to matters or
facts arising, existing or occurring before the Merger becomes effective. The
Merger Agreement also requires FBS to use its best efforts to maintain in
effect, for three years after the Merger becomes effective, officers' and
directors' liability insurance with respect to claims arising from facts or
events which occurred before the Merger became effective of at least the same
coverage and amounts, and containing terms and conditions no less advantageous,
as the coverage currently provided by MFC, subject to a stated maximum annual
premium. Additionally, MFC has entered into indemnification agreements with each
of its directors and executive officers which FBS is obligated to honor. See
"The Merger--Interests of Certain Persons in the Merger--Indemnification and
Insurance."
DIRECTORS' RETIREMENT PLAN. The Merger Agreement provides that MFC shall
calculate and pay in cash on the effective date of the Merger all amounts
reasonably estimated to be owing to any MFC director pursuant to the MFC
Directors' Retirement Plan, including any estimated tax "gross up" payment
payable as provided therein. To the extent that any such gross up payment
remains payable after the effective date of the Merger, FBS has agreed to
promptly pay such amounts in full in accordance with the terms of such plan.
Under such arrangements, the following MFC directors would be entitled to
receive the aggregate amounts indicated (excluding tax "gross-up" payments) upon
closing of the Merger, based on the current annual retainers and assuming
closing occurs on December 31, 1994: William O. Nilles, $405,868; Charles D.
Kalil, $306,531; Trueman E. Tryhus, $416,992; R. Douglas Larsen, $431,046;
William Marcil, $206,474; Lawrence Davis, $145,862; Karol D. Emmerich, $59,605;
and Steven D. Rothmeier, $38,185. The aggregate of all such payments, assuming
consummation of the Merger occurs on December 31, 1994, is $2,010,563. See "The
Merger--Interests of Certain Persons in the Merger-- Director Retirement Plan."
OPINION OF FBS FINANCIAL ADVISER
FBS' financial adviser, J.P. Morgan Securities Inc., has rendered its
opinions to the FBS Board of Directors dated July 25, 1994 and November 28, 1994
that the exchange ratio is fair to holders of FBS Common Stock from a financial
point of view. A copy of the opinion dated November 28, 1994 is attached hereto
as Appendix D and should be read in its entirety with respect to the assumptions
made, other matters considered and limitations on the reviews undertaken.
OPINIONS OF MFC FINANCIAL ADVISERS
MFC's financial advisers, Dain Bosworth Incorporated and Montgomery
Securities, have each rendered their opinion to the MFC Board of Directors that
the consideration payable in the Merger to the holders of MFC Common Stock is
fair from a financial point of view to MFC's common shareholders (other than FBS
and its affiliates). A copy of the Dain Bosworth Incorporated opinion dated the
date of this Proxy Statement/Prospectus is attached as Appendix B hereto and a
copy of the Montgomery Securities opinion dated July 20, 1994 is attached as
Appendix C hereto. The MFC Board of Directors sought the opinion of both Dain
Bosworth Incorporated and Montgomery Securities to ensure that it received the
best possible financial advice in connection with a transaction as significant
to the MFC shareholders as the Merger. Each opinion should be read in its
entirety with respect to the assumptions made, other matters considered and
limitations on the reviews undertaken.
LIMITATION ON NEGOTIATIONS; OPTION GRANTED TO FBS; TERMINATION FEE
The Merger Agreement provides that MFC (including its subsidiaries) will
not, and will cause its officers, directors, employees, agents and affiliates,
not to, directly or indirectly, solicit, authorize, initiate or encourage
submission of, any proposal, offer, tender offer or exchange offer from any
person or entity (including officers or
9
<PAGE>
employees of MFC or such subsidiaries) relating to any liquidation, dissolution,
recapitalization, merger, consolidation or acquisition or purchase of all or a
material portion of the assets or deposits of, or any equity interest in, MFC or
any of its subsidiaries, or, unless MFC shall have determined, after receipt of
a written opinion of counsel to MFC (a copy of which opinion shall be delivered
to FBS), that the Board of Directors of MFC has a fiduciary duty to do so, (i)
participate in any negotiations in connection with or in furtherance of any of
the foregoing or (ii) permit any person other than FBS and its representatives
to have any access to the facilities of, or furnish to any person other than FBS
and its representatives any non-public information with respect to, MFC or any
of its subsidiaries in connection with or in furtherance of any of the
foregoing. See "The Merger--Limitation on Negotiations."
Simultaneously with, and as a condition to, the execution of the Merger
Agreement, MFC granted FBS an option (the "Option") to purchase authorized but
unissued or treasury shares of MFC Common Stock in a number approximately equal
to 19.9% of the number of shares of MFC Common Stock outstanding immediately
before exercise of the Option. The exercise price of the Option is $24.66 per
share, subject to adjustment under specified circumstances. The Option is
exercisable only upon the occurrence of specified events relating generally to
the making by third parties of offers to acquire MFC and the acquisition by
third parties of specified percentages of MFC Common Stock. To the best
knowledge of MFC and FBS, no event giving rise to the right to exercise the
Option has occurred as of the date of this Proxy Statement/Prospectus. See "The
Merger--Option Granted to FBS."
If the Merger Agreement is terminated by MFC by reason of the failure of a
condition with respect to receipt of a financial adviser's opinion, by MFC or
FBS in connection with certain third party offers to acquire MFC or by FBS as a
result of the failure of a condition to consummation of the transaction relating
to the accuracy of the representations and warranties of MFC in the Merger
Agreement and the compliance of MFC to perform its obligations thereunder
because of the willful and material breach by MFC of any obligation, agreement
or covenant referred to therein, then MFC is required to pay to FBS, within
three business days of such termination, a termination fee of $35,000,000.
Pursuant to the terms of the Option, FBS would be obligated to reimburse MFC for
all or a portion of the termination fee paid by MFC in an amount generally equal
to the cash value received by FBS (net of commissions, fees, underwriting
discounts, costs and expenses) upon the disposition (including an MFC
repurchase) of the Option or the Option shares. See "The Merger--Termination"
and "--Option Granted to FBS."
The foregoing provisions may have the effect of discouraging competing
offers to acquire or merge with MFC.
REGULATORY APPROVALS REQUIRED
The Merger is subject to the prior approval of the Board of Governors of the
Federal Reserve System (the "Federal Reserve Board") under the Bank Holding
Company Act of 1956, as amended, and by the Office of Thrift Supervision (the
"OTS") under the Home Owners' Loan Act. After submission and review in draft
form, the formal Federal Reserve Board Application was submitted by FBS on
September 9, 1994 and FBS supplemented the application on September 30, 1994,
October 4, 1994 and October 13, 1994. The application was accepted by the
Federal Reserve Board for processing on October 12, 1994. The OTS application
was submitted on September 6, 1994; the OTS staff's comments on completeness
were received by FBS on October 5, 1994; and FBS responded to such comments on
October 31, 1994. The OTS deemed the application complete on November 10, 1994.
There can be no assurance that the Federal Reserve Board or the OTS will approve
the Merger or as to the date of such regulatory approval. See "The
Merger--Regulatory Approvals Required."
CONDITIONS, WAIVER AND AMENDMENT, AND TERMINATION
The respective obligations of FBS and MFC to consummate the Merger are
subject to the satisfaction of certain conditions, including, among others, (i)
the receipt of all required regulatory approvals with respect to the Merger,
(ii) the approval of the Merger Agreement by the requisite votes of FBS
shareholders and MFC shareholders, (iii) no event shall have occurred which, in
the reasonable opinion of FBS and concurred in by Ernst & Young LLP, would
prevent the Merger from being accounted for as a pooling of interests, and FBS
shall have received from Ernst & Young LLP an opinion that the Merger shall
qualify as a pooling of interests for
10
<PAGE>
accounting purposes and (iv) certain other conditions customary in transactions
of this kind. A failure of any such conditions to be satisfied, if not waived,
would prevent consummation of the Merger. If an event occurred which precluded
pooling of interests accounting treatment and the condition requiring such
treatment were proposed to be waived (which is not anticipated), proxies from
FBS and MFC shareholders would be resolicited with updated revised pro forma
financial statements. See "The Merger--Conditions to Consummation of the
Merger."
At any time before the Merger becomes effective, any party to the Merger
Agreement may (i) extend the time for performance of any obligations or other
acts of any other party under the Merger Agreement or (ii) waive compliance with
any agreements contained in the Merger Agreement of any other party thereto or
with any conditions contained therein to its own obligations, to the extent that
such obligations, agreements and conditions are intended for its own benefit. In
addition, the Merger Agreement may be amended by written instrument signed on
behalf of each of the parties thereto. The Merger Agreement may be amended
without the approval of FBS shareholders or MFC shareholders, except that no
such amendment will be made following approval and adoption of the Merger
Agreement by FBS shareholders and MFC shareholders if such amendment changes the
number of shares of FBS Common Stock for which the MFC Common Stock is to be
exchanged or otherwise materially adversely affects the rights of such
shareholders. See "The Merger--Waiver and Amendment."
The Merger Agreement may be terminated at any time before the Merger becomes
effective (i) by mutual consent of FBS and MFC; (ii) by either FBS or MFC, if
any of the conditions to such party's obligation to consummate the transactions
contemplated in the Merger Agreement shall have become impossible to satisfy;
(iii) by either FBS or MFC, if the Merger is not duly approved by the
shareholders of MFC and the shareholders of FBS; (iv) by FBS or MFC if the
Merger has not become effective on or before September 30, 1995 (unless the
failure to consummate the Merger by such date shall be due to the action or
failure to act of the party seeking to terminate the Merger Agreement in breach
of such party's obligations under such agreement); (v) by either FBS or MFC, if
the Average Price is less than $29.50; (vi) by MFC if specified events relating
generally to the making by third parties of offers to acquire MFC occur and
MFC's Board of Directors determines that such offer is a material economic
improvement to MFC's shareholders when compared to the Merger and that such
Board's failure to recommend such an offer or accept such proposal would be
likely to result in a breach of the directors' fiduciary duties (subject to the
expiration of a five business day period after written notice of such offer or
proposal has been delivered to FBS); (vii) by FBS if any person (other than FBS
or any affiliate of FBS) shall have commenced a bona fide tender offer or
exchange offer to acquire at least 20% of the then outstanding shares of MFC
Common Stock, or if the Board of Directors of MFC shall have withdrawn, modified
or changed its recommendation of the Merger Agreement or the Merger; and (viii)
by FBS if there shall have occurred specified events relating generally to the
making by third parties of offers to acquire MFC and the acquisition by third
parties of specified percentages of MFC Common Stock. See "The
Merger--Termination."
EFFECTIVE TIME OF THE MERGER
The Merger will become effective upon the filing of a certificate of merger
relating thereto with the Secretary of State of Delaware. The Merger Agreement
provides that the parties thereto will cause such a certificate of merger to be
filed as soon as practicable after receipt of all necessary regulatory approvals
provided that each of the conditions to consummation of the Merger has been
satisfied or waived. The Merger cannot become effective until FBS and MFC
shareholders have approved and adopted the Merger Agreement and all required
regulatory approvals and actions have been obtained and taken. The Merger
Agreement may be terminated by either FBS or MFC if the Merger has not become
effective on or before September 30, 1995 (unless the failure to consummate the
Merger by such date shall be due to the action or failure to act of the party
seeking to terminate the Merger Agreement in breach of such party's obligations
thereunder). Thus, there can be no assurance as to whether or when the Merger
will become effective. See "The Merger--Effective Time of the Merger,"
"--Conditions to Consummation of the Merger," "--Regulatory Approvals Required"
and "--Termination."
EXCHANGE OF MFC STOCK CERTIFICATES
Promptly following the Merger, First Chicago Trust Company of New York (the
"Exchange Agent") will send a notice and transmittal form, with instructions, to
each holder of MFC Common Stock and MFC Preferred Stock of record at the time
the Merger becomes effective advising such holder of the effectiveness of the
Merger and of
11
<PAGE>
the procedure for surrendering to the Exchange Agent their certificates formerly
evidencing MFC Common Stock in exchange for new certificates evidencing newly
issued FBS Common Stock and their certificates formerly evidencing MFC Preferred
Stock in exchange for cash. MFC SHAREHOLDERS SHOULD NOT SEND IN THEIR STOCK
CERTIFICATES UNTIL THEY RECEIVE THE NOTICE AND TRANSMITTAL FORM FROM THE
EXCHANGE AGENT. See "The Merger-- Surrender of MFC Common Stock and Preferred
Stock Certificates."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES TO MFC SHAREHOLDERS
The obligations of both MFC and FBS to consummate the Merger are conditioned
on, among other things, the receipt of an opinion of counsel of Oppenheimer
Wolff & Donnelly, counsel to MFC, to the effect that for federal income tax
purposes (i) the Merger will qualify as a "reorganization" under Section 368(a)
of the Internal Revenue Code of 1986, as amended (the "Code"), (ii) no gain or
loss will be recognized by any MFC shareholder (except in connection with the
receipt of cash) upon the exchange of MFC Common Stock for FBS Common Stock in
the Merger, (iii) the basis of the FBS Common Stock received by an MFC
shareholder who exchanges MFC Common Stock for FBS Common Stock will be the same
as the basis of the MFC Common Stock surrendered in exchange therefor (subject
to any adjustments required as the result of the receipt of cash in lieu of a
fractional share of FBS Common Stock), (iv) the holding period of the FBS Common
Stock received by an MFC shareholder receiving FBS Common Stock will include the
period during which the MFC Common Stock surrendered in exchange therefor was
held (provided that the MFC Common Stock of such MFC shareholder was held as a
capital asset as of the effective date of the Merger), and (v) cash received by
an MFC shareholder in lieu of a fractional share interest of FBS Common Stock
will be treated as having been received as a distribution in full payment in
exchange for the fractional share interest of FBS Common Stock which such MFC
shareholder would otherwise be entitled to receive, and will qualify as capital
gain or loss (assuming the MFC Common Stock was a capital asset in such MFC
shareholder's hands at the effective date of the Merger). Oppenheimer Wolff &
Donnelly has delivered to MFC an opinion of counsel to the foregoing effect,
which opinion is based upon various representations and is subject to a number
of assumptions and conditions. EACH MFC SHAREHOLDER IS URGED TO CONSULT HIS OR
HER OWN TAX ADVISER CONCERNING THE FEDERAL INCOME TAX CONSEQUENCES OF THE
MERGER, AS WELL AS ANY APPLICABLE STATE, LOCAL, FOREIGN OR OTHER TAX
CONSEQUENCES, BASED UPON SUCH SHAREHOLDER'S OWN PARTICULAR FACTS AND
CIRCUMSTANCES. See "The Merger--Certain Federal Income Tax Consequences to MFC
Shareholders."
RESALES OF FBS COMMON STOCK
The shares of FBS Common Stock issuable to shareholders of MFC upon
consummation of the Merger may be traded freely by those shareholders who are
not "affiliates" of MFC or FBS. MFC has agreed in the Merger Agreement to use
its best efforts to obtain signed representations from each shareholder of MFC
who may reasonably be deemed an "affiliate" of MFC (as such term is used in Rule
145 under the Securities Act) to the effect that (i) such person will not
dispose of shares issued to him or her pursuant to the Merger except in
compliance with Rule 145 under the Securities Act, in a transaction that is
otherwise exempt from the registration requirements under the Securities Act or
in an offering registered under the Securities Act, and (ii) such person will
not dispose of, or in any way reduce his risk with respect to, shares issued to
him pursuant to the Merger until such time as financial results covering at
least 30 days of post-Merger combined operations of FBS and MFC have been
published by FBS. See "The Merger--Resale of FBS Common Stock Received by MFC
Shareholders" and "--Accounting Treatment."
ACCOUNTING TREATMENT
FBS intends to account for the Merger using the pooling of interests method
under generally accepted accounting principles. The obligation of FBS to
consummate the Merger is conditioned on, among other things, no event having
occurred which, in the reasonable opinion of FBS and concurred in by Ernst &
Young LLP, would prevent the Merger from being accounted for as a pooling of
interests, and the receipt by FBS from Ernst & Young LLP of an opinion that the
Merger shall qualify as a pooling of interests for accounting purposes. In order
for the Merger to qualify for pooling of interests accounting treatment, FBS
Common Stock must be issued in exchange for at least 90 percent of the
outstanding MFC Common Stock and several additional conditions must be
satisfied. MFC Common Stock as to which cash is paid in lieu of the issuance of
fractional shares of FBS Common Stock, and MFC Common Stock owned by FBS, does
not count toward this 90 percent. See "The Merger--Terms of the
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<PAGE>
Merger; Consideration to be Received by MFC Shareholders" and "Information
Concerning the MFC Special Meeting--Solicitation, Voting and Revocability of
Proxies." If an event occurred which precluded pooling of interests accounting
treatment (which is not anticipated) and the condition to consummation of the
Merger requiring such treatment were proposed to be waived, proxies would be
resolicited from MFC and FBS shareholders with updated revised pro forma
financial statements. See "The Merger--Conditions to Consummation of the Merger"
and "--Accounting Treatment" and Unaudited Pro Forma Combined Financial
Information.
DISSENTERS' RIGHTS OF APPRAISAL
Pursuant to Section 262(b)(1) of the Delaware General Corporation Law, MFC
shareholders will not have any dissenters' rights of appraisal with respect to
shares of MFC Common Stock as a result of the matters to be voted upon at the
MFC Special Meeting. Pursuant to Section 262 of the Delaware General Corporation
Law, holders of MFC Preferred Stock may elect to have the "fair value" of their
shares of MFC Preferred Stock (determined in accordance with Delaware law)
individually appraised and paid to them, if the Merger is consummated and if
they comply with Section 262 of the Delaware General Corporation Law. See "The
Merger--Rights of MFC Dissenting Shareholders."
FBS shareholders will not have any dissenters' rights of appraisal as a
result of the matters to be voted upon at the FBS Special Meeting. See "The
Merger--No Dissenters' Rights of FBS Shareholders."
MARKET AND MARKET PRICES
FBS Common Stock is listed on the NYSE under the symbol "FBS" and MFC Common
Stock is listed on the NYSE under the symbol "MFC." The following table sets
forth the closing price per share of FBS Common Stock, the closing price per
share of the MFC Common Stock and the "equivalent per share price" (as defined
below) of MFC Common Stock as of (i) June 30, 1994, the last trading day before
FBS announced that it had signed a letter of intent to acquire MFC, and (ii)
November 28, 1994. The "equivalent per share price" of the MFC Common Stock as
of such dates equals the closing price per share of FBS Common Stock on such
dates multiplied times .6803, which is the number of shares of FBS Common Stock
to be issued in exchange for each share of MFC Common Stock pursuant to the
Merger Agreement, subject to certain adjustments. See "The Merger--Terms of the
Merger; Consideration to be Received by MFC Shareholders."
<TABLE>
<CAPTION>
MARKET FBS COMMON MFC COMMON EQUIVALENT PER
PER SHARE AT: STOCK STOCK SHARE PRICE
------------------ ------------- --------------- ---------------
<S> <C> <C> <C>
June 30, 1994................................... $ 36.25 $ 15.75 $ 24.66
November 28, 1994............................... $ 34.00 $ 22.50 $ 23.13
</TABLE>
FBS and MFC believe that MFC Common Stock presently trades on the basis of the
value of the FBS Common Stock expected to be issued in exchange for such MFC
Common Stock in the Merger, discounted for the time value of money and for the
uncertainties associated with any transaction. Apart from the publicly disclosed
information concerning FBS which is included and incorporated by reference in
this Proxy Statement/Prospectus, FBS does not know what factors account for
changes in the market price of its stock.
MFC shareholders are advised to obtain current market quotations for FBS
Common Stock and MFC Common Stock. No assurance can be given as to the market
prices of FBS Common Stock or MFC Common Stock at any time before the Merger
becomes effective or as to the market price of FBS Common Stock at any time
thereafter. Because the exchange ratio of FBS Common Stock for MFC Common Stock
is fixed within the range of Average Prices from $33.00 to $40.50 and will not
increase or decrease due to fluctuations in the Average Price within such range,
it will not compensate MFC shareholders for certain decreases in the market
price of FBS Common Stock which could occur before the Merger becomes effective.
As a result, in the event the market price of FBS Common Stock decreases, the
value of the FBS Common Stock to be received in the Merger in exchange for MFC
Common Stock would decrease, subject to certain limitations if the Average Price
is less than $33.00. In the event the market price of FBS Common Stock instead
increases, the value of the FBS Common Stock to be received in the Merger in
exchange for MFC Common Stock would increase, subject to certain limitations if
the Average Price is greater than $40.50. MFC shareholders should note that each
of FBS and MFC may, at their
13
<PAGE>
respective options, abandon and terminate the Merger Agreement before it takes
effect if the Average Price is less than $29.50. See "--The Proposed Merger"
above and "The Merger--Terms of the Merger; Consideration to be Received by MFC
Shareholders" and "--Termination."
Following the Merger, MFC Common Stock will no longer exist and, as a
result, will no longer be listed on the NYSE.
DIFFERENCES IN RIGHTS OF MFC SHAREHOLDERS
Upon consummation of the Merger, holders of MFC Common Stock will become
holders of FBS Common Stock. As a result, their rights as shareholders, which
are now governed by Delaware corporate law and MFC's Certificate of
Incorporation and Bylaws, will be governed by Delaware corporate law and FBS'
Certificate of Incorporation and Bylaws. Because of certain differences between
the provisions of MFC's Certificate of Incorporation and Bylaws and FBS'
Certificate of Incorporation and Bylaws, the current rights of MFC shareholders
will change after the Merger. For a discussion of various differences between
the rights of shareholders of MFC and the rights of shareholders of FBS, see
"The Merger--Certain Differences in the Rights of MFC Shareholders."
14
<PAGE>
COMPARATIVE UNAUDITED PER SHARE DATA
The following table presents selected comparative unaudited per share data
for FBS on a historical and pro forma combined basis, and for MFC on a
historical and pro forma equivalent basis, giving effect to the Merger using the
pooling of interests method of accounting. The information presented below is
derived from the consolidated historical financial statements of FBS and MFC,
including the related notes thereto, incorporated by reference into this Proxy
Statement/Prospectus. This information should be read in conjuction with such
historical and pro forma financial statements and the related notes thereto. See
"Incorporation of Certain Documents by Reference" and Unaudited Pro Forma
Combined Financial Information.
The per share data included within is not necessarily indicative of the
results of the future operations of the combined entity or the actual results
that would have been achieved had the Merger been consummated prior to the
periods indicated.
<TABLE>
<CAPTION>
FBS COMMON STOCK MFC COMMON STOCK
------------------------ ------------------------
PRO FORMA PRO FORMA
HISTORICAL COMBINED HISTORICAL EQUIVALENT
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
BOOK VALUE (1):
September 30, 1994..................................... $ 19.28 $ 19.08 $ 15.46 $ 12.98
December 31, 1993...................................... 18.09 18.92 15.79 12.87
DIVIDENDS DECLARED (2):
Nine Months Ended:
September 30, 1994................................... 0.87 0.87 0.60 0.59
Year Ended:
December 31, 1993.................................... 1.00 1.00 0.39 0.68
December 31, 1992.................................... 0.88 0.88 0.27 0.60
December 31, 1991.................................... 0.82 0.82 0.19 0.56
INCOME BEFORE EXTRAORDINARY ITEM AND CUMULATIVE EFFECT OF
CHANGES IN ACCOUNTING PRINCIPLES (3):
Nine Months Ended:
September 30, 1994................................... 2.62 2.48 0.93 1.69
Year Ended:
December 31, 1993.................................... 2.39 2.48 2.01 1.69
December 31, 1992.................................... 1.18 1.52 2.34 1.03
December 31, 1991.................................... 1.79 2.05 2.42 1.39
</TABLE>
15
<PAGE>
NOTES TO COMPARATIVE UNAUDITED PER SHARE DATA
(1) The pro forma combined book values per share of FBS Common Stock are based
upon the pro forma total common equity for FBS and MFC, divided by the total
pro forma common shares outstanding of the combined entity assuming the
conversion of the MFC Common Stock at the exchange ratio. The pro forma
equivalent book values per share of MFC Common Stock represent the pro forma
combined amounts multiplied by the exchange ratio. See "The Merger--Terms of
the Merger; Consideration to be Received by MFC Shareholders."
(2) The pro forma combined dividends declared assume no changes in the
historical dividends declared per FBS common share. The pro forma equivalent
dividends per share of MFC Common Stock represent the cash dividends
declared on a share of FBS Common Stock multiplied by the exchange ratio.
See "The Merger-- Terms of the Merger; Consideration to be Received by MFC
Shareholders."
(3) The pro forma combined income before extraordinary item and cumulative
effect of changes in accounting principles per share are based upon the pro
forma combined income for FBS and MFC, divided by the average pro forma
common shares of the combined entity. The pro forma equivalent income before
extraordinary item and cumulative effect of changes in accounting principles
per share of MFC Common Stock represents the pro forma combined income
multiplied by the exchange ratio. See "The Merger--Terms of the Merger;
Consideration to be Received by MFC Shareholders."
FBS expects to achieve operating cost savings primarily through
reductions in staff, the consolidation and elimination of certain office
facilities, and the consolidation of certain data processing and other back
office operations. No adjustment has been included in the unaudited pro
forma combined financial statements for the anticipated operating cost
savings.
The FBS results of operations for the year ended December 31, 1993
include merger-related charges of $50.0 million ($0.44 per share), on an
after-tax basis, associated with the acquisition of Colorado National
Bankshares, Inc.
The FBS results of operations for the year ended December 31, 1992
include merger-related charges of $81.8 million ($0.78 per share), on an
after-tax basis, associated with the acquisition of Western Capital
Investment Corporation and Bank Shares Incorporated.
16
<PAGE>
SELECTED HISTORICAL AND UNAUDITED PRO FORMA FINANCIAL DATA
The following tables set forth certain selected historical consolidated
financial information for FBS and MFC, and certain unaudited pro forma combined
financial information giving effect to the Merger with MFC using the pooling of
interests method of accounting. For a description of the pooling of interests
method of accounting with respect to the Merger and the related effects on the
historical financial statements of FBS, see "The Merger-- Accounting Treatment."
The historical selected financial data for the five years ended December 31,
1993 is derived from audited consolidated financial statements of FBS and MFC.
The historical selected financial data for the nine months ended September 30,
1994 and 1993 is derived from the unaudited historical financial statements of
FBS and MFC and reflect, in the respective opinions of management of FBS and
MFC, all adjustments (consisting only of normal recurring adjustments) necessary
for a fair presentation of such data. This information should be read in
conjunction with the consolidated financial statements of FBS and MFC, and the
related notes thereto, included in documents incorporated by reference in this
Proxy Statement/Prospectus, and in conjunction with the unaudited pro forma
financial information, including the notes thereto, appearing elsewhere in this
Proxy Statement/Prospectus. See "Incorporation of Certain Documents by
Reference" and Unaudited Pro Forma Combined Financial Information.
The pro forma combined financial information included within is not
necessarily indicative of the results of the future operations of the combined
entity or the actual results that would have been achieved had the Merger been
consummated prior to the periods presented.
17
<PAGE>
HISTORICAL SELECTED FINANCIAL DATA
FIRST BANK SYSTEM, INC.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
-------------------- -----------------------------------------------------------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS) 1994 1993 1993 (4) 1992 (5) 1991 1990 1989 (6)
--------- --------- ----------- ----------- --------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED INCOME STATEMENT DATA
Interest income........................ $ 1,270.3 $ 1,250.8 $ 1,661.8 $ 1,681.3 $ 1,962.0 $ 2,377.8 $ 2,709.9
Interest expense....................... 386.5 407.5 528.9 686.2 1,055.2 1,553.2 1,874.7
--------- --------- ----------- ----------- --------- --------- -----------
Net interest income.................. 883.8 843.3 1,132.9 995.1 906.8 824.6 835.2
Provision for credit losses............ 70.0 98.2 125.2 183.4 202.2 215.4 335.8
--------- --------- ----------- ----------- --------- --------- -----------
Net interest income after provision for
credit losses........................ 813.8 745.1 1,007.7 811.7 704.6 609.2 499.4
Noninterest income..................... 464.9 423.7 569.6 535.7 497.7 437.6 485.1
Noninterest expense.................... 782.4 845.2 1,100.5 1,114.3 969.3 981.0 1,091.1
--------- --------- ----------- ----------- --------- --------- -----------
Income (loss) before income taxes and
cumulative effect of changes in
accounting principles................ 496.3 323.6 476.8 233.1 233.0 65.8 (106.6)
Applicable income taxes (credit)....... 187.0 121.5 178.8 78.6 25.9 8.5 (19.8)
--------- --------- ----------- ----------- --------- --------- -----------
Income (loss) before cumulative effect
of changes in accounting
principles........................... 309.3 202.1 298.0 154.5 207.1 57.3 (86.8)
Cumulative effect of changes in
accounting principles................ -- -- -- 157.3 -- -- --
--------- --------- ----------- ----------- --------- --------- -----------
Net income (loss)...................... $ 309.3 $ 202.1 $ 298.0 $ 311.8 $ 207.1 $57.3..... $ (86.8)
--------- --------- ----------- ----------- --------- --------- -----------
--------- --------- ----------- ----------- --------- --------- -----------
Average common and common equivalent
shares............................... 114.3 113.7 113.1 105.4 102.5 93.3 86.1
PER SHARE
Income (loss) before cumulative effect
of changes in accounting
principles........................... $ 2.62 $ 1.58 $ 2.39 $ 1.18 $ 1.79 $ 0.36 $ (1.23)
Net income (loss)...................... 2.62 1.58 2.39 2.67 1.79 0.36 (1.23)
Dividends paid......................... 0.87 0.75 1.00 0.88 0.82 0.82 1.44
Common shareholders' equity............ 19.28 17.72 18.09 17.09 14.37 13.22 13.52
CONSOLIDATED BALANCE SHEET DATA AT PERIOD
END
Assets................................. $ 26,330 $ 25,941 $ 26,385 $ 26,625 $ 23,851 $ 24,804 $ 27,229
Securities............................. 3,377 3,866 3,319 4,196 2,841 3,406 4,047
Loans.................................. 19,110 18,568 18,779 17,076 16,365 16,829 19,546
Deposits............................... 18,793 20,466 21,031 21,188 19,145 19,378 20,436
Long-term debt......................... 1,265 1,030 1,015 822 948 1,506 1,733
Shareholders' equity................... 2,319 2,276 2,245 2,318 1,852 1,600 1,440
SELECTED FINANCIAL DATA AT PERIOD END
Common shareholders' equity to
assets............................... 8.4% 7.7% 7.5% 7.3% 6.2% 5.4% 4.3%
Total shareholders' equity to assets... 8.8 8.8 8.5 8.7 7.8 6.5 5.3
Tier 1 capital ratio (1)............... 8.2 9.5 9.2 9.5 8.3 6.6 5.1
Total capital ratio (1)................ 12.5 13.9 13.3 12.6 11.3 9.7 8.2
Allowance for credit losses............ $ 437 $ 427 $ 423 $ 448 $ 427 $ 454 $ 480
Percentage of loans.................. 2.29% 2.30% 2.25% 2.62% 2.61% 2.70% 2.46%
Nonperforming assets (2)............... $ 170 $ 267 $ 226 $ 412 $ 550 $ 665 $ 649
Percentage of total assets........... 0.65% 1.03% 0.86% 1.55% 2.31% 2.68% 2.38%
SELECTED FINANCIAL DATA FOR THE PERIOD
ENDED
Return on average assets before
cumulative effect of changes in
accounting principles................ 1.61% 1.07% 1.17% 0.65% 0.90% 0.22% (.30)%
Return on average assets............... 1.61 1.07 1.17 1.32 .90 .22 (.30)
Return on average common equity before
cumulative effect of changes in
accounting principles................ 19.1 12.3 13.8 7.3 13.1 2.8 (7.9)
Return on average common equity........ 19.1 12.3 13.8 16.4 13.1 2.8 (7.9)
Net interest margin on a tax-equivalent
basis................................ 5.24 5.09 5.07 4.85 4.50 3.70 3.45
Net interest margin without taxable-
equivalent increments................ 5.17 5.01 4.99 4.74 4.34 3.49 3.20
</TABLE>
See notes to historical selected financial data
18
<PAGE>
HISTORICAL SELECTED FINANCIAL DATA
METROPOLITAN FINANCIAL CORPORATION
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
---------------------- -------------------------------------------------------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS) 1994 (3) 1993 1993 1992 (5) 1991 1990 1989
----------- --------- --------- ----------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED INCOME STATEMENT DATA
Interest income................................ $ 398.0 $ 351.3 $ 472.7 $ 424.8 $ 407.0 $ 367.5 $ 371.7
Interest expense............................... 233.7 204.7 274.6 272.2 301.9 291.8 305.9
----------- --------- --------- ----------- --------- --------- ---------
Net interest income.......................... 164.3 146.6 198.1 152.6 105.1 75.7 65.8
Provision for credit losses.................... 9.6 6.0 7.8 8.3 8.0 6.0 6.4
----------- --------- --------- ----------- --------- --------- ---------
Net interest income after provision for credit
losses....................................... 154.7 140.6 190.3 144.3 97.1 69.7 59.4
Noninterest income............................. 63.1 61.2 88.5 113.7 88.8 64.2 67.9
Noninterest expense............................ 167.7 141.4 192.3 147.9 124.1 108.6 113.4
----------- --------- --------- ----------- --------- --------- ---------
Income before income taxes cumulative effect of
changes in accounting principles and
extraordinary item........................... 50.1 60.4 86.5 110.1 61.8 25.3 13.9
Applicable income taxes (credit)............... 19.1 13.1 21.3 42.6 4.4 (2.0) (10.2)
----------- --------- --------- ----------- --------- --------- ---------
Income before cumulative effect of changes in
accounting principles........................ 31.0 47.3 65.2 67.5 57.4 27.3 24.1
Extraordinary item............................. -- -- -- (6.3) -- -- --
Cumulative effect of changes in accounting
principles................................... -- -- -- 75.9 -- 1.0 --
----------- --------- --------- ----------- --------- --------- ---------
Net income..................................... $ 31.0 $ 47.3 $ 65.2 $ 137.1 $ 57.4 $ 28.3 $ 24.1
----------- --------- --------- ----------- --------- --------- ---------
----------- --------- --------- ----------- --------- --------- ---------
Average common and common equivalent shares.... 32.3 31.6 31.7 28.4 21.6 18.8 18.9
PER SHARE
Income before extraordinary item and cumulative
effect of changes in accounting principles... $ 0.93 $ 1.46 $ 2.01 $ 2.34 $ 2.42 $ 1.25 $ 1.20
Net income..................................... 0.93 1.46 2.01 4.78 2.42 1.30 1.20
Dividends paid................................. 0.60 0.29 0.39 0.27 0.19 0.17 0.15
Common shareholders' equity.................... 15.46 15.25 15.79 14.15 10.51 8.52 7.91
CONSOLIDATED BALANCE SHEET DATA AT PERIOD END
Assets......................................... $ 8,073 $ 7,017 $ 7,007 $ 6,147 $ 4,668 $ 4,546 $ 3,822
Securities..................................... 2,255 1,991 1,756 2,044 1,903 1,716 1,230
Loans.......................................... 5,267 4,473 4,689 3,454 2,379 1,967 1,698
Deposits....................................... 5,506 5,470 5,355 5,207 3,824 3,394 2,719
Long-term debt................................. 1,137 823 890 298 277 368 397
Shareholders' equity........................... 498 490 504 427 279 226 189
SELECTED FINANCIAL DATA AT PERIOD END
Common shareholders' equity to assets.......... 6.0% 6.8% 7.0% 6.7% 4.7% 3.7% 3.7%
Total shareholders' equity to assets........... 6.2 7.0 7.2 6.9 6.0 5.0 4.9
Core capital (1)............................... 5.92 6.93 7.44 6.91 5.36 4.52 4.30
Risk based capital (1)......................... 10.56 12.53 13.52 13.89 12.35 12.33 12.60
Allowance for credit losses.................... $ 40 $ 46 $ 43 $ 36 $ 26 $ 30 $ 27
Percentage of loans.......................... 0.77% 1.04% 0.92% 1.04% 1.09% 1.53% 1.59%
Nonperforming assets (2)....................... $ 75 $ 134 $ 115 $ 98 $ 108 $ 72 $ 35
Percentage of total assets................... 0.92% 1.91% 1.65% 1.60% 2.32% 1.58% 0.91%
SELECTED FINANCIAL DATA FOR THE PERIOD ENDED
Return on average assets before extraordinary
item and cumulative effect of changes in
accounting principles........................ .54% .98% 0.98% 1.28% 1.25% 0.68% 0.60%
Return on average assets....................... .54 .98 .98 2.61 1.25 .70 .60
Return on average equity before extraordinary
item and cumulative effect of changes in
accounting principles........................ 8.2 13.9 14.0 17.0 22.8 13.8 16.0
Return on average equity....................... 8.2 13.9 14.0 34.6 22.8 14.4 16.0
Net interest margin on a tax-equivalent
basis........................................ 3.02 3.23 3.21 3.13 2.44 2.02 1.75
Net interest margin without taxable-equivalent
increments................................... 3.02 3.23 3.21 3.13 2.44 2.02 1.75
</TABLE>
See notes to historical selected financial data
19
<PAGE>
NOTES TO HISTORICAL SELECTED FINANCIAL DATA
(1) FBS capital ratios are computed based on 1992 Federal Reserve Board rules
and regulations. MFC's historical capital ratios are computed using OTS
guidelines and transition rules and therefore are not computed on a
consolidated basis, but pertain only to Metropolitan Federal Bank (the
"Bank"). MFC's risk-based capital ratio is the ratio of the Bank's
regulatory capital to its risk-weighted assets.
(2) Includes non-accrual and restructured loans, other nonperforming assets and
other real estate owned.
(3) The MFC results of operations for the nine months ended September 30, 1994
include charges totaling $9.5 million (net of tax), or approximately $.30
per share, related to the planned merger with FBS and the tentative
settlement of two class action lawsuits against MFC and its subsidiaries,
Edina Realty, Inc. and Equity Title Services, Inc. Expenses related to the
merger totaled $1.4 million. An accrual of $14 million was recorded in the
third quarter for costs associated with the tentative settlement of the
lawsuits. The settlement was announced in September 1994 and requires final
court approval.
(4) The FBS results of operations for the year ended December 31, 1993 include
merger-related charges of $50.0 million ($0.44 per share), on an after-tax
basis, associated with the acquisition of Colorado National Bankshares, Inc.
(5) The FBS results of operations for the year ended December 31, 1992 include
merger-related charges of $81.8 million ($0.78 per share), on an after-tax
basis, associated with the acquisition of Western Capital Investment
Corporation ("WCIC") and Bank Shares Incorporated. The results of operations
for that year also include the effect of adopting two new accounting
standards: Statement of Financial Accounting Standards No. ("SFAS") 109,
"Accounting for Income Taxes," and SFAS 106, "Employers' Accounting for
Postretirement Benefits Other than Pensions." The cumulative effect of
adopting SFAS 109 was an increase of $188.9 million in net income. The
cumulative effect of adopting SFAS 106 was a decrease of $31.6 million in
net income.
The MFC results of operations for the year ended December 31, 1992 also
include the effect of adopting SFAS 109. The cumulative effect of adopting
SFAS 109 was an increase of $75.9 million in net income. Also included in
MFC results of operations for 1992 was an extraordinary expense item of $6.3
million representing the after-tax penalty for prepaying $525 million of
Federal Home Loan Bank advances.
(6) The FBS net loss for the year ended December 31, 1989 is primarily the
result of a large provision for losses on loans and writedowns of other real
estate owned recorded by Bank Western, an FBS subsidiary acquired through
the WCIC acquisition completed in 1992, which was accounted for as a pooling
of interests. Total provision and writedowns of $92.0 million were recorded
by Bank Western in 1989. This was directly related to a severe economic
downturn and resulting recession in Colorado, the Rocky Mountain region and
the Southwest, which in turn led to declining real estate values in the
regions. Financial results in 1989 also included a provision recorded by FBS
for restructuring of $37.5 million.
20
<PAGE>
UNAUDITED PRO FORMA COMBINED SELECTED FINANCIAL DATA
FIRST BANK SYSTEM, INC. AND METROPOLITAN FINANCIAL CORPORATION
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
-------------------- -------------------------------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS) 1994 1993 1993 1992 1991
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED INCOME STATEMENT DATA
Interest income............................................ $ 1,668.3 $ 1,602.1 $ 2,134.5 $ 2,106.1 $ 2,369.0
Interest expense........................................... 620.2 612.2 803.5 958.4 1,357.1
--------- --------- --------- --------- ---------
Net interest income...................................... 1,048.1 989.9 1,331.0 1,147.7 1,011.9
Provision for credit losses................................ 79.6 104.2 133.0 191.7 210.2
--------- --------- --------- --------- ---------
Net interest income after provision for credit losses...... 968.5 885.7 1,198.0 956.0 801.7
Noninterest income......................................... 499.8 457.1 621.9 615.5 558.4
Noninterest expense........................................ 910.7 962.6 1,259.7 1,231.4 1,065.4
--------- --------- --------- --------- ---------
Income before income taxes, extraordinary item and
cumulative effect of changes in accounting principles.... 557.6 380.2 560.2 340.1 294.7
Applicable income taxes.................................... 210.2 132.8 198.6 119.8 30.3
--------- --------- --------- --------- ---------
Income before extraordinary item and cumulative effect of
changes in accounting principles......................... 347.4 247.4 361.6 220.3 264.4
Extraordinary item......................................... -- -- -- (6.3) --
Cumulative effect of changes in accounting principles...... -- -- -- 233.2 --
--------- --------- --------- --------- ---------
Net income................................................. $ 347.4 $ 247.4 $ 361.6 $ 447.2 $ 264.4
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Average common and common equivalent shares................ 136.3 135.2 134.6 124.7 117.3
PER SHARE
Income before extraordinary item and cumulative effect of
changes in accounting principles......................... $ 2.48 $ 1.67 $ 2.48 $ 1.52 $ 2.05
Net income................................................. 2.48 1.67 2.48 3.34 2.05
Dividends paid............................................. 0.87 0.75 1.00 0.88 0.82
Common shareholders' equity................................ 19.08 18.47 18.92 17.65 14.50
CONSOLIDATED BALANCE SHEET DATA AT PERIOD END
Assets (1)................................................. $ 33,397 $ 32,958 $ 33,392 $ 32,772 $ 28,519
Securities................................................. 5,668 5,857 5,075 6,240 4,744
Loans...................................................... 24,376 23,041 23,468 20,530 18,744
Deposits (1)............................................... 23,347 25,936 26,386 26,395 22,969
Long-term debt............................................. 2,402 1,853 1,905 1,120 1,225
Shareholders' equity (1)................................... 2,704 2,765 2,749 2,745 2,131
SELECTED FINANCIAL DATA AT PERIOD END
Common shareholders' equity to assets...................... 7.8% 7.5% 7.4% 7.2% 5.9%
Total shareholders' equity to assets....................... 8.1 8.4 8.2 8.4 7.5
Tier 1 capital ratio (2)................................... 7.8 9.7 9.4 9.6 8.5
Total capital ratio (2).................................... 11.9 14.0 13.4 12.8 11.3
Allowance for credit losses (1)............................ $ 491 $ 473 $ 466 $ 484 $ 453
Percentage of loans...................................... 2.01% 2.05% 1.99% 2.36% 2.42%
Nonperforming assets (3)................................... $ 245 $ 401 $ 341 $ 510 $ 658
Percentage of total assets............................... 0.73% 1.22% 1.02% 1.56% 2.31%
SELECTED FINANCIAL DATA FOR THE PERIOD ENDED
Return on average assets before extraordinary item and
cumulative effect of changes in accounting principles.... 1.43% 1.04% 1.12% 0.76% 0.95%
Return on average assets................................... 1.43 1.04 1.12 1.55 .95
Return on average common equity before extraordinary item
and cumulative effect of changes in accounting
principles............................................... 18.1 12.5 13.8 9.0 15.1
Return on average common equity............................ 18.1 12.5 13.8 19.8 15.1
Net interest margin on a tax-equivalent basis.............. 4.71 4.70 4.67 4.53 4.15
Net interest margin without taxable-equivalent
increments............................................... 4.66 4.63 4.61 4.44 4.01
</TABLE>
See notes to historical selected financial data
21
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED SELECTED FINANCIAL DATA
(1) The pro forma statements assume that in 1994 MFC will, consistent with
generally accepted accounting
principles, establish such additional accruals and credit loss reserves as
may be necessary to reflect the plans of FBS with respect to the conduct of
MFC's business following the Merger, including the anticipated timing of and
strategies with respect to the disposition of problem assets, and to provide
for certain costs and expenses relating to the Merger. Accordingly, it is
expected that additional credit-related reserves of approximately $14
million will be established and accruals aggregating approximately $82
million will be recorded to reflect specific expenses and identified
restructuring charges expected to be incurred within one year of closing.
The amount of the adjustments discussed are preliminary estimates. The
actual amount of the adjustments to be made by MFC will be based on
information available at that time and could be different from the
estimates. These adjustments are not reflected in the pro forma combined
statements of income as they are not expected to have a continuing impact on
FBS. In addition to these adjustments, FBS expects to take the following
actions:
(a) Subsequent to the merger, FBS proposes to sell the deposit
relationships associated with approximately 60 excess branch
locations. In addition, certain fixed assets which are used to service
those deposit relationships will be sold. Earning assets will not be
sold.
(b) Because of regulatory restrictions on nonbanking activities, FBS
expects that within two years of the closing of the merger, it will
sell Edina Realty, Inc., MFC's real estate brokerage subsidiary.
(c) In conjunction with the Merger, each of the 488,750 shares of MFC
Preferred Stock will be converted into a right to receive $27.00 cash,
plus any accumulated and unpaid dividends on such shares.
The pro forma amounts reflect the effects of these transactions. See
Unaudited Pro Forma Combined Financial Information included elsewhere in
this Proxy Statement/Prospectus for additional details on these
transactions.
In addition, FBS expects to achieve operating cost savings primarily through
reductions in staff, the consolidation and elimination of certain office
facilities, and the consolidation of certain data processing and other back
office operations. The operating cost savings are expected to be achieved in
various amounts at various times during the year subsequent to the closing
and not ratably over, or at the beginning or end of, such period. No
adjustment has been included in the unaudited pro forma combined financial
statements for the anticipated operating cost savings.
(2) Capital ratios are computed based on 1992 Federal Reserve Board rules and
regulations.
(3) Includes non-accrual and restructured loans, other nonperforming assets and
other real estate owned.
22
<PAGE>
INFORMATION CONCERNING THE FBS SPECIAL MEETING
GENERAL
This Proxy Statement/Prospectus is being furnished to holders of FBS Common
Stock as part of the solicitation of proxies by the FBS Board of Directors for
use at the FBS Special Meeting to be held on January 24, 1995 and at any
adjournment thereof. This Proxy Statement/Prospectus, and the accompanying Proxy
Card, are being first mailed to FBS shareholders on or about December 5, 1994.
The principal purpose of the FBS Special Meeting is to consider and vote
upon the proposal to approve and adopt the Merger Agreement, which sets forth
the terms and conditions of the Merger, and the transactions contemplated
thereby. If the exchange ratio of .6803 share of FBS Common Stock for each share
of MFC Common Stock increased, pursuant to the adjustment described below, the
number of shares of FBS Common Stock issued in connection with the Merger may
exceed 20% of the FBS Common Stock outstanding prior to the Merger. In such
event, shareholder approval of the Merger Agreement and the transactions
contemplated thereby would be required by Delaware law and the rules of the
NYSE. Therefore, FBS is seeking shareholder approval of the Merger Agreement and
the transactions contemplated thereby. Upon consummation of the Merger, each
outstanding share of MFC Common Stock will be converted into .6803 share of FBS
Common Stock, subject to certain adjustments as described below, with cash paid
in lieu of fractional shares. Notwithstanding the foregoing, if the Average
Price is less than $33.00, then the exchange ratio of .6803 share of FBS Common
Stock for each share of MFC Common Stock will be adjusted by multiplying .6803
by the quotient of (i) $33.00 divided by (ii) the Average Price. Thus, if the
Average Price is less than $33.00, the exchange ratio would increase and result
in the receipt by MFC shareholders of more than .6803 share of FBS Common Stock
for each share of MFC Common Stock. If the Average Price is greater than $40.50,
then the exchange ratio of .6803 share of FBS Common Stock for each share of MFC
Common Stock will be adjusted by multiplying .6803 by the quotient of (i) $40.50
divided by (ii) the Average Price. Thus, if the Average Price is greater than
$40.50, the exchange ratio would decrease and result in the receipt by MFC
shareholders of less than .6803 share of FBS Common Stock for each share of MFC
Common Stock. MFC shareholders should note that each of FBS and MFC may, at
their respective options, abandon and terminate the Merger Agreement before it
takes effect if the Average Price is less than $29.50.
Upon consummation of the Merger, each outstanding share of MFC Preferred
Stock, other than shares as to which dissenters' rights have been perfected,
shall be converted into the right to receive $27.00 in cash, plus any
accumulated and unpaid dividends on such shares of MFC Preferred Stock to, but
excluding, the date the Merger becomes effective calculated as set forth in the
terms of such MFC Preferred Stock, without interest, from FBS.
Based on the number of shares of MFC Common Stock outstanding at the MFC
Record Date, consummation of the Merger would result in the issuance of
21,051,103 shares of FBS Common Stock to persons other than FBS (approximately
15.5% of the total number of shares of FBS Common Stock outstanding at November
28, 1994, after giving effect to such issuance), assuming no adjustment is
required with respect to the exchange ratio. Based on the total number of shares
and rights to acquire shares of MFC Common Stock outstanding on such record
date, a maximum aggregate of 22,687,800 shares of FBS Common Stock could be
issued to persons other than FBS in the Merger, or approximately 16.5% of the
FBS Common Stock outstanding after consummation of the Merger (based on the
number of shares of FBS Common Stock outstanding at November 28, 1994), assuming
no adjustment is required with respect to the exchange ratio. The Merger is
subject to a number of conditions, including the receipt of required regulatory
and shareholder approvals.
In addition to approval and adoption of the Merger Agreement and the
transactions contemplated thereby, the shareholders of FBS may be asked to
approve a proposal to adjourn the FBS Special Meeting to permit further
solicitation of proxies in the event there are not sufficient votes at the time
of the FBS Special Meeting to approve and adopt the Merger Agreement.
SOLICITATION, VOTING AND REVOCABILITY OF PROXIES
The Board of Directors of FBS has fixed the close of business on November
28, 1994 (the "FBS Record Date") as the record date for the determination of the
shareholders of FBS entitled to notice of and to vote at the FBS Special
Meeting. Accordingly, only holders of record of shares of FBS Common Stock at
the close of business
23
<PAGE>
on such date will be entitled to vote at the FBS Special Meeting, with each
share entitling its owner to one vote on all matters properly presented at the
FBS Special Meeting. On the FBS Record Date, there were approximately 22,200
holders of record of the 114,320,197 shares of FBS Common Stock then
outstanding. The presence, in person or by proxy, of not less than one-third of
the total number of outstanding shares of FBS Common Stock entitled to vote at
the FBS Special Meeting is necessary to constitute a quorum at the FBS Special
Meeting. Under Delaware law, the affirmative vote of at least a majority of the
total number of outstanding shares of FBS Common Stock entitled to vote is
required to approve and adopt the Merger Agreement. Under NYSE rules, the
issuance of FBS Common Stock as contemplated by the Merger Agreement must be
approved by a majority of the votes cast at the FBS Special Meeting, provided
that over 50% of the shares of FBS Common Stock entitled to vote do vote at the
FBS Special Meeting. Approval and adoption of the Merger Agreement by holders of
FBS Common Stock will also constitute the approval required by the NYSE of the
issuance by FBS of the shares of FBS Common Stock to be issued in connection
with the Merger. Approval of the adjournment of the FBS Special Meeting requires
the affirmative vote of at least a majority of the votes cast, provided that a
quorum is present at the FBS Special Meeting. If an executed proxy card is
returned and the shareholder has abstained from voting on any matter, the shares
represented by such proxy will be considered present at the meeting for purposes
of determining a quorum and for purposes of calculating the vote, but will not
be considered to have been voted in favor as to such matter. If an executed
proxy is returned by a broker holding shares in street name which indicates that
the broker does not have discretionary authority as to certain shares to vote on
one or more matters, such shares will be considered present at the meeting for
purposes of determining a quorum, but will not be considered to be represented
at the meeting for purposes of calculating the vote with respect to such matter.
It is expected that all of the 1,607,979 shares of FBS Common Stock
(excluding shares subject to stock options) beneficially owned by directors and
executive officers of FBS and their affiliates at the FBS Record Date (1.4% of
the total number of outstanding shares of FBS Common Stock at such date) will be
voted for approval and adoption of the Merger Agreement and for adjournment of
the FBS Special Meeting under the circumstances described herein. As of the FBS
Record Date, MFC and its directors and executive officers and their affiliates
beneficially owned less than 1% of the outstanding shares of FBS Common Stock.
If the accompanying Proxy Card is properly executed and returned to FBS in
time to be voted at the FBS Special Meeting, the shares represented thereby will
be voted in accordance with the instructions marked thereon. EXECUTED BUT
UNMARKED PROXIES WILL BE VOTED FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT
AND FOR THE PROPOSAL TO ADJOURN THE FBS SPECIAL MEETING IF NECESSARY TO PERMIT
FURTHER SOLICITATION OF PROXIES. The Board of Directors of FBS does not know of
any matters other than those described in the notice of the FBS Special Meeting
that are to come before the FBS Special Meeting. If any other matters are
properly brought before the FBS Special Meeting, one or more of the persons
named in the proxy card will vote the shares represented by such proxy upon such
matters as determined in their discretion.
THE BOARD OF DIRECTORS OF FBS UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS
OF FBS VOTE FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
The presence of a shareholder at the FBS Special Meeting will not
automatically revoke such shareholder's proxy. A shareholder may, however,
revoke a proxy at any time prior to its exercise by filing a written notice of
revocation with, or by delivering a duly executed proxy bearing a later date to,
Michael J. O'Rourke, Secretary, First Bank System, Inc., First Bank Place, 601
Second Avenue South, Minneapolis, Minnesota 55402-4302, or by attending the FBS
Special Meeting and voting in person.
The cost of soliciting proxies for the FBS Special Meeting will be borne by
FBS. In addition to use of the mails, proxies may be solicited personally or by
telephone or telegraph by directors, officers and employees of FBS, who will not
be specially compensated for such activities. FBS will also request persons,
firms and companies holding shares in their names or in the name of their
nominees, which are beneficially owned by others, to send proxy materials to and
obtain proxies from such beneficial owners. FBS will reimburse such persons for
their reasonable expenses incurred in that connection. FBS has retained Morrow &
Co., Inc. to assist in the solicitation of proxies at a cost of approximately
$15,000 plus customary expenses.
24
<PAGE>
INFORMATION CONCERNING THE MFC SPECIAL MEETING
GENERAL
This Proxy Statement/Prospectus is being furnished to holders of MFC Common
Stock as part of the solicitation of proxies by the MFC Board of Directors for
use at the MFC Special Meeting to be held on January 24, 1995 and at any
adjournment thereof. This Proxy Statement/Prospectus, and the accompanying Proxy
Card, are being first mailed to MFC shareholders on or about December 5, 1994.
The principal purpose of the MFC Special Meeting is to consider and vote
upon the proposal to approve and adopt the Merger Agreement, which sets forth
the terms and conditions of the Merger, and the transactions contemplated
thereby. Upon consummation of the Merger, each outstanding share of MFC Common
Stock will be converted into .6803 share of FBS Common Stock, subject to certain
adjustments as described below, with cash paid in lieu of fractional shares.
Notwithstanding the foregoing, if the Average Price is less than $33.00, then
the exchange ratio of .6803 share of FBS Common Stock for each share of MFC
Common Stock will be adjusted by multiplying .6803 by the quotient of (i) $33.00
divided by (ii) the Average Price. Thus, if the Average Price is less than
$33.00, the exchange ratio would increase and result in the receipt by MFC
shareholders of more than .6803 share of FBS Common Stock for each share of MFC
Common Stock. If the Average Price is greater than $40.50, then the exchange
ratio of .6803 share of FBS Common Stock for each share of MFC Common Stock will
be adjusted by multiplying .6803 by the quotient of (i) $40.50 divided by (ii)
the Average Price. Thus, if the Average Price is greater than $40.50, the
exchange ratio would decrease and result in the receipt by MFC shareholders of
less than .6803 share of FBS Common Stock for each share of MFC Common Stock.
MFC shareholders should note that each of FBS and MFC may, at their respective
options, abandon and terminate the Merger Agreement before it takes effect if
the Average Price is less than $29.50. Upon consummation of the Merger, each
outstanding share of MFC Preferred Stock, other than shares as to which
dissenters' rights have been perfected, shall be converted into the right to
receive $27.00 in cash, plus any accumulated and unpaid dividends on such shares
of MFC Preferred Stock to, but excluding, the date the Merger becomes effective
calculated as set forth in the terms of such MFC Preferred Stock, without
interest, from FBS. The Merger is subject to a number of conditions, including
the receipt of required regulatory and shareholder approvals.
In addition to approval and adoption of the Merger Agreement, the
shareholders of MFC may be asked to approve a proposal to adjourn the MFC
Special Meeting to permit further solicitation of proxies in the event there are
not sufficient votes at the time of the MFC Special Meeting to approve and adopt
the Merger Agreement.
SOLICITATION, VOTING AND REVOCABILITY OF PROXIES
The Board of Directors of MFC has fixed the close of business on November
28, 1994 (the "MFC Record Date") as the record date for the determination of the
shareholders of MFC entitled to notice of and to vote at the MFC Special
Meeting. Accordingly, only holders of record of shares of MFC Common Stock at
the close of business on such date will be entitled to vote at the MFC Special
Meeting, with each share entitling its owner to one vote on all matters properly
presented at the MFC Special Meeting. On the MFC Record Date, there were
approximately 3,390 holders of record of the 31,629,954 shares of MFC Common
Stock then outstanding. The presence, in person or by proxy, of at least a
majority of the total number of outstanding shares of MFC Common Stock entitled
to vote at the MFC Special Meeting is necessary to constitute a quorum at the
MFC Special Meeting. Under Delaware law, the affirmative vote of at least a
majority of the total number of outstanding shares of MFC Common Stock entitled
to vote at the MFC Special Meeting is required to approve and adopt the Merger
Agreement. Approval of the adjournment of the MFC Special Meeting requires the
affirmative vote of at least a majority of the votes cast, provided that a
quorum is present at the MFC Special Meeting. If an executed proxy card is
returned and the shareholder has abstained from voting on any matter, the shares
represented by such proxy will be considered present at the meeting for purposes
of determining a quorum and for purposes of calculating the vote, but will not
be considered to have been voted in favor as to such matter. If an executed
proxy is returned by a broker holding shares in street name which indicates that
the broker does not have discretionary authority as to certain shares to vote on
one or more matters, such shares will be considered present at the meeting for
purposes of determining a quorum, but will not be considered to be represented
at the meeting for purposes of calculating the vote with respect to such matter.
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It is expected that all of the 1,934,819 shares of MFC Common Stock
(excluding shares subject to stock options) beneficially owned by directors and
executive officers of MFC and their affiliates at the MFC Record Date (6.1% of
the total number of outstanding shares of MFC Common Stock at such date) will be
voted for approval and adoption of the Merger Agreement and for adjournment of
the MFC Special Meeting under the circumstances described herein. As of the MFC
Record Date, FBS beneficially owned 686,100 shares of MFC Common Stock
(excluding shares issuable to FBS under certain conditions as described under
"The Merger-- Option Granted to FBS"), and directors and executive officers of
FBS beneficially owned no shares of MFC Common Stock. FBS intends to vote all of
its shares of MFC Common Stock for approval and adoption of the Merger Agreement
and for adjournment of the MFC Special Meeting under the circumstances described
herein.
If the accompanying Proxy Card is properly executed and returned to MFC in
time to be voted at the MFC Special Meeting, the shares represented thereby will
be voted in accordance with the instructions marked thereon. EXECUTED BUT
UNMARKED PROXIES WILL BE VOTED FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT
AND FOR THE PROPOSAL TO ADJOURN THE MFC SPECIAL MEETING IF NECESSARY TO PERMIT
FURTHER SOLICITATION OF PROXIES. The Board of Directors of MFC does not know of
any matters other than those described in the notice of the MFC Special Meeting
that are to come before the MFC Special Meeting. If any other matters are
properly brought before the MFC Special Meeting, one or more of the persons
named in the proxy card will vote the shares represented by such proxy upon such
matters as determined in their discretion.
THE BOARD OF DIRECTORS OF MFC UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS
OF MFC VOTE FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
The presence of a shareholder at the MFC Special Meeting will not
automatically revoke such shareholder's proxy. A shareholder may, however,
revoke a proxy at any time prior to its exercise by filing a written notice of
revocation with, or by delivering a duly executed proxy bearing a later date to,
Charles D. Kalil, Secretary, Metropolitan Financial Corporation, 1000
Metropolitan Centre, 333 South Seventh Street, Minneapolis, Minnesota 55402, or
by attending the MFC Special Meeting and voting in person.
The cost of soliciting proxies for the MFC Special Meeting will be borne by
MFC. In addition to use of the mails, proxies may be solicited personally or by
telephone or telegraph by directors, officers and employees of MFC, who will not
be specially compensated for such activities. MFC will also request persons,
firms and companies holding shares in their names or in the name of their
nominees, which are beneficially owned by others, to send proxy materials to and
obtain proxies from such beneficial owners. MFC will reimburse such persons for
their reasonable expenses incurred in that connection. MFC has retained Kissel
Blake Inc. to assist in the solicitation of proxies at a cost of approximately
$25,000 plus customary expenses.
THE MERGER
This section of the Proxy Statement/Prospectus describes certain aspects of
the proposed Merger. To the extent that it relates to the Merger Agreement, the
following description does not purport to be complete and is qualified in its
entirety by reference to the Merger Agreement, a copy of which is attached
hereto as Appendix A and is incorporated herein by reference. All shareholders
are urged to read the Merger Agreement and the other appendices hereto in their
entirety.
BACKGROUND OF THE MERGER
The past several years have been a period of significant consolidation in
the financial services industry. MFC has been an active participant in the
consolidation process as an acquiror. Since its conversion from a federally
chartered mutual savings and loan to a stock company in March 1983, MFC has
acquired all or part of nearly 30 financial institutions. In connection with
implementing its acquisition strategy, the executive management of MFC had a
number of conversations with at least four companies since the fall of 1993
exploring the possibility of a merger and/or acquisition. These discussions,
however, were primarily concerned with the concept of a merger of equals between
MFC and similar sized regional financial services companies. MFC's concept of a
merger of equals involved a business combination in which neither merging
company would receive a significant premium for its stock.
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For a variety of reasons, discussions with three of these companies did not
result in any significant analysis or follow through by executives or the Board
of Directors of MFC. However, in mid May 1994, Norman M. Jones, MFC's Chairman
and Chief Executive Officer, had serious discussions with the chairman and chief
executive officer of another large regional thrift holding company about a
possible combination to be structured as a merger of equals. The structure of
that transaction seemed much better timed and more appropriate than the three
that had been discussed previously. On June 1, 1994, Mr. Jones and another
senior executive of MFC met with a number of executives of this institution. At
this meeting, MFC and this financial institution decided to proceed towards the
execution of a letter of intent. On June 2, 1994, MFC retained Dain Bosworth
Incorporated ("Dain Bosworth") as a financial adviser in connection with the
proposed transaction. Dain Bosworth was requested to analyze the transaction and
advise the Board of Directors concerning the proposed transaction at a special
meeting of MFC's Board of Directors to take place on June 10, 1994. In
connection with Dain Bosworth's preparations for the June 10, 1994 meeting, Mr.
Jones told Dain Bosworth that in addition to the discussions with three other
companies relative to a merger of equals, he had had very informal discussions
with Richard A. Zona, Vice Chairman and Chief Financial Officer of FBS, relative
to a business combination. Mr. Zona and Mr. Jones are friends whose relationship
goes back nearly 15 years in both a personal and professional capacity. Mr.
Jones told Dain Bosworth that the discussions were casual and very informal. Mr.
Jones did note, however, that if the Board were ever serious about the sale of
MFC, as opposed to a merger of equals, he believed that FBS might have some
serious interest.
At the special meeting of MFC's Board of Directors scheduled for June 10,
1994, the Board was to consider authorizing the execution of a letter of intent
concerning this proposed merger of equals. Management, MFC's legal counsel and
Dain Bosworth were to make presentations concerning the proposed transaction and
Dain Bosworth was prepared to deliver a fairness opinion concerning the
transaction. Before that meeting began, the chairman and chief executive officer
of the financial institution with whom the merger was contemplated called and
informed members of MFC's management that he and his board had reconsidered the
transaction and decided not to pursue it any further.
Although the scheduled board meeting was not held, Dain Bosworth made its
presentation to the directors. As a part of its presentation, Dain Bosworth
presented three valuations of MFC. The first was as a stand-alone entity; the
second, as a participant in a merger of equals; and the third, the valuation
that MFC might receive in an outright sale. See "--Opinions of MFC Financial
Advisers." Members of the Board then discussed with Mr. Jones his views and the
views of management relative to the Dain Bosworth presentation.
At a regularly scheduled Board meeting held on June 28, 1994, a special
committee was formed to discuss ways of enhancing shareholder value through
appropriate means and was made up of Mr. Jones and the following members of the
MFC Board who are not current or former employees of MFC or its subsidiaries:
Dr. Trueman E. Tryhus, R. Douglas Larsen, Karol D. Emmerich, and Steven D.
Rothemeier. Following the regular board meeting, this committee met. The outside
board members asked Mr. Jones if, in his view, it was possible to achieve the
price that Dain Bosworth had suggested could be obtained in a sale of MFC. Mr.
Jones stated that he was not sure, but that if the Board were serious about
exploring such an idea, FBS would be the first company he would talk to given
FBS' informal expression of interest in the past. This committee suggested that
that would be an appropriate course of action.
On June 29, 1994, Mr. Jones met with Mr. Zona. Mr. Zona confirmed that FBS
had more than a casual interest in acquiring MFC and price was then discussed.
After some discussion, it was determined that an exchange ratio ranging from
.6803 to .7347 shares of FBS Common Stock for each share of MFC Common Stock
(equivalent to a price of $25 to $27 per share of MFC Common Stock based on the
closing price of FBS Common Stock on June 28, 1994) would likely be acceptable
to the parties. Mr. Zona and Mr. Jones also agreed to instruct legal counsel to
prepare a letter of intent reflecting the terms of the transaction for review by
the MFC and FBS Boards. The determination of the final amount to be paid for
each share of MFC Common Stock was to be based, in part, on additional due
diligence by FBS concerning MFC prior to the execution of a definitive Merger
Agreement.
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Later in the day on June 29, 1994, Mr. Jones informed the special committee
about his preliminary discussions with Mr. Zona. The special committee then met
on Thursday, June 30, 1994. In addition to the committee members,
representatives of Dain Bosworth and outside legal counsel were in attendance.
At this meeting, members of MFC's senior management, together with its legal and
financial advisors, reviewed with the special committee, among other things, the
background of the transaction, the duties and responsibilities of MFC's
directors under relevant corporate law and regulatory requirements and various
financial analyses of the transaction. In addition, the committee reviewed and
approved the terms of the letter of intent between MFC and FBS. At the
conclusion of the meeting, Dain Bosworth indicated that it expected it would be
able to issue an opinion that the consideration to be received by holders of MFC
Common Stock would be fair from a financial point of view. Mr. Zona informed Mr.
Jones early in the afternoon that the FBS Board of Directors had approved the
terms of the letter of intent. The letter of intent was executed shortly before
3:00 p.m. on June 30, 1994.
Following the execution of the letter of intent, FBS commenced an in-depth
due diligence investigation of MFC. Concurrently with this due diligence
investigation, officers of FBS and MFC, with the assistance of legal counsel for
FBS and MFC, negotiated the terms of the definitive Merger Agreement and the
Stock Option Agreement. Based upon the completion of its due diligence, FBS
proposed an exchange ratio of .6803 share of FBS Common Stock for each share of
MFC Common Stock, subject to certain adjustments. See "--Terms of Merger;
Consideration to be Received by MFC Shareholders."
On July 20, 1994, the MFC Board of Directors held a special meeting to
consider the Merger Agreement and the Stock Option Agreement, and the
transactions contemplated thereby. At such meeting, members of MFC's senior
management, together with its legal and financial advisors, reviewed with MFC's
Board of Directors, among other things, the background of the proposed
transaction, the potential benefits of the transaction, including the strategic
rationale for the transactions, and a summary of the financial and valuation
analyses of the transaction and the terms of the definitive Merger Agreement and
Stock Option Agreement. At the conclusion of the meeting, Dain Bosworth
delivered its oral opinion (subsequently confirmed in writing) that the
consideration to be received by holders of MFC Common Stock and MFC Preferred
Stock would be fair to such stockholders from a financial point of view and
Montgomery Securities delivered its oral opinion (subsequently confirmed in
writing) that the consideration to be received by holders of MFC Common Stock
would be fair to such stockholders from a financial point of view. As discussed
above, the consideration to be received by MFC shareholders was determined
through negotiations between MFC and FBS and not by Dain Bosworth or Montgomery.
See "--Opinions of MFC Financial Advisers" for a discussion of the factors
considered and the analytical methods employed by Dain Bosworth and Montgomery
Securities in reaching such conclusions. The MFC Board of Directors, by a
unanimous vote of those directors present at the meeting, approved the Merger
Agreement and Stock Option Agreement and the transactions contemplated thereby.
The Board of Directors of FBS approved the Merger Agreement and Stock Option
Agreement at a meeting also held on July 20, 1994, by the unanimous vote of
directors present. Officers of FBS and representatives of J.P. Morgan Securities
Inc. made presentations at the special meeting. See "--Reasons of FBS for the
Merger; Recommendation of FBS Board of Directors" and "--Opinion of FBS
Financial Adviser."
REASONS OF FBS FOR THE MERGER; RECOMMENDATION OF FBS BOARD OF DIRECTORS
The Board of Directors of FBS approved the Merger Agreement by the unanimous
vote of all directors present at the July 20, 1994 meeting. The Board of
Directors of FBS believes that the terms of the Merger are fair and that the
Merger is in the best interest of FBS and its shareholders and recommends that
the shareholders of FBS vote FOR the approval and adoption of the Merger
Agreement and the transactions contemplated thereby.
In reaching its determination to approve the Merger Agreement, the Board of
Directors of FBS considered a variety of factors, although it did not assign any
relative or specific weight to the factors considered. The factors considered
included the following:
(i) The acquisition of MFC will expand FBS' retail franchise in
Minnesota, North Dakota, South Dakota and Wisconsin. The acquisition will
allow FBS to leverage its existing presence in these states,
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providing the opportunity to realize substantial economies from
consolidation. Significant cost savings are expected to result from
personnel reductions, branch and operational consolidations and general
reductions in corporate and administrative support functions.
(ii) The acquisition of MFC will allow FBS to enter four new states
(Iowa, Nebraska, Kansas and Wyoming) which fall into FBS' strategic market
area. The acquisition will provide FBS with a base in these states which can
be leveraged through further acquisitions.
(iii) The acquisition of MFC will provide FBS access to over 300,000
additional households. While MFC has a high level of retail assets relative
to other thrifts, FBS' broader product and service offerings will allow
greater penetration of these households. Additionally, MFC is a significant
originator and servicer of residential mortgages. The acquisition of MFC
will enhance the efficiency and increase the market share of FBS Mortgage.
(iv) The Board of Directors also considered information concerning the
financial position, results of operations and stock prices of MFC as well as
the prospective financial performance of FBS and MFC on a combined basis.
See "--Opinion of FBS Financial Adviser." In addition, the Board noted that
the acquisition of MFC is expected to be accretive to FBS' earnings per
share beginning in 1995. The Board also considered the extensive due
diligence review which had been conducted by FBS personnel with respect to
MFC's loan portfolio and operations.
(v) In addition, the Board of Directors considered the oral opinion of
J.P. Morgan Securities Inc. delivered July 20, 1994, confirmed by a written
opinion dated July 25, 1994, that the exchange ratio of FBS Common Stock for
MFC Common Stock in the Merger is fair to holders of FBS Common Stock from a
financial point of view. See "--Opinion of FBS Financial Adviser."
OPINION OF FBS FINANCIAL ADVISER
The Board of Directors of FBS retained the investment banking firm of J.P.
Morgan Securities Inc. ("J.P. Morgan") to render its opinion as to the fairness
to the holders of FBS Common Stock of the exchange ratio of .6803 share of FBS
Common Stock to be paid for each share of MFC Common Stock (the "Exchange
Ratio") pursuant to the Merger Agreement.
J.P. Morgan has delivered its written opinions to the Board of Directors of
FBS to the effect that, as of July 25, 1994 and November 28, 1994, the Exchange
Ratio pursuant to the Merger Agreement is fair to the holders of FBS Common
Stock. The written opinion confirmed the oral opinion delivered to the FBS Board
of Directors at its July 20, 1994 meeting.
A copy of J.P. Morgan's written opinion dated as of November 28, 1994, which
sets forth the assumptions made, matters considered and limits on the review
taken is attached as Appendix D to this Proxy Statement/ Prospectus and is
incorporated herein by reference. The July 25, 1994 opinion is substantially
identical to the opinion attached hereto. FBS shareholders are urged to read the
opinion in its entirety. The description of the opinion set forth herein is
qualified in its entirety by reference to the full text of such opinion and
letter. J.P. Morgan's opinion is directed only to the Exchange Ratio and does
not constitute a recommendation to any FBS shareholder as to how such
shareholder should vote at the FBS Special Meeting.
In arriving at its written opinion dated as of November 28, 1994, J.P.
Morgan, among other things: (i) reviewed the Merger Agreement, the Stock Option
Agreement dated July 21, 1994; (ii) reviewed MFC's Annual Reports, Forms 10-K
and related financial information for the five fiscal years ending December 31,
1989 through December 31, 1993, and MFC's Form 10-Q for the quarter ending
September 30, 1994; (iii) reviewed FBS' Annual Reports, Forms 10-K for each of
the five years ending December 31, 1989 through December 31, 1993, and the
Quarterly Report on Form 10-Q for the quarter ending September 30, 1994; (iv)
held discussions with members of the senior management of MFC and FBS regarding
the Merger, certain aspects of past and current business operations, financial
condition and future prospects of their respective companies, and the effects of
the Merger on the financial condition and future prospects of FBS; (v) reviewed
the historical market prices and trading activity for the FBS Common Stock and
MFC Common Stock and compared them with those of certain publicly
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traded companies which it deemed to be relevant; (vi) compared the financial
terms of the transaction contemplated by the Merger Agreement with the financial
terms of certain other mergers and acquisitions which it deemed to be relevant;
(vii) considered the pro forma effect of the Merger on FBS' capitalization
ratios, earnings, and book value per share; and (viii) reviewed such other
financial studies and analyses and performed such other investigations and took
into account such other matters as it deemed necessary.
J.P. Morgan has relied, without independent verification, upon the accuracy
and completeness of all of the financial and other information reviewed by it
for the purpose of its opinion. J.P. Morgan also relied upon the management of
FBS and MFC as to the reasonableness and achieveability of the financial and
other operating forecasts (and the assumptions and bases therefor) provided to
it. In that regard, J.P. Morgan assumed with FBS' consent that such forecasts,
including, without limitation, projected cost savings and operating synergies
resulting from the Merger and projections regarding underperforming and
nonperforming assets, net charge-offs and the adequacy of reserves, reflect the
best currently available estimates and judgments of such respective matters.
J.P. Morgan is not an expert in the evaluation of allowances for loan losses and
it has not made an independent evaluation of the adequacy of the allowance for
loan losses of FBS or MFC nor has it reviewed any individual credit files. In
addition, J.P. Morgan has not made an independent evaluation or appraisal of the
assets and liabilities of FBS or MFC or any of their subsidiaries, and has not
been furnished with any such evaluation or appraisal.
J.P. Morgan's opinion has been rendered without regard to the necessity for,
or level of, any restrictions which may be imposed or divestitures which may be
required in the course of obtaining regulatory approvals for the Merger.
Set forth below is a summary of selected analyses performed by J.P. Morgan
in reaching its opinion delivered on July 25, 1994. Such analyses were updated
in connection with rendering the opinion attached as Appendix D to this Proxy
Statement/Prospectus.
SUMMARY OF PROPOSAL. J.P. Morgan described the terms of the proposed
transaction as reflected in the Merger Agreement, including the Exchange Ratio.
Based on the aggregate consideration offered, using a July 19, 1994 price for
the Common Stock of FBS, J.P. Morgan calculated the price to market, price to
book, price to tangible book, price to earnings, and price to asset ratios for
MFC. This analysis yielded a price to market multiple of 10.2%, a price to book
multiple of 1.59x, a price to tangible book multiple of 2.0x, and a price to
earnings multiple of 13.1x (based on MFC's net earnings for the twelve months
ended March 31, 1994).
PRO FORMA MERGER ANALYSIS. J.P. Morgan analyzed certain pro forma effects
resulting from the Merger. This analysis indicated that the transaction would
result in earnings dilution per FBS Common Stock equivalent share in 1994 and an
earnings pickup per FBS Common Stock equivalent share in 1995 (based upon
projections provided by FBS and giving effect to merger synergies assumptions
provided by FBS). In this analysis, J.P. Morgan assumed that MFC performed in
accordance with the earnings forecast provided to J.P. Morgan by FBS management.
DISCOUNTED DIVIDEND STREAM ANALYSIS. Using a discounted dividend stream
analysis, J.P. Morgan estimated the present value of the future streams of after
tax cash flows that MFC could produce through 2002 and distribute to
shareholders ("dividendable net income"). In this analysis, J.P. Morgan assumed
that MFC performed in accordance with the earnings forecasts provided to J.P.
Morgan by FBS' management and that MFC could pay out up to 100% of its adjusted
net income with the constraint that MFC's common equity to asset ratio be
maintained at a minimum level of 6%. J.P. Morgan estimated the terminal values
for the MFC Common Stock using 2%, 3% and 4% perpetual growth rates for 2002
estimated net income as projected by FBS. The dividendable net income streams
and terminal values were then discounted to present values using different
discount rates (ranging from 11% to 13%) chosen to reflect different assumptions
regarding the required rates of return of holders or prospective buyers of FBS
Common Stock. This discounted dividend stream analysis indicated a reference
range of between $25.90 and $34.20 per share of MFC Common Stock. This analysis
was based upon FBS' management projections, which were based upon many factors
and assumptions, many of which are beyond the control of FBS and MFC. As
indicated below, this analysis is not necessarily indicative of actual values or
actual future results and does not purport to reflect the prices at which any
securities may trade at the present or at any time in the future.
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ANALYSIS OF SELECTED THRIFT MERGER TRANSACTIONS. J.P. Morgan reviewed a
number of thrift merger transactions which had occurred since January 1, 1993.
These transactions included mergers and acquisitions of thrifts in the midwest
for which the transaction size exceeded $50 million, and all thrift transactions
exceeding $200 million in value. J.P. Morgan calculated the price to market,
price to earnings, price to book value and price to asset ratios in the
contemplated transaction and such selected bank merger transactions. This
analysis, (using a July 19, 1994 price for FBS Common Stock), yielded a range of
price to market multiples of approximately 12.1% to 119.2% with a mean of 44.4%
and a median of 39.0% (compared with a price to market multiple of 10.2% for
MFC), a range of price to book value multiples of approximately 0.85x to 2.1x
with a mean of 1.65x and a median of 1.67x (compared with a price to book
multiple of 2.0x for MFC using a July 19, 1994 price for FBS Common Stock) and a
range of price to asset value multiples of approximately 6.6% to 20.0% with a
mean of 14.25% and a median of 14.85% (compared with a price to asset multiple
of 10.10% for MFC using a July 19, 1994 price for FBS Common Stock). This
analysis yielded an overall imputed reference range per share of MFC Common
Stock of $25.59 to $34.75, and of $25.90 to $36.21 based on the mean and median
imputed range.
No company or transaction used in the above analyses as a comparison is
identical to FBS, MFC or the contemplated transaction. Accordingly, an analysis
of the results of the foregoing necessarily involves complex considerations and
judgments concerning differences in financial and operating characteristics of
the companies and other factors that could affect the public trading value of
the companies which were compared. Mathematical analysis (such as determining
the average or median) is not, in itself, a meaningful method of using
comparable company or transaction data.
COMPARISON OF SELECTED COMPANIES. In connection with the rendering of its
opinion, J.P. Morgan compared selected operating and stock market data for MFC
to the corresponding data of Charter One Financial, FirstFed Michigan Corp.,
First Financial Corp., St. Paul Bancorp. Inc., Standard Federal Bank and TCF
Financial Corp. (collectively, the "Metropolitan Composite"). This comparison
showed, among other things, that (i) as of July 19, 1994, the ratio of MFC's
market price to its earnings per share estimate for 1994 was 10.6x, compared to
a mean of 8.5x and a median of 8.0x for the Metropolitan Composite; (ii) as of
July 19, 1994, the ratio of MFC's market price to its book value per share was
1.4x, compared to a mean of 1.3x and a median of 1.2x for the Metropolitan
Composite; (iii) for the twelve month period ending March 31, 1994, MFC's return
on average assets was 0.68%, compared to a mean of 1.04% and a median of 1.01%
for the Metropolitan Composite; and (iv) for the twelve month period ending
March 31, 1994, MFC's return on average equity was 9.68%, compared to a mean of
15.77% and a median of 16.34% for the Metropolitan Composite. Earnings per share
estimates used in this analysis were the median Institutional Brokers Estimate
System ("IBES") estimates as of July 7, 1994. IBES is a data service that
monitors and publishes a compilation of earnings estimates produced by selected
research analysts regarding companies of interest to institutional investors.
The summary of the J.P. Morgan fairness opinion set forth above provides a
description of the principal elements of the analyses performed by J.P. Morgan
in arriving at its opinion. It does not purport to be a complete description of
such analyses. The preparation of a fairness opinion is not necessarily
susceptible to partial analysis or summary description. J.P. Morgan believes
that its analyses and the summary set forth above must be considered as a whole
and that selected portions of its analyses, without considering all analyses, or
selecting all or part of the above summary, without considering all factors and
analyses, would create an incomplete view of the procedures underlying the J.P.
Morgan opinion. In addition, while J.P. Morgan gave the various analyses
approximately similar weight it may have used them for different purposes, and
may have deemed various assumptions more or less reliable than other
assumptions, so that the ranges of valuations resulting from any particular
analysis described above should not be taken to be J.P. Morgan's view of the
actual value of MFC or FBS. The fact that any specific analysis has been
referred to in the summary above is not meant to indicate that such analysis was
given more weight than any other analyses.
In performing its analyses, J.P. Morgan made numerous assumptions with
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond the control of MFC or FBS. The analyses
performed by J.P. Morgan are not necessarily indicative of actual values or
actual future results, which may be significantly more or less favorable than
suggested by such analyses. Such analyses were prepared solely as part of J.P.
Morgan's analysis of the fairness of the Exchange Ratio to holders of FBS Common
Stock, the
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conclusions of which were provided to FBS' Board of Directors. The analyses do
not purport to be appraisals or to reflect the prices at which a company might
actually be sold or the prices at which any securities may trade at the present
time or at any time in the future. In addition, as described above, J.P.
Morgan's opinion to the FBS Board of Directors is just one of many factors taken
into consideration by the FBS Board of Directors.
J.P. Morgan is a nationally recognized investment banking firm with
substantial experience in transactions similar to the Merger and is familiar
with FBS and its business. As part of its investment banking business, J.P.
Morgan is continually engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions.
Pursuant to its engagement letter, J.P. Morgan will receive a fee of
$250,000 for the delivery of its fairness opinion letter to FBS' Board of
Directors. J.P. Morgan will also be reimbursed for its reasonable out-of-pocket
expenses incurred in connection with its services, including reasonable
attorneys' fees and disbursements, and will be indemnified against certain
liabilities, including liabilities arising under the securities laws.
REASONS OF MFC FOR THE MERGER; RECOMMENDATION OF MFC BOARD OF DIRECTORS
The MFC Board of Directors has determined that the Merger, the Merger
Agreement and the Stock Option Agreement, including the exchange ratio, are fair
to, and in the best interest of, MFC and its shareholders. In the course of
reaching its determination, the MFC Board of Directors consulted with its legal
counsel with respect to the legal duties of the Board, regulatory matters, and
the Merger Agreement, the Stock Option Agreement and issues related thereto and
with its financial advisers with respect to the financial aspects and fairness
of the transaction, as well as with senior management, and, without assigning
any relative or specific weights, considered a number of factors, including but
not limited to the following:
(i) MFC's business, results of operations, financial position and
prospects were it to remain independent;
(ii) economic conditions and prospects for the markets in which MFC
operates in light of, among other things, intensifying competitive pressures
in the financial services industry in general and, in particular, in the
markets in which MFC operates;
(iii) the consideration offered by FBS in the Merger Agreement in
relation to the market value, book value and earnings per share of MFC and
the prospect for a higher current trading value for shares of FBS Common
Stock and better prospects for future growth than if MFC were to remain
independent;
(iv) the management, business, results of operations and financial
condition of FBS;
(v) the price obtainable for MFC's shares at this time compared with the
risks involved and possible price available at a later time;
(vi) the expectation that a business combination with the larger FBS
would enhance MFC's competitiveness and ability to serve its customers and
the communities in which it operates;
(vii) the future prospects of FBS and the anticipated strengths and
synergies (including cost savings and efficiencies) anticipated from the
combination of MFC and FBS;
(viii) the expectation that the Merger will be a tax-free transaction to
MFC stockholders, MFC and FBS and accounted for under the pooling of
interests method of accounting;
(ix) the financial terms of other recent business combinations in the
thrift industry;
(x) the financial advice rendered by Dain Bosworth and Montgomery
Securities to the MFC Board of Directors and the opinions rendered by Dain
Bosworth and Montgomery Securities, described below, to the effect that the
consideration being offered in the Merger was fair from a financial point of
view to holders of MFC Common Stock; and
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<PAGE>
(xi) the financial advice rendered by Dain Bosworth to the MFC Board of
Directors and the opinion rendered by Dain Bosworth to the effect that the
consideration being offered in the Merger is fair from a financial point of
view to holders of MFC Preferred Stock.
In addition, the MFC Board of Directors considered the impact of the Merger
on its depositors, employees, customers and communities.
The MFC Board of Directors also determined that the Merger is preferable to
the other alternatives available to MFC, such as remaining independent and
growing internally or through future acquisitions, or remaining independent for
a short period of time with a view toward being acquired in the future, or
engaging in a merger of equals transaction with another party. As discussed in
greater detail under "--Opinions of MFC Financial Advisers," even if MFC were to
engage in an aggressive restructuring program, the value realized per share of
MFC Common Stock would be unlikely to be greater than between $20 and $23, which
may be less than the value of the consideration offered in the Merger. Remaining
independent pending a future transaction did not seem advisable to the MFC
Board, as the presentations of both of MFC's financial advisers suggested that
the consideration offered by FBS in connection with the Merger was very
competitive with the consideration being offered in comparable transactions.
Finally, a merger of equals would likely involve an insignificant premium over
the then current price of MFC Common Stock. In the view of the MFC Board, the
proposed acquisition by FBS offered the MFC shareholders a greater return than
could have been achieved in a merger of equals transaction.
MFC's Board of Directors also considered that the structure of the Merger
was not designed to exclude additional bona fide bids to acquire MFC and that
under the Merger Agreement and Stock Option Agreement the Board retains the
right, if required in the exercise of its fiduciary obligations, to negotiate
with other potential bidders and, if another offer constitutes a material
economic improvement to MFC's stockholders compared to the terms of the Merger,
to accept such offer and terminate the Merger Agreement. In this regard, the
Board was aware that the Merger Agreement provides for a termination fee of
$35,000,000 under certain conditions and that FBS would, under certain
conditions, be able to exercise its option under the terms of the Stock Option
Agreement. See "--Termination" and "--Option Granted to FBS." While the Board
considered that such provisions would likely decrease the amount a third party
would be willing to pay to acquire MFC, the Board was aware that such an
agreement was specifically bargained for by FBS and was a necessary inducement
for FBS to enter into the Merger Agreement. In addition, while the Merger
Agreement prohibits MFC from shopping or soliciting another offer, the Board of
Directors did not believe this was a meaningful limitation. Specifically, the
Merger would be publicly announced and well known and MFC would file a Current
Report on Form 8-K that would announce the Merger and contain as an exhibit the
full text of the Merger Agreement. As a result, any party interested in
approaching MFC would have full access to the terms of the Merger Agreement.
Further, while the Merger Agreement requires MFC to take action necessary to
convene a special meeting of MFC's common shareholders and obligates the Board
to use its best efforts to obtain necessary approval of shareholders, the Merger
Agreement specifically contemplates that the Board may withdraw its
recommendation that the shareholders approve the Merger Agreement in the
exercise of its fiduciary duties.
The MFC Board of Directors also believes that FBS is currently well managed
and possesses compatible management philosophies and strategic focus, that MFC
will benefit through access to FBS' business strengths resulting in a
well-diversified combined institution and that the enhanced capitalization of
the combined institution will allow it to take advantage of future acquisition
opportunities which otherwise are unavailable to MFC.
Finally, the MFC Board of Directors believes that the Merger will allow the
combined institution to compete effectively in the rapidly changing marketplace
for financial services and to take advantage of opportunities for growth and
diversification that would not be available to either MFC or FBS on its own.
For the reasons set forth above, the Board of Directors of MFC unanimously
recommends that holders of MFC Common Stock vote FOR the approval and adoption
of the Merger Agreement.
OPINIONS OF MFC FINANCIAL ADVISERS
MFC has retained Dain Bosworth and Montgomery Securities ("Montgomery") to
act as its financial advisers in connection with the Merger. Both Dain Bosworth
and Montgomery have provided an opinion to the Board of
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<PAGE>
Directors of MFC as to the fairness, from a financial point of view, to the
holders of MFC Common Stock of the consideration to be received by them in
connection with the Merger, copies of which are attached as Appendicies B and C
to this Proxy Statement/Prospectus. In addition, Dain Bosworth has provided an
opinion to the Board of Directors of MFC as to the fairness, from a financial
point of view, to the holders of MFC Preferred Stock of the cash consideration
to be received by them in connection with the Merger. The consideration to be
received by MFC shareholders was determined through negotiations between MFC and
FBS and not by Dain Bosworth or Montgomery. See "--Background of the Merger."
DAIN BOSWORTH OPINION
PRIOR ENGAGEMENT
On June 2, 1994, a representative from Dain Bosworth met with Norman M.
Jones, MFC's Chairman and Chief Executive Officer, to discuss a proposed merger
of equals transaction with a large regional thrift holding company (the
"Proposed Merger Partner"). On June 3, 1994, the management of MFC gave Dain
Bosworth approval to begin conducting due diligence and preparing their analysis
in order to be in the position to provide an opinion to the Board of Directors
of MFC by June 10, 1994 as to the fairness of the proposed transaction from a
financial point of view. Despite the decision that morning not to proceed with
the proposed merger, Dain Bosworth provided to members of the MFC Board of
Directors on June 10, 1994 a financial analysis which looked at the valuation of
MFC under three different scenarios: (i) remain independent and begin an
aggressive restructuring program; (ii) a possible sale of MFC; or (iii) the
proposed merger of equals with the Proposed Merger Partner. Dain Bosworth did
not provide a fairness opinion in connection with this analysis.
For purposes of its analysis, Dain Bosworth reviewed and analyzed certain
publicly available information relating to MFC and the Proposed Merger Partner,
as well as other information provided by MFC including certain financial
forecasts, business plans and internal management reports. Dain Bosworth
analyzed the historical reported market prices and trading activity of MFC, as
well as earnings, rates of return, capitalization, dividends, and other relevant
factors associated with MFC. Dain Bosworth visited the headquarters and primary
facilities of MFC and the Proposed Merger Partner. Dain Bosworth also held
discussions with members of the senior management of MFC regarding its past and
current business operations, financial condition and future prospects. Dain
Bosworth used the foregoing information to further its understanding of MFC and
the market for MFC Common Stock. Dain Bosworth also held discussions with the
senior management of the Proposed Merger Partner regarding its past and current
business operations and future plans in connection with the integration of MFC
and the Proposed Merger Partner in the contemplated merger of equals.
The analysis performed by Dain Bosworth and described below was prepared for
discussion purposes only and no opinion as to the attractiveness of each
scenario was provided by Dain Bosworth to the MFC Board of Directors.
REMAIN INDEPENDENT AND BEGIN AGGRESSIVE RESTRUCTURING. Dain Bosworth
assessed the present values of the future cash flows that the business of MFC
could be expected to generate over a defined period of time and the residual
value of the business at the end of the projected period, assuming the
implementation of an aggressive restructuring program by the management of MFC
(the "Stand Alone Analysis"). In preparing the Stand Alone Analysis, the
management of MFC provided to Dain Bosworth its strategic plan through 1998
which outlined the proposed restructuring program. The proposed restructuring
program included, among other things, the closing of 60 smaller branches, the
continued integration of the recent Rocky Mountain Financial Corporation
acquisition, the acquisition and consolidation of a realty operation in addition
to Edina Realty, increased emphasis on the development of fee income services
and the centralization of certain management functions to MFC headquarters.
The projections were evaluated with respect to various assumptions regarding
discount rates and the residual value of MFC at the end of the projection
period. The residual value was estimated using a multiple of book value method.
Based upon the Stand Alone Analysis, Dain Bosworth estimated the valuation range
to be from $20.00 to $23.00 on a fully diluted per share basis.
SALE OF MFC. In an effort to estimate a value that the shareholders could
expect to receive in connection with the sale of MFC, Dain Bosworth reviewed and
summarized the terms of 50 selected pending and completed
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<PAGE>
acquisitions of thrifts. These transactions were selected on the basis of the
comparability of the acquired thrifts to MFC with respect to several factors.
These factors included assets size and transaction value. Dain Bosworth
concentrated its analysis on transactions that occurred during the trailing
twelve months period beginning July 1, 1993.
For purposes of estimating a potential purchase price for all of the MFC
Common Stock, Dain Bosworth calculated valuation multiples for each of the
selected transactions based upon several variables including book value,
tangible book value and trailing twelve months earnings per share. These
valuation multiples were then applied to the financial results for MFC in an
effort to arrive at an estimate of the value MFC shareholders might expect to
receive in a sale transaction. The following table lists the results of Dain
Bosworth's analysis.
<TABLE>
<CAPTION>
COMPARABLE TRANSACTIONS IMPLIED
PER SHARE VALUATION
MFC MULTIPLE RANGE RANGE
PER SHARE ---------------------------- --------------------
RESULTS LOW HIGH LOW HIGH
----------- ------------- ------------- --------- ---------
<S> <C> <C> <C> <C> <C>
Price/Book value multiple........................... $ 15.75 1.4x 1.7x $ 22.05 $ 26.78
Price/Tangible book value........................... 12.94 1.6x 1.9x 20.70 24.59
Price/Trailing twelve months EPS.................... 1.89 12.0x 14.0x 22.68 26.46
Price/Estimated Fiscal 1994 EPS..................... 2.00 10.0x(1) 12.0x(1) 20.00 24.00
<FN>
- ----------
(1) Subjective estimate only.
</TABLE>
Based on the sale of the business analysis, Dain Bosworth estimated the
valuation range to be from $21.00 to $27.00 on a fully diluted per share basis.
PROPOSED MERGER OF EQUALS. Dain Bosworth assessed the present values of
future cash flows expected from the combination of MFC and Proposed Merger
Partner as a result of a merger of equals and the residual value of the business
at the end of the projected period (the "Merger of Equals Analysis"). In
preparing the Merger of Equals Analysis, the management of MFC provided to Dain
Bosworth its strategic plan through fiscal 1998, the Proposed Merger Partner's
estimate of future performance and a list of potential synergies which could be
realized through the merger of equals including, but not limited to, the
consolidation of consumer and mortgage lending backroom functions, reductions in
administrative and corporate staffs, and the consolidation of management
information systems functions.
The combined projections were evaluated with respect to various assumptions
regarding discount rates and the residual value of the combined entity at the
end of the projection period. The residual value was estimated using a multiple
book value method. Based on the Merger of Equals Analysis, Dain Bosworth
estimated the valuation range to be from $22.00 to $25.00 on a fully diluted per
share basis.
ENGAGEMENT IN CONNECTION WITH THE MERGER
On June 29, 1994, MFC again retained Dain Bosworth to act as its financial
adviser in connection with the Merger and to provide an opinion to the Board of
Directors of MFC as to fairness, from a financial point of view, of the
consideration to be received by holders of MFC Common Stock in connection with
the Merger. Following is a summary of the procedures and analyses that Dain
Bosworth performed in rendering such opinion to the Board of Directors of MFC
and affirming such opinion as of the date of this Proxy Statement/Prospectus. No
limitations were imposed on Dain Bosworth with respect to the scope of its
investigation, except that Dain Bosworth was instructed not to solicit and did
not solicit proposals from other parties regarding the acquisition of MFC. As
set forth in its opinion, Dain Bosworth relied on, and did not independently
verify, the accuracy, completeness and fairness of the financial and other
information furnished to it by MFC and FBS. Dain Bosworth did not make an
independent evaluation or appraisal of the assets and liabilities of MFC and
FBS, and expressed no opinion regarding the liquidation value of any entity.
Holders of MFC Common Stock are urged to read Dain Bosworth's opinion in its
entirety for a description of the procedures followed, the factors considered
and the assumptions made by Dain Bosworth in rendering its opinion.
For purposes of its opinion, Dain Bosworth reviewed and analyzed certain
publicly available information relating to MFC, as well as other information
provided by MFC including certain financial forecasts and internal
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<PAGE>
management reports. Dain Bosworth analyzed the historical reported market prices
and trading activity of MFC Common Stock, as well as earnings, rates of return,
capitalization, dividends and other relevant factors associated with MFC. Dain
Bosworth held discussions with members of the senior management of MFC regarding
its past and current business operations, financial condition and future
prospects. Dain Bosworth used the foregoing information to further its
understanding of MFC and the market for MFC Common Stock. Dain Bosworth also
held discussions with the senior management of FBS regarding its past and
current business operations and future plans in connection with the integration
of MFC.
In conducting the review and in performing the analysis described below,
Dain Bosworth did not attribute any particular weight to any information or
analysis considered by it, but rather made qualitative judgments as to the
significance and relevance of each factor and analysis. Accordingly, Dain
Bosworth believes that the information reviewed and the analysis conducted must
be considered as a whole and that considering any portion of such information or
analyses, without considering all of such information and analyses, could create
a misleading or incomplete view of the process underlying the opinion.
ANALYSIS OF SELECTED PUBLICLY TRADED COMPANIES. Dain Bosworth compared
MFC's financial information and recent prices of MFC Common Stock to similar
information for selected publicly traded midwestern thrifts including: Anchor
BanCorp Wisconsin; Commercial Federal Corporation; First Federal Capital; First
Financial Corporation; Investors Bank Corp.; St. Paul Bancorp, Inc.; Standard
Federal Bank; and TCF Financial Corp. (the "Comparable Companies"). Of the
thrifts that operate in this region, the Comparable Companies were those public
companies determined by Dain Bosworth to be most comparable to MFC based on a
number of criteria including asset size, capital ratios and asset quality.
Dain Bosworth calculated valuation ratios based on published stock prices
for each of the Comparable Companies. The valuation ratios were based upon
several variables, including net income for the last twelve months, estimated
earnings per share ("EPS") for fiscal 1994, estimated EPS for fiscal 1995, book
value and tangible book value. The estimates of EPS were based upon consensus
earnings estimates for these companies prepared by research analysts from
various investment firms as generated by a national reporting system.
The results of Dain Bosworth's analysis of the historical performance and
expectations for the Comparable Companies were then compared with those of MFC
and the price of its Common Stock as follows: (i) on June 30, 1994, one day
prior to the announcement of the Merger, based on the closing prices of MFC
Common Stock on such date; (ii) on July 19, 1994, the day prior to Dain
Bosworth's presentation to the Board of Directors of MFC, based on the closing
prices of MFC Common Stock on such date; and (iii) as of the closing date of the
Merger using an exchange ratio of .6803 shares of FBS Common Stock for each
share of MFC Common Stock, based upon a per share price for FBS Common Stock of
$36.625, the closing price on July 19, 1994. This analysis was intended to
provide the directors with information regarding: (i) the market valuation of
MFC Common Stock against the Comparable Companies prior to the impact on the
price of MFC Common Stock from the announcement of the Merger; (ii) how the
market was valuing MFC Common Stock given the release to the public of
information relative to the Merger; and (iii) the value of the Merger assuming
the low end of the proposed exchange ratio outlined in the letter of intent and
the price of FBS Common Stock on July 19, 1994. The following table lists the
results of Dain Bosworth's analysis of Comparable Companies:
<TABLE>
<CAPTION>
METROPOLITAN FINANCIAL CORPORATION
------------------------------------------------------
COMPARABLE EXCHANGE
COMPANIES JUNE 30, JULY 19, RATIO OF
MEDIAN 1994 1994 .6803
--------------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Price/LTM EPS............................................... 8.9 8.4 12.0 13.2
Price/1994 estimated EPS.................................... 9.1 7.9 11.2 12.3
Price/1995 estimated EPS.................................... 8.2 6.4 9.1 10.1
Price/Book value............................................ 1.27 1.00 1.42 1.57
Price/Tangible book value................................... 1.54 1.22 1.74 1.91
</TABLE>
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<PAGE>
ANALYSIS OF SELECTED MERGER AND ACQUISITION TRANSACTIONS. Dain Bosworth
reviewed and summarized the terms of 41 selected pending and completed
acquisitions of thrifts with assets greater than $500 million and a subset of
this list which included 21 selected pending and completed acquisitions of
thrifts with assets greater than $1 billion (the "Comparable Acquisitions"). The
Comparable Acquisitions were selected on the basis of the comparability of the
acquired thrifts to MFC with respect to several factors, including asset size,
capital ratios and asset quality. Dain Bosworth concentrated on transactions
that occurred since January 1, 1993, and those for which relevant financial data
was available.
For purposes of evaluating the acquisition of MFC by FBS, valuation
multiples were calculated for each of the Comparable Acquisitions based upon
several variables, including book value, tangible book value and net earnings
for the last twelve months. These valuation multiples were then compared to the
valuation multiples proposed by FBS for the MFC Common Stock assuming an
exchange ratio of .6803 share of FBS Common Stock for each share of MFC Common
Stock and a price per share of FBS Common Stock of $36.625 on July 19, 1994. The
following table lists the results of Dain Bosworth's analysis of Comparable
Companies.
<TABLE>
<CAPTION>
COMPARABLE ACQUISITIONS
-----------------------------------------------
MFC
ASSETS GREATER ASSETS GREATER EXCHANGE
THAN $500 MILLION THAN $1 BILLION RATIO OF
----------------- --------------- -----------
<S> <C> <C> <C>
Price/Book value
High.............................................................. 2.62x 2.01x
Low............................................................... 0.65x 0.65x
Median............................................................ 1.49x 1.50x 1.57x
Price/Tangible book value
High.............................................................. 2.63x 2.07x
Low............................................................... 1.08x 1.11x
Median............................................................ 1.63x 1.63x 1.91x
Price/LTM Earnings
High.............................................................. 32.2x 32.2x
Low............................................................... 5.8x 8.6x
Median............................................................ 13.4x 13.4x 13.2x
</TABLE>
PRO FORMA DILUTION AND CONTRIBUTION ANALYSES. Dain Bosworth analyzed
certain balance sheet and income statement data for MFC and FBS for 1993 on an
actual and proforma combined basis, and for MFC and FBS on a projected pro forma
combined basis for fiscal years 1994 and 1995. The analysis showed, among other
things, that the Merger would result in little if any dilution in earnings per
share of FBS Common Stock in fiscal year 1994, followed by an increase in fully
diluted earnings per share of FBS Common Stock for fiscal 1995. The analysis
showed that, assuming a cost savings of approximately 30% projected by FBS, the
accretion to earnings per share of FBS Common Stock in fiscal year 1995 would
range from 8.0% to 9.0%. The contribution analysis showed that the shareholders
of MFC would own 16.3% of the combined entity and contribute 15.2% of the income
of the combined entity for fiscal 1995, on a pro forma combined basis.
DISCOUNTED CASH FLOW ANALYSIS. Dain Bosworth performed a discounted cash
flow analysis using discount rates ranging from 10% to 20% and sets of terminal
values based upon multiples of 1998 estimated earnings ranging from 9.0x to
12.0x and multiples of 1998 estimated book value ranging from 1.30x to 1.70x. In
preparing the discounted cash flow analysis, the management of MFC provided to
Dain Bosworth its strategic plan through fiscal 1998. This plan incorporated the
continued growth in non-thrift assets, including the residential realty
brokerage and title business, along with the closing of a number of relatively
small branches. Assumptions were made by MFC in its strategic plan as to the
amount of cash dividends distributed and the number of options exercised under
MFC's existing stock option plan.
This analysis resulted in fully diluted per share prices for MFC Common
Stock ranging from $16.69 to $31.35 using the 1998 estimated earnings multiples
and ranging from $14.97 to $27.19 using the 1998 estimated book value multiple
to calculate the residual value.
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<PAGE>
Dain Bosworth did not assign any particular weight to the individual
analyses described above, which represents a summary of the material analyses
performed by Dain Bosworth. Dain Bosworth's determination regarding the fairness
of the transaction is not based on a mathematical model but rather upon the body
of information obtained from such analysis and qualitative factors.
Based on these analyses, Dain Bosworth rendered an oral opinion to the MFC
Board of Directors on June 30, 1994 that the consideration being offered in the
Merger was fair from a financial point of view to the holders of MFC Common
Stock which was subsequently confirmed in writing on July 21, 1994. In
connection with the written opinion dated July 21, 1994, Dain Bosworth also
confirmed the appropriateness of its reliance on the analysis used to render its
June 30, 1994 oral opinion by performing procedures to update certain of such
analyses and by reviewing the assumptions on which such analyses were based and
the factors considered in connection therewith. Dain Bosworth affirmed its July
21, 1994 opinion as of the date of this Proxy Statement/Prospectus. The July 21,
1994 opinion is substantially similar to Dain Bosworth's opinion attached hereto
as Appendix B. For Dain Bosworth's preparation of a preliminary and the July 21,
1994 opinion to MFC's Board of Directors, MFC has paid to Dain Bosworth a fee of
$650,000. In addition MFC has agreed to pay Dain Bosworth a fixed fee in the
amount of $50,000 for each additional opinion, including the opinion attached
hereto as Appendix B, requested by MFC's Board of Directors. MFC has also paid
to Dain Bosworth a fee of $75,000 for the delivery of an opinion to the MFC
Board of Directors dated July 19, 1994 to the effect that the $27.00 plus
accrued and unpaid dividends for each share of MFC Preferred Stock that is being
proposed by FBS is fair from a financial point of view to such shareholders. MFC
has also agreed to reimburse Dain Bosworth for its reasonable out-of-pocket
expenses and to indemnify Dain Bosworth against certain liabilities, including
those arising under securities laws.
Dain Bosworth was selected by MFC on the basis of its experience in valuing
securities in connection with mergers and acquisitions, knowledge of MFC, and
expertise in transactions involving financial institutions. Dain Bosworth is a
nationally recognized investment banking firm and is regularly engaged in the
valuation of businesses and their securities in connection with mergers and
acquisitions, negotiated underwritings, secondary distributions of listed and
unlisted securities, private placements and valuations for estate, corporate and
other purposes. In the past, Dain Bosworth has provided financial advisory and
investment banking services to MFC and has received customary fees for the
rendering of such services. Dain Bosworth has from time to time issued research
reports and recommendations on MFC Common Stock and FBS Common Stock. In the
course of its trading activities, Dain Bosworth may, from time to time, have a
long or short position in, and buy and sell securities of, MFC and FBS. Dain
Bosworth also periodically publishes research reports regarding other financial
institutions.
MONTGOMERY SECURITIES OPINION
Pursuant to an engagement letter dated July 7, 1994, as amended by the
letter dated July 20, 1994 (together the "Engagement Letter"), MFC engaged
Montgomery to render an opinion with respect to the fairness, from a financial
point of view, of the consideration to be received by the holders of MFC Common
Stock pursuant to the Merger, as of the date of the opinion. Montgomery is a
nationally recognized investment banking and securities brokerage firm and, as
part of its investment banking activities, is regularly engaged in the valuation
of businesses and their securities in connection with merger transactions and
other types of acquisitions, negotiated underwritings, secondary distributions
of listed and unlisted securities, private placements and valuations for
corporate and other purposes. MFC selected Montgomery as its financial adviser
on the basis of its experience and expertise in transactions similar to the
Merger and its reputation in the financial institutions and investment
communities.
At the July 20, 1994 meeting of MFC's Board of Directors, Montgomery
delivered its oral opinion, subsequently confirmed in writing as of such date,
that the consideration to be received by holders of MFC Common Stock in the
Merger is fair to holders of MFC Common Stock from a financial point of view. No
limitations were imposed by MFC on Montgomery with respect to the investigations
made or procedures followed in rendering its opinion. THE FULL TEXT OF
MONTGOMERY'S WRITTEN OPINION TO MFC'S BOARD OF DIRECTORS, WHICH SETS FORTH THE
ASSUMPTIONS MADE, IS ATTACHED HERETO AS APPENDIX C AND IS INCORPORATED HEREIN BY
REFERENCE AND SHOULD BE READ CAREFULLY AND IN ITS ENTIRETY IN CONNECTION WITH
THIS PROXY STATEMENT. THE FOLLOWING SUMMARY OF MONTGOMERY'S OPINION IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE OPINION. IN FURNISHING
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<PAGE>
SUCH OPINION, MONTGOMERY DOES NOT ADMIT THAT IT IS AN EXPERT WITH RESPECT TO ANY
PART OF THE PROXY STATEMENT/PROSPECTUS WITHIN THE MEANING OF THE TERM "EXPERTS"
AS USED IN THE SECURITIES ACT AND THE RULES AND REGULATIONS OF THE COMMISSION
THEREUNDER. MONTGOMERY'S OPINION DOES NOT CONSTITUTE A RECOMMENDATION TO ANY MFC
SHAREHOLDER AS TO HOW SUCH SHAREHOLDER SHOULD VOTE AT THE MFC SPECIAL MEETING.
Montgomery has informed MFC that in arriving at its opinion, Montgomery,
among other things: (i) reviewed certain publicly available financial and other
data with respect to MFC and FBS including the consolidated financial statements
for recent years and the interim periods ended June 30, 1993 and 1994 and
certain other relevant financial and operating data relating to MFC and FBS made
available to Montgomery from published sources and from the internal records of
MFC; (ii) reviewed the form of the Merger Agreement; (iii) reviewed certain
historical market prices and trading volumes of the MFC Common Stock and the FBS
Common Stock as reported by the New York Stock Exchange; (iv) compared MFC and
FBS from a financial point of view with certain other companies in the banking
industry that Montgomery deemed to be relevant; (v) considered the financial
terms, to the extent publicly available, of selected recent acquisitions of
depository institutions that Montgomery deemed to be comparable, in whole or in
part, to the Merger; (vi) reviewed and discussed with representatives of the
management of MFC and FBS certain information of a business and financial nature
regarding MFC and FBS, furnished to Montgomery by MFC and FBS, including
financial forecasts and related assumptions of MFC; (vii) made inquiries
regarding and discussed the Merger and the Merger Agreement and other matters
related thereto with MFC's counsel; and (viii) performed such other analyses and
examinations as Montgomery deemed appropriate.
In connection with its review, Montgomery did not assume any responsibility
for the independent verification of and assumed and relied upon the accuracy and
completeness of all financial and other information reviewed by it for purposes
of its opinion. With respect to the financial forecasts for MFC provided to
Montgomery by MFC's management, financial forecasts for FBS obtained from
publicly available sources and FBS' future strategy and financial prospects
provided to Montgomery by FBS, Montgomery assumed for purposes of its opinion
that the forecasts, including without limitation, projected cost savings and
operating synergies, were reasonably prepared on bases reflecting the best
available estimates and judgments of MFC's and FBS' managements at the time of
preparation as to the future financial performance of MFC, FBS or the combined
entity, as the case may be, and that the forecasts provided a reasonable basis
upon which Montgomery could form its opinion. Montgomery also assumed that there
were no material changes in MFC's or FBS' assets, financial condition, results
of operations, business or prospects since the date of the last financial
statements made available to Montgomery. Montgomery relied on advice of counsel
to MFC as to all legal matters with respect to MFC, the Merger, the Proxy
Statement and the Merger Agreement. In addition, Montgomery did not assume
responsibility for making an independent evaluation, appraisal or physical
inspection of the assets or individual properties of MFC or FBS and was not
furnished with any such appraisals. In particular, Montgomery is not an expert
in the evaluation of loan loss or other reserves, and has not made an
independent evaluation of the adequacy of the allowances for loan losses of MFC
or FBS, nor has it reviewed any individual credit files, and it has assumed that
the aggregate allowance for loan losses is adequate to cover such losses.
Further, Montgomery's opinion was based on economic, monetary and market
conditions existing on, and the information made available to Montgomery as of,
July 20, 1994 and on the assumption that the Merger Agreement will be
consummated in accordance with the terms thereof, without any amendments
thereto, and without waiver by MFC of any of the conditions to its obligations
thereunder.
In connection with rendering its opinion dated July 20, 1994, Montgomery
performed a variety of financial analyses, including those summarized below. The
summary set forth below does not purport to be a complete description of the
presentation by Montgomery to MFC's Board of Directors or of the analyses
performed by Montgomery. The preparation of a fairness opinion involves various
determinations as to the most appropriate and relevant methods of financial
analysis and the application of these methods to the particular circumstances
and, therefore, such an opinion is not readily susceptible to a summary
description. Accordingly, Montgomery believes that its analyses must be
considered as a whole and that selecting portions of its analyses and the
factors considered by it, without considering all analyses and factors, would
create an incomplete view of the evaluation process underlying Montgomery's
opinion. In addition, Montgomery may have given various analyses more or less
weight than other analyses, and may have deemed various assumptions more or less
probable than other
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assumptions, so that the ranges of valuations resulting from any particular
analysis described below should not be taken to be Montgomery's view of the
actual value of MFC, FBS or the combined company. The fact that any specific
analysis has been referred to in the summary below is not meant to indicate that
such analysis was given more weight than any other analysis.
In performing its analyses, Montgomery made numerous assumptions with
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond the control of MFC or FBS. The analyses
performed by Montgomery are not necessarily indicative of actual values or
actual future results, which may be significantly more or less favorable than
suggested by such analyses. Such analyses were prepared solely as part of
Montgomery's analysis of the fairness of the Merger to holders of MFC Common
Stock and were provided to MFC's Board of Directors in connection with the
delivery of Montgomery's opinion. The analyses do not purport to be appraisals
or to reflect the prices at which a company might actually be sold or the prices
at which any securities may trade at the present time or at any time in the
future. Montgomery used in its analyses various projections of future
performance prepared by the management of MFC. The projections are based on
numerous variables and assumptions which are inherently unpredictable and must
be considered not certain of occurrence as projected. Accordingly, actual
results could vary significantly from those set forth in such projections. In
addition, as described above, Montgomery's opinion and presentation to MFC's
Board of Directors were among the many factors taken into consideration by MFC's
Board of Directors in making its determination to approve the Merger.
Set forth below is a brief summary of selected analyses presented by
Montgomery to MFC's Board of Directors in connection with its July 20, 1994
opinion.
SUMMARY OF PROPOSAL. Montgomery reviewed the terms of the proposed
transaction, including the exchange ratio and the aggregate transaction value.
Montgomery reviewed the implied value of the consideration offered based upon
the closing share price of FBS Common Stock on July 20, 1994 (the "July 20, 1994
FBS Stock Price"). This analysis showed that the implied value of the
consideration to be received in the merger proposal, based on a conversion ratio
of .6803 shares of FBS for each fully-diluted share of MFC (the "Exchange
Ratio"), was approximately $24.66 per share of MFC Common Stock.
ANALYSIS OF OTHER SELECTED TRANSACTIONS. Montgomery reviewed the
consideration paid in recently announced transactions whereby certain thrifts
and banks were acquired. Specifically, Montgomery reviewed transactions
announced since January 1990, emphasizing selected transactions involving
acquisitions of Minnesota thrifts, Midwest (Iowa, Illinois, Indiana, Kansas,
Kentucky, Michigan, Minnesota, Missouri, North Dakota, Nebraska, Ohio, South
Dakota, and Wisconsin) thrifts, Midwest thrifts in which the announced
consideration was greater than $100 million (the "Midwest Focus Group"),
national thrifts in which the announced consideration was greater than $100
million and involving targets with a return on average assets greater than 0.50%
(the "National Focus Group"), Minnesota banks, and FBS' acquisitions in which
the announced consideration was greater than $100 million in value.
For each such transaction Montgomery calculated, among other things, the
ratio of premium (i.e., price over book value) to core deposits, price to
deposits, price to tangible book value and price to last twelve-months' ("LTM")
earnings. The calculations for the transactions announced yielded (i) a median
percentage of premium to core deposits for Minnesota thrifts, Midwest thrifts,
Midwest Focus Group, National Focus Group, Minnesota banks, and FBS'
acquisitions of 2.53%, 3.14%, 7.70%, 7.30%, 3.00% and 6.36%, respectively, (ii)
a median ratio of price to deposits of 7.94%, 11.73%, 17.66%, 18.59%, 12.19% and
14.65%, respectively, (iii) a median ratio of price to tangible book value of
1.36x, 1.33x, 1.79x, 1.70x, 1.35x and 1.80x, respectively and (iv) a median
ratio of price to LTM earnings of 14.3x, 12.1x, 14.9x, 14.2x, 12.8x and 22.3x,
respectively. In comparison, Montgomery determined that, based on the closing
price of FBS Common Stock on July 20, 1994 of $36.25, the consideration to be
paid to holders of MFC Common Stock in the Merger represented a percentage of
premium to core deposits of 7.56%, a ratio of price to deposits of 14.48%, a
ratio of price to tangible book value of 1.91x, and a ratio of price to LTM
earnings of 13.3x.
No other company or transaction used in the above analysis as a comparison
is identical to MFC, FBS or the Merger. Accordingly, an analysis of the results
of the foregoing involves complex considerations and judgments
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concerning differences in financial and operating characteristics of the
companies and other factors that could affect the public trading value of the
companies to which MFC, FBS and the Merger are being compared. Mathematical
analysis (such as determining average or median) is not, in itself, a meaningful
method or using comparable transaction data.
CONTRIBUTION ANALYSIS. Montgomery analyzed the contribution of each of MFC
and FBS to, among other things, total equity and net income of the pro forma
combined company for the year ended 1993 and for the six-month period ended June
30, 1994. This analysis showed, among other things, that based on pro forma
combined balance sheets and income statements for MFC and FBS as of and for the
year ended December 31, 1993 and as of and for the six months ended June 30,
1994, MFC would have contributed 18.3% and 18.3%, respectively, of the total
equity and 14.9% and 11.6%, respectively, of the pretax income of the combined
company. At the exchange ratio of .6803, holders of MFC Common Stock would own
16.5% of the combined company.
DILUTION ANALYSIS. Using estimates prepared by MFC management for MFC and
First Call consensus estimates for FBS, Montgomery compared the estimated
calendar year 1994 earnings per share of FBS Common Stock and MFC Common Stock
to the estimated calendar year 1994 earnings per share of the common stock of
the pro forma combined company. Based on such analysis, the proposed transaction
would be dilutive to FBS' earnings per share and accretive to MFC's earnings per
share in 1994, prior to projected cost savings.
RETURN TO SHAREHOLDERS. Montgomery analyzed the compound quarterly return
to holders of MFC Common Stock for the ten years since it converted from a
mutual to a stock company. Based on a $24.66 per share offer price, for holders
of MFC Common Stock who purchased stock at conversion ($2.13 per share adjusted
for stock splits, including dividends), the annualized quarterly compound return
through the first quarter of 1994 would be approximately 24%.
COMPARABLE ANALYSIS OF PUBLICLY-TRADED COMPANIES. Using public and other
available information, Montgomery compared the historical trading price of MFC
Common Stock and FBS Common Stock since January 1, 1988 and certain financial
ratios of both companies (including equity to assets, return on average assets,
return on average equity, non-performing assets to assets) as of March 31, 1994
to 14 selected midwest thrifts in MFC's case, and selected Top 50 commercial
banking companies as measured in terms of assets in FBS' case. No company used
in the analysis is identical to MFC or FBS. The analysis necessarily involved
complex considerations and judgments concerning differences in financial and
operating characteristics of the companies.
Pursuant to the Engagement Letter, MFC paid to Montgomery a fee of $250,000
following the delivery of Montgomery's opinion. MFC has also agreed to reimburse
Montgomery for its reasonable out-of-pocket expenses. MFC has also agreed to
indemnify Montgomery, its affiliates, and their respective partners, directors,
officers, agents, consultants, employees and controlling persons against certain
liabilities, including liabilities under the federal securities laws.
On November 15, 1994, FBS engaged Montgomery as its exclusive representative
and financial advisor in connection with the sale of certain specified bank
branches. Pursuant to the engagement, FBS has paid Montgomery a retainer of
$75,000 (to be credited against any future compensation payable by FBS pursuant
thereto) and has agreed to pay Montgomery fees ranging between $20,000 and
$70,000 for each branch sold subject to certain conditions and subject to a fee
cap of $1,000,000 for the first 20 branches sold and a maximum fee cap of
$3,000,000 if more than 20 branches are sold. In addition, on November 16, 1994,
FBS and MFC engaged Montgomery to value certain outstanding MFC options in
exchange for the payment by FBS and MFC to Montgomery of fees of $25,000,
subject to increase to $50,000 in certain circumstances. In connection with the
foregoing, the parties also have agreed to reimburse Montgomery for its
reasonable out-of-pocket expenses and to indemnify Montgomery, its affiliates,
and their respective partners, directors, officers, agents, consultants,
employees and controlling persons against certain liabilities.
In the past, Montgomery has provided financial advisory and investment
banking services to MFC and has received customary fees for the rendering of
such services. In the ordinary course of its business, Montgomery
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actively trades securities of MFC and FBS for its own account and for the
accounts of customers and, accordingly, may at any time hold a long or short
position in such securities. Certain partners of Montgomery may also own shares
of MFC Common Stock and FBS Common Stock.
TERMS OF THE MERGER; CONSIDERATION TO BE RECEIVED BY MFC SHAREHOLDERS
At the time the Merger becomes effective, MFC will merge with and into FBS,
with FBS as the surviving corporation. The certificate of incorporation and
bylaws of FBS as in effect immediately prior to the Merger will be the
certificate of incorporation and bylaws of the surviving corporation until
further amended as provided therein and in accordance with law. When the Merger
becomes effective, each issued and outstanding share of MFC Common Stock will be
converted into .6803 share of FBS Common Stock, subject to certain adjustments
as described below. See "Description of FBS Capital Stock." Notwithstanding the
foregoing, if the Average Price is less than $33.00, then the exchange ratio of
.6803 share of FBS Common Stock for each share of MFC Common Stock will be
adjusted by multiplying .6803 by the quotient of (i) $33.00 divided by (ii) the
Average Price. Thus, if the Average Price is less than $33.00, the exchange
ratio would increase and result in the receipt by MFC shareholders of more than
.6803 share of FBS Common Stock for each share of MFC Common Stock. If the
Average Price is greater than $40.50, then the exchange ratio of .6803 share of
FBS Common Stock for each share of MFC Common Stock will be adjusted by
multiplying .6803 by the quotient of (i) $40.50 divided by (ii) the Average
Price. Thus, if the Average Price is greater than $40.50, the exchange ratio
would decrease and result in the receipt by MFC shareholders of less than .6803
share of FBS Common Stock for each share of MFC Common Stock. If the Average
Price is less than $33.00, the applicable adjustment to the exchange ratio will
result in MFC shareholders receiving that number of shares of FBS Common Stock
having an Average Price equal to $22.45 for each share of MFC Common Stock. If
the Average Price is greater than $40.50, the applicable adjustment to the
exchange ratio will result in MFC shareholders receiving that number of shares
of FBS Common Stock having an Average Price equal to $27.55 for each share of
MFC Common Stock. FBS and MFC may, at their respective options, abandon and
terminate the Merger Agreement before it takes effect if the Average Price is
less than $29.50. Upon effectiveness of the Merger, each outstanding share of
MFC Preferred Stock, other than shares as to which dissenters' rights have been
perfected, shall be converted into the right to receive $27.00 in cash, plus any
accumulated and unpaid dividends on such shares of MFC Preferred Stock to, but
excluding, the date the Merger becomes effective calculated as set forth in the
terms of such MFC Preferred Stock, without interest, from FBS. If the Merger is
completed, MFC shareholders will no longer hold any interest in MFC other than
through their interest in shares of FBS Common Stock. See "Description of MFC
Capital Stock."
Upon effectiveness of the Merger, with the consent of the holders of each
outstanding option to purchase shares of MFC Common Stock issued pursuant to the
MFC 1984 Stock Option and Incentive Plan, the MFC 1990 Stock Option Plan, the
MFC 1993 Non-Employee Director Stock Option Plan and the MFC 1993 Stock
Incentive Plan, each of such stock options will be converted into a right to
receive, in lieu of all other rights under such options (which will be
terminated and canceled), shares of FBS Common Stock with a value as of the
effective date of the Merger equal to the "fair value" of such option as
determined by an independent third party expert to be mutually selected by FBS
and MFC. In the event that each of such stock options is not so converted, then,
as of the effective date of the Merger, such stock options shall be assumed by
FBS. See "--Effect on MFC Employee Benefit and Stock Option Plans--Stock
Options."
Also upon effectiveness of the Merger, (i) each outstanding option issued
pursuant to the MFC Employee Stock Purchase Plan or the Edina Realty Sales
Associate Stock Purchase Plan shall be deemed to constitute an option to acquire
FBS Common Stock with appropriate adjustments and (ii) all outstanding warrants
to purchase shares of MFC Common Stock issued pursuant to the Warrant Agreement
dated as of November 20, 1990 between MFC and American Stock Transfer and Trust
Company, as warrant agent, shall be assumed by FBS and modified to provide for
the issuance of FBS Common Stock upon exercise thereof. See "--Effect on MFC
Employee Benefit and Stock Option Plans--Stock Options" and "--MFC Warrants."
Because the exchange ratio of FBS Common Stock for MFC Common Stock is fixed
within the range of Average Prices from $33.00 to $40.50, and will not increase
or decrease due to fluctuations in the Average Price within such range, MFC
shareholders will not be compensated for certain decreases in the market price
of FBS
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Common Stock which could occur before the Merger becomes effective. As a result,
in the event the market price of FBS Common Stock decreases, the value of the
FBS Common Stock to be received in the Merger in exchange for MFC Common Stock
would decrease, subject to certain limitations described above if the Average
Price is less than $33.00. In the event the market price of FBS Common Stock
instead increases, the value of the FBS Common Stock to be received in the
Merger in exchange for MFC Common Stock would increase, subject to certain
limitations described above if the Average Price is greater than $40.50. The
market prices of FBS Common Stock and MFC Common Stock as of a recent date are
set forth herein under "Summary--Markets and Market Prices," and MFC
shareholders are advised to obtain recent market quotations for FBS Common Stock
and MFC Common Stock. No assurance can be given as to the market prices of FBS
Common Stock or MFC Common Stock on the date the Merger becomes effective or as
to the market price of FBS Common Stock thereafter.
The Merger Agreement provides that if, between execution of the Merger
Agreement and the effectiveness of the Merger, shares of FBS Common Stock are
changed into a different number or class of shares by reason of any
reclassification, recapitalization, split-up, combination, exchange of shares or
readjustment, or if a stock dividend thereon is declared with a record date
within such period, then the number of shares of FBS Common Stock issued to
holders of MFC Common Stock as a result of the Merger will be appropriately and
proportionately adjusted so that holders of MFC Common Stock will receive that
number of shares of FBS Common Stock which they would have received if the
record date for such reclassification, recapitalization, split-up, combination,
exchange of shares, readjustment or stock dividend had been immediately
following the effectiveness of the Merger.
No fractional shares of FBS Common Stock will be issued in the Merger.
Instead, the Merger Agreement provides that in lieu of any fractional share, FBS
will pay to each holder of MFC Common Stock who otherwise would be entitled to
receive a fractional share of FBS Common Stock an amount of cash (without
interest) determined by multiplying (i) the closing price per share of FBS
Common Stock on the date the Merger becomes effective times (ii) the fractional
share interest to which such holder would otherwise be entitled.
Shares of FBS capital stock issued and outstanding at the time the Merger
becomes effective will remain issued and outstanding thereafter and will not be
affected by the Merger.
EFFECTIVE TIME OF THE MERGER
The Merger will become effective upon the filing of a certificate of merger
relating thereto with the Secretary of State of Delaware. The Merger Agreement
provides that the parties thereto will cause such certificate of merger to be
filed as soon as practicable after receipt of all necessary regulatory approvals
provided that each of the conditions to consummation of the Merger has been
satisfied or waived. See "--Conditions to Consummation of the Merger." The
Merger cannot become effective until the holders of FBS Common Stock and MFC
Common Stock have approved and adopted the Merger Agreement and all required
regulatory approvals and actions have been obtained and taken. See "--Regulatory
Approvals Required." The Merger Agreement may be terminated by either FBS or MFC
if the Merger has not become effective on or before September 30, 1995 (unless
the failure to consummate the Merger by such date shall be due to the action or
failure to act of the party seeking to terminate the Merger Agreement in breach
of such party's obligations thereunder). See "--Termination." Thus, there can be
no assurance as to whether or when the Merger will become effective.
SURRENDER OF MFC COMMON STOCK CERTIFICATES
As soon as practicable after the Merger becomes effective, First Chicago
Trust Company of New York, the Exchange Agent, will send a notice and
transmittal form to each holder of MFC Common Stock of record at the time the
Merger becomes effective advising such holder of the effectiveness of the Merger
and of the procedure for surrendering to the Exchange Agent their certificates
formerly evidencing MFC Common Stock in exchange for new certificates evidencing
FBS Common Stock. MFC SHAREHOLDERS SHOULD NOT SEND IN THEIR STOCK CERTIFICATES
UNTIL THEY RECEIVE THE LETTER OF TRANSMITTAL FORM AND INSTRUCTIONS FROM THE
EXCHANGE AGENT.
Upon surrender to the Exchange Agent of one or more certificates formerly
evidencing MFC Common Stock, together with a properly completed and signed
letter of transmittal, there will be issued and mailed to the holder thereof a
new certificate or certificates representing the number of whole shares of FBS
Common Stock to which
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such holder is entitled under the Merger Agreement and, where applicable, a
check for the amount of cash payable in lieu of a fractional share of FBS Common
Stock. A certificate representing FBS Common Stock or a check in lieu of a
fractional share will be issued in a name other than the name in which the
surrendered MFC Common Stock certificate was registered only if (i) the MFC
Common Stock certificate surrendered is properly endorsed or accompanied by
appropriate stock powers and is otherwise in proper form for transfer and (ii)
the person requesting the issuance of such certificate or check either pays to
the Exchange Agent any transfer or other taxes required by reason of the
issuance of such certificate or check in a name other than that of the
registered holder of the certificate surrendered or establishes to the
satisfaction of the Exchange Agent that such tax has been paid or is not
applicable.
CONDITIONS TO CONSUMMATION OF THE MERGER
The Merger will occur only if the Merger Agreement is approved and adopted
by the requisite votes of FBS shareholders and MFC shareholders. In addition,
consummation of the Merger is subject to the satisfaction of certain other
conditions, unless waived (to the extent such waiver is permitted by law). A
failure of any such conditions to be satisfied, if not waived, would prevent
consummation of the Merger.
The obligations of both FBS and MFC to consummate the Merger are subject to
satisfaction of the following conditions, among others: (i) regulatory approval
for the consummation of the transactions contemplated by the Merger Agreement
shall have been obtained from the Federal Reserve Board, the OTS and any other
governmental authority from whom approval is required, and all required
regulatory waiting periods shall have lapsed; (ii) no injunction or other court
order shall have been issued and remain in effect which would impair
consummation of the transactions contemplated by the Merger Agreement; (iii) no
law, statute, rule or regulation shall have been enacted or promulgated which
would materially impair consummation of the transactions contemplated by the
Merger Agreement; (iv) no party to the Merger Agreement shall have terminated
such agreement as permitted therein; (v) the Registration Statement of which
this Proxy Statement/Prospectus is a part shall have been declared effective and
shall not be subject to a stop order of the Securities and Exchange Commission,
and such Registration Statement shall not be subject to a stop order of any
state securities commission; (vi) an opinion of Oppenheimer Wolff & Donnelly,
counsel to MFC, shall have been obtained to the effect that for federal income
tax purposes, (a) the Merger will qualify as a "reorganization" under Section
368(a) of the Code, (b) no gain or loss will be recognized by any MFC
shareholder (except in connection with the receipt of cash) upon the exchange of
MFC Common Stock for FBS Common Stock in the Merger, (c) the basis of the FBS
Common Stock received by an MFC shareholder who exchanges MFC Common Stock for
FBS Common Stock will be the same as the basis of the MFC Common Stock
surrendered in exchange therefor (subject to any adjustments required as the
result of receipt of cash in lieu of a fractional share of FBS Common Stock),
(d) the holding period of the FBS Common Stock received by an MFC shareholder
receiving FBS Common Stock will include the period during which the MFC Common
Stock surrendered in exchange thereof was held (provided that the MFC Common
Stock of such MFC shareholder was held as a capital asset at the effective date
of the Merger), and (e) cash received by an MFC shareholder in lieu of a
fractional share interest of FBS Common Stock will be treated as having been
received as a distribution in full payment in exchange for the fractional share
interest of FBS Common Stock which such shareholder would otherwise be entitled
to receive, and will qualify as capital gain or loss (assuming the MFC Common
Stock was a capital asset in such shareholder's hands at the effective date of
the Merger); and (vii) the FBS Common Stock to be issued to holders of MFC
Common Stock in the Merger shall have been approved for listing on the NYSE on
official notice of issuance. The Merger Agreement provides that no regulatory
approval referred to in (i) above shall contain any conditions or restrictions
that FBS reasonably believes will materially restrict or limit the business or
activities of FBS or MFC or MFC's subsidiaries or have a material adverse effect
on, or would be reasonably likely to have a material adverse effect on, the
business, operations or financial condition of FBS and its subsidiaries taken as
a whole, on the one hand, and MFC and its subsidiaries taken as a whole, on the
other hand.
In addition to the foregoing conditions, the obligation of MFC to consummate
the Merger is subject to satisfaction of the following conditions, among others:
(i) the representations and warranties of FBS set forth in the Merger Agreement
shall be true and correct as of the date of such agreement and as of the time
the Merger becomes effective, except where the failure to be true and correct
would not have, or would not reasonably be
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expected to have, a material adverse effect on the business, operations or
financial condition of FBS and its subsidiaries, taken as a whole; and FBS shall
in all material respects have performed each obligation and agreement and
complied with each covenant to be performed and complied with by it under the
Merger Agreement at or prior to the time the Merger becomes effective; (ii) MFC
shall have received an officer's certificate of the Vice Chairman and Chief
Financial Officer of FBS to the effect that he has no reason to believe that the
conditions set forth in (i) above have not been fulfilled; (iii) MFC shall have
received a certificate of the Corporate Secretary or an assistant Corporate
Secretary of FBS as to resolutions authorizing the corporate actions to approve
the Merger Agreement and transactions contemplated thereby and as to the
incumbency of certain officers of FBS; (iv) MFC shall have received an opinion
letter of Michael J. O'Rourke, Executive Vice President and General Counsel of
FBS, concerning the due incorporation and good standing of FBS, the due
authorization and execution of the Merger Agreement by FBS, the noncontravention
of the certificate of incorporation and bylaws of FBS and of agreements to which
FBS is a party by the transactions contemplated by the Merger Agreement, the
authorization of the FBS Common Stock to be issued in the Merger, and related
matters; (v) since the date of the Merger Agreement, there shall have been no
material adverse change in, and no event, occurrence or development in the
business of FBS or its subsidiaries that, taken together with other events,
occurrences and developments with respect to such business, would have or would
reasonably be expected to have a material adverse effect on, the business,
operations or financial condition of FBS and its subsidiaries, taken as a whole;
and (vi) prior to the mailing of this Proxy Statement/Prospectus and immediately
prior to effectiveness of the Merger, MFC shall have received a written opinion
in form reasonably acceptable to MFC from Dain Bosworth Incorporated (or another
investment banking firm reasonably acceptable to MFC) to the effect that the
consideration to be delivered in the Merger is fair from a financial point of
view to the holders of MFC Common Stock.
In addition to the foregoing conditions, the obligation of FBS to consummate
the Merger is subject to satisfaction of the following conditions, among others:
(i) the representations and warranties of MFC set forth in the Merger Agreement
shall be true and correct as of the date of such agreement and as of the time
the Merger becomes effective, except where the failure to be true and correct
would not have, or would not reasonably be expected to have, a material adverse
effect on the business, operations or financial condition of MFC and its
subsidiaries taken as a whole; and MFC shall in all material respects have
performed each obligation and agreement and complied with each covenant to be
performed and complied with by it under the Merger Agreement at or prior to the
time the Merger becomes effective; (ii) FBS shall have received an officer's
certificate of the Chief Executive Officer and the Chief Financial Officer of
MFC to the effect that they have no reason to believe that the conditions set
forth in (i) above have not been fulfilled; (iii) FBS shall have received a
certificate of the Corporate Secretary or an Assistant Secretary of MFC as to
resolutions authorizing the corporate actions to approve the Merger Agreement
and transactions contemplated thereby and as to the incumbency of certain
officers of MFC; (iv) FBS shall have received opinion letters of Oppenheimer
Wolff & Donnelly, counsel to MFC, and, as to certain of the following matters,
J. Michael Nilles, Executive Vice President and General Counsel of MFC,
concerning the due incorporation or organization and good standing of MFC, the
Bank, and certain non-banking subsidiaries, the qualification of MFC, the Bank
and certain non-banking subsidiaries to do business, the noncontravention of the
charter and bylaws of MFC, the Bank and certain non-banking subsidiaries and, to
such counsels knowledge, of agreements to which MFC, the Bank and certain
non-banking subsidiaries are parties by the transactions contemplated by the
Merger Agreement, the authorization of the outstanding capital stock of MFC, the
Bank and certain non-banking subsidiaries, the due authorization and execution
of the Merger Agreement by MFC, the absence to such counsel's knowledge of legal
actions pending or threatened against MFC, the Bank and certain non-banking
subsidiaries except as previously disclosed to FBS in schedules, and related
matters; (v) MFC shall have delivered to FBS the letters from affiliates of MFC
described under "--Resale of FBS Common Stock Received by MFC Shareholders";
(vi) no event shall have occurred which, in the reasonable opinion of FBS and
concurred in by Ernst & Young LLP, would prevent the Merger from being accounted
for as a pooling of interests, and FBS shall have received from Ernst & Young
LLP an opinion that the Merger shall qualify as a pooling of interests for
accounting purposes; (vii) there shall not be threatened, instituted or pending
any action or proceeding before any court or governmental authority or agency
seeking to take certain specified adverse actions; (viii) there shall not be any
action taken, or any statute, rule, regulation, judgment, order or injunction
proposed, enacted, entered, enforced, promulgated, issued or deemed applicable
to the transactions
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contemplated by the Merger Agreement by any court, government or governmental
authority or agency which would reasonably be expected to have specified adverse
consequences; (ix) FBS shall not have discovered any fact or circumstance
existing as of the date of the Merger Agreement which has not been disclosed to
FBS, as of the date of such agreement, in such agreement, any schedule thereto,
or any document specifically required to be furnished to FBS thereunder,
regarding MFC or any of its subsidiaries which would, individually or in the
aggregate with other such facts and circumstances, materially impair the
consummation of the transactions contemplated by such agreement, or have a
material adverse effect on the business, operations or financial condition of
MFC and its subsidiaries, taken as a whole; (x) since the date of the Merger
Agreement, there shall have been no material adverse change in, and no event,
occurrence or development in the business of MFC or its subsidiaries that, taken
together with other events, occurrences and developments with respect to such
business, would have or would reasonably be expected to have a material adverse
effect on, the business, operations or financial condition of MFC and its
subsidiaries, taken as a whole.
REGULATORY APPROVALS REQUIRED
Under the Merger Agreement, the obligations of both FBS and MFC to
consummate the Merger are conditioned upon the receipt of all required
regulatory approvals (without certain restrictions or limitations) and the lapse
of all required regulatory waiting periods. See "--Conditions to Consummation of
the Merger." There can be no assurance that any applicable regulatory authority
will approve or take other required action with respect to the Merger or as to
the date of such regulatory approval or other action. FBS and MFC are not aware
of any governmental approvals or actions that are required in order to
consummate the Merger except as described below. Should such other approval or
action be required, it is contemplated that FBS and MFC would seek such approval
or action. There can be no assurance as to whether or when any such other
approval or action, if required, could be obtained.
FEDERAL RESERVE BOARD. The Merger is subject to the prior approval of the
Federal Reserve Board under Sections 4(c)(1) and 4(c)(8) of the Bank Holding
Company Act. Under the Bank Holding Company Act, the Federal Reserve Board is
required, in approving a transaction such as the Merger, to take into
consideration the financial and managerial resources and future prospects of the
existing and proposed institutions and the convenience and needs of the
communities to be served. The Bank Holding Company Act prohibits the Federal
Reserve Board from approving the Merger if it would result in a monopoly or be
in furtherance of any combination or conspiracy to monopolize or to attempt to
monopolize the business of banking in any part of the United States. The Bank
Holding Company Act also prohibits the Federal Reserve Board from approving the
Merger if its effect in any section of the country may be substantially to
lessen competition or tend to create a monopoly, or if it would in any other
manner result in a restraint of trade, unless the Federal Reserve Board finds
that the anti-competitive effects of the Merger are clearly outweighed in the
public interest by the probable effect of the transaction in meeting the
convenience and needs of the communities to be served. In addition, under the
Community Reinvestment Act of 1977, as amended, the Federal Reserve Board must
take into account the record of performance of the existing institutions in
meeting the needs of the entire community, including low-and moderate-income
neighborhoods, served by such institutions. Additionally, the acquisition of MFC
Common Stock by FBS pursuant to the Option issued to FBS by MFC at the time the
parties entered into the Merger Agreement would be subject to approval by the
Federal Reserve Board under Sections 4(c)(1) and 4(c)(8) of the Bank Holding
Company Act. See "--Option Granted to FBS."
OTS. The Merger is also subject to the prior approval of the OTS under
Section 10 of the Home Owners' Loan Act. The factors required to be considered
by the OTS under the Home Owners' Loan Act are substantially similar to those
described above with respect to Federal Reserve Board approval. However,
approval by the Federal Reserve Board will not constitute approval by the OTS,
or vice versa.
CURRENT STATUS OF REGULATORY APPROVALS. After submission and review in
draft form, FBS submitted its final application to the Federal Reserve Bank of
Minneapolis on September 9, 1994, and supplemented the application on September
30, 1994, October 4, 1994 and October 13, 1994. The application was accepted by
the Federal Reserve Board for processing on October 12, 1994. The OTS
application was submitted by FBS on September 6,
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1994; the OTS staff's comments on completeness were received by FBS on October
5, 1994; and FBS responded to such comments on October 31, 1994. The OTS deemed
the application complete on November 10, 1994. There can be no assurance that
the Federal Reserve Board or the OTS will approve the Merger or as to the date
of such regulatory approval.
WAIVER AND AMENDMENT
At any time before the Merger becomes effective, any party to the Merger
Agreement may (i) extend the time for performance of any obligations or other
acts of any other party under the Merger Agreement or (ii) waive compliance with
any agreements contained in the Merger Agreement of any other party thereto or
with any conditions contained therein to its own obligations, to the extent that
such obligations, agreements and conditions are intended for its own benefit.
The Merger Agreement may not be amended except by written instrument signed
on behalf of each of the parties thereto. The Merger Agreement may be amended
without the approval of FBS shareholders or MFC shareholders, except that no
such amendment will be made following approval and adoption of the Merger
Agreement by FBS shareholders and MFC shareholders if such amendment changes the
number of shares of FBS Common Stock for which the MFC Common Stock is to be
exchanged or otherwise materially adversely affects the rights of such
shareholders.
TERMINATION
The Merger Agreement may be terminated at any time before the Merger becomes
effective (i) by mutual consent of FBS and MFC; (ii) by either FBS or MFC, if
any of the conditions to such party's obligation to consummate the transaction
contemplated in the Merger Agreement have become impossible to satisfy; (iii) by
either FBS or MFC, if the Merger Agreement and the Merger are not duly approved
by the shareholders of each of MFC and FBS; (iv) by FBS or MFC if the Merger has
not become effective on or before September 30, 1995 (unless the failure to
consummate the Merger by such date shall be due to the action or failure to act
of the party seeking to terminate the Merger Agreement in breach of such party's
obligations thereunder); (v) by either FBS or MFC, if the Average Price is less
than $29.50; (vi) by MFC if specified events relating generally to the making by
third parties of offers to acquire MFC occur and MFC's Board of Directors
determines that such offer is a material economic improvement to MFC's
shareholders when compared to the Merger and that such Board's failure to
recommend such an offer or accept such proposal would be likely to result in a
breach of the directors' fiduciary duties (subject to the expiration of five
business days after written notice of such offer or proposal has been delivered
to FBS) (the "Fiduciary Termination"); (vii) by FBS if any person (other than
FBS or any affiliate of FBS) shall have commenced a bona fide tender offer or
exchange offer to acquire at least 20% of the then outstanding shares of MFC
Common Stock, or if the Board of Directors of MFC shall have withdrawn, modified
or changed its recommendation of the Merger Agreement or the Merger ("Tender
Offer Termination"); or (viii) by FBS if there shall have occurred specified
events relating generally to the making by third parties of offers to acquire
MFC and the acquisition by third parties of specified percentages of MFC Common
Stock ("Third Party Offer Termination"). Any party desiring to terminate the
Merger Agreement is required to give written notice of such termination and the
reasons therefor to the other party. If the Merger Agreement is terminated
pursuant to the foregoing provisions, such termination will be without liability
of any party (or shareholder, officer, employee, agent, consultant or
representative of such party) to any other party except (a) if such termination
is by (i) MFC as a result of a failure of the condition of MFC with respect to
the opinion of its financial adviser, (ii) MFC by reason of the Fiduciary
Termination, (iii) FBS by reason of a Tender Offer Termination or a Third Party
Offer Termination, or (iv) FBS as a result of the failure of the condition
relating to the accuracy of the representations and warranties of MFC in the
Merger Agreement and the failure of MFC to perform its obligations thereunder
because of the willful and material breach by MFC of any obligation, agreement
or covenant referred to therein, then MFC shall pay to FBS within three business
days of such termination, a termination fee of $35,000,000, (b) as otherwise
provided in law or equity and (c) for the survival of certain covenants relating
to payment by the respective parties of their own expenses and to
confidentiality of information provided.
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LIMITATION ON NEGOTIATIONS
The Merger Agreement provides that MFC (including its subsidiaries) will
not, and will cause its officers, directors, employees, agents and affiliates,
not to, directly or indirectly, solicit, authorize, initiate or encourage
submission of, any proposal, offer, tender offer or exchange offer from any
person or entity (including officers or employees of MFC or such subsidiaries)
relating to any liquidation, dissolution, recapitalization, merger,
consolidation or acquisition or purchase of all or a material portion of the
assets or deposits of, or any equity interest in, MFC or any of its
subsidiaries, or, unless MFC shall have determined, after receipt of a written
opinion of counsel to MFC (a copy of which opinion shall be delivered to FBS),
that the Board of Directors of MFC has a fiduciary duty to do so, (i)
participate in any negotiations in connection with or in furtherance of any of
the foregoing or (ii) permit any person other than FBS and its representatives
to have any access to the facilities of, or furnish to any person other than FBS
and its representatives any non-public information with respect to, MFC or any
of its subsidiaries in connection with or in furtherance of any of the
foregoing. The Merger Agreement also requires MFC promptly to notify FBS if a
proposal, offer, inquiry or contact is made with it concerning any such
transactions and promptly to provide FBS with such information concerning such
matters as FBS may request. The foregoing provisions of the Merger Agreement may
have the effect of discouraging competing offers to acquire or merger with MFC.
OPTION GRANTED TO FBS
Simultaneously with the execution of the Merger Agreement and as a condition
to such execution, MFC and FBS executed a Stock Option Agreement dated July 21,
1994 (the "Stock Option Agreement"). The Stock Option Agreement has been filed
as an exhibit to the registration statement of which this Proxy
Statement/Prospectus is a part. The following description of the Stock Option
Agreement does not purport to be complete and is qualified in its entirety by
reference to the Stock Option Agreement, which is incorporated herein in its
entirety. Exercise of the Option granted by the Stock Option Agreement is
subject to the prior approval of the Federal Reserve Board under the Bank
Holding Company Act. See "--Regulatory Approvals Required."
Under the Stock Option Agreement, MFC granted FBS the Option to purchase
newly authorized but unissued or treasury shares of MFC Common Stock in a number
approximately equal to 19.9% of the number of shares of MFC Common Stock
outstanding immediately before exercise of the Option. The exercise price of the
Option is $24.66 per share, subject to adjustment under specified circumstances
(such exercise price, as so adjusted, being referred to herein as the "Option
Price"). The Option is exercisable only if both an "Initial Triggering Event"
and a "Subsequent Triggering Event" occur prior to the occurrence of an
"Exercise Termination Event," as such terms are defined below.
The Stock Option Agreement defines the term "Initial Triggering Event" to
mean any of the following events or transactions:
(i) MFC or any of its subsidiaries, without having received the prior
written consent of FBS, enters into an agreement to engage in an
"Acquisition Transaction" (as defined below) with any person other than FBS
or a subsidiary of FBS, or the MFC Board of Directors recommends that MFC
shareholders approve or accept any Acquisition Transaction other than as
contemplated by the Merger Agreement;
(ii) Any person other than FBS or a subsidiary of FBS acquires
beneficial ownership (as defined under Section 13(d) of the Exchange Act) or
the right to acquire beneficial ownership of 10% or more of the outstanding
shares of MFC Common Stock;
(iii) The shareholders of MFC have not approved the transactions
contemplated by the Merger Agreement at the MFC Special Meeting or any
adjournment thereof, or such meeting has not been held or has been canceled
prior to termination of the Merger Agreement, or MFC's Board of Directors
has withdrawn or modified (or publicly announced its intention to withdraw
or modify or interest in withdrawing or modifying) its recommendation that
the shareholders of MFC approve the transactions contemplated by the Merger
Agreement, or MFC or any MFC subsidiary, without having received FBS' prior
written consent, has
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authorized, recommended, proposed (or publicly announced its intention to
authorize, recommend or propose or interest in authorizing, recommending or
proposing) an agreement to engage in an Acquisition Transaction with any
person other than FBS or an FBS subsidiary;
(iv) Any person other than FBS or a subsidiary of FBS makes a bona fide
proposal to MFC or its shareholders by public announcement or written
communication that is or becomes the subject of public disclosure to engage
in an Acquisition Transaction;
(v) MFC has breached any covenant or obligation contained in the Merger
Agreement and such breach entitles FBS to terminate the Merger Agreement;
(vi) Any person other than FBS or a subsidiary of FBS, other than in
connection with a transaction to which FBS has given its prior written
consent, files an application or notice with the Federal Reserve Board, the
OTS or other federal or state bank regulatory authority, which is accepted
for processing, for approval to engage in an Acquisition Transaction; or
(vii) MFC terminates the Merger Agreement as a result of a failure of the
condition of MFC with respect to the opinion of its financial adviser or by
reason of the Fiduciary Termination.
As used in the Stock Option Agreement, the term "Acquisition Transaction" means
(a) a merger or consolidation or any similar transaction, involving MFC or any
"significant subsidiary" (as defined in accounting rules of the Securities and
Exchange Commission) of MFC, (b) a purchase, lease or other acquisition of all
or substantially all of the assets or deposits of MFC or any such significant
subsidiary or (c) a purchase or other acquisition (including by merger,
consolidation, share exchange or otherwise) of securities representing 10% or
more of the voting power of MFC or any such significant subsidiary.
The Stock Option Agreement defines the term "Subsequent Triggering Event" to
mean any of the following events or transactions: (i) The acquisition by any
person of beneficial ownership of 20% or more of the then outstanding MFC Common
Stock or (ii) MFC or any of its subsidiaries, without having received the prior
written consent of FBS, enters into an agreement to engage in an Acquisition
Transaction with any person other than FBS or a subsidiary of FBS, or the MFC
Board of Directors recommends that MFC shareholders approve or accept any
Acquisition Transaction other than as contemplated by the Merger Agreement;
provided, that for purposes of the definition of "Subsequent Triggering Event,"
the percentage referred to in clause (c) of the definition of "Acquisition
Transaction" above shall be 20% rather than 10%.
The Stock Option Agreement defines the term "Exercise Termination Event" to
mean any of (i) the time the Merger becomes effective, (ii) termination of the
Merger Agreement in accordance with its provisions, if such termination occurs
prior to the occurrence of an Initial Triggering Event, (iii) termination of the
Merger Agreement based on the Average Price being less than $29.50, (iv)
termination of the Merger Agreement by FBS as the result of the failure of
certain conditions set forth in the Merger Agreement if neither MFC nor any of
its affiliates, officers, directors, employees or agents took any actions that
contributed in any way, directly or indirectly, to the occurrence of such event
or (v) the passage of 12 months, subject to certain extensions, after
termination of the Merger Agreement under certain circumstances if such
termination follows the occurrence of an Initial Triggering Event.
If the Option becomes exercisable, it may be exercised in whole or in part
upon written notice from FBS within 12 months following the applicable
Subsequent Triggering Event. FBS' right to exercise the Option and certain other
rights under the Option Agreement are subject to an extension in order to obtain
required regulatory approvals and comply with applicable regulatory waiting
periods and to avoid liability under Section 16(b) of the Exchange Act. The
Option Price will be reduced if MFC issues or agrees to issue shares of MFC
Common Stock (other than pursuant to certain disclosed options, rights or plans)
at a price less than the then current Option Price to such lesser price, and the
Option Price and the number of shares issuable under the Option are subject to
adjustment in the event of specified changes in the capital stock of MFC.
Upon the occurrence of a Subsequent Triggering Event that occurs prior to an
Exercise Termination Event, FBS will have the right for 12 months (subject to
extension as described in the Stock Option Agreement) to
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demand that MFC register the shares of MFC Common Stock issued or issuable
pursuant to the Option under the Securities Act, subject to specified conditions
and limitations. The Stock Option Agreement grants two such demand registrations
to FBS and provides that MFC will bear the costs of such demand registrations.
The Stock Option Agreement also provides that if a Subsequent Triggering
Event occurs prior to an Exercise Termination Event, upon notice delivered
within 12 months (subject to extension as described in the Stock Option
Agreement) of the Subsequent Triggering Event, MFC shall be obligated to
repurchase all or any part of the Option and all or any part of the shares
received upon exercise of the Option or any part ("Option Shares") from the
holder thereof. Such repurchase for the Option or any part of it shall be at a
price equal to the amount by which the "market/offer price" (as defined below)
exceeds the Option exercise price (as adjusted), multiplied by the number of
shares for which the Option may then be exercised, plus certain of FBS' expenses
in connection with the transactions contemplated by the Merger Agreement. Such
repurchase for any Option Shares shall be at a price equal to the "market/offer
price" multiplied by the number of Option Shares to be repurchased, plus certain
of FBS' expenses in connection with the transactions contemplated by the Merger
Agreement. The term "market/ offer price" is defined to mean the highest of (i)
the price per share at which a tender or exchange offer has been made for MFC
Common Stock, (ii) the price per share of MFC Common Stock that any third party
is to pay pursuant to an agreement with MFC, (iii) the highest closing price per
share within the six-month period immediately preceding the date that notice to
repurchase is given or (iv) in the event of a sale of all or substantially all
of MFC's assets or deposits, the sum of the price paid for such assets or
deposits and the current market value of the remaining assets (as determined by
a nationally recognized investment banking firm), divided by the number of
shares of MFC Common Stock outstanding at the time of such sale.
Pursuant to the terms of the Stock Option Agreement, in the event that,
prior to an Exercise Termination Event, MFC enters into certain transactions in
which MFC is not the surviving corporation, certain fundamental changes in the
capital stock of MFC occur or MFC sells all or substantially all of its or
certain subsidiary's assets, the agreement governing such transaction shall
provide for the issuance of a substitute option, with similar terms as the
Option, to purchase capital stock of the entity that is the effective successor
to MFC.
The Stock Option Agreement provides that neither FBS nor MFC may assign any
of its rights or obligations thereunder or under the Option without the written
consent of the other party, except that if a Subsequent Triggering Event occurs
prior to an Exercise Termination Event, FBS may, subject to limitations
contained in the Stock Option Agreement, assign its rights and obligations under
the Stock Option Agreement in whole or in part within 12 months following such
Subsequent Triggering Event (subject to extension as described in the Stock
Option Agreement); provided, that until 30 days after the Federal Reserve Board
and OTS approve applications by FBS to acquire shares subject to the Option, FBS
may not assign its rights under the Option except in (i) a widely dispersed
public distribution, (ii) a private placement in which no one party acquires the
right to purchase more than two percent of the voting shares of MFC, (iii) an
assignment to a single party (e.g., a broker or investment banker) for the
purpose of conducting a widely dispersed public distribution on FBS' behalf or
(iv) any other manner approved by the Federal Reserve Board or the OTS.
The Stock Option Agreement also provides that FBS shall be obligated to
reimburse MFC for all or a portion of the termination fee paid by MFC in an
amount generally equal to the cash value received by FBS (net of commissions,
fees, underwriting discounts, costs and expenses) upon the disposition
(including an MFC repurchase) of the Option or the Option Shares.
The foregoing provisions of the Stock Option Agreement may have the effect
of discouraging competing offers to acquire or merge with MFC. To the best
knowledge of MFC and FBS, no event giving rise to the right to exercise the
Option has occurred as of the date of this Proxy Statement/Prospectus.
CONDUCT OF MFC BUSINESS PENDING THE MERGER
The Merger Agreement provides that from the date of the Merger Agreement to
the time the Merger becomes effective, except as otherwise permitted by the
Merger Agreement or agreed to by FBS, the business of MFC (including its
subsidiaries) will be conducted only in the ordinary course, on an arms'-length
basis and in
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accordance in all material respects with past practices and applicable laws,
rules and regulations. In addition, the Merger Agreement provides that during
such period, except as otherwise permitted by the Merger Agreement or agreed to
by FBS:
(i) neither MFC nor any of its subsidiaries shall, directly or
indirectly, (a) amend or propose to amend its charter or bylaws; (b) issue
or sell any of its equity securities, securities convertible into or
exchangeable for its equity securities, warrants, options or other rights to
acquire its equity securities, or any bonds or other securities, except (1)
deposit and other bank obligations in the ordinary course of business and
(2) pursuant to the exercise of the options, warrants, conversion privileges
and other rights set forth on a schedule to the Merger Agreement; (c)
redeem, purchase, acquire or offer to acquire, directly or indirectly, any
shares of capital stock of MFC or any of its subsidiaries or other
securities of MFC or of any of its subsidiaries, except pursuant to the
agreements, arrangements or commitments identified in a schedule to the
Merger Agreement; (d) split, combine or reclassify any outstanding shares of
capital stock of MFC or any of its subsidiaries, or declare, set aside or
pay any dividend or other distribution payable in cash, property or
otherwise with respect to shares of capital stock of MFC or any of its
subsidiaries except (1) dividends paid in cash by MFC's subsidiaries which
are wholly owned by MFC to MFC, or another wholly owned subsidiary of MFC,
(2) the regular quarterly cash dividends paid on the MFC Common Stock in an
amount not to exceed $.20 per share, and (3) the regular dividends paid in
accordance with the terms of the MFC Preferred Stock; (e) borrow any amount
or incur or become subject to any material liability, except liabilities
incurred in the ordinary course of business, but in no event will MFC or any
of its subsidiaries enter into any long-term borrowings with a term of
greater than one year, other than (1) as set forth in a schedule to the
Merger Agreement and (2) borrowings for the purpose of interest rate risk
management with maturities of less than three years in an aggregate amount
not exceeding $150,000,000 and any related derivative transactions, without
prior consultation with FBS; (f) discharge or satisfy any material lien or
encumbrance on the properties or assets of MFC or any of its subsidiaries or
pay any material liability, except in the ordinary course of business, other
than reverse repurchase agreements or Federal Home Loan Bank borrowings; (g)
sell, assign, transfer, mortgage, pledge or subject to any lien or other
encumbrance any of its assets with an aggregate market value in excess of
$50,000, except (1) in the ordinary course of business, including real
estate owned ("REO"), (2) liens and encumbrances for current property taxes
not yet due and payable and (3) liens and encumbrances which do not
materially affect the value of, or interfere with the past or future use or
ability to convey, the property subject thereto or affected thereby; (h)
cancel any material debt or claims or waive any rights of material value,
except in the ordinary course of business; (i) acquire (by merger, exchange,
consolidation, acquisition of stock or assets or otherwise) any corporation,
partnership, joint venture or other business organization or division or
material assets thereof, or assets or deposits that are material to MFC,
except in exchange for debt previously contracted, including REO; (j) other
than as set forth in a schedule to the Merger Agreement, make any single or
group of related capital expenditures or commitments therefor in excess of
$50,000 or enter into any lease or group of related leases with the same
party which involves aggregate lease payments payable of more than $100,000
for any individual lease or involves more than $100,000 for any group of
related leases in the aggregate; or (k) enter into or propose to enter into,
or modify or propose to modify, any agreement, arrangement or understanding
with respect to any of the matters set forth in this clause (i);
(ii) neither MFC nor any of its subsidiaries shall, directly or
indirectly, enter into or modify any employment, severance or similar
agreements or arrangements with, or grant any bonuses, wage, salary or
compensation increases, or severance or termination pay to, or promote, any
director, officer, employee, group of employees or consultant or hire any
employee with an employee classification above a specified level, other than
(a) bonuses, increases, promotions or new hires in the ordinary course and
in a manner consistent with past practices as disclosed to FBS prior to
entering into the Merger Agreement, (b) bonuses payable on the effective
date of the Merger as a result of the Merger under MFC's change in control
severance pay plans and (c) retention bonuses in an aggregate amount not to
exceed $300,000 and as to which the identity of the recipient and amount of
each such bonus will be previously agreed upon by FBS and MFC;
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(iii) neither MFC nor any of its subsidiaries shall adopt or amend any
bonus, profit sharing, stock option, pension, retirement, deferred
compensation, or other employee benefit plan, trust, fund, contract or
arrangement for the benefit or welfare of any employees, except as required
by law;
(iv) each of MFC and its subsidiaries shall use reasonable efforts to
cause its current insurance policies not to be canceled or terminated or any
of the coverage thereunder to lapse, unless simultaneously with such
termination, cancellation or lapse, replacement policies providing coverage
substantially equal to the coverage under the canceled, terminated or lapsed
policies are in full force and effect;
(v) neither MFC nor any of its subsidiaries shall enter into any
settlement or similar agreement with respect to, or take any other
significant action with respect to the conduct of, any action, suit,
proceeding, order or investigation which is set forth in a schedule to the
Merger Agreement or to which MFC or any of such subsidiaries becomes a party
after the date of the Merger Agreement, without prior consultation with FBS,
provided that neither MFC nor any of such subsidiaries shall take any such
action with respect to certain litigation matters relating to Edina Realty
without the prior written consent of FBS;
(vi) each of MFC and its subsidiaries shall use commercially reasonable
efforts to preserve intact in all material respects the business
organization and the goodwill of each of MFC and such subsidiaries and to
keep available the services of its officers and employees as a group and
preserve intact material agreements, and MFC shall confer on a regular and
frequent basis with representatives of FBS, as reasonably requested by FBS,
to report on operational matters and the general status of ongoing
operations;
(vii) neither MFC nor any of its subsidiaries shall take any action with
respect to investment securities held or controlled by any of them
inconsistent with past practices, alter its investment portfolio duration
policy as in effect prior to the date of the Merger Agreement or, without
prior consultation with FBS, take any action that would have or could
reasonably be expected to have a material effect on the Bank's
asset/liability position;
(viii) the Bank shall not make any agreements or commitments binding it
to extend credit in the amount per borrower in excess of $1,000,000 nor will
it purchase any portfolio of loans with an aggregate principal balance in
excess of $100,000,000 without prior consultation with FBS;
(ix) with respect to properties leased by MFC or any of its
subsidiaries, neither MFC nor any of such subsidiaries shall renew, exercise
an option to extend, cancel or surrender any lease of real property nor
allow any such lease to lapse, without prior consultation with FBS (other
than leases with remaining terms of six months or less); and
(x) neither MFC nor any of its subsidiaries shall agree to do any of
the foregoing;
provided, however, that in the event MFC and its subsidiaries would be
prohibited from taking any action by reason of the foregoing without the prior
written consent of FBS, such action may nevertheless be taken if MFC or any of
such subsidiaries is expressly required to do so by law or by the OTS and MFC
informs FBS of such prohibition or restriction.
Pursuant to the Merger Agreement, MFC also is required to take certain
affirmative actions at or before the time the Merger becomes effective. These
include certain specified actions with respect to its employee benefit and stock
option plans, see "--Effect on MFC Employee Benefit Plans and Stock Option
Plans." The Merger Agreement also prevents MFC from negotiating for an
acquisition of MFC by any other party, subject to specified exceptions, see
"--Limitations on Negotiations," and from taking any action which would
disqualify the Merger as a "pooling of interests" for accounting purposes or as
a "reorganization" that would be tax-free to shareholders of MFC pursuant to
Section 368(a) of the Code, see "--Accounting Treatment" and "--Certain Federal
Income Tax Consequences to MFC Shareholders." The Merger Agreement provides
that, subject to certain conditions, MFC will, consistent with generally
accepted accounting principles, establish such additional accruals and reserves
as may be necessary to conform MFC's credit loss reserve practices and methods
to those of FBS, to reflect the plans of FBS with respect to the conduct of
MFC's business following the Merger and to provide for certain costs and
expenses relating to the Merger. See Unaudited Pro Forma Combined Financial
Information.
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MANAGEMENT AND OPERATIONS OF MFC FOLLOWING THE MERGER
After the Merger of MFC into FBS, it is expected that MFC's Minnesota, South
Dakota and Wisconsin branch operations will be merged into FBS' banking
subsidiaries located in those states. In addition, the banking subsidiary of FBS
located in North Dakota is expected to be merged into Metropolitan Federal
Savings Bank, fsb. FBS anticipates that MFC will continue to operate as a thrift
institution in the States of North Dakota, Arizona, Iowa, Kansas, Nebraska and
Wyoming following the Merger; provided, however, that FBS expects that it may
establish a state or national bank in Wyoming, which in turn would acquire the
Wyoming branches of MFC. FBS anticipates that significant cost savings will
result from MFC's inclusion in the FBS enterprise. These cost savings are
expected to result from personnel reductions, branch and operational
consolidations, and general reductions in corporate and administrative support
functions. FBS estimates that the potential cost savings will be 35% of MFC's
annual expense base. The operating cost savings are expected to be achieved in
various amounts during the two twelve-month periods following the Merger and not
ratably over, or at the beginning or end of, such periods. Based on current
expectations, approximately 80% of the aggregate cost savings would be realized
in 1995, with the full cost savings achieved in 1996. Using consensus earnings
estimates for FBS and MFC published by various financial services and assuming
that the timing of the aggregate cost savings occurs as expected, the merger
with MFC could be accretive to FBS earnings per share in the range of $.08 to
$.10 in 1996. There can be no assurance that the expected cost savings or effect
on earnings will be realized or that they will be realized in the periods
discussed.
FBS anticipates converting MFC's data processing systems and product
application systems to its systems soon after the effective date of the Merger.
After conversion of the data processing and product systems, FBS plans to
rapidly introduce its standardized products into the MFC branch network. In
addition, all back office administrative and support functions will also be
centralized shortly after the systems conversion.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
SEVERANCE PLANS. Under the Merger Agreement, FBS has agreed to assume and
perform or cause to be performed all of the obligations of "successors" under
the terms of the MFC Broad-Based Change in Control Severance Pay Plan, as
amended, the MFC Senior Management Change in Control Severance Pay Plan, as
amended, and the MFC Executive Management Change in Control Severance Pay Plan,
as amended (the "Change in Control Plans"), each of which was adopted in 1993.
Further, pursuant to the Merger Agreement, MFC and FBS have agreed to certain
amendments to the Change in Control Plans to be effected by MFC prior to the
effectiveness of the Merger. Under such plans, the total severance payments,
including the cash value of benefits, expected to be made in connection with the
Merger are approximately $30 million. See "-- Effect on MFC Employee Benefit
Plans and Stock Option Plans -- Change in Control Plans."
Under MFC's Executive Management Change in Control Severance Pay Plan, as
amended (the "Executive Change in Control Plan"), executive officers of MFC are
entitled to receive certain benefits if their employment is terminated before a
"change in control" (as defined in such plan and which would include the Merger)
(as a condition to the change in control transaction) or within two years after
the "change in control" by MFC or its successors without "cause" (as defined in
such plan) or by the executive for "good reason" (as defined in such plan)
(including adverse changes in status or position, reduction in base salary,
termination of, or certain other adverse changes to, benefit plans, relocation
or termination for any reason other than death during the 24th month after the
change in control). In such a case, MFC (or its successor) will make a lump-sum
cash payment to the executive in an amount equal to three times the sum of the
executive's annual base salary plus annual cash bonus. Based on current base
salaries and target bonuses, assuming termination of employment qualifying for
payments under the applicable plan, the five most highly compensated executive
officers of MFC for the year ended December 31, 1993 would receive lump-sum cash
payments as follows: Norman M. Jones, $1,914,000; Ronald Peltier, $1,154,250;
Jerry L. Record, $891,000; William P. Bartkowski, $830,250; J. Michael Nilles,
$667,644. All executive officers as a group would receive such payments in the
aggregate amount of approximately $9.9 million. The executive will also be
entitled to (a) continued coverage under MFC's welfare benefit plans and certain
perquisite policies for up to three years ("grossed-up" for any additional taxes
payable by the executive relative to taxes payable by an active employee), (b)
receive outplacement counseling (for which MFC (or its successor) will pay up to
30% of the executive's base salary), and (c) credit for three additional years
of service under any pension
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plan of MFC (or the value of such service credit if the credit would cause the
plan to lose its tax-qualified status). The executive will also receive a
"gross-up" payment which, net of all tax, is sufficient to pay any excise tax on
"excess parachute" payments.
AGREEMENTS WITH NORMAN M. JONES. Under the Merger Agreement, FBS has agreed
to use its best efforts following the effective date of the Merger to (i) secure
the election of Norman M. Jones to the FBS Board of Directors for a term of at
least three years and (ii) appoint Mr. Jones as Chairman of the Board of
Directors of the Bank or its successor following the Merger, for at least three
years, subject to any applicable regulatory requirements. FBS has also agreed,
following the Merger, to enter into a consulting agreement with Mr. Jones,
containing customary terms and conditions, engaging Mr. Jones for a three-year
period following the effective date of the Merger as an independent consultant
to assist FBS in identifying and contacting, on behalf of FBS, potential
financial institution acquisition candidates as requested from time to time by
FBS. FBS shall pay Mr. Jones, for all of such services, total compensation equal
to $200,000 annually. The Merger Agreement specifies that, on the effective date
of the Merger, there shall exist a "termination" of Mr. Jones' employment with
MFC under the terms of the Executive Change in Control Plan and FBS shall pay
all benefits payable to Mr. Jones pursuant to the terms of such plan upon such
termination. Based on his current base salary and target bonus, the total
lump-sum cash payment to Mr. Jones upon such termination pursuant to such plan
would be $1,914,000 (assuming no tax "gross-up" payment).
EMPLOYMENT AGREEMENT WITH J. MICHAEL NILLES. By their terms, the Change in
Control Plans supersede other severance pay plans sponsored or maintained by MFC
or its affiliates. J. Michael Nilles has an employment agreement with MFC
expiring on December 31, 1995, which FBS has agreed does not constitute a
severance plan for purposes of the Change in Control Plans. Therefore, if Mr.
Nilles' employment were terminated and he became eligible for payments and
benefits under the Executive Change in Control Plan, he may also have claims for
payments under his employment agreement. The employment agreement provides that
it may only be terminated for breach of MFC's rules and regulations, dishonesty
or failure to perform duties at the required level of industry and competence.
Mr. Nilles annual base salary under the employment agreement is currently
$164,850.
INDEMNIFICATION AND INSURANCE. The Merger Agreement requires FBS to
indemnify, defend and hold harmless each present and former officer, director or
employee of MFC (including its subsidiaries) against all losses, claims,
damages, costs, expenses (including attorneys' fees), liabilities, judgments or
amounts paid in settlement (which settlement shall require the prior written
consent of FBS, which consent shall not be unreasonably withheld) of or in
connection with any claim, action, suit, proceeding or investigation (each a
"Claim") which arises out of such person's serving in such capacity and pertains
to any matter or fact arising, existing or occurring before the Merger becomes
effective (including, without limitation, the Merger and related transactions)
to the full extent permitted under applicable Delaware or federal law as in
effect at the time of the Merger, and the certificate of incorporation and
bylaws of MFC as in effect on the date of the Merger Agreement. The Merger
Agreement also provides that FBS will advance expenses incurred by such persons
in connection with Claims to the full extent permitted by such laws, certificate
of incorporation and bylaws. These indemnification obligations of FBS will
continue in force for at least five years after the Merger becomes effective and
will apply to any Claim asserted or made within such period.
The Merger Agreement also requires FBS to use its best efforts to maintain
in effect, for three years after the Merger becomes effective, officers' and
directors' liability insurance with respect to claims arising from facts or
events which occurred before the Merger became effective of at least the same
coverage and amounts, and containing terms and conditions no less advantageous,
as the coverage currently provided by MFC, subject to a stated maximum annual
premium.
In addition, MFC has entered into agreements with each of its directors and
executive officers, which have been ratified by MFC's stockholders
("Indemnification Agreements"). The Indemnification Agreements provide MFC's
executive officers and directors with a right to prompt indemnification and the
prompt advancement of expenses (as defined therein) "to the fullest extent
permitted by law" for obligations paid or incurred by such person in connection
with a proceeding (as defined therein), in the event that the executive officer
or director has incurred such obligations by reason of his corporate status
(defined in the Indemnification Agreements as the
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status of a person "who is or was or has agreed to become a director of MFC, or
is or was an executive officer or fiduciary of MFC or of any other corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise
which such person is or was serving at the request of MFC"). The Indemnification
Agreements define a "proceeding" to include "any action, suit, arbitration,
alternate dispute resolution mechanism, investigation, administrative hearing or
any other proceeding whether civil, administrative or investigative," other than
proceedings instituted by the indemnitee. The Indemnification Agreements also
provide that a director or executive officer automatically is entitled to
indemnification for expenses to the extent he or she is successful in defending
any indemnification claim, whether on the merits or otherwise, and to partial
indemnification even though complete indemnification might not be in order. The
Indemnification Agreements provide that in the event of a change in control of
MFC, such as the Merger, it will seek legal advice from special, independent
counsel with respect to the matters thereafter arising concerning rights of the
director or executive officer under the Indemnification Agreements. In addition,
the Indemnification Agreements provide that in the event of a change in control,
the independent counsel will presume that the director or executive officer is
entitled to indemnification. As a result of the Merger, FBS will assume MFC's
obligations under the Indemnification Agreements, which are generally broader
than the indemnification obligations of FBS to directors and executive officers
of MFC under the Merger Agreement.
DIRECTORS' RETIREMENT PLAN. The Merger Agreement provides that MFC shall
calculate and pay in cash on the effective date of the Merger all amounts
reasonably estimated to be owing to any MFC director pursuant to the MFC
Directors' Retirement Plan, including any estimated "gross up" payment payable
as provided therein. To the extent that any such gross up payment remains
payable after the effective date of the Merger, FBS has agreed to promptly pay
such amounts in full in accordance with the terms of such plan.
Under this plan upon the occurrence of a "change in control" (as defined in
the plan and which would include the Merger) an eligible director (each member
of MFC's Board other than Mr. Jones) will receive a lump sum cash payment equal
to the present value of a monthly benefit in an amount equal to one-twelfth of
the annual retainer for outside directors at the rate in effect immediately
prior to the change in control for a number of months equal to the number of the
director's complete months of service on the Board. Based on the current annual
retainers and assuming closing of the Merger occurs on December 31, 1994, the
following MFC directors would be entitled to receive the aggregate amounts
indicated upon closing: William O. Nilles, $405,868; Charles D. Kalil, $306,531;
Trueman E. Tryhus, $416,992; R. Douglas Larsen, $431,046; William Marcil,
$206,474; Lawrence Davis, $145,862; Karol D. Emmerich, $59,605; and Steven D.
Rothmeier, $38,185. The aggregate of all such payments, assuming consummation of
the Merger occurs on December 31, 1994, is $2,010,563. The director will also
receive a "gross up" payment which, net of all tax, is sufficient to pay any
excise tax on "excess parachute" payments. In determining a director's service
for purposes of the plan, service prior to March 1, 1985 as director of
Metropolitan Federal Bank, fsb, or its predecessors is taken into account.
In addition to the foregoing, certain MFC employee benefit plans and stock
option plans, in which executive officers of MFC also participate, will be
affected by the Merger. See "--Effect on MFC Employee Benefit Plans and Stock
Option Plans" below.
The foregoing interests of members of management of MFC in the Merger may
mean that such persons have personal interests in the Merger which may not be
identical to the interests of nonaffiliated shareholders.
EFFECT ON MFC EMPLOYEE BENEFIT PLANS AND STOCK OPTION PLANS
After the Merger becomes effective, the current employee benefit plans of
MFC will continue in force until amended or terminated in accordance with their
terms. Subject to the foregoing, FBS will have the right, after the Merger
becomes effective, to continue, amend or terminate any such plans.
STOCK OPTIONS. Upon effectiveness of the Merger, with the consent of the
holders of each outstanding option to purchase shares of MFC Common Stock issued
pursuant to the MFC 1984 Stock Option and Incentive Plan, the MFC 1990 Stock
Option Plan, the MFC 1993 Non-Employee Director Stock Option Plan and the MFC
1993 Stock Incentive Plan (the "Stock Options"), each of the Stock Options will
be converted into a right to receive, in lieu of all other rights under such
options (which will be terminated and canceled), shares of FBS Common Stock
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with a value as of the effective date of the Merger equal to the "fair value" of
such option as determined by an independent third party expert to be mutually
selected by FBS and MFC. In such event, as of the effective date of the Merger
FBS will issue, in respect of each of the Stock Options, the aggregate number of
shares of FBS Common Stock equal to such "fair value" based on the Average
Price. In the event that each of the Stock Options is not so converted, then, as
of the effective date of the Merger, the Stock Options shall be assumed by FBS
and shall thereafter be deemed to constitute an option to acquire, on the same
terms and conditions as were applicable under such option, the same number of
shares of FBS Common Stock as the holder of such option would have been entitled
to receive pursuant to the Merger had such holder exercised such option in full
immediately prior to the effective date of the Merger, at a price per share
equal to (x) the aggregate exercise price for the shares of MFC Common Stock
otherwise purchasable pursuant to such option divided by (y) the number of full
shares of FBS Common Stock deemed purchasable pursuant to such option; provided,
however, that in the case of any option to which Section 421 of the Code applies
by reason of its qualification under Section 422 of the Code ("incentive stock
options"), the option price, the number of shares purchasable pursuant to such
option and the terms and conditions of exercise of such options shall be
determined in order to comply with Section 424(a) of the Code. In addition, MFC
will use its best efforts to cause all of the options outstanding and vested
under the MFC Stock Option Plans as of December 31, 1994 to be exercised in full
on or prior to such date.
Also upon effectiveness of the Merger, each outstanding option issued
pursuant to the MFC Employee Stock Purchase Plan or the Edina Realty Sales
Associate Stock Purchase Plan shall be deemed to constitute an option to acquire
FBS Common Stock with appropriate adjustments.
401(K) PLANS. The Merger Agreement provides that no more than two years
after the Merger becomes effective, FBS will terminate the accrual of benefits
under the MFC 401(k) plans and will take such actions as may be necessary to
cause the assets and liabilities of the MFC 401(k) plans to be merged with and
into the FBS 401(k) plan (the "Capital Accumulation Plan"). FBS is required to
take such actions as may be necessary to amend the MFC 401(k) plans to provide
that MFC employees (including employees of subsidiaries of MFC) who are
participants in the MFC 401(k) plans and who are employees of MFC when the
Merger becomes effective will be fully vested as of such date, and such MFC
employees will be fully vested on any additions to their accounts through the
time of the merger of the MFC 401(k) plans into the Capital Accumulation Plan.
Distributions will not be permitted from the MFC 401(k) plans merely because of
the discontinuance of accruals thereunder or the transfer of assets and
liabilities to the Capital Accumulation Plan. FBS is required to take such
actions as may be necessary to cause eligible MFC employees to be qualified to
participate in the Capital Accumulation Plan concurrent with the date FBS causes
accruals to cease under the MFC 401(k) plans. All service with MFC (whether
before or after the Merger becomes effective) will be recognized under the
Capital Accumulation Plan for eligibility and vesting purposes but not for
contribution and allocation purposes. FBS is required to take such action as may
be necessary to cause the Capital Accumulation Plan to accept transfers of
assets and liabilities from the MFC 401(k) plans.
CHANGE IN CONTROL PLANS. Under the Merger Agreement, FBS has agreed to
assume and perform or cause to be performed all of the obligations of
"successors" under the terms of the Change in Control Plans. These plans
generally provide that, after the Merger is effective, certain employees of MFC,
including all executive officers, will become entitled to specified severance
payments and employee benefit continuations if their employment is terminated
under specified circumstances. See "The Merger--Interests of Certain Persons in
the Merger-- Severance Plans." Further, pursuant to the Merger Agreement, FBS
and MFC have agreed to certain amendments to the Change in Control Plans
relating to the continuation of certain welfare benefits or, in the case of
executive officers and senior management, certain perquisites. These amendments,
which were adopted by MFC's Board of Directors on July 26, 1994, eliminate the
continuation of certain welfare benefits and reduce the continuation period for
such benefits under the Broad-Based Change in Control Severance Pay Plan and
provide for the continuation of certain automobile allowance and health and
country club reimbursement policies maintained by MFC under the other Change in
Control Plans.
PENSION PLAN. The Merger Agreement provides that no more than two years
after the Merger becomes effective, FBS will terminate the accrual of benefits
under the MFC qualified defined benefit pension plan (the "MFC Pension Plan")
and will take such actions as may be necessary to cause the assets and
liabilities of the MFC
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Pension Plan to be merged with and into the FBS qualified defined benefit
pension plan (the "Personal Retirement Account"). FBS is required to take such
actions as may be necessary to amend the MFC Pension Plan to provide that MFC
employees (including employees of subsidiaries of MFC) who are participants in
the MFC Pension Plan and who are employees of MFC when the Merger becomes
effective will be fully vested as of such date. FBS is required to take such
actions as may be necessary to cause eligible MFC employees to be qualified to
participate in the Personal Retirement Account (or any qualified defined benefit
plan generally available at the time to similarly situated employees of FBS or
its affiliates) concurrent with the date FBS causes accruals to cease under the
MFC Pension Plan. All service with MFC (to the extent taken into account for
purposes of the MFC Pension Plan and whether before or after effectiveness of
the Merger) shall be recognized under the FBS plan for eligibility and vesting
purposes but shall not be required to be recognized for any other purpose.
OTHER BENEFITS. FBS shall use its best efforts to cause any transition by
MFC employees from the other generally applicable benefit plans and practices of
MFC or its affiliates to FBS plans and practices to be effected in a manner that
does not result in a significant financial detriment to such MFC employees,
other than any such financial detriment as a result of higher premium costs in
the FBS plan which are generally applicable to other similarly situated
employees of FBS and its affiliates or to the absence of any FBS counterpart for
a particular MFC plan or practice.
MFC WARRANTS
MFC had, as of November 28, 1994, outstanding warrants to purchase an
aggregate of 131,818 shares of MFC Common Stock (the "MFC Warrants") which were
issued in a November 1991 public offering of units consisting of one share of
MFC Preferred Stock and one MFC Warrant. Each MFC Warrant entitles the holder
thereof to purchase 1.32 shares of MFC Common Stock. Pursuant to the Merger
Agreement, FBS has agreed that it shall execute a supplemental warrant agreement
to the Warrant Agreement dated as of November 20, 1990 (the "MFC Warrant
Agreement") between MFC and American Stock Transfer and Trust Company, as
warrant agent, and all the MFC Warrants issued pursuant to such Warrant
Agreement shall be assumed by FBS. Each MFC Warrant shall be deemed to
constitute an option to acquire, on the same terms and conditions as were
applicable under such MFC Warrant, the same number of shares of FBS Common Stock
as the holder of such MFC Warrant would have been entitled to receive pursuant
to the Merger had such holder exercised such option in full immediately prior to
the effective date of the Merger, at a price per share equal to (x) the
aggregate exercise price for the shares of MFC Common Stock otherwise
purchasable pursuant to such MFC Warrant divided by (y) the number of full
shares of FBS Common Stock deemed purchasable pursuant to such MFC Warrant. FBS
has agreed to take all corporate action necessary to reserve for issuance a
sufficient number of shares of FBS Common Stock for delivery upon exercise of
MFC Warrants assumed by it, and to use its best efforts to register the MFC
Warrants and the underlying FBS Common Stock under the Securities Act as of the
effective date of the Merger and to maintain the effectiveness of such
registration statement or registration statements (and maintain the current
status of the prospectus or prospectuses contained therein) for so long as such
MFC Warrants remain outstanding.
RIGHTS OF MFC DISSENTING SHAREHOLDERS
Pursuant to Section 262(b)(1) of the Delaware General Corporation Law, MFC
shareholders will not have any dissenters' rights of appraisal with respect to
shares of MFC Common Stock as a result of the matters to be voted upon at the
MFC Special Meeting. Pursuant to Section 262 of the Delaware General Corporation
Law, holders of MFC Preferred Stock may elect to have the "fair value" of their
shares of MFC Preferred Stock (determined in accordance with Delaware law)
individually appraised and paid to them, if the Merger is consummated and if
they comply with Section 262 of the Delaware General Corporation Law.
NO DISSENTERS' RIGHTS OF FBS SHAREHOLDERS
Under the Delaware General Corporation Law, FBS shareholders will not have
any dissenters' rights of appraisal as a result of the matters to be voted upon
at the FBS Special Meeting.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES TO MFC SHAREHOLDERS
The following is a summary description of the material federal income tax
consequences of the Merger to holders of MFC Common Stock; it is not intended to
be a complete description of the federal income tax
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consequences of the Merger. The following discussion does not cover all aspects
of federal income taxation that may be relevant to a particular MFC shareholder
in light of his or her individual circumstances or to certain MFC shareholders
subject to special treatment under the federal income tax laws (for example,
life insurance companies, tax-exempt organizations and foreign corporations and
individuals who are not citizens or residents of the United States) and does not
discuss any aspects of state, local or foreign taxation. This discussion is
based upon laws, regulations, rulings and decisions now in effect and on
proposed regulations, all of which are subject to change (possibly with
retroactive effect) by legislation, administrative action or judicial decision.
No ruling has been or will be requested from the Internal Revenue Service (the
"Service") on any tax matters relating to the tax consequences of the Merger.
EACH MFC SHAREHOLDER IS ADVISED TO CONSULT WITH HIS OR HER OWN TAX ADVISOR
REGARDING THE SPECIFIC FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF THE
MERGER TO SUCH SHAREHOLDER.
MFC will rely upon the opinion of Oppenheimer Wolff & Donnelly, its counsel,
as to the following federal income tax consequences of the Merger to MFC
shareholders. The opinion of Oppenheimer Wolff & Donnelly is based on current
law, assuming the Merger takes place as described in the Merger Agreement.
Unlike a ruling from the Service, an opinion of counsel is not binding on the
Service and there can be no assurance that the Service will not take a position
contrary to one or more of the positions reflected herein or that the positions
herein will be upheld by the courts if challenged by the Service.
Based upon the opinion of Oppenheimer Wolff & Donnelly, which is based upon
various representations and subject to various assumptions and qualifications,
the following federal income tax consequences to the MFC shareholders will
result from the Merger: (i) the Merger will qualify as a "reorganization" under
Section 368(a) of the Code, (ii) no gain or loss will be recognized by any MFC
shareholder (except in connection with the receipt of cash) upon the exchange of
MFC Common Stock for FBS Common Stock in the Merger, (iii) the basis of the FBS
Common Stock received by an MFC shareholder who exchanges MFC Common Stock for
FBS Common Stock will be the same as the basis of the MFC Common Stock
surrendered in exchange therefor (subject to any adjustments required as the
result of the receipt of cash in lieu of a fractional share of FBS Common
Stock), (iv) the holding period of the FBS Common Stock received by an MFC
shareholder receiving FBS Common Stock will include the period during which the
MFC Common Stock surrendered in exchange therefor was held (provided that the
MFC Common Stock of such MFC shareholder was held as a capital asset as of the
effective date of the Merger), and (v) cash received by an MFC shareholder in
lieu of a fractional share interest of FBS Common Stock will be treated as
having been received as a distribution in full payment in exchange for the
fractional share interest of FBS Common Stock which such MFC shareholder would
otherwise be entitled to receive, and will qualify as capital gain or loss
(assuming the MFC Common Stock was a capital asset in such MFC shareholder's
hands at the effective date of the Merger).
STOCK EXCHANGE LISTING OF FBS COMMON STOCK
It is anticipated that FBS will file a listing application with the NYSE
covering the shares of FBS Common Stock which are issuable upon consummation of
the Merger and that such application will be approved subject to notice of
issuance at or before the time the Merger becomes effective. It is a condition
to the obligations of MFC and FBS to consummate the Merger that such shares have
been approved for listing on the NYSE on official notice of issuance.
RESALE OF FBS COMMON STOCK RECEIVED BY MFC SHAREHOLDERS
The shares of FBS Common Stock issuable to shareholders of MFC upon
consummation of the Merger have been registered under the Securities Act. Such
shares may be traded freely without restriction by those shareholders who are
not deemed to be "affiliates" of MFC or FBS, as that term is defined in the
rules under the Securities Act.
Shares of FBS Common Stock received by those shareholders of MFC who are
deemed to be "affiliates" of MFC at the time of the MFC Special Meeting may be
resold without registration under the Securities Act only as permitted by Rule
145 under the Securities Act or as otherwise permitted under the Securities Act.
MFC has agreed in the Merger Agreement to use its best efforts to obtain and
deliver to FBS at least 31 days prior to the time the Merger becomes effective
signed representations by each shareholder of MFC who may reasonably be
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deemed to be an "affiliate" of MFC to the effect that such persons will not
offer to sell, transfer or otherwise dispose of any of the shares of FBS Common
Stock distributed to them pursuant to the Merger except in compliance with Rule
145, or in a transaction that is otherwise exempt from the registration
requirements of the Securities Act, or in an offering which is registered under
the Securities Act. This Proxy Statement/Prospectus does not cover any resales
of FBS Common Stock received by persons who are deemed to be "affiliates" of
MFC.
FBS DIVIDEND REINVESTMENT AND COMMON STOCK PURCHASE PLAN
FBS provides eligible shareholders with a simple and convenient method of
investing cash dividends and optional cash payments at 100% of the average price
(as defined) in additional shares of FBS Common Stock without payment of any
brokerage commission or service charge pursuant to its Automatic Dividend
Reinvestment and Common Stock Purchase Plan. The plan includes certain dollar
limitations on participation and provides for eligible shareholders to elect
dividend reinvestment on only a part of the shares registered in the name of a
participant (while continuing to receive cash dividends on remaining shares). It
is anticipated that the plan will continue after the Merger becomes effective
and that shareholders of MFC who receive FBS Common Stock in the Merger will
have the right to participate therein.
ACCOUNTING TREATMENT
The obligation of FBS to consummate the Merger is conditioned on, among
other things, no event having occurred which, in the reasonable opinion of FBS
and concurred in by Ernst & Young LLP, would prevent the Merger from being
accounted for as a pooling of interests, and the receipt by FBS from Ernst &
Young LLP of an opinion that the Merger shall qualify as a pooling of interests
for accounting purposes. See "--Conditions to Consummation of the Merger." In
order for the Merger to qualify for pooling of interests accounting treatment,
FBS Common Stock must be issued in exchange for at least 90 percent of the
outstanding MFC Common Stock and several additional conditions must be
satisfied. MFC Common Stock as to which cash is paid in lieu of the issuance of
fractional shares of FBS Common Stock, and MFC Common Stock owned by FBS, does
not count toward this 90 percent. See "--Terms of the Merger; Consideration to
be Received by MFC Shareholders" and "Information Concerning the MFC Special
Meeting--Solicitation, Voting and Revocability of Proxies." If an event occurred
which precluded pooling of interests accounting treatment (which is not
anticipated) and the condition to consummation of the Merger requiring such
treatment were proposed to be waived, proxies would be resolicited from MFC and
FBS shareholders with updated revised pro forma financial statements. FBS and
MFC have agreed in the Merger Agreement not to take any action which would
disqualify the Merger as a pooling of interests for accounting purposes. In
addition, MFC has agreed in the Merger Agreement to use its best efforts to
obtain and deliver to FBS at least 31 days prior to the time the Merger becomes
effective signed representations by each shareholder of MFC who may reasonably
be deemed to be an "affiliate" of MFC to the effect that such persons will not
sell, transfer or otherwise dispose of any shares of FBS Common Stock received
by them in the Merger or otherwise reduce their risk relative to such shares
until such time as financial results covering at least 30 days of post-Merger
combined operations of FBS and MFC have been published by FBS.
Under the pooling of interests method of accounting, the historical basis of
the assets and liabilities of FBS and MFC will be combined when the Merger
becomes effective and carried forward at their previously recorded amounts, the
shareholders' equity accounts of FBS and MFC will be combined on FBS'
consolidated balance sheet, and no goodwill or other intangible assets will be
created. Financial statements of FBS issued after consummation of the Merger
will be restated retroactively to reflect the consolidated operations of FBS and
MFC as if the Merger had been in effect for the periods presented therein.
The pro forma financial information presented in this Proxy
Statement/Prospectus has been prepared using the pooling of interests accounting
method to account for the Merger. See "Summary--Selected Historical and
Unaudited Pro Forma Financial Data" and Unaudited Pro Forma Combined Financial
Information.
EXPENSES
The Merger Agreement provides that all costs and expenses incurred in
connection with such agreement and the transactions contemplated thereby shall
be paid by the party incurring such costs and expenses.
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CERTAIN DIFFERENCES IN RIGHTS OF MFC SHAREHOLDERS
The rights of holders of MFC Common Stock are governed by the Restated
Certificate of Incorporation of MFC, as amended (the "MFC Certificate of
Incorporation"), the bylaws of MFC (the "MFC Bylaws") and the laws of the State
of Delaware. The rights of FBS shareholders are governed by the Restated
Certificate of Incorporation of FBS, as amended (the "FBS Certificate of
Incorporation"), the bylaws of FBS (the "FBS Bylaws") and the laws of the State
of Delaware. After the Merger becomes effective, the rights of holders of MFC
Common Stock who become FBS shareholders will be governed by the FBS Certificate
of Incorporation, the FBS Bylaws and the laws of the State of Delaware. In many
respects, the rights of MFC shareholders and FBS shareholders are similar. See
"Description of FBS Capital Stock" and "Description of MFC Capital Stock." While
it is not practical to describe all changes in the rights of MFC shareholders
that will result from the differences between the MFC Certificate of
Incorporation and the MFC Bylaws and the FBS Certificate of Incorporation and
the FBS Bylaws, the following is a summary of material differences.
AMENDMENTS TO CERTIFICATE OF INCORPORATION. The MFC Certificate of
Incorporation provides that an amendment, addition, alteration, change or repeal
of any provision of the MFC Certificate of Incorporation can be enacted only if
it is first proposed by the MFC Board of Directors upon the affirmative vote of
at least two-thirds of the directors then in office at a duly-constituted
meeting of the Board of Directors called expressly for that purpose and then
approved by a majority of the votes eligible to be cast at a duly-constituted
shareholder meeting called expressly for that purpose. The FBS Certificate of
Incorporation contains no similar requirement, and an amendment, addition,
alteration, change or repeal of any provision of the FBS Certificate of
Incorporation can be enacted if it is proposed in a resolution adopted by a
majority of the directors present at a meeting of the Board of Directors where
there is a quorum and approved by a majority of the outstanding shares entitled
to vote.
SUPERMAJORITY VOTING. Both the MFC and the FBS Certificates of
Incorporation contain provisions that provide for supermajority voting
requirements in connection with certain "Business Combinations" or "Business
Transactions" (as defined), respectively, involving a "Related Person" (as
defined). Similar provisions for each of MFC and FBS are designed primarily to
address fair price considerations, and the required supermajority shareholder
vote is not required under certain fair price circumstances or if 75% (for MFC)
or a majority (for FBS) of the "Continuing Directors" (as defined) approve the
transaction. The affirmative vote of at least 75% of the outstanding shares
entitled to vote generally in the election of directors is required to approve
such a transaction under the MFC Certificate of Incorporation, while the
affirmative vote of at least 80% of the outstanding shares entitled to vote
generally in the election of directors is required to approve such a transaction
under the FBS Certificate of Incorporation.
The MFC Certificate of Incorporation also requires supermajority voting at
the 75% level (following proposal by the affirmative vote of at least two-thirds
of the directors then in office at a duly-constituted meeting called expressly
for that purpose) to amend, add to, alter, change or repeal those articles
thereof relating to director numbers, director classification, filling vacancies
on the board of directors, amendment of bylaws, removal of directors, the
calling of special meetings of shareholders, "Business Combinations,"
indemnification and amendment of the MFC Certificate of Incorporation. The FBS
Certificate of Incorporation also requires supermajority voting at the 80% level
to amend, add to, alter, change or repeal those articles thereof relating to
director numbers, filling vacancies on the board of directors, director
classification and "Business Transactions."
AMENDMENT OF BYLAWS. The MFC Certificate of Incorporation and the MFC
Bylaws provide that the MFC Bylaws may be altered, amended or repealed, in whole
or in part, or new bylaws may be adopted only by the affirmative vote of at
least two-thirds of the directors then in office at a duly-constituted meeting
called expressly for that purpose or by the affirmative vote of at least 75% of
the shareholders at a duly-constituted meeting called expressly for that
purpose. The FBS Certificate of Incorporation provides that the FBS Bylaws may
be amended or repealed by the Board of Directors of FBS, subject to the power of
the shareholders to amend or repeal the FBS Bylaws.
REMOVAL OF DIRECTORS. The MFC Certificate of Incorporation provides that
the MFC shareholders may remove a director only for cause and then only upon the
affirmative vote of at least 75% of the total votes eligible
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to be cast at a duly-constituted meeting called expressly for that purpose;
written notice must be sent to the director or directors whose removal will be
considered at the meeting. Under the FBS Certificate of Incorporation, FBS
shareholders may remove a director only for cause upon a majority vote of the
shareholders.
SPECIAL MEETINGS OF SHAREHOLDERS. The MFC Certificate of Incorporation
provides that special meetings of MFC shareholders for any purpose or purposes
may be called at any time by the chairman of the board of directors, the
president or a majority of the directors then in office. The FBS Bylaws provide
that special meetings may be called by the board of directors or the chief
executive officer.
INDEMNIFICATION. The MFC Certificate of Incorporation provides that MFC
shall indemnify MFC's directors, officers, employees or agents and those serving
at MFC's request as directors, officers, employees or agents of other entities
against certain expenses under certain circumstances. The FBS Bylaws provide
that FBS shall indemnify FBS' directors, advisory directors and officers and
those serving at FBS' request as directors, advisory directors and officers of
other entities against certain expenses under certain circumstances; the
indemnification of FBS' employees shall be at the discretion of the FBS Board of
Directors, and the FBS Bylaws do not contemplate the indemnification of any
other persons.
The MFC Certificate of Incorporation also specifically provides that MFC, on
behalf of any of the persons that MFC is required to indemnify, may purchase and
maintain insurance against any liability asserted against such person, whether
or not MFC would have the power or the obligation to indemnify that person
against such liability under the MFC Certificate of Incorporation. The FBS
Bylaws contain no similar provision.
RIGHTS PLAN. FBS has adopted a shareholder rights plan, which may have
certain anti-takeover effects. The terms of the FBS rights plan are summarized
and described herein under "Description of FBS Capital Stock-- Common
Stock--Preferred Stock Purchase Rights." MFC has no such plan.
QUORUM AT SHAREHOLDERS' MEETINGS. The MFC Bylaws provide that the holders
of a majority of the issued and outstanding capital stock entitled to vote at a
meeting, present in person or by proxy, shall constitute a quorum for purposes
of such a meeting. The FBS Bylaws require only that the holders of not less than
one-third of the shares entitled to vote at the meeting be present, in person or
by proxy, to constitute a quorum.
NOTICE OF SHAREHOLDER NOMINATIONS FOR DIRECTOR. The FBS Bylaws require that
any shareholder nominating a person for election as a director must give written
notice to the secretary of the corporation not less than 90 days prior to an
annual meeting of shareholders or not less than seven days after the date on
which notice of a special meeting of shareholders for the election of directors
is given. Under the MFC Bylaws, if the nominating committee has made a
nomination 20 days prior to the date of an annual meeting, shareholders may only
nominate a candidate for director by delivering written notice to the secretary
of the corporation at least 15 days prior to the date of the annual meeting;
there is no provision in either the MFC Certificate of Incorporation or the MFC
Bylaws regarding shareholder nomination of directors for election at a special
meeting of shareholders.
GENERAL. The foregoing discussion of certain similarities and material
differences between the rights of holders of MFC Common Stock and the rights of
FBS shareholders under their respective Certificates of Incorporation and Bylaws
is only a summary of certain provisions and does not purport to be a complete
description of such similarities and differences. The foregoing discussion is
qualified in its entirety by reference to the Delaware Corporation Law, the
common law thereunder and the full texts of the Certificates of Incorporation
and Bylaws of MFC and FBS. Such Certificates of Incorporation and Bylaws are
filed or incorporated by reference as exhibits to the Registration Statement of
which this Proxy Statement/Prospectus is a part.
BUSINESS OF FBS
FBS is a regional bank holding company headquartered in Minneapolis,
Minnesota. FBS is comprised of 9 banks, and several trust and nonbank
subsidiaries with 225 offices primarily in Minnesota, Colorado, Illinois,
Montana, North Dakota, South Dakota and Wisconsin. Through its subsidiaries, FBS
provides commercial and agricultural finance, consumer banking, trust, capital
markets, cash management, investment management, data
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processing, leasing, mortgage banking and brokerage services. At September 30,
1994, FBS and its consolidated subsidiaries had consolidated assets of $26.3
billion, consolidated deposits of $18.8 billion and shareholders' equity of $2.3
billion.
The subsidiary banks of FBS engage in general commercial banking business,
principally in domestic markets, and provide banking and ancillary services to
individuals, businesses, institutional organizations, governmental entities and
other financial institutions. The largest subsidiary bank, First Bank National
Association ("FBNA"), had assets of $14.3 billion at September 30, 1994.
FBS is a legal entity separate and distinct from its banking and non-banking
affiliates. The principal sources of FBS' income are dividends, interest and
fees from FBNA and the other banking and non-banking affiliates. The bank
subsidiaries of FBS, including FBNA (the "Banks"), are subject to certain
restrictions imposed by federal law on any extensions of credit to, and certain
other transactions with, FBS and certain other affiliates from borrowing from
the Banks unless the loans are secured by various types of collateral. Further,
such secured loans, other transactions and investments by any of the Banks are
generally limited in amount as to FBS and as to each of such other affiliates to
10% of such Bank's capital and surplus and as to FBS and all of such other
affiliates to an aggregate of 20% of such Bank's capital and surplus. In
addition, payment of dividends to FBS by the subsidiary banks is subject to
ongoing review by banking regulators and is subject to various statutory
limitations and in certain circumstances requires approval by banking regulatory
authorities.
FBS was incorporated under Delaware law in 1929 and has functioned as a
multi-bank holding company since that time. Its principal executive offices are
located at First Bank Place, 601 Second Avenue South, Minneapolis, Minnesota
55402-4302 (telephone (612) 973-1111). For further information concerning FBS,
see the FBS documents incorporated by reference herein as described under
"Incorporation of Certain Documents by Reference."
BUSINESS OF MFC
MFC, a regional financial services holding company, was organized under the
laws of the State of Delaware in February 1984. MFC's mission is to be the
premier provider of community financial and home ownership services throughout
its markets by offering exceptional value to its customers, resulting in
profitable growth, fulfilling careers and community enhancement. The primary
operations of MFC are in North Dakota, Minnesota, Nebraska, Iowa, Kansas, South
Dakota, Wisconsin, Arizona and Wyoming. At September 30, 1994, MFC and its
consolidated subsidiaries had assets of $8.1 billion, deposits of $5.5 billion
and shareholders' equity of $497.7 million.
MFC operates an FDIC insured consumer savings bank, Metropolitan Federal
Bank, fsb (the "Bank"), which concentrates on the traditional thrift business of
soliciting deposits and making residential mortgage and other secured consumer
loans. The Bank solicits deposits and makes residential mortgage and other
secured consumer loans through more than 212 full service branches. Through its
mortgage loan production offices in Minnesota and Arizona, as well as its branch
offices, the Bank originates and services first mortgage loans for the purchase
of one to four family residential properties. The Bank's residential real estate
brokerage subsidiary, Edina Realty, Inc. ("Edina Realty"), and title company
subsidiary, Equity Title Services ("Equity Title"), are among Minnesota's
largest providers of their respective services. Edina Realty and Equity Title
conduct their business in Minnesota and western Wisconsin and, in the case of
Edina Realty, in North Dakota. Certain financial services products like
annuities, uninsured investments, such as mutual funds, and insurance are
provided to customers through a subsidiary operating as Metropolitan Financial
Services.
MFC is a legal entity separate and distinct from its banking and nonbanking
subsidiaries. Dividends and management fees received from the subsidiaries are
MFC's principal source of income. Dividends payable from the Bank are subject to
regulation by the OTS and may also be limited by tax law considerations. Edina
Realty's ability to pay dividends is limited by Minnesota corporate law.
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The principal executive offices of MFC are located at 1000 Metropolitan
Centre, 333 South Seventh Street, Minneapolis, Minnesota 55402, telephone (612)
399-6000. For further information concerning MFC, see the MFC documents
incorporated by reference herein as described under "Incorporation of Certain
Documents by Reference."
DESCRIPTION OF FBS CAPITAL STOCK
The following description of the capital stock of FBS does not purport to be
complete and is subject, in all respects, to applicable Delaware law and to the
provisions of the certificate of incorporation of FBS. The following description
is qualified by reference to the FBS Certificate of Incorporation, the
certificate of designation for each series of preferred stock of FBS, and the
agreements and documents referred to below under "--Common Stock--Preferred
Stock Purchase Rights" and "--Periodic Stock Purchase Rights and Risk Event
Warrants," copies of which are incorporated by reference as exhibits to the
Registration Statement of which this Proxy Statement/Prospectus is a part.
GENERAL
The authorized capital stock of FBS consists of 200,000,000 shares of FBS
Common Stock, par value $1.25 per share, and 10,000,000 shares of preferred
stock, par value $1.00 per share ("preferred stock of FBS"). Under the FBS
Certificate of Incorporation, the Board of Directors of FBS or a duly authorized
committee thereof has the power, without further action by the shareholders
unless action is required by applicable laws or regulations or by the terms of
outstanding preferred stock of FBS, to provide for the issuance of preferred
stock in one or more series and to fix the voting rights, designations,
preferences, and relative, participating, optional or other special rights, and
qualifications, limitations or restrictions thereof, by adopting a resolution or
resolutions creating and designating such series. As of September 30, 1994,
there were 2,118,500 shares of preferred stock of FBS outstanding, having an
aggregate liquidation preference of $110.5 million, and 1,412,750 shares of
preferred stock of FBS reserved for issuance. At September 30, 1994, 114,803,786
shares of FBS Common Stock were issued and outstanding, 10,630,428 shares were
reserved for issuance under the FBS employee plans and dividend reinvestment
plan, 3,952,000 shares were reserved for issuance upon conversion of the Series
1991A Convertible Preferred Stock described below, and 15,000,000 shares were
reserved for issuance upon exercise of the Periodic Stock Purchase Rights and
Risk Event Warrants described below.
PREFERRED STOCK
GENERAL. FBS presently has one series of preferred stock issued and
outstanding and two series of preferred stock authorized for future issuance.
The Series 1991A Convertible Preferred Stock, which is issued and outstanding,
and the Series 1990A Preferred Stock, which is authorized for future issuance as
described below, rank on a parity with one another. The Series A Junior
Participating Preferred Stock (the "Junior Preferred Stock"), which is
authorized for future issuance as described below, ranks junior to the other two
series of preferred stock.
SERIES 1990A PREFERRED STOCK. In connection with the sale by FBS of
12,600,000 shares of FBS Common Stock and accompanying periodic stock purchase
rights and risk event warrants in a private placement in July 1990, FBS may
under certain circumstances be obligated to issue up to 12,750 shares of Series
1990A Preferred Stock. See "--Common Stock--Periodic Stock Purchase Rights and
Risk Event Warrants" below. The shares of Series 1990A Preferred Stock would, if
issued, provide for a liquidation preference of $100,000 per share, and the
dividend rate would be adjusted quarterly and would be determined at the time of
issuance. If, at the time of any annual meeting of shareholders for the election
of directors, the amount of accrued but unpaid dividends on the Series 1990A
Preferred Stock were equal to at least six quarterly dividends on such series,
then the number of directors of FBS would be increased by one and the holders of
such series, voting separately as a series, would be entitled to elect one
additional director who would continue to serve the full term for which he or
she would have been elected, notwithstanding the declaration or payment of any
dividends on such series of preferred stock. Holders of Series 1990A Preferred
Stock would not have any other voting rights, except as described under
"--Preferred Stock Voting Rights" below.
SERIES 1991A CONVERTIBLE PREFERRED STOCK. In November 1991, FBS issued in a
public offering 2,290,000 shares of its Series 1991A Convertible Preferred
Stock. 2,118,500 of such shares remained outstanding at September 30,
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1994. Such shares bear a dividend rate of 7.125% per annum of the liquidation
preference per share. The shares of Series 1991A Convertible Preferred Stock are
convertible at the option of the holder at any time at the rate of 1.7256 shares
of FBS Common Stock for each such share, which is equivalent to a conversion
price of $28.975 per share of FBS Common Stock. The conversion rate is subject
to adjustment upon the occurrence of specified events. The shares of Series
1991A Convertible Preferred Stock are not subject to any sinking fund provisions
and have no preemptive rights. Such shares provide for a liquidation preference
of $50 per share plus accrued and unpaid dividends, and are subject to
redemption upon at least 30 days' notice, at the option of FBS at any time on or
after January 1, 1996 at a redemption price equal to $52.1375 per share,
declining to $50 per share on or after January 1, 2002, plus in each case
accrued and unpaid dividends; provided, however, that the shares of Series 1991A
Convertible Preferred Stock are not redeemable in part in the event that full
cumulative dividends have not been paid. Holders of Series 1991A Convertible
Preferred Stock do not have any voting rights, except as described under
"--Preferred Stock Voting Rights" below.
JUNIOR PREFERRED STOCK. FBS has issued preferred stock purchase rights to
holders of FBS Common Stock entitling such holders, under specified conditions,
to purchase Junior Preferred Stock of FBS. See "--Common Stock--Preferred Stock
Purchase Rights" below. If issued, each share of Junior Preferred Stock would
have a minimum liquidation preference of $100 per share plus accrued and unpaid
dividends and would be entitled to an aggregate payment equal to the liquidation
payment made on 100 shares of FBS Common Stock. In addition, each share of
Junior Preferred Stock would have a minimum preferential quarterly dividend
payment of $1.00 per share but would be entitled to an aggregate payment equal
to the dividends declared on 100 shares of FBS Common Stock. The shares of
Junior Preferred Stock would not be entitled to the benefit of any sinking fund
and would not be redeemable. Each share of Junior Preferred Stock would have 100
votes, voting together with the FBS Common Stock.
PREFERRED STOCK VOTING RIGHTS. The following voting provisions apply to all
series of the preferred stock at FBS other than the Junior Preferred Stock. The
voting rights of the Junior Preferred Stock, and certain additional voting
rights of the Series 1990A Preferred Stock, are described above under "--Series
1990A Preferred Stock" and "--Junior Preferred Stock."
If, at the time of any annual meeting of shareholders for the election of
directors, the amount of accrued but unpaid dividends on any preferred stock of
FBS is equal to at least six quarterly dividends on such series of preferred
stock of FBS, the number of the directors of FBS will be increased by two and
the holders of all outstanding series of preferred stock of FBS (excluding the
Series 1990A Preferred Stock), voting as a single class without regard to
series, will be entitled to elect such additional two directors until all
dividends in default on all preferred stock of FBS have been paid or declared
and set apart for payment.
The affirmative vote or consent of the holders of at least two-thirds of the
outstanding shares of any series of the preferred stock of FBS, voting as a
class, will be required for any amendment of the FBS Certificate of
Incorporation (including any certificate of designation or any similar document
relating to any series of preferred stock of FBS) which will adversely affect
the powers, preferences, privileges or rights of such series of preferred stock.
The affirmative vote or consent of the holders of at least two-thirds of the
outstanding shares of any series of preferred stock of FBS, voting as a single
class without regard to series, will be required to issue, authorize, or
increase the authorized amount of, or issue or authorize any obligation or
security convertible into or evidencing a right to purchase, any additional
class or series of stock ranking prior to such series of preferred stock as to
dividends or upon liquidation.
ADDITIONAL PROVISIONS. The rights of holders of FBS Common Stock will be
subject to, and may be adversely affected by, the rights of holders of any
preferred stock that may be issued in the future. Any such issuance may
adversely affect the interests of holders of the FBS Common Stock by limiting
the control which such holders may exert by exercise of their voting rights, by
subordinating their rights in liquidation to the rights of the holders of the
preferred stock of FBS, and otherwise. In addition, the issuance of preferred
stock of FBS may, in some circumstances, deter or discourage takeover attempts
and other changes in control of FBS, including takeovers and changes in control
which some holders of the FBS Common Stock may deem to be in their best
interests and in the best interests of FBS, by making it more difficult for a
person who has gained a substantial equity interest in
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FBS to obtain voting control or to exercise control effectively. FBS has no
current plans or agreements with respect to the issuance of any shares of
preferred stock except as described above with respect to the Series 1990A
Preferred Stock.
The FBS Certificate of Incorporation requires the affirmative vote of the
holders of 80% of the Voting Stock (as defined therein) of FBS to approve
certain mergers, consolidations, reclassifications, dispositions of assets or
liquidation, involving or proposed by certain significant shareholders, unless
certain price and procedural requirements are met or unless the transaction is
approved by the Continuing Directors as defined therein. In addition, the FBS
Certificate of Incorporation provides for classification of the Board of
Directors into three separate classes and authorizes action by the shareholders
of FBS only pursuant to a meeting and not by a written consent. The Bylaws of
FBS provide that special meetings of shareholders may be called only by the
Board of Directors or the chief executive officer. The overall effect of these
provisions may be to delay or prevent attempts by other corporations or groups
to acquire control of FBS without negotiation with the Board of Directors.
COMMON STOCK
GENERAL. Each share of FBS Common Stock is entitled to such dividends as
may from time to time be declared by the Board of Directors from any funds
legally available for dividends. FBS may not declare any cash dividends on, or
make any payment on account of the purchase, redemption or other retirement of,
FBS Common Stock unless full dividends (including accumulated dividends, if
applicable) have been paid or declared or set apart for payment upon all
outstanding shares of the preferred stock of FBS and FBS is not in default or in
arrears with respect to any sinking or other analogous fund or other agreement
for the purchase, redemption or other retirement of any shares of preferred
stock of FBS. Holders of FBS Common Stock are entitled to one vote per share.
Shareholders do not have the right to cumulate their votes in the election of
directors. FBS Common Stock has no conversion rights and the holders of FBS
Common Stock have no preemptive or other rights to subscribe for additional
securities of FBS. In the event of liquidation of FBS, after the payment or
provision for payment of all debts and liabilities and subject to the rights of
the holders of preferred stock of FBS which may be outstanding, the holders of
FBS Common Stock will be entitled to share ratably in the remaining assets of
FBS. Shares of FBS Common Stock are fully paid and nonassessable. The shares of
FBS Common Stock are listed on the NYSE.
PREFERRED STOCK PURCHASE RIGHTS. On December 21, 1988, the Board of
Directors of FBS declared a dividend of one preferred share purchase right (a
"Right") for each outstanding share of FBS Common Stock. The dividend was paid
on January 4, 1989 (the "Record Date") to the FBS shareholders of record on that
date. Each holder of shares of FBS Common Stock issued upon consummation of the
Merger will receive one Right for each share of FBS Common Stock.
Each Right initially entitles the registered holder to purchase from FBS one
one-hundredth of a share of Junior Preferred Stock of FBS at a price of $80.00,
subject to adjustment (the "Purchase Price"). The Rights are not and will not be
exercisable or represented by separate certificates until 10 days following the
earlier of a public announcement that a person or group of affiliated or
associated persons (an "Acquiring Person") have acquired beneficial ownership of
20% or more of the outstanding shares of FBS Common Stock or have commenced or
announced an intention to make a tender offer or exchange offer for 20% or more
of such outstanding shares of FBS Common Stock (the earlier of such dates being
called the "Distribution Date"). In the event that any person or group of
affiliated or associated persons becomes the beneficial owner of 20% or more of
the outstanding shares of FBS Common Stock, each Right (other than any Right
held by a person or group of affiliated or associated persons beneficially
owning 20% or more of the outstanding shares of FBS Common Stock, which Rights
will thereafter be void) will thereafter entitle the holder to receive upon
exercise that number of shares of FBS Common Stock having a market value of
twice the Purchase Price. In addition, in such event, the Board of Directors of
FBS will thereafter be entitled to exchange the outstanding Rights (other than
any Right held by an Acquiring Person, which Right shall thereafter be void), in
whole or in part, for shares of FBS Common Stock or Junior Preferred Stock at an
exchange ratio of one share of FBS Common Stock, or one one-hundredth share of
Junior Preferred Stock, per Right.
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In the event that FBS is acquired in a merger or other business combination
transaction or 50% or more of its consolidated assets or earning power are sold,
each Right will thereafter entitle the holder to receive upon exercise that
number of shares of common stock of the acquiring company having a market value
of twice the Purchase Price.
Prior to the Distribution Date, the Rights cannot be transferred apart from
FBS Common Stock and are represented solely by the FBS Common Stock
certificates. As soon as practicable following the Distribution Date, separate
certificates representing the Rights will be mailed to holders of record of
shares of FBS Common Stock as of such date, and the Rights could then begin to
trade separately from FBS Common Stock.
The Rights do not have any voting rights and are not entitled to dividends.
The terms of the Rights may be amended without the consent of the holders,
provided that, after a person becomes an Acquiring Person, such amendment may
not adversely affect the interests of the holders.
The terms of the Junior Preferred Stock issuable upon exercise of Rights are
described above under "--Preferred Stock--Junior Preferred Stock."
The Rights are not exercisable until the Distribution Date. The Rights will
expire on the earlier of (a) the date which is 24 months after the first date
upon which FBS can generally be acquired by bank holding companies, and FBS is
generally permitted to acquire banks, principally located in at least fifteen of
the twenty states which as of September 30, 1992 had the largest amount of bank
deposits, or (b) January 4, 1999, unless, before that date, all of the Rights
are either redeemed by FBS at a price of $.01 per Right prior to the acquisition
by a person or group of affiliated or associated persons of beneficial ownership
of 20% or more of the outstanding shares of FBS Common Stock, or are exchanged
by FBS for shares of FBS Common Stock or Junior Preferred Stock as described
above. It is currently anticipated that the first date upon which FBS can
generally be acquired by bank holding companies, and FBS is generally permitted
to acquire banks, principally located in at least fifteen of the twenty states
which as of September 30, 1992 had the largest amount of bank deposits will be
in July 1996.
The Rights may have certain anti-takeover effects. The Rights may cause
substantial dilution to an Acquiring Person if it attempts to merge with, or
engage in certain other transactions with, FBS. The Rights should not, however,
interfere with any merger or other business combination approved by the Board of
Directors of FBS prior to the occurrence of the Distribution Date because the
Rights may be redeemed prior to such time.
The complete terms of the Rights are set forth in a Rights Agreement, dated
as of December 21, 1988, as amended, between FBS and First Chicago Trust Company
of New York (formerly Morgan Shareholder Services Trust Company), as Rights
Agent (the "Rights Agreement"). The description of the Rights set forth herein
does not purport to be complete and is qualified in its entirety by reference to
the complete Rights Agreement, a copy of which is incorporated by reference as
an exhibit to the Registration Statement of which this Proxy Statement/
Prospectus is a part.
PERIODIC STOCK PURCHASE RIGHTS AND RISK EVENT WARRANTS. On May 30, 1990,
FBS entered into (i) a Stock Purchase Agreement, dated as of May 30, 1990 (the
"Stock Purchase Agreement"), by and among Corporate Partners, L.P. ("Corporate
Partners"), Corporate Offshore Partners, L.P. ("Offshore" and, together with
Corporate Partners, the "Partnerships"), The State Board of Administration of
Florida ("State Board") solely in its capacity as a managed account and not in
its individual capacity (State Board and the Partnerships being referred to
herein collectively as the "Purchasers"), Corporate Advisors, L.P. and FBS and
(ii) a Stock Purchase Agreement, dated as of May 30, 1990 (the "Florida Stock
Purchase Agreement"), by and between State Board in its individual capacity and
FBS. Pursuant to the Stock Purchase Agreement, FBS sold (a) to Corporate
Partners 8,856,241 shares of FBS Common Stock, ten Periodic Stock Purchase
Rights (each a "PSPR") and one Risk Event Warrant, (b) to Offshore 643,976
shares of FBS Common Stock, ten PSPRs and one Risk Event Warrant, and (c) to
State Board 939,783 shares of FBS Common Stock, ten PSPRs and one Risk Event
Warrant. Pursuant to the Florida Stock Purchase Agreement, FBS sold to State
Board 2,160,000 shares of FBS Common Stock, ten PSPRs and one Risk Event
Warrant. Effective as of May 30, 1990, FBS and First Chicago Trust Company of
New York entered into Amendment No. 1 to the Rights Agreement to exclude the
acquisition of shares of FBS Common
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Stock by the Purchasers and State Board pursuant to the Stock Purchase Agreement
and the Florida Stock Purchase Agreement, respectively, and the transactions
contemplated thereby and certain other transactions from the operation of the
Rights Agreement. See "--Preferred Stock Purchase Rights" above.
The Stock Purchase Agreement and the Florida Stock Purchase Agreement
contain transfer restrictions with respect to the shares of FBS Common Stock
acquired thereunder and standstill provisions limiting further acquisitions of
FBS Common Stock by the Purchasers and State Board. The Stock Purchase Agreement
and the Florida Stock Purchase Agreement also grant each of the Purchasers and
State Board the right to purchase its pro rata share of any Voting Securities
(as defined) sold by FBS for cash, subject to certain exceptions. Pursuant to
the Stock Purchase Agreement, the Purchasers have designated one person to act
as a non-voting observer of the Board of Directors of FBS.
Each PSPR issued to the Purchasers and State Board relates to a specific
twelve-month period commencing with the twelve-month period following closing of
the transactions contemplated under the Stock Purchase Agreement and the Florida
Stock Purchase Agreement. Each PSPR shall become exercisable in the event that a
Dividend Shortfall (as defined) exists for the specific twelve-month period to
which such PSPR relates. A Dividend Shortfall will be deemed to exist to the
extent that FBS has not paid a cash dividend equal to $0.205 per share of FBS
Common Stock for each quarter within such twelve-month period. The PSPRs will be
exercisable for that number of shares of FBS Common Stock or (subject to the
prior approval of the Federal Reserve Board) depositary shares representing one
one-thousandth of a share of Series 1990A Preferred Stock ("Depositary Shares")
such that the holders of PSPRs will receive value equal to the Dividend
Shortfall. Once a PSPR has become exercisable, it will remain exercisable for a
one-year period at an exercise price of $1.25 per share of FBS Common Stock or
$1.00 per Depositary Share. If a PSPR were to become exercisable and were not
redeemed by FBS as described below, the issuance of Depositary Shares or FBS
Common Stock upon exercise of a PSPR could adversely affect the market price of
the FBS Common Stock. If the PSPRs were to be exercised for FBS Common Stock,
there could be substantial dilution of the FBS Common Stock.
Each Risk Event Warrant shall become exercisable in the event of certain
defined change of control events with respect to FBS where the value received by
holders of the FBS Common Stock is less than $13.875 per share, or in certain
circumstances in the event the FBS Common Stock is valued at less than $13.875
per share on the tenth anniversary of the closing of the transactions
contemplated under the Stock Purchase Agreement. The Risk Event Warrants will be
exercisable for that number of shares of FBS Common Stock at an exercise price
of $1.25 per share or, in certain circumstances (subject to the prior approval
of the Federal Reserve Board), Depositary Shares such that the holders of Risk
Event Warrants will receive value equal to such shortfall. If the Risk Event
Warrants were to become exercisable and were not redeemed by FBS as described
below, the issuance of Depositary Shares or FBS Common Stock upon exercise of a
Risk Event Warrant could adversely affect the market price of the FBS Common
Stock. If the Risk Event Warrants were to be exercised for FBS Common Stock,
there could be substantial dilution of the FBS Common Stock. In the event of a
change in control at a time when the market price of the FBS Common Stock is
less than $13.875 per share, the Risk Event Warrants may have the effect of
reducing the price per share to be received by the holders of the FBS Common
Stock.
In the event of the exercise of a Risk Event Warrant upon the occurrence of
certain change of control events, FBS may, at its option (subject to the prior
approval of the Federal Reserve Board), elect to have such Risk Event Warrant
become exercisable for other securities of FBS acceptable to the holder of such
Risk Event Warrant in lieu of the shares of FBS Common Stock for which such Risk
Event Warrant would otherwise become exercisable. In addition, FBS has the right
(subject to the prior approval of the Federal Reserve Board) to redeem any PSPR
at a price equal to the Dividend Shortfall and any Risk Event Warrant at a price
equal to the Value Shortfall (as defined) or the Termination Shortfall Amount
(as defined), as applicable, after such PSPR or Risk Event Warrant, as the case
may be, shall have become exercisable. FBS also has entered into a registration
rights agreement with the Purchasers and with State Board pursuant to which the
Purchasers and State Board, respectively, are granted certain rights to cause
FBS to register with the Commission the FBS Common Stock acquired pursuant to
the Stock Purchase Agreement and the Florida Stock Purchase Agreement and the
securities acquired upon exercise of the PSPRs and the Risk Event Warrants.
67
<PAGE>
The foregoing is a summary of the transactions contemplated by the Stock
Purchase Agreement and the Florida Stock Purchase Agreement and related
documents and is qualified in its entirety by the more detailed information
contained in such agreements and documents, copies of which are incorporated by
reference as exhibits to the Registration Statement of which this Proxy
Statement/Prospectus is a part.
DESCRIPTION OF MFC CAPITAL STOCK
The authorized capital stock of MFC consists of 60,000,000 shares of Common
Stock, $.01 par value, and 10,000,000 shares of Preferred Stock, $.01 par value.
Under MFC's Restated Certificate of Incorporation, as amended, the Board of
Directors of MFC may, without further shareholder action, authorize from time to
time the issuance of up to 10,000,000 shares of preferred stock of MFC, in one
or more series, with such powers, preferences and rights, and qualifications,
limitations and restrictions, as shall be determined by the Board of Directors
of MFC. As of September 30, 1994, there were 31,404,052 shares of MFC Common
Stock outstanding, and 488,750 shares of MFC Preferred Stock designated and
outstanding. The MFC Common Stock is described in MFC's Registration Statement
on Form 8-A, dated November 4, 1985, including any amendment or report filed for
the purpose of updating such description filed subsequent to the date of this
Proxy Statement/Prospectus and prior to the termination of the offering
described herein. The MFC Preferred Stock is described in MFC's Registration
Statement on Form 8-A, dated October 4, 1990, as amended by that Form 8
Amendment, dated November 19, 1990, including any amendment or report filed for
the purpose of updating such description filed subsequent to the date of this
Proxy Statement/Prospectus and prior to the termination of the offering
described herein.
ADJOURNMENT OF SPECIAL MEETINGS
ADJOURNMENT OF FBS SPECIAL MEETING. In the event that there are not
sufficient votes to approve and adopt the Merger Agreement at the time of the
FBS Special Meeting, such proposal could not be approved unless the FBS Special
Meeting were adjourned in order to permit further solicitation of proxies from
FBS shareholders. In order to allow proxies that have been received by FBS at
the time of the FBS Special Meeting to be voted for such adjournment, if
necessary, FBS is submitting the question of adjournment under such
circumstances to its shareholders as a separate matter for their consideration.
If it is necessary to adjourn the FBS Special Meeting and the adjournment is for
a period of less than 30 days, no notice of the time and place of the adjourned
meeting is required to be given to shareholders other than an announcement of
such time and place at the FBS Special Meeting. A majority of the shares
represented and voting at the Special Meeting is required to approve any such
adjournment, provided that a quorum is present. THE BOARD OF DIRECTORS OF FBS
RECOMMENDS THAT FBS SHAREHOLDERS VOTE FOR THE PROPOSAL TO ADJOURN THE SPECIAL
MEETING IF NECESSARY TO PERMIT FURTHER SOLICITATION OF PROXIES.
ADJOURNMENT OF MFC SPECIAL MEETING. In the event that there are not
sufficient votes to approve and adopt the Merger Agreement at the time of the
MFC Special Meeting, such proposal could not be approved unless the MFC Special
Meeting were adjourned in order to permit further solicitation of proxies from
MFC shareholders. In order to allow proxies that have been received by MFC at
the time of the MFC Special Meeting to be voted for such adjournment, if
necessary, MFC is submitting the question of adjournment under such
circumstances to its shareholders as a separate matter for their consideration.
If it is necessary to adjourn the MFC Special Meeting and the adjournment is for
a period of less than 30 days, no notice of the time and place of the adjourned
meeting is required to be given to shareholders other than an announcement of
such time and place at the MFC Special Meeting. A majority of the shares
represented and voting at the Special Meeting is required to approve any such
adjournment, provided that a quorum is present. THE BOARD OF DIRECTORS OF MFC
RECOMMENDS THAT MFC SHAREHOLDERS VOTE FOR THE PROPOSAL TO ADJOURN THE SPECIAL
MEETING IF NECESSARY TO PERMIT FURTHER SOLICITATION OF PROXIES.
68
<PAGE>
LEGAL OPINIONS
The validity of the securities offered hereby has been passed upon for FBS
by Dorsey & Whitney, Minneapolis, Minnesota. The Dorsey & Whitney firm and
certain of its members are indebted to and have other banking and trust
relationships with certain banking subsidiaries of FBS.
The opinion of counsel described under "The Merger--Certain Federal Income
Tax Consequences To MFC Shareholders" has been rendered by Oppenheimer Wolff &
Donnelly, counsel to MFC.
EXPERTS
The consolidated financial statements of FBS appearing in the Annual Report
on Form 10-K of FBS for the year ended December 31, 1993 have been audited by
Ernst & Young LLP, independent auditors, as set forth in their report thereon
included therein and incorporated herein by reference. Such consolidated
financial statements are incorporated herein by reference in reliance upon such
report given upon the authority of such firm as experts in accounting and
auditing.
The consolidated financial statements of MFC appearing in the Annual Report
on Form 10-K of MFC for the year ended December 31, 1993 have been audited by
Ernst & Young LLP, independent auditors, as set forth in their report thereon
included therein and incorporated herein by reference. Such consolidated
financial statements are incorporated herein by reference in reliance upon such
report given the authority of such firm as experts in accounting and auditing.
INDEPENDENT PUBLIC ACCOUNTANTS
Representatives of Ernst & Young LLP, MFC's and FBS' independent auditors,
are expected to be present at the MFC Special Meeting and the FBS Special
Meeting. They may be afforded the opportunity to make a statement if they desire
to do so and are expected to be available to respond to appropriate questions.
SHAREHOLDER PROPOSALS
FBS SHAREHOLDER PROPOSALS. In order to be eligible for inclusion in FBS'
proxy solicitation materials for its 1995 annual meeting of shareholders, any
shareholder proposal to be considered at such meeting must be received by FBS'
Corporate Secretary, Michael J. O'Rourke, or his successor, at FBS' main office,
First Bank Place, 601 Second Avenue South, Minneapolis, Minnesota 55402-4302, no
later than November 21, 1994. Any such proposal shall be subject to the
requirements of the proxy rules adopted under the Exchange Act.
MFC SHAREHOLDER PROPOSALS. If the Merger is not consummated, MFC is
expected to retain its December 31 fiscal year end. In such event, in order to
be eligible for inclusion in MFC's proxy solicitation materials for its 1995
annual meeting of shareholders, any shareholder proposal to be considered at
such meeting must be received by MFC's Corporate Secretary, Charles D. Kalil, or
his successor, at MFC's main office, 1000 Metropolitan Centre, 333 South Seventh
Street, Minneapolis, Minnesota 55402, no later than November 30, 1994. Any such
proposal shall be subject to the requirements of the proxy rules adopted under
the Exchange Act.
MANAGEMENT AND ADDITIONAL INFORMATION
Certain information relating to the management, executive compensation,
various benefit plans (including stock plans), voting securities and the
principal holders thereof, certain relationships and related transactions and
other related matters as to FBS and MFC is set forth in or incorporated by
reference in the respective Annual Reports on Form 10-K for the year ended
December 31, 1993 of FBS and MFC, which are incorporated by reference in this
Proxy Statement/Prospectus. See "Incorporation of Certain Documents by
Reference." FBS and MFC shareholders who wish to obtain copies of these
documents may contact FBS or MFC, as applicable, at its address or telephone
number set forth under "Incorporation of Certain Documents by Reference."
69
<PAGE>
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The following unaudited Pro Forma Combined Balance Sheet as of September 30,
1994, combines the historical consolidated balance sheets of FBS and MFC as if
the Merger had been effective on September 30, 1994, after giving effect to
certain adjustments described in the attached Notes to Pro Forma Combined
Financial Statements. The unaudited Pro Forma Combined Statements of Income for
the nine months ended September 30, 1994 and 1993, and the years ended December
31, 1993, 1992 and 1991, present the combined results of operations of FBS and
MFC as if the Merger had been effective at the beginning of each period, after
giving effect to certain adjustments described in the attached Notes to Pro
Forma Combined Financial Statements.
The unaudited pro forma combined financial statements and accompanying notes
reflect the application of the pooling-of-interests method of accounting for the
MFC transaction. Under this method of accounting, the recorded assets,
liabilities, shareholders' equity, income and expenses of FBS and MFC are
combined and recorded at their historical amounts.
The pro forma combined financial information included within is not
necessarily indicative of the results of the future operations of the combined
entity or the actual results that would have been achieved had the acquisition
been consummated prior to the periods indicated.
INDEX
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Pro Forma Combined Balance Sheet at September 30, 1994............................................ F-2
Pro Forma Combined Statements of Income:
Nine months Ended September 30, 1994.......................................................... F-3
Nine months Ended September 30, 1993.......................................................... F-4
Year ended December 31, 1993.................................................................. F-5
Year ended December 31, 1992.................................................................. F-6
Year ended December 31, 1991.................................................................. F-7
Notes to Pro Forma Combined Financial Statements.................................................. F-8
</TABLE>
F-1
<PAGE>
FIRST BANK SYSTEM, INC.
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
ACQUISITION OF METROPOLITAN FINANCIAL CORPORATION
SEPTEMBER 30, 1994
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
MERGER
FBS MFC ADJUSTMENTS PRO FORMA
HISTORICAL HISTORICAL (SEE NOTES) COMBINED
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
ASSETS
Cash and due from banks.......................................... $ 1,870 $ 82 $ (922) $ 1,030
Federal funds sold and other short-term deposits................. 79 31 (13) 97
Securities purchased under agreements to resell.................. 281 -- 281
Trading account securities....................................... 108 -- 108
Available-for-sale securities.................................... 3,377 629 1,554 5,560
Investment securities............................................ -- 1,626 (1,626) --
Loans............................................................ 19,110 5,266 24,376
Allowance for loan losses........................................ 437 40 14 491
----------- ----------- ----------- -----------
Net loans...................................................... 18,673 5,226 (14) 23,885
Bank premises and equipment...................................... 392 101 (26) 467
Interest receivable.............................................. 138 45 183
Customers' liability on acceptances.............................. 116 -- 116
Other assets..................................................... 1,296 333 42 1,671
----------- ----------- ----------- -----------
Total assets............................................... $ 26,330 $ 8,073 $ (1,006) $ 33,397
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Domestic:
Noninterest-bearing............................................ $ 6,030 $ 221 $ (38) $ 6,213
Interest-bearing............................................... 12,763 5,285 (914) 17,134
----------- ----------- ----------- -----------
Total deposits............................................... 18,793 5,506 (952) 23,347
Federal funds purchased.......................................... 2,118 -- 2,118
Securities sold under agreements to repurchase................... 695 410 1,105
Other short-term funds borrowed.................................. 399 386 785
Long-term debt................................................... 1,265 1,137 2,402
Acceptances outstanding.......................................... 116 -- 116
Other liabilities................................................ 625 136 59 820
----------- ----------- ----------- -----------
Total liabilities.......................................... 24,011 7,575 (893) 30,693
Shareholders' Equity
Preferred stock................................................ 106 0 0 106
Common stock................................................... 145 1 26 172
Capital surplus................................................ 728 241 (38) 931
Retained earnings.............................................. 1,392 279 (124) 1,547
Treasury stock................................................. (52) (23) 23 (52)
----------- ----------- ----------- -----------
Total shareholders' equity................................. 2,319 498 (113) 2,704
----------- ----------- ----------- -----------
Total liabilities and shareholders' equity............... $ 26,330 $ 8,073 $ (1,006) $ 33,397
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
See Notes to the unaudited Pro Forma Combined Financial Statements
F-2
<PAGE>
FIRST BANK SYSTEM, INC.
ACQUISITION OF METROPOLITAN FINANCIAL CORPORATION
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1994
<TABLE>
<CAPTION>
FBS MFC SALE OF PRO FORMA
(IN MILLIONS, EXCEPT SHARE DATA) HISTORICAL HISTORICAL SUBSIDIARY COMBINED
- ----------------------------------------------------------------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans............................................................ $1,091.5 $ 301.4 $1,392.9
Securities:
Taxable........................................................ 151.7 91.9 243.6
Exempt from federal income taxes............................... 9.1 -- 9.1
Other interest income............................................ 18.0 4.7 22.7
------- ---------- -------
Total interest income........................................ 1,270.3 398.0 1,668.3
INTEREST EXPENSE
Deposits......................................................... 268.3 169.5 437.8
Federal funds purchased and repurchase agreements................ 60.1 6.4 66.5
Other short-term funds borrowed.................................. 10.0 11.3 21.3
Long-term debt................................................... 48.1 46.5 94.6
------- ---------- -------
Total interest expense....................................... 386.5 233.7 620.2
------- ---------- -------
Net interest income.............................................. 883.8 164.3 1,048.1
Provision for credit losses...................................... 70.0 9.6 79.6
------- ---------- -------
Net interest income after provision for credit losses............ 813.8 154.7 968.5
NONINTEREST INCOME
Trust fees....................................................... 117.5 -- 117.5
Credit card fees................................................. 128.7 -- 128.7
Service charges on deposit accounts.............................. 87.7 9.7 97.4
Edina Realty commission income................................... -- 27.8 $ (27.8) --
Insurance commissions............................................ 17.4 6.5 23.9
Securities gains................................................. (2.8) (0.1) (2.9)
Other............................................................ 116.4 19.2 (0.4) 135.2
------- ---------- ---------- -------
Total noninterest income..................................... 464.9 63.1 (28.2) 499.8
NONINTEREST EXPENSE
Salaries......................................................... 292.9 50.5 (7.9) 335.5
Employee benefits................................................ 70.6 13.1 (1.3) 82.4
Net occupancy.................................................... 65.7 19.1 (5.6) 79.2
Furniture and equipment.......................................... 58.1 4.5 (1.0) 61.6
FDIC insurance................................................... 34.8 9.2 44.0
Professional services............................................ 23.6 4.2 (0.7) 27.1
Amortization of goodwill and other intangibles................... 28.4 3.9 (0.5) 31.8
Other............................................................ 208.3 63.2 (22.4) 249.1
------- ---------- ---------- -------
Total noninterest expense.................................... 782.4 167.7 (39.4) 910.7
------- ---------- ---------- -------
Income before income taxes....................................... 496.3 50.1 11.2 557.6
Applicable income taxes.......................................... 187.0 19.1 4.1 210.2
------- ---------- ---------- -------
Net income....................................................... $ 309.3 $ 31.0 $ 7.1 $ 347.4
------- ---------- ---------- -------
------- ---------- ---------- -------
Net income applicable to common equity........................... $ 300.0 $ 338.1
------- -------
------- -------
EARNINGS PER COMMON SHARE
Average common and common equivalent shares...................... 114,347,741 136,331,806
Primary and fully diluted net income............................. $2.62 $2.48
</TABLE>
See Notes to unaudited Pro Forma Combined Financial Statements
F-3
<PAGE>
FIRST BANK SYSTEM, INC.
ACQUISITION OF METROPOLITAN FINANCIAL CORPORATION
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1993
<TABLE>
<CAPTION>
FBS MFC SALE OF PRO FORMA
(IN MILLIONS, EXCEPT SHARE DATA) HISTORICAL HISTORICAL SUBSIDIARY COMBINED
- ----------------------------------------------------------------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans............................................................ $1,046.0 $ 242.1 $1,288.1
Securities:
Taxable........................................................ 171.3 105.6 276.9
Exempt from federal income taxes............................... 9.9 -- 9.9
Other interest income............................................ 23.6 3.6 27.2
------- ---------- -------
Total interest income........................................ 1,250.8 351.3 1,602.1
INTEREST EXPENSE
Deposits......................................................... 329.7 175.9 505.6
Federal funds purchased and repurchase agreements................ 24.2 -- 24.2
Other short-term funds borrowed.................................. 14.1 7.8 21.9
Long-term debt................................................... 39.5 21.0 60.5
------- ---------- -------
Total interest expense....................................... 407.5 204.7 612.2
------- ---------- -------
Net interest income.............................................. 843.3 146.6 989.9
Provision for credit losses...................................... 98.2 6.0 104.2
------- ---------- -------
Net interest income after provision for credit losses............ 745.1 140.6 885.7
NONINTEREST INCOME
Trust fees....................................................... 108.6 -- 108.6
Credit card fees................................................. 99.6 -- 99.6
Service charges on deposit accounts.............................. 86.9 7.8 94.7
Edina Realty commission income................................... -- 27.0 $ (27.0) --
Insurance commissions............................................ 15.6 2.6 18.2
Securities gains................................................. 0.3 0.1 0.4
Other............................................................ 112.7 23.7 (0.8) 135.6
------- ---------- ---------- -------
Total noninterest income..................................... 423.7 61.2 (27.8) 457.1
NONINTEREST EXPENSE
Salaries......................................................... 294.1 44.9 (6.8) 332.2
Employee benefits................................................ 66.7 10.4 (1.2) 75.9
Net occupancy.................................................... 70.6 16.7 (5.0) 82.3
Furniture and equipment.......................................... 53.5 3.9 (0.8) 56.6
FDIC insurance................................................... 34.9 7.9 42.8
Professional services............................................ 26.0 3.2 (0.3) 28.9
Amortization of goodwill and other intangibles................... 22.9 3.1 (0.4) 25.6
Merger, integration and restructuring............................ 72.2 3.5 75.7
Other............................................................ 204.3 47.8 (9.5) 242.6
------- ---------- ---------- -------
Total noninterest expense.................................... 845.2 141.4 24.0 962.6
------- ---------- ---------- -------
Income before income taxes....................................... 323.6 60.4 (3.8) 380.2
Applicable income taxes.......................................... 121.5 13.1 (1.8) 132.8
------- ---------- ---------- -------
Net income....................................................... $202.1 $ 47.3 $ (2.0) $247.4
------- ---------- ---------- -------
------- ---------- ---------- -------
Net income applicable to common equity........................... $179.8 225.1
------- -------
------- -------
EARNINGS PER COMMON SHARE
Average common and common equivalent shares...................... 113,677,049 135,179,910
Primary and fully diluted net income............................. $1.58 $1.67
</TABLE>
See Notes to unaudited Pro Forma Combined Financial Statements
F-4
<PAGE>
FIRST BANK SYSTEM, INC.
ACQUISITION OF METROPOLITAN FINANCIAL CORPORATION
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1993
<TABLE>
<CAPTION>
FBS MFC SALE OF PRO FORMA
(IN MILLIONS, EXCEPT SHARE DATA) HISTORICAL HISTORICAL SUBSIDIARY COMBINED
- ----------------------------------------------------------------- ------------ ---------- ---------- -----------
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans............................................................ $1,398.6 $ 331.9 $1,730.5
Securities:
Taxable........................................................ 218.2 136.0 354.2
Exempt from federal income taxes............................... 14.6 -- 14.6
Other interest income............................................ 30.4 4.8 35.2
----- ---------- -------
Total interest income........................................ 1,661.8 472.7 2,134.5
INTEREST EXPENSE
Deposits......................................................... 423.7 231.8 655.5
Federal funds purchased and repurchase agreements................ 31.8 -- 31.8
Other short-term funds borrowed.................................. 19.0 1.2 20.2
Long-term debt................................................... 54.4 41.6 96.0
----- ---------- -------
Total interest expense....................................... 528.9 274.6 803.5
----- ---------- -------
Net interest income.............................................. 1,132.9 198.1 1,331.0
Provision for credit losses...................................... 125.2 7.8 133.0
----- ---------- -------
Net interest income after provision for credit losses............ 1,007.7 190.3 1,198.0
NONINTEREST INCOME
Trust fees....................................................... 146.1 -- 146.1
Credit card fees................................................. 137.1 -- 137.1
Service charges on deposit accounts.............................. 115.3 11.5 126.8
Edina Realty commission income................................... -- 35.3 $(35.3) 0.0
Insurance commissions............................................ 20.9 4.6 25.5
Securities gains................................................. 0.3 -- 0.3
Other............................................................ 149.9 37.1 (0.9) 186.1
----- ---------- ---------- -------
Total noninterest income..................................... 569.6 88.5 (36.2) 621.9
NONINTEREST EXPENSE
Salaries......................................................... 389.1 63.1 (9.4) 442.8
Employee benefits................................................ 86.3 14.8 (1.5) 99.6
Net occupancy.................................................... 93.4 23.2 (6.4) 110.2
Furniture and equipment.......................................... 72.7 5.3 (1.4) 76.6
FDIC insurance................................................... 46.4 11.1 57.5
Professional services............................................ 36.7 4.9 (1.1) 40.5
Amortization of goodwill and other intangibles................... 30.6 4.1 34.7
Merger, integration and restructuring............................ 72.2 3.5 75.7
Other............................................................ 273.1 62.3 (13.3) 322.1
----- ---------- ---------- -------
Total noninterest expense.................................... 1,100.5 192.3 (33.1) 1,259.7
----- ---------- ---------- -------
Income before income taxes....................................... 476.8 86.5 (3.1) 560.2
Applicable income taxes.......................................... 178.8 21.3 (1.5) 198.6
----- ---------- ---------- -------
Net income....................................................... $ 298.0 $ 65.2 $ (1.6) $ 361.6
------- ---------- ---------- -------
------- ---------- ---------- -------
Net income applicable to common equity........................... $ 270.2 $ 333.8
------- -------
------- -------
EARNINGS PER COMMON SHARE
Average common and common equivalent shares...................... 113,075,429 134,615,088
Primary and fully diluted net income............................. $2.39 $2.48
</TABLE>
See Notes to unaudited Pro Forma Combined Financial Statements
F-5
<PAGE>
FIRST BANK SYSTEM, INC.
ACQUISITION OF METROPOLITAN FINANCIAL CORPORATION
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1992
<TABLE>
<CAPTION>
FBS MFC SALE OF PRO FORMA
(IN MILLIONS, EXCEPT SHARE DATA) HISTORICAL HISTORICAL SUBSIDIARY COMBINED
- ----------------------------------------------------------------- ------------ ---------- ---------- -----------
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans............................................................ $1,418.8 $ 268.2 $1,687.0
Securities:
Taxable........................................................ 186.4 151.8 338.2
Exempt from federal income taxes............................... 12.0 -- 12.0
Other interest income............................................ 64.1 4.8 68.9
------- ---------- -------
Total interest income........................................ 1,681.3 424.8 2,106.1
INTEREST EXPENSE
Deposits......................................................... 568.7 234.3 803.0
Federal funds purchased and repurchase agreements................ 37.1 -- 37.1
Other short-term funds borrowed.................................. 14.3 2.8 17.1
Long-term debt................................................... 66.1 35.1 101.2
------- ---------- -------
Total interest expense....................................... 686.2 272.2 958.4
------- ---------- -------
Net interest income.............................................. 995.1 152.6 1,147.7
Provision for credit losses...................................... 183.4 8.3 191.7
------- ---------- -------
Net interest income after provision for credit losses............ 811.7 144.3 956.0
NONINTEREST INCOME
Trust fees....................................................... 127.8 -- 127.8
Credit card fees................................................. 116.9 -- 116.9
Service charges on deposit accounts.............................. 108.4 6.9 115.3
Edina Realty commission income................................... -- 32.1 $(32.1) 0.0
Insurance commissions............................................ 27.3 0.9 28.2
Securities gains................................................. 1.9 44.3 46.2
Other............................................................ 153.4 29.5 (1.8) 181.1
------- ---------- ---------- -------
Total noninterest income..................................... 535.7 113.7 (33.9) 615.5
NONINTEREST EXPENSE
Salaries......................................................... 388.7 48.8 (8.8) 428.7
Employee benefits................................................ 85.5 11.5 (1.4) 95.6
Net occupancy.................................................... 87.9 16.0 (6.2) 97.7
Furniture and equipment.......................................... 67.2 3.9 (1.3) 69.8
FDIC insurance................................................... 42.2 9.3 51.5
Professional services............................................ 38.7 4.8 (0.3) 43.2
Amortization of goodwill and other intangibles................... 25.2 4.0 29.2
Merger, integration and restructuring............................ 84.0 -- 84.0
Other............................................................ 294.9 49.6 (12.8) 331.7
------- ---------- ---------- -------
Total noninterest expense.................................... 1,114.3 147.9 (30.8) 1,231.4
------- ---------- ---------- -------
Income before income taxes....................................... 233.1 110.1 (3.1) 340.1
Applicable income taxes.......................................... 78.6 42.6 (1.4) 119.8
------- ---------- ---------- -------
Income before extraordinary item and cumulative effect of changes
in accounting principles........................................ 154.5 67.5 (1.7) 220.3
Extraordinary item............................................... -- (6.3) (6.3)
Cumulative effect of changes in accounting principles............ 157.3 75.9 233.2
------- ---------- ---------- -------
Net income....................................................... $ 311.8 $ 137.1 ($ 1.7) $ 447.2
------- ---------- ---------- -------
------- ---------- ---------- -------
Net income applicable to common equity........................... $ 281.6 $ 417.0
------- -------
------- -------
EARNINGS PER COMMON SHARE
Average common and common equivalent shares...................... 105,361,022 124,670,657
Primary and fully diluted income before extraordinary item and
cumulative effect of changes in accounting principles........... $1.18 $1.52
Primary and fully diluted net income............................. 2.67 3.34
</TABLE>
See Notes to unaudited Pro Forma Combined Financial Statements
F-6
<PAGE>
FIRST BANK SYSTEM, INC.
ACQUISITION OF METROPOLITAN FINANCIAL CORPORATION
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1991
<TABLE>
<CAPTION>
FBS MFC SALE OF PRO FORMA
(IN MILLIONS, EXCEPT SHARE DATA) HISTORICAL HISTORICAL SUBSIDIARY COMBINED
- ----------------------------------------------------------------- ------------ ---------- ---------- -----------
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans............................................................ $1,624.3 $217.0 $1,841.3
Securities:
Taxable........................................................ 221.1 159.9 381.0
Exempt from federal income taxes............................... 19.1 -- 19.1
Other interest income............................................ 97.5 30.1 127.6
------- ---------- -------
Total interest income........................................ 1,962.0 407.0 2,369.0
INTEREST EXPENSE
Deposits......................................................... 872.8 256.0 1,128.8
Federal funds purchased and repurchase agreements................ 57.9 -- 57.9
Other short-term funds borrowed.................................. 24.2 5.6 29.8
Long-term debt................................................... 100.3 40.3 140.6
------- ---------- -------
Total interest expense....................................... 1,055.2 301.9 1,357.1
------- ---------- -------
Net interest income.............................................. 906.8 105.1 1,011.9
Provision for credit losses...................................... 202.2 8.0 210.2
------- ---------- -------
Net interest income after provision for credit losses............ 704.6 97.1 801.7
NONINTEREST INCOME
Trust fees....................................................... 115.5 -- 115.5
Credit card fees................................................. 94.4 -- 94.4
Service charges on deposit accounts.............................. 97.2 5.4 102.6
Edina Realty commission income................................... -- 26.2 $(26.2) 0.0
Insurance commissions............................................ 27.2 -- 27.2
Securities gains................................................. 8.9 33.4 42.3
Other............................................................ 154.5 23.8 (1.9) 176.4
------- ---------- ---------- -------
Total noninterest income..................................... 497.7 88.8 (28.1) 558.4
NONINTEREST EXPENSE
Salaries......................................................... 371.7 39.5 (9.1) 402.1
Employee benefits................................................ 79.3 8.5 87.8
Net occupancy.................................................... 84.0 14.6 (5.9) 92.7
Furniture and equipment.......................................... 64.8 3.0 (1.4) 66.4
FDIC insurance................................................... 38.5 8.0 46.5
Professional services............................................ 37.8 2.3 (0.4) 39.7
Amortization of goodwill and other intangibles................... 21.6 5.4 27.0
Other............................................................ 271.6 42.8 (11.2) 303.2
------- ---------- ---------- -------
Total noninterest expense.................................... 969.3 124.1 (28.0) 1,065.4
------- ---------- ---------- -------
Income before income taxes....................................... 233.0 61.8 (0.1) 294.7
Applicable income taxes.......................................... 25.9 4.4 30.3
------- ---------- ---------- -------
Net income....................................................... $ 207.1 $ 57.4 $ (0.1) $ 264.4
------- ---------- ---------- -------
------- ---------- ---------- -------
Net income applicable to common equity........................... $ 183.4 $ 240.7
------- -------
------- -------
EARNINGS PER COMMON SHARE
Average common and common equivalent shares...................... 102,533,284 117,259,058
Primary net income............................................... $1.79 $2.05
Fully diluted net income......................................... 1.78 1.97
</TABLE>
See Notes to unaudited Pro Forma Combined Financial Statements
F-7
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
NOTE A: BASIS OF PRESENTATION
On July 21, 1994, First Bank System, Inc. ("FBS") signed a definitive
agreement to acquire Metropolitan Financial Corporation ("MFC"), a regional
financial services holding company headquartered in Minneapolis, Minnesota, with
$8.1 billion in assets, $5.5 billion in deposits and $498 million in
shareholders' equity. The agreement calls for the tax-free exchange of .6803
share of the common stock of FBS for each common share of MFC, or approximately
21.2 million FBS shares.
The merger with MFC will be accounted for by FBS under the pooling of
interests method of accounting in accordance with APB No. 16 and, accordingly,
this method has been applied in the unaudited pro forma combined financial
statements. Under this method of accounting, the recorded assets, liabilities,
shareholders' equity, income, and expenses of FBS and MFC are combined and
recorded at their historical amounts. FBS expects that certain adjustments will
be recorded by MFC, primarily to accrue for specific, identified costs related
to the merger that are expected to be incurred within one year of the closing
and to establish additional credit loss reserves that may be necessary to
reflect FBS' plans with respect to the anticipated timing of and strategies
related to the disposition of problem assets. The amounts of merger-related
costs included or disclosed in these unaudited pro forma combined financial
statements may change as additional information becomes available.
The Unaudited Pro Forma Combined Balance Sheet is based on the unaudited
consolidated balance sheets of FBS and MFC as of September 30, 1994. The
Unaudited Pro Forma Combined Statements of Income are based on the unaudited
consolidated statements of income of FBS and MFC.
FBS expects to achieve operating cost savings primarily through reductions
in staff, the consolidation and elimination of certain duplicate or excess
office facilities, and the consolidation of certain data processing and other
back office operations. The operating cost savings are expected to be achieved
in various amounts at various times during the year subsequent to the closing
and not ratably over, or at the beginning or end of, such period. No adjustment
has been included in the unaudited pro forma combined financial statements for
the anticipated operating cost savings.
Certain amounts in the historical financial statements of MFC have been
reclassified in the unaudited pro forma combined financial statements to conform
to FBS' historical financial statement presentation.
FBS completed the acquisition of Boulevard Bancorp, Inc. ("BBI") on March
25, 1994, and used the purchase method of accounting for the transaction. BBI, a
holding company for four banks located in Chicago, Illinois, had $1.6 billion in
assets and $1.2 billion in deposits. The unaudited statement of income for FBS
for the six months ended June 30, 1994, included the results of operations of
BBI since its acquisition date of March 25, 1994. The unaudited pro forma
combined statements of income do not include the results of operations of BBI
prior to March 25, 1994 as they are immaterial.
The FBS results of operations for the year ended December 31, 1993, included
merger-related charges of $72.2 million ($50.0 million after tax) associated
with the acquisition of Colorado National Bankshares, Inc. These charges include
a $29.7 million provision for anticipated reorganization and restructuring
costs, system conversions, and customer communication costs and a $14.3 million
write-down of premises and equipment related to redundant main office and branch
facilities. Other charges, totaling $28.2 million, primarily involved severance.
The FBS results of operations for the year ended December 31, 1992, included
the effect of adopting two new accounting standards: Statement of Financial
Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes," and SFAS
No. 106, "Employers' Accounting for Postretirement Benefits Other than
Pensions." Income from continuing operations before cumulative effect of changes
in accounting principles for the year ended December 31, 1992, was reduced by
$56.6 million as a result of increased income tax expense under SFAS No. 109 and
$1.0 million for increased employee benefit expenses under SFAS No. 106. In
addition, the net cumulative effect for prior years of adopting SFAS No. 109 and
SFAS No. 106 resulted in a $157.3 million increase in net income in 1992.
F-8
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Also included in FBS results of operations for 1992 are merger-related
charges of $124.0 million ($81.8 million after tax) associated with the
acquisitions of Western Capital Investment Corporation and Bank Shares
Incorporated. These charges included a $13.6 million provision for credit
losses, a $26.4 million provision for losses on other real estate, and $84.0
million in merger, integration and restructuring provisions. These provisions
were made to reflect FBS' intentions with respect to the disposition of problem
assets and to provide for anticipated merger-related costs.
The MFC results of operations for the nine months ended September 30, 1994
include charges totaling $9.5 million (net of tax), or approximately $.30 per
share, related to the planned merger with FBS and the tentative settlement of
two class action lawsuits against MFC and its subsidiaries, Edina Realty, Inc.
and Equity Title Services, Inc. Expenses related to the merger totaled $1.4
million. An accrual of $14 million was recorded in the third quarter for costs
associated with the tentative settlement of the lawsuits. The settlement was
announced in September 1994 and requires final court approval.
MFC's earnings in 1992 include $75,941,000 resulting from the cumulative
effect of an accounting change related to the adoption of SFAS No. 109,
"Accounting for Income Taxes" (SFAS 109). The prospective adoption of SFAS 109
resulted in an effective tax rate of nearly 39 percent in 1992 compared with 7
percent in 1991 and a tax benefit in 1990. The net effect of the adoption of
SFAS 109 on current year net income was an increase of $41.5 million.
NOTE B: SALE OF BRANCHES
Subsequent to the Merger, FBS proposes to sell the deposit relationships
associated with approximately 60 excess branch locations. In addition, certain
fixed assets which are used to service those deposit relationships will be sold.
Earning assets will not be sold.
NOTE C: CLASSIFICATION OF INVESTMENT SECURITIES
Effective December 31, 1993, FBS adopted the provisions of Statement of
Financial Accounting Standards ("SFAS") 115, "Accounting for Certain Investments
in Debt and Equity Securities" and reported its entire $3.3 billion investment
portfolio as available for sale. Based upon the preliminary analysis performed
by FBS on the held to maturity investment securities of MFC, FBS anticipates
reclassifying this entire portfolio as available for sale. The MFC investment
securities reflected in the unaudited Pro Forma Combined Balance Sheet have been
reclassified as available for sale securities and a mark to market adjustment of
$72 million has been recorded, based on the reported market value at September
30, 1994. In addition, deferred taxes of $27 million and a reduction in
shareholders' equity of $45 million were also recorded.
NOTE D: SALE OF REAL ESTATE BROKERAGE SUBSIDIARY
Because of regulatory restrictions on nonbanking activities, FBS expects
that within two years of the closing of the Merger, it will sell Edina Realty,
Inc., MFC's real estate brokerage subsidiary.
NOTE E: REORGANIZATION AND RESTRUCTURING ACCRUALS
The pro forma statements assume that in 1994 MFC will, consistent with
generally accepted accounting principles, establish such additional accruals and
reserves as may be necessary to reflect the plans of FBS with respect to the
conduct of MFC's business following the Merger, including the anticipated timing
of and strategies for the disposition of problem assets, and to provide for
certain costs and expenses relating to the Merger. Accordingly it is expected
that additional credit-related reserves of approximately $14 million will be
established, principally related to FBS' plan and policies with respect to
certain commercial loans and the consumer loan portfolios, and accruals
aggregating approximately $82 million will be recorded to reflect specific
expenses and identified restructuring charges, expected to be incurred within
one year of closing. Accordingly, for purposes of the unaudited Pro Forma
Combined Balance Sheet, the following accruals have been recorded: $16 million
reserve for the expense of closing duplicate facilities, $30 million accrual for
the estimated costs related to
F-9
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION--(CONCLUDED)
severance, $24 million accrual for systems and operations conversion costs, and
$12 million for other specific merger-related costs. In addition, deferred tax
benefits of $37 million and deferred tax liabilities of $11 million related to
the pro forma adjustments have been recorded.
The amount of the adjustments discussed and reflected in the unaudited Pro
Forma Combined Balance Sheet are preliminary estimates. The actual amount of the
adjustments to be made by MFC will be based on information available at that
time and could be different from the estimates. These adjustments have not been
included in the unaudited Pro Forma Combined Statements of Income, as they are
not expected to have a continuing impact on FBS.
NOTE F: SHAREHOLDERS' EQUITY
In conjunction with the Merger, each of the 488,750 outstanding shares of
MFC preferred stock will be converted into a right to receive $27.00 cash, plus
any accumulated and unpaid dividends on such shares, and as a result, MFC's
shareholders' equity in the unaudited Pro Forma Combined Balance Sheet has been
reduced by $13.2 million.
Common stock in the unaudited Pro Forma Combined Balance Sheet has been
adjusted to reflect the par value of the FBS stock to be issued, with a related
adjustment to capital surplus. Investment securities and capital surplus have
been adjusted to reflect the retirement of MFC shares held by FBS prior to the
merger. MFC's retained earnings reflect the adjustments for anticipated
merger-related costs as discussed above.
NOTE G: INCOME TAX PROVISIONS
The income tax provision for adjustments related to the MFC acquisition
reflected in the unaudited Pro Forma Combined Statements of Income have been
computed at FBS' effective combined federal and state marginal tax rate.
F-10
<PAGE>
APPENDIX A
AGREEMENT OF MERGER AND CONSOLIDATION
AGREEMENT OF MERGER AND CONSOLIDATION dated July 21, 1994, by and between
FIRST BANK SYSTEM, INC., a Delaware corporation ("FBS"), and METROPOLITAN
FINANCIAL CORPORATION, a Delaware corporation ("MFC").
WHEREAS, the Boards of Directors of FBS and MFC have determined that it is
in the best interests of FBS and MFC and their respective shareholders to
consummate the merger of MFC with and into FBS as described in Article 1 ("the
Merger");
WHEREAS, as a result of the Merger, all of the outstanding common stock,
$0.01 par value, of MFC ("MFC Common Stock") will be converted into common
stock, $1.25 par value, of FBS ("FBS Common Stock") and all of the outstanding
preferred stock, $0.01 par value, of MFC ("MFC Preferred Stock") will be
converted into the right to receive cash, all on the terms and subject to the
conditions set forth in this Agreement;
WHEREAS, (a) MFC (i) owns all of the issued and outstanding capital stock of
Metropolitan Federal Bank, fsb (the "Bank") and (ii) owns all of the issued and
outstanding capital stock of LMN Management Corp. and Edina Realty, Inc.
(collectively, the "Direct Nonbanking Subsidiaries"); (b) the Bank owns,
directly or indirectly, all of the issued and outstanding capital stock of the
entities listed on Schedule A hereto (collectively, the "Indirect Nonbanking
Subsidiaries"); and (c) Edina Realty, Inc. owns all of the issued and
outstanding capital stock of the entities listed on Schedule B hereto
(collectively, the "Edina Realty Subsidiaries" and together with the Bank, the
Direct Nonbanking Subsidiaries and the Indirect Nonbanking Subsidiaries, the
"Subsidiaries");
WHEREAS, as a condition and inducement to FBS's willingness to enter into
this Agreement, FBS and MFC are entering into immediately after the execution
and delivery hereof a Stock Option Agreement dated as of the date hereof (the
"Stock Option Agreement") pursuant to which MFC shall grant to FBS an option to
purchase shares of MFC Common Stock; and
WHEREAS, FBS and MFC desire that the Merger be made on the terms and subject
to the conditions set forth in this Agreement and qualify as a reorganization
within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as
amended (the "Code").
NOW, THEREFORE, in consideration of the representations, warranties and
covenants contained herein, the parties hereto agree as follows:
ARTICLE 1
MERGER
Subject to the satisfaction or waiver of the conditions set forth in Article
6, on a date mutually satisfactory to the parties as soon as practicable
following receipt of all necessary regulatory approvals of the Board of
Governors of the Federal Reserve System ("FRB") and the Office of Thrift
Supervision (the "OTS"), MFC will merge with and into FBS. FBS, in its capacity
as the corporation surviving the Merger, is sometimes referred to herein as the
"Surviving Corporation." The Merger will be effected pursuant to the provisions
of, and with the effect provided in, Section 251 of the Delaware General
Corporation Law (the "DGCL").
1.1. EFFECT OF MERGER.
(a) On the Effective Date (as defined in Section 1.1(d)), MFC shall be
merged with and into FBS, and the separate existence of MFC shall cease. The
Charter (as defined Section 2.2) and Bylaws of FBS, as in effect immediately
prior to the Effective Date, shall be the Charter and the Bylaws of the
Surviving
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<PAGE>
Corporation until further amended as provided therein and in accordance with
law. The directors of FBS immediately prior to the Effective Date will be
the directors of the Surviving Corporation until their successors are
elected and qualify.
(b) The Surviving Corporation shall thereupon and thereafter be
responsible and liable for all the liabilities, debts, obligations and
penalties of each of FBS and MFC.
(c) The Surviving Corporation shall thereupon and thereafter possess all
the rights, privileges, immunities and franchises, of a public as well as of
a private nature, of each of FBS and MFC; all property, real, personal and
mixed, and all debts due on whatever account, and all and every other
interest, of or belonging to or due to each of FBS and MFC, shall be taken
and deemed to be transferred to and vested in the Surviving Corporation
without further act or deed; and the title to any real estate or any
interest therein, vested in FBS and MFC, shall not revert or be in any way
impaired by reason of the Merger.
(d) To effect the Merger, the parties hereto will cause a certificate of
merger relating to the Merger to be filed with the Secretary of State of
Delaware. The Merger shall be effective upon the filing of such certificate
of merger. As used herein, the term "Effective Date" shall mean the date on
which the certificate of merger is filed with the Secretary of State of
Delaware.
1.2. EFFECT ON OUTSTANDING SHARES OF MFC CAPITAL STOCK. To effectuate the
Merger and subject to the terms and conditions of this Agreement:
(a) each issued and outstanding share of MFC Common Stock (other than
shares held as treasury stock of MFC or shares held directly or indirectly
by FBS, other than shares held in a fiduciary capacity or in satisfaction of
a debt previously contracted) shall be converted into .6803 shares of FBS
Common Stock, and FBS shall issue to holders of MFC Common Stock .6803
shares of FBS Common Stock (the "Exchange Ratio"), subject to adjustment as
provided in Section 1.3, in exchange for each such share of MFC Common
Stock;
(b) all outstanding options and warrants to purchase shares of MFC
Common Stock shall be exchanged for options and warrants to purchase FBS
Common Stock, or shares of FBS Common Stock, as provided in Section 5.14;
(c) each issued and outstanding share of MFC Preferred Stock (other than
shares as to which the holders thereof have asserted and not effectively
withdrawn or otherwise lost their appraisal rights pursuant to Section 262
of the DGCL ("Dissenters' Shares")) shall be converted into the right to
receive $27.00 in cash, plus any accumulated and unpaid dividends on such
shares of MFC Preferred Stock to, but excluding, the Effective Date
calculated as set forth in the terms of such MFC Preferred Stock, without
interest, from FBS (the "Preferred Consideration"), and FBS shall pay to
holders of such MFC Preferred Stock the Preferred Consideration in exchange
for each such share of MFC Preferred Stock;
(d) Dissenters' Shares shall be purchased and paid for in accordance
with Section 262 of the DGCL; and
(e) each share of MFC Common Stock held as treasury stock of MFC or held
directly or indirectly by FBS, other than shares held in a fiduciary
capacity or in satisfaction of a debt previously contracted, shall be
canceled, retired and cease to exist, and no exchange or payment shall be
made with respect thereof.
1.3. FBS COMMON STOCK ADJUSTMENTS.
(a) If the average of the closing prices of FBS Common Stock as quoted
on the New York Stock Exchange (the "NYSE") for the 20 trading days ending
three business days prior to the last date of the meetings of shareholders
scheduled to obtain the shareholder approvals referred to in Section 5.20
(the "Average Price") is less than $33.00, then, subject to Section 7.1(e),
the Exchange Ratio will be adjusted by multiplying the Exchange Ratio by the
quotient of (i) $33.00 divided by (ii) the Average Price.
(b) If the Average Price is greater than $40.50, then the Exchange Ratio
will be adjusted by multiplying the Exchange Ratio by the quotient of (i)
$40.50 divided by (ii) the Average Price.
A-2
<PAGE>
(c) If, between the date hereof and the Effective Date, shares of FBS
Common Stock shall be changed into a different number of shares or a
different class of shares by reason of any reclassification,
recapitalization, split-up, combination, exchange of shares or readjustment,
or if a stock dividend thereon shall be declared with a record date within
such period, then the number of shares of FBS Common Stock issued to holders
of MFC Common Stock pursuant to this Agreement will be appropriately and
proportionately adjusted so that the number of such shares of FBS Common
Stock (or such class of shares into which shares of FBS Common Stock have
been changed) that will be issued to holders of MFC Common Stock will equal
the number of such shares that holders of MFC Common Stock would have
received pursuant to such classification, recapitalization, split-up,
combination, exchange of shares or readjustment had the record date therefor
been immediately following the Effective Date.
1.4. RIGHTS OF HOLDERS OF MFC CAPITAL STOCK; CAPITAL STOCK OF FBS.
(a) On and after the Effective Date and until surrendered for exchange,
each outstanding stock certificate which immediately prior to the Effective
Date represented shares of MFC Common Stock shall be deemed for all
purposes, except as provided in Section 1.6(c), to evidence ownership of and
to represent the number of whole shares of FBS Common Stock into which such
shares of MFC Common Stock shall have been converted, and the record holder
of such outstanding certificate shall, after the Effective Date, be entitled
to vote the shares of FBS Common Stock into which such shares of MFC Common
Stock shall have been converted on any matters on which the holders of
record of FBS Common Stock, as of any date subsequent to the Effective Date,
shall be entitled to vote. In any matters relating to such certificates, FBS
may rely conclusively upon the record of shareholders maintained by MFC
containing the names and addresses of the holders of record of MFC Common
Stock on the Effective Date.
(b) On and after the Effective Date and until surrendered for exchange,
each outstanding stock certificate which immediately prior to the Effective
Date represented shares of MFC Preferred Stock (other than Dissenters'
Shares) shall be deemed for all purposes to represent the right to receive
the Preferred Consideration from FBS. In any matters relating to such
certificates, FBS may rely conclusively upon the record of shareholders
maintained by MFC containing the names and address of the holders of record
of MFC Preferred Stock on the Effective Date.
(c) On and after the Effective Date, each share of FBS Common Stock
issued and outstanding immediately prior to the Effective Date shall remain
an issued and existing share of common stock of the Surviving Corporation
and shall not be affected by the Merger.
(d) On and after the Effective Date, FBS shall reserve a sufficient
number of authorized but unissued shares of FBS Common Stock for issuance in
connection with the conversion of MFC Common Stock into FBS Common Stock as
provided herein.
1.5. NO FRACTIONAL SHARES. No fractional shares of FBS Common Stock, and
no certificates representing such fractional shares, shall be issued upon the
surrender for exchange of certificates representing MFC Common Stock. In lieu of
any fractional share, FBS shall pay to each holder of MFC Common Stock who
otherwise would be entitled to receive a fractional share of FBS Common Stock an
amount of cash (without interest) determined by multiplying (a) the closing
price per share of FBS Common Stock on the Effective Date times (b) the
fractional share interest to which such holder would otherwise be entitled.
1.6. PROCEDURE FOR EXCHANGE OF STOCK.
(a) After the Effective Date, holders of certificates theretofore
evidencing outstanding shares of MFC Common Stock or MFC Preferred Stock,
upon surrender of such certificates to an exchange agent appointed by FBS
(the "Exchange Agent"), shall be entitled to receive, (i) in the case of MFC
Common Stock, (A) certificates representing the number of whole shares of
FBS Common Stock into which shares of MFC Common Stock theretofore
represented by the certificates so surrendered shall have been converted as
provided in Section 1.2(a) and (B) cash payments in lieu of fractional
shares, if any, as provided in Section 1.5, and (ii) in the case of MFC
Preferred Stock, the Preferred Consideration. As soon as practicable after
the Effective Date, FBS shall cause the Exchange Agent to mail appropriate
and customary transmittal materials
A-3
<PAGE>
(which shall specify that delivery shall be effected, and risk of loss and
title to the certificates theretofore representing shares of MFC Common
Stock or MFC Preferred Stock shall pass, only upon proper delivery of such
certificates to the Exchange Agent) to each holder of MFC Common Stock and
MFC Preferred Stock of record as of the Effective Date advising such holder
of the effectiveness of the Merger and the procedure for surrendering to the
Exchange Agent outstanding certificates formerly evidencing MFC Common Stock
in exchange for new certificates for FBS Common Stock and outstanding
certificates formerly evidencing MFC Preferred Stock in exchange for the
Preferred Consideration. FBS shall not be obligated to deliver the
consideration to which any former holder of shares of MFC Common Stock or
MFC Preferred Stock is entitled as a result of the Merger until such holder
surrenders the certificate or certificates representing such shares for
exchange as provided in such transmittal materials and this Section 1.6(a).
In addition, certificates surrendered for exchange by any person deemed an
"affiliate" of MFC (as defined in Section 5.10), shall not be exchanged for
such consideration until FBS has received a written agreement from such
person as provided in Section 5.10. Upon surrender, each certificate
evidencing MFC Common Stock or MFC Preferred Stock shall be canceled.
(b) On the Effective Date, FBS shall deposit, or shall cause to be
deposited, with the Exchange Agent, for exchange in accordance with this
Section 1.6, certificates representing the shares of FBS Common Stock and
the cash in lieu of fractional shares and cash for payment of the Preferred
Consideration (such certificates and cash, hereinafter referred to as the
"Exchange Fund") to be issued or paid by FBS pursuant to this Article 1 in
connection with the Merger.
(c) Until outstanding certificates formerly representing MFC Common
Stock are surrendered as provided in Section 1.6(a), no dividend or
distribution payable to holders of record of FBS Common Stock shall be paid
to any holder of such outstanding certificates, but upon surrender of such
outstanding certificates by such holder there shall be paid to such holder
the amount of any dividends or distributions (without interest) theretofore
paid with respect to such whole shares of FBS Common Stock, but not paid to
such holder, and which dividends or distributions had a record date
occurring on or subsequent to the Effective Date.
(d) After the Effective Date, there shall be no further registration of
transfers on the records of MFC of outstanding certificates formerly
representing shares of MFC Common Stock or MFC Preferred Stock and, if a
certificate formerly representing such shares is presented to MFC or FBS, it
shall be forwarded to the Exchange Agent for cancellation and exchange for
certificates representing shares of FBS Common Stock or the Preferred
Consideration, as applicable, as herein provided.
(e) All shares of FBS Common Stock and cash for any fractional shares
issued and paid upon the surrender for exchange of MFC Common Stock and all
Preferred Consideration paid upon the surrender for exchange of MFC
Preferred Stock in accordance with the above terms and conditions shall be
deemed to have been issued and paid in full satisfaction of all rights
pertaining to such shares of MFC Common Stock and MFC Preferred Stock,
respectively.
(f) Any portion of the Exchange Fund (including the proceeds of any
investments thereof and any FBS Common Stock or any dividends or
distributions thereon) that remains unclaimed by the holders of MFC Common
Stock or MFC Preferred Stock for six months after the Effective Date shall
be repaid to FBS. Any holders of MFC Common Stock or MFC Preferred Stock who
have not theretofore complied with this Section 1.6 shall thereafter look
only to FBS for payment of their shares of FBS Common Stock, cash in lieu of
fractional shares and any unpaid dividends and distributions on the FBS
Common Stock deliverable in respect of each share of MFC Common Stock or
cash in an amount equal to the Preferred Consideration payable in respect of
each share of MFC Preferred Stock, as the case may be, that such holder
holds as determined pursuant to this Agreement, in each case, without any
interest thereon. If outstanding certificates for shares of MFC Common Stock
or MFC Preferred Stock are not surrendered or the payment for them not
claimed prior to the date on which such payments would otherwise escheat to
or become the property of any governmental unit or agency, the unclaimed
items shall, to the extent permitted by abandoned property and any other
applicable law, become the property of FBS (and to the extent not in its
possession shall be paid
A-4
<PAGE>
over to it), free and clear of all claims or interest of any person
previously entitled to such claims. Notwithstanding the foregoing, none of
FBS, the Exchange Agent or any other person shall be liable to any former
holder of MFC Common Stock or MFC Preferred Stock for any amount delivered
to a public official pursuant to applicable abandoned property, escheat or
similar laws.
(g) In the event any certificate for MFC Common Stock or MFC Preferred
Stock shall have been lost, stolen or destroyed, the Exchange Agent shall
issue and pay in exchange for such lost, stolen or destroyed certificate,
upon the making of an affidavit of that fact by the holder thereof, (i) in
the case of MFC Common Stock, such shares of FBS Common Stock and cash for
fractional shares, if any, and (ii) in the case of MFC Preferred Stock, such
Preferred Consideration, each as may be required pursuant to this Agreement;
provided, however, that FBS may, in its discretion and as a condition
precedent to the issuance and payment thereof, require the owner of such
lost, stolen or destroyed certificate to deliver a bond in such sum as it
may direct as indemnity against any claim that may be made against FBS, MFC,
the Exchange Agent or any other party with respect to the certificate
alleged to have been lost, stolen or destroyed.
(h) Any Dissenters' Shares shall not be converted into the Preferred
Consideration or the right to receive the Preferred Consideration unless and
until the holder of such Dissenters' Shares shall have effectively withdrawn
or otherwise lost the right to appraisal of and payment for such shares
under the DGCL, at which time such shares shall be converted into the
Preferred Consideration, and the right to receive the Preferred
Consideration, as provided in Section 1.2(c). MFC shall give prompt notice
to FBS of any demands received from holders of MFC Preferred Stock for
appraisal of and payment for their shares. MFC shall not, except with the
prior written consent of FBS, voluntarily make any payment with respect to,
or settle or offer to settle, any such demands for appraisal.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF FBS
FBS hereby represents and warrants to MFC as follows:
2.1. ORGANIZATION AND QUALIFICATION. FBS is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware,
and has the requisite corporate power to carry on its business as now conducted.
FBS is registered as a bank holding company under Section 1841 ET SEQ. of Title
12, United States Code (the "Bank Holding Company Act"). FBS is licensed or
qualified to do business in every jurisdiction in which the nature of its
business or its ownership of property requires it to be licensed or qualified,
except where the failure to be so licensed or qualified would not have or would
not reasonably be expected to have a material adverse effect on the business,
operations or financial condition of FBS and its subsidiaries, taken as a whole.
2.2. AUTHORITY RELATIVE TO THIS AGREEMENT; NON-CONTRAVENTION. FBS has the
requisite corporate power and authority to enter into this Agreement and to
carry out its obligations hereunder. The execution and delivery of this
Agreement by FBS and the consummation by FBS of the transactions contemplated
hereby have been duly authorized by the Board of Directors of FBS, and, except
for approval of this Agreement and the Merger by the shareholders of FBS, no
other corporate proceedings on the part of FBS are necessary to authorize this
Agreement and such transactions. This Agreement has been duly executed and
delivered by FBS and constitutes a valid and binding obligation of FBS,
enforceable in accordance with its terms. FBS is not subject to, or obligated
under, any provision of (a) its Charter (as hereinafter defined) or Bylaws, (b)
any agreement, arrangement or understanding, (c) any license, franchise or
permit or (d) subject to obtaining the approvals referred to in the next
sentence, any law, regulation, order, judgment or decree, which would be
breached or violated, or in respect of which a right of termination or
acceleration or any encumbrance on any of its or any of its subsidiaries' assets
would be created, by its execution, delivery and performance of this Agreement
and the consummation by it of the transactions contemplated hereby, other than
any such breaches or violations which will not, individually or in the
aggregate, have a material adverse effect on the business, operations or
financial condition of FBS and its subsidiaries, taken as a whole, or the
consummation of the transactions contemplated hereby. Other than in connection
with obtaining any approvals required by the Bank Holding Company Act, Section
1730a of Title 12, United States Code (the "Savings and Loan Holding Company
Act"), the Home Owners Loan Act (the "HOLA"), the Federal
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Deposit Insurance Act (the "FDIA"), the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended (the "HSR Act"), the Securities Act of 1933, as amended,
and the rules and regulations thereunder (the "1933 Act"), the Securities
Exchange Act of 1934, as amended, and the rules and regulations thereunder (the
"1934 Act"), rules of the NYSE, state securities or blue sky laws, and the rules
and regulations thereunder ("Blue Sky Laws"), rules and regulations of any
applicable state insurance regulatory authority ("Applicable Insurance
Regulations") and the filing of a certificate of merger with the Secretary of
State of Delaware, no authorization, consent or approval of, or filing with, any
public body, court or authority is necessary on the part of FBS for the
consummation by it of the transactions contemplated by this Agreement, except
for such authorizations, consents, approvals and filings as to which the failure
to obtain or make would not, individually or in the aggregate, have a material
adverse effect on the business, operations or financial condition of FBS and its
subsidiaries, taken as a whole, or the consummation of the transactions
contemplated hereby. As used in this Agreement, the term "Charter" with respect
to any corporation or banking association shall mean those instruments that at
that time constitute its charter as filed or recorded under the general
corporation or other applicable law of the jurisdiction of incorporation or
association, including the articles or certificate of incorporation or
association, any amendments thereto and any articles or certificate of merger or
consolidation.
2.3. VALIDITY OF FBS COMMON STOCK. The shares of FBS Common Stock to be
issued pursuant to this Agreement will be, when issued, duly authorized, validly
issued, fully paid and nonassessable.
2.4. CAPITAL STOCK. The authorized capital stock of FBS consists of
200,000,000 shares of FBS Common Stock and 10,000,000 shares of preferred stock,
par value $1.00 per share (the "FBS Preferred Stock"). As of June 30, 1994, (a)
116,300,311 shares of FBS Common Stock were issued and outstanding (including
2,144,277 shares of FBS Common Stock, par value $1.25 per share, held in
treasury), 10,982,385 shares of FBS Common Stock were reserved for issuance
pursuant to FBS's 1987 Stock Option Plan, 1991 Stock Incentive Plan, 1994 Stock
Incentive Plan, Restated Employee Stock Purchase Plan and Dividend Reinvestment
Plan, the Western Capital Investment Corp. 1984 Stock Option and Incentive Plan
and the 1988 Equity Participation Plan and 3,655,684 shares of FBS Common Stock
were reserved for issuance upon conversion of FBS's $3.5625 Cumulative Preferred
Stock, Series 1991A (the "Series 1991A Preferred"); (b) 2,118,500 shares of
Series 1991A Preferred were outstanding; (c) 12,750 shares of Adjustable Rate
Cumulative Preferred Stock, Series 1990A were reserved for issuance pursuant to
certain periodic stock purchase rights and risk event warrants issued by FBS;
and (d) 1,400,000 shares of Series A Junior Participating Preferred Stock were
reserved for issuance upon exercise of rights to purchase shares of Junior
Participating Preferred Stock of FBS pursuant to the Rights Agreement dated as
of December 21, 1988, between FBS and First Chicago Trust Company of New York,
as Rights Agent.
2.5. 1934 ACT REPORTS.
(a) Prior to the execution of this Agreement, FBS has delivered to MFC
complete and accurate copies of (a) FBSs Annual Reports on Form 10-K for the
years ended December 31, 1991, 1992 and 1993, as amended (the "FBS 10-K
Reports"), as filed under the 1934 Act with the Securities and Exchange
Commission (the "SEC"), (b) all FBS proxy statements and annual reports to
shareholders used in connection with meetings of FBS shareholders held since
January 1, 1992, and (c) FBS's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1994 (the "FBS 10-Q Report"), as filed under the 1934 Act
with the SEC. As of their respective dates, such documents (i) did not
contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading and (ii) complied as to form in all material respects with the
applicable laws and rules and regulations of the SEC. Since January 1, 1991,
FBS has filed in a timely manner all reports that it was required to file
with the SEC pursuant to the 1934 Act.
(b) The FBS financial statements (including any footnotes thereto)
contained in the FBS 10-K Reports and the FBS 10-Q Report were prepared in
accordance with generally accepted accounting principles applied on a
consistent basis during the periods involved and fairly present the
consolidated financial position of FBS and its subsidiaries as of the dates
thereof and the consolidated results of operations, changes in shareholders'
equity and cash flows for the periods then ended.
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2.6. NO MATERIAL ADVERSE CHANGES. Since March 31, 1994, there has been no
material adverse change in, and no event, occurrence or development in the
business of FBS or its subsidiaries that, taken together with other events,
occurrences and developments with respect to such business, has had or would
reasonably be expected to have a material adverse effect on, the business
operations or financial condition of FBS and its subsidiaries, taken as a whole,
or the ability of FBS to consummate the transactions contemplated hereby.
2.7. PROSPECTUS/PROXY STATEMENT. At the time the Registration Statement
(as defined in Section 5.9(a)) becomes effective and at the time the
Prospectus/Proxy Statement (as defined in Section 5.9(a)) is mailed to the
shareholders of FBS and MFC for purposes of obtaining the approvals referred to
in Section 5.9(a) and at all times subsequent to such mailing up to and
including the times of such approvals, the Registration Statement and the
Prospectus/Proxy Statement (including any amendments or supplements thereto),
with respect to all information set forth therein relating to FBS, the FBS
Common Stock, this Agreement, the Merger and all other transactions contemplated
hereby, will (a) comply in all material respects with applicable provisions of
the 1933 Act and the 1934 Act and (b) not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements contained therein, in light of the
circumstances under which they were made, not misleading.
2.8. LITIGATION. There are no actions, suits, proceedings, orders or
investigations pending or, to the best knowledge of FBS threatened, against FBS
or any of its subsidiaries which if determined adversely to FBS or its
subsidiaries could reasonably be expected to have a material adverse effect on
the financial condition, business or operations of FBS and its subsidiaries,
taken as a whole, or would have a material adverse effect on the ability of FBS
to consummate the transactions contemplated hereby.
2.9. REPORTS AND FILINGS. Since January 1, 1991, each of FBS and its
subsidiaries has filed each report or other filing it was required to file with
any federal or state banking or bank holding company or other regulatory
authority having jurisdiction over it (together with all exhibits thereto, the
"FBS Regulatory Reports"), except for such reports and filings which the failure
to so file would not have a material adverse effect on the business, operations
or financial condition of FBS and its subsidiaries, taken as a whole, or the
ability of FBS to consummate the transactions contemplated hereby. As of their
respective dates or as subsequently amended prior to the date hereof, each of
the FBS Regulatory Reports was true and correct in all material respects and
complied in all material respects with applicable laws, rules and regulations.
2.10. COMPLIANCE WITH LAWS. Each of FBS and its subsidiaries has complied
in all material respects with applicable laws and regulations of foreign,
federal, state and local governments and all agencies thereof which affect the
business or any owned or leased properties of FBS or any of its subsidiaries and
to which FBS or any of its subsidiaries may be subject, except where the failure
to so comply would not, individually or in the aggregate, have a material
adverse effect on the business, operations or financial condition of FBS and its
subsidiaries, taken as a whole, or the ability of FBS to consummate the
transactions contemplated hereby.
2.11. REGULATORY APPROVALS. As of the date hereof, FBS is not aware of any
reason that the regulatory approvals specified in Section 5.1 and required to be
obtained by FBS would not be obtained.
2.12. DISCLOSURE. The representations and warranties contained in this
Agreement are true and correct in all material respects, and such
representations and warranties do not omit any material fact necessary to make
the statements contained therein, in light of the circumstances under which they
were made, not misleading. There is no fact known to FBS which has not been
disclosed to MFC pursuant to this Agreement, the FBS 10-K Reports and the FBS
10-Q Report, all taken together as a whole, which would have or would reasonably
be expected to have a material adverse effect on the business, operations or
financial condition of FBS and its subsidiaries, taken as a whole, or the
ability of FBS to consummate the transactions contemplated hereby.
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ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF MFC
MFC hereby represents and warrants to FBS as follows:
3.1. ORGANIZATION AND QUALIFICATION. MFC is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware.
MFC is registered as a savings and loan holding company under the Savings and
Loan Holding Company Act. The Bank is a federally chartered savings bank duly
organized, validly existing and in good standing under the laws of the United
States and has the requisite corporate power to carry on its business as now
conducted. Each of the Subsidiaries (other than the Bank) is a corporation duly
organized, validly existing and in good standing under the laws of the state of
its incorporation. The copies of the Charter and Bylaws of each of MFC and the
Subsidiaries which have been made available to FBS prior to the date of this
Agreement are correct and complete and reflect all amendments made thereto
through such date. Each of MFC and the Subsidiaries is licensed or qualified to
do business in every jurisdiction in which the nature of its respective business
or its ownership of property requires it to be licensed or qualified, except
where the failure to be so licensed or qualified would not have or would not
reasonably be expected to have a material adverse effect on the business,
operations or financial condition of MFC and the Subsidiaries, taken as a whole.
3.2. AUTHORITY RELATIVE TO THIS AGREEMENT; NON-CONTRAVENTION. MFC has the
requisite corporate power and authority to enter into this Agreement and to
carry out its obligations hereunder. The execution and delivery of this
Agreement by MFC and the consummation by MFC of the transactions contemplated
hereby have been duly authorized by the Board of Directors of MFC and, except
for approval of this Agreement and the Merger by the affirmative vote of the
holders of a majority of the outstanding MFC Common Stock, no other corporate
proceedings on the part of MFC are necessary to authorize this Agreement and
such transactions. This Agreement has been duly executed and delivered by MFC
and constitutes a valid and binding obligation of MFC, enforceable in accordance
with its terms. None of MFC or the Subsidiaries is subject to, or obligated
under, any provision of (a) its Charter or Bylaws, (b) any agreement,
arrangement or understanding, (c) any license, franchise or permit or (d)
subject to obtaining the approvals referred to in the next sentence, any law,
regulation, order, judgment or decree, which would be breached or violated, or
in respect of which a right of termination or acceleration or any encumbrance on
any of its assets would be created, by the execution, delivery or performance of
this Agreement, the Stock Option Agreement or the consummation of the
transactions contemplated hereby or thereby, other than any such breaches or
violations which will not, individually or in the aggregate, have a material
adverse effect on the business, operations or financial condition of MFC and the
Subsidiaries, taken as a whole, or the consummation of the transactions
contemplated hereby or thereby. Other than in connection with obtaining any
approvals required by the Bank Holding Company Act, the Savings and Loan Holding
Company Act, the HOLA, the FDIA, the HSR Act, the 1933 Act, the 1934 Act, the
rules of the NYSE, Blue Sky Laws, Applicable Insurance Regulations and the
filing of a certificate of merger with the Secretary of State of Delaware, no
authorization, consent or approval of, or filing with, any public body, court or
authority is necessary on the part of MFC or any of the Subsidiaries for the
consummation by MFC of the transactions contemplated by this Agreement, except
for such authorizations, consents, approvals and filings as to which the failure
to obtain or make would not, individually or in the aggregate, have a material
adverse effect on the business, operations or financial condition of MFC and the
Subsidiaries, taken as a whole, or the consummation of the transactions
contemplated hereby.
3.3. CAPITALIZATION. The authorized and issued and outstanding capital
stock of each of MFC and the Subsidiaries as of the date hereof is correctly set
forth on Schedule 3.3. The issued and outstanding shares of capital stock of
each of MFC and the Subsidiaries are duly authorized, validly issued, fully paid
and nonassessable and have not been issued in violation of any preemptive
rights. Except as disclosed on Schedule 3.3 and as permitted in Section 4.1,
there are no options, warrants, conversion privileges or other rights,
agreements, arrangements or commitments obligating MFC or any Subsidiary to
issue, sell, purchase or redeem any shares of its capital stock or securities or
obligations of any kind convertible into or exchangeable for any shares of its
capital stock or of any of its subsidiaries or affiliates, nor are there any
stock appreciation, phantom or similar rights outstanding based upon the book
value or any other attribute of any of the capital stock of MFC or any of the
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Subsidiaries, or the earnings or other attributes of MFC or any of the
Subsidiaries. MFC has heretofore delivered to FBS true and correct copies of all
such agreements, arrangements (including all stock option plans) or commitments
identified on Schedule 3.3.
3.4. 1934 ACT REPORTS. Prior to the execution of this Agreement, MFC has
delivered or made available to FBS complete and accurate copies of (a) MFC's
Annual Reports on Form 10-K for the years ended December 31, 1991, 1992 and 1993
(the "MFC 10-K Reports") as filed under the 1934 Act with the SEC, (b) all MFC
proxy statements and annual reports to shareholders used in connection with
meetings of MFC shareholders held since January 1, 1992 and (c) MFC's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1994 (the "MFC 10-Q Report")
as filed under the 1934 Act with the SEC. As of their respective dates, such
documents (i) did not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading and (ii) complied as to form in all material respects with the
applicable laws and rules and regulations of the SEC. Since January 1, 1991, MFC
has filed in a timely manner all reports that it was required to file with the
SEC pursuant to the 1934 Act.
3.5. FINANCIAL STATEMENTS.
(a) The MFC financial statements (including any footnotes thereto)
contained in the MFC 10-K Reports and the MFC 10-Q Report have been prepared
in accordance with generally accepted accounting principles applied on a
consistent basis during the periods involved and fairly present the
consolidated financial position of MFC and the Subsidiaries as of the dates
thereof and the results of operations, changes in shareholders' equity and
cash flows for the periods then ended. MFC has furnished FBS with copies of
the consolidated balance sheet of MFC as of June 30, 1994 (the "Latest MFC
Balance Sheet") and the related statements of income and changes in
shareholders equity for the six months ended June 30, 1994 (the "Related MFC
Statements"). The Latest MFC Balance Sheet and the Related MFC Statements
have been prepared in accordance with generally accepted accounting
principles and fairly present the consolidated financial position of MFC and
the Subsidiaries, subject to normal recurring year-end adjustments, as of
the date thereof and the results of operations and changes in shareholders'
equity for the six-month period then ended.
(b) MFC has furnished FBS with copies of the balance sheets of the Bank
as of December 31, 1991, 1992 and 1993 and as of June 30, 1993 and 1994 and
the related statements of income, changes in shareholder's equity and cash
flows for the years and six-month periods then ended (except that no
statement of cash flows for the six months ended June 30, 1994 have been so
furnished), respectively (collectively, together with any footnotes thereto,
the "Bank Financial Statements"). The balance sheet of the Bank as of June
30, 1994 are referred to herein as the "Latest Bank Balance Sheet," and the
related statements of income and changes in shareholder's equity for the
six-month period then ended are referred to herein as the "Related Bank
Financial Statements." The Bank Financial Statements have been prepared in
accordance with generally accepted accounting principles applied on a
consistent basis during the periods involved and fairly present the
financial position of the Bank, subject in the case of the Latest Bank
Balance Sheet and the Related Bank Financial Statements to normal recurring
year-end adjustments, as of the dates thereof and the results of operations,
changes in shareholder's equity and cash flows for the periods then ended.
(c) MFC has furnished FBS with copies of the balance sheets of each of
Edina Realty, Inc., MFC Insurance Corporation and Equity Title Services,
Inc. (collectively, the "Principal Nonbanking Subsidiaries") as of December
31, 1991, 1992 and 1993 and as of June 30, 1993 and 1994 and the related
statements of income for the years and six-month periods then ended (except
that no statement of cash flows for the six months ended June 30, 1994 have
been so furnished), respectively (collectively, together with any footnotes
thereto, the "Principal Nonbanking Subsidiaries Financial Statements"). The
balance sheets of each of the Principal Nonbanking Subsidiaries as of June
30, 1994 are herein referred to as the "Latest Principal Nonbanking
Subsidiaries Balance Sheets," and the related statement of income and
changes in shareholder's equity for the six-month period then ended are
herein referred to as the "Related Principal Nonbanking Subsidiaries
Financial Statements." The Principal Nonbanking Subsidiaries Financial
Statements have been
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prepared in accordance with generally accepted accounting principles applied
on a consistent basis during the periods involved and fairly present the
financial position of each of the Principal Nonbanking Subsidiaries covered
thereby, subject in the case of the Latest Principal Nonbanking Subsidiaries
Balance Sheet and the Related Principal Nonbanking Subsidiaries Financial
Statements to normal recurring year-end adjustments, as of the dates thereof
and the results of operations, changes in shareholder's equity and cash
flows for the periods then ended. The Latest MFC Balance Sheet, the Latest
Bank Balance Sheet and the Latest Principal Nonbanking Subsidiaries Balance
Sheets are collectively referred to herein as the "Latest Balance Sheets,"
and the Related MFC Financial Statements, the Related Bank Financial
Statements and the Related Principal Nonbanking Subsidiaries Financial
Statements are collectively referred to herein as the "Related Statements."
3.6. LOANS.
(a) The documentation relating to each loan made by the Bank and
relating to all security interests, mortgages and other liens with respect
to all collateral for each such loan, taken as a whole, are adequate for the
enforcement of the material terms of each such loan and of the related
security interests, mortgages and other liens. The terms of each such loan
and of the related security interests, mortgages and other liens comply in
all material respects with all applicable laws, rules and regulations
(including, without limitation, laws, rules and regulations relating to the
extension of credit).
(b) Except as set forth in Schedule 3.6, (i) as of June 30, 1994, there
are no loans, leases, other extensions of credit or commitments to extend
credit of the Bank that have been or, to MFCs knowledge, should have been
classified by the Bank as non-accrual, as restructured, as 90 days past due,
as still accruing and doubtful of collection or any comparable
classification, (ii) MFC has provided to FBS true, correct and complete in
all material respects written information concerning the loan portfolios of
the Bank, and (iii) no material information with respect to the loan
portfolios of the Bank has been withheld from FBS.
3.7. REPORTS AND FILINGS. Since January 1, 1991, each of MFC and the
Subsidiaries has filed each report or other filing that it was required to file
with any federal or state savings and loan, banking, savings and loan holding
company, bank holding company or other applicable regulatory authorities having
jurisdiction over it (together with all exhibits thereto, the "MFC Regulatory
Reports"). As of their respective dates or as subsequently amended prior to the
date hereof, each of the MFC Regulatory Reports was true and correct in all
material respects and complied in all material respects with applicable laws,
rules and regulations.
3.8. SUBSIDIARIES. Schedule 3.8 correctly sets forth the jurisdiction of
incorporation of each Subsidiary. All of the issued and outstanding shares of
capital stock of each Subsidiary are owned by MFC free and clear of any lien,
pledge, security interest, encumbrance or charge of any kind, other than
encumbrances arising as a result of requisite regulatory approvals for transfer.
Except for the stock of the Subsidiaries owned by MFC and as otherwise disclosed
on Schedule 3.8, neither MFC nor any of the Subsidiaries owns any stock,
partnership interest, joint venture interest or any other security issued by any
other corporation, organization or entity, except securities owned by the Bank
in the ordinary course of its business.
3.9. ABSENCE OF UNDISCLOSED LIABILITIES. All of the obligations or
liabilities (whether accrued, absolute, contingent, unliquidated or otherwise,
whether due or to become due, and regardless of when asserted) arising out of
transactions or events heretofore entered into, or any action or inaction,
including Taxes (as defined in Section 3.13) with respect to or based upon
transactions or events heretofore occurring ("Liabilities"), required to be
reflected on the Latest Balance Sheets in accordance with generally accepted
accounting principles have been so reflected. MFC and the Subsidiaries have no
Liabilities except (a) as reflected on the Latest Balance Sheets, (b)
Liabilities which have arisen after the date of the Latest Balance Sheets in the
ordinary course of business and (c) as otherwise disclosed on Schedule 3.9. As
of June 30, 1994, there are no agreements or commitments binding the Bank to
extend credit, in the amount per one borrower (as defined in 12 C.F.R. Section
563.93), of $1,000,000 or more, except as set forth on Schedule 3.9.
3.10. NO MATERIAL ADVERSE CHANGES. Since the date of the Latest Balance
Sheets, there has been no material adverse change in, and no event, occurrence
or development in the business of MFC or the Subsidiaries
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that, taken together with other events, occurrences and developments with
respect to such business, has had or would reasonably be expected to have a
material adverse effect on the business, operations or financial condition of
MFC and the Subsidiaries, taken as a whole, or the ability of MFC to consummate
the transactions contemplated hereby.
3.11. ABSENCE OF CERTAIN DEVELOPMENTS. Except as set forth in the Latest
Balance Sheets and the Related Statements or on Schedule 3.11, unless otherwise
expressly contemplated or permitted by this Agreement, since May 31, 1994,
neither MFC nor any of the Subsidiaries has:
(a) issued or sold any of its equity securities, securities convertible
into or exchangeable for its equity securities, warrants, options or other
rights to acquire its equity securities, or any bonds or other securities,
except (i) deposit and other bank obligations in the ordinary course of
business and (ii) pursuant to the exercise of stock options and warrants
issued under, or otherwise pursuant to, the agreements, arrangements or
commitments identified on Schedule 3.3;
(b) redeemed, purchased, acquired or offered to acquire, directly or
indirectly, any shares of capital stock of MFC or any of the Subsidiaries or
other securities of MFC or any of the Subsidiaries, except pursuant to the
exercise of stock options and warrants issued under, or otherwise pursuant
to, the agreements, arrangements or commitments identified on Schedule 3.3;
(c) split, combined or reclassified any outstanding shares of capital
stock of MFC or any of the Subsidiaries, or declared, set aside or paid any
dividends or other distribution payable in cash, property or otherwise with
respect to any shares of capital stock of MFC or any of the Subsidiaries or
other securities, except (i) dividends paid in cash by the Subsidiaries
which are wholly owned by MFC to MFC, or to another wholly owned Subsidiary
of MFC, (ii) the regular quarterly cash dividends paid on the MFC Common
Stock in an amount not to exceed $.20 per share and (iii) the regular
dividends paid in accordance with the terms of the MFC Preferred Stock;
(d) borrowed any amount or incurred or become subject to any material
liability, except liabilities incurred in the ordinary course of business,
but in no event has MFC or any of the Subsidiaries entered into any
long-term borrowings with terms of greater than one year, other than (i) as
set forth in Schedule 3.27 and (ii) borrowings for the purpose of interest
rate risk management with maturities of less than three years in an
aggregate amount not exceeding $150,000,000 and any related derivative
transactions, without prior consultation with FBS;
(e) discharged or satisfied any material lien or encumbrance on the
properties or assets of MFC or any of the Subsidiaries or paid any material
liability other than in the ordinary course of business, other than reverse
repurchase agreements or Federal Home Loan Bank borrowings;
(f) sold, assigned, transferred, mortgaged, pledged or subjected to any
lien or other encumbrance any of its assets with an aggregate market value
in excess of $50,000 except (A) in the ordinary course of business,
including real estate acquired through foreclosure or deed in lieu of
foreclosure ("REO"), (B) liens and encumbrances for current property taxes
not yet due and payable and (C) liens and encumbrances which do not
materially affect the value of, or interfere with the past or future use or
ability to convey, the property subject thereto or affected thereby;
(g) canceled any material debts or claims or waived any rights of
material value, except in the ordinary course of business or upon payment in
full;
(h) suffered any theft, damage, destruction or loss of or to any
property or properties owned or used by it, whether or not covered by
insurance, which would, individually or in the aggregate, have a material
adverse effect on the business, operations or financial condition of MFC and
the Subsidiaries, taken as a whole;
(i) made or granted any bonus or any wage, salary or compensation
increase or severance or termination payment to, or promoted, any director,
officer, employee, group of employees or consultant, entered into any
employment contract or hired any employee with an employee classification
above grade "G" (as such classifications have been described by MFC to FBS)
other than (A) bonuses, compensation increases,
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promotions or new hires in the ordinary course and in a manner consistent
with past practices as previously disclosed to FBS and (B) bonuses payable
on the Effective Date as a result of the Merger under the Change in Control
Plans (as defined in Section 5.12(d));
(j) made or granted any increase in the benefits payable under any
employee benefit plan or arrangement, amended or terminated any existing
employee benefit plan or arrangement or adopted any new employee benefit
plan or arrangement (except as required by law and, with respect to any such
action taken prior to the date hereof, disclosed on Schedule 3.11);
(k) made any single or group of related capital expenditures or
commitment therefor in excess of $50,000 or entered into any lease or group
of related leases with the same party which involves aggregate lease
payments payable of more than $100,000 for any individual lease or involves
more than $100,000 for any group of related leases in the aggregate;
(l) acquired (by merger, exchange, consolidation, acquisition of stock
or assets or otherwise) any corporation, partnership, joint venture or other
business organization or division or material assets thereof, or assets or
deposits that are material to MFC, except in exchange for debt previously
contracted, including REO;
(m) taken any other action or entered into any other transaction other
than in the ordinary course of business; or
(n) agreed to do any of the foregoing.
3.12. PROPERTIES.
(a) Each of MFC and the Subsidiaries owns good and marketable title to
all of the real property and all of the personal property, fixtures,
furniture and equipment reflected on the Latest Balance Sheets or acquired
since the date thereof (other than real property reflected on the Latest
Balance Sheets as REO), free and clear of all liens and encumbrances, except
for (i) mortgages on real property set forth on Schedule 3.12(a), (ii)
encumbrances which do not materially affect the value of, or interfere with
the past or future use or ability to convey, the property subject thereto or
affected thereby, (iii) liens for current taxes and special assessments not
yet due and payable, (iv) leasehold estates with respect to multi-tenant
buildings owned by MFC or any of the Subsidiaries, which leases are
identified on Schedule 3.12(a), and (v) property disposed of since the date
of the Latest Balance Sheets in the ordinary course of business.
(b) Schedule 3.12(b) correctly sets forth a brief description, including
the term, of each lease for real or personal property to which MFC or any of
the Subsidiaries is a party as lessee with respect to (i) each individual
lease which involves a remaining aggregate balance of lease payments payable
of more than $100,000 or any group of related leases which involves a
remaining aggregate balance of lease payments payable of more than $100,000,
(ii) each lease which is a material contract within the meaning of Item
601(b)(10) of Regulation S-K promulgated by the SEC or (iii) each lease
which was not entered into in the ordinary course of business. MFC has
delivered or made available to FBS complete and accurate copies of each of
the leases described on Schedules 3.12(a) and 3.12(b), and none of such
leases has been modified in any material respect, except to the extent that
such modifications are disclosed by the copies delivered to FBS. The leases
described on Schedules 3.12(a) and 3.12(b) are in full force and effect. MFC
or one of the Subsidiaries (if lessee under such lease) has a valid and
existing leasehold interest under each lease described on Schedule 3.12(b)
for the term set forth therein. With respect to the leases described on
Schedule 3.12(b), neither MFC nor any of the Subsidiaries is in default,
nor, to the best knowledge of MFC and the Subsidiaries, are any of the other
parties to any of such leases in default, and, to the best knowledge of MFC
and the Subsidiaries, no circumstances (not in the control of MFC and the
Subsidiaries) exist which could result in such a default under any of such
leases. To the best knowledge of MFC and the Subsidiaries, there has been no
cancellation, breach or anticipated breach by any other party to any lease
described on Schedule 3.12(a) or 3.12(b). The rent rolls set forth on
Schedules 3.12(a) and 3.12(b) are true and complete in all material respects
and describe all occupancies and the material terms of each occupancy.
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(c) Except as set forth in Schedule 3.12(c), all of the buildings,
fixtures, furniture and equipment necessary for the conduct of the business
of MFC and each of the Subsidiaries are in good condition and repair,
ordinary wear and tear excepted, and are usable in the ordinary course of
business. Each of MFC and the Subsidiaries owns, or leases under valid
leases, all buildings, fixtures, furniture, personal property, land
improvements and equipment necessary for the conduct of its business as it
is presently being conducted.
(d) Except as set forth in Schedules 3.12(d) and 3.12(e), neither MFC
nor any of the Subsidiaries nor any of the buildings owned or leased by MFC
or any of the Subsidiaries is in violation of any applicable zoning
ordinance or other law, regulation or requirement relating to the operation
of any properties used in the operation of its business, including, without
limitation, applicable environmental protection laws and regulations, which
violations would, individually or in the aggregate, have a material adverse
effect on the business, operations or financial condition of MFC and the
Subsidiaries taken as a whole; and neither MFC nor any of the Subsidiaries
has received any notice of any such violation, or of the existence of any
condemnation proceeding with respect to any properties owned or leased by
MFC or any of the Subsidiaries. Except as set forth in Schedule 3.12(d), no
hazardous substances, hazardous wastes, pollutants or contaminants have been
deposited or disposed of in, on or under MFC's or any of the Subsidiaries
owned or leased properties (including properties owned, managed or
controlled by the Bank in connection with its lending or fiduciary
operations) during the period in which MFC or any of the Subsidiaries has
owned, occupied, managed, controlled or operated such properties, except to
the extent not material to the business, operations or financial conditions
of MFC and the Subsidiaries, taken as a whole. To the best knowledge of MFC
and the Subsidiaries, no prior owners, occupants or operators of all or any
part of MFC's or any of the Subsidiaries' owned or leased properties
(including properties owned, managed or controlled by the Bank in connection
with its lending or fiduciary operations) ever used such properties as a
dump or gasoline service station, or deposited, disposed of or allowed to be
deposited or disposed of in, on or under such properties any hazardous
substances, hazardous wastes, pollutants or contaminants, except to the
extent not material to the business, operations or financial conditions of
MFC and the Subsidiaries, taken as a whole. No asbestos or any material
amount of ureaformaldehyde materials exists in or on any of MFCs or the
Subsidiaries owned or leased properties (including properties owned, managed
or controlled by the Bank in connection with its lending or fiduciary
operations), and no electrical transformers or capacitors, other than those
owned by public utility companies, on such properties contain any PCBs. The
representations contained in this Section 3.12(d) are not applicable to
properties securing loans made by the Bank where the loans were made in the
ordinary course of business and are fully performing in accordance with
their terms.
(e) Except as set forth in Schedule 3.12(e), there are no aboveground or
underground tanks (excluding hot water storage or propane tanks) located
under, in or about, nor, to the best knowledge of MFC and the Subsidiaries,
have there ever been any such tanks located under, in or about, any of MFCs
or any of the Subsidiaries owned or leased properties (including properties
owned, managed or controlled by the Bank in connection with its lending or
fiduciary operations).
3.13. TAX MATTERS. Each of MFC, the Subsidiaries and all members of any
consolidated, affiliated, combined or unitary group of which MFC or any of the
Subsidiaries is a member have filed or will file all Tax (as hereinafter
defined) and Tax information returns or reports required to be filed (taking
into account permissible extensions) by them on or prior to the Effective Date,
and have paid (or have accrued or will accrue, prior to the Effective Date,
amounts for the payment of) all Taxes relating to the time periods covered by
such returns and reports. The accrued taxes payable accounts for Taxes and
provision for deferred income taxes, specifically identified as such, on the
Latest Balance Sheets are sufficient for the payment of all unpaid Taxes of MFC
and the Subsidiaries accrued for or applicable to all periods ended on or prior
to the date of the Latest Balance Sheet or which may subsequently be determined
to be owing with respect to any such period. Except as disclosed on Schedule
3.13, neither MFC nor any of the Subsidiaries has waived any statute of
limitations with respect to Taxes or agreed to any extension of time with
respect to an assessment or deficiency for Taxes. Each of MFC and the
Subsidiaries has paid or will pay in a timely manner and as required by law all
Taxes due and payable by it or which it is obligated to withhold from amounts
owing to any employee or third party. All Taxes which will be due and payable,
whether now or hereafter, for any period ending on, prior to or including the
Effective Date shall have
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been paid by or on behalf of MFC and the Subsidiaries or shall be reflected on
the books of MFC and the Subsidiaries as an accrued Tax liability determined in
a manner which is consistent with past practices and the Latest Balance Sheets.
No Tax returns of MFC or the Subsidiaries have been audited by any governmental
authority other than as disclosed on Schedule 3.13; and, except as set forth on
Schedule 3.13, there are no unresolved questions, claims or disputes asserted by
any relevant taxing authority concerning the liability for Taxes of MFC or any
of the Subsidiaries. Neither MFC nor any of the Subsidiaries has made an
election under Section 341(f) of the Code for any taxable years not yet closed
for statute of limitations purposes. No demand or claim has been made against
MFC or any of the Subsidiaries with respect to any Taxes arising out of
membership or participation in any consolidated, affiliated, combined or unitary
group of which MFC or any of its Subsidiaries was at any time a member. For
purposes of this Agreement, the term "Tax" shall mean any federal, state, local
or foreign income, gross receipts, license, payroll, employment, excise,
severance, stamp, occupation, premium, property or windfall profits tax,
environmental tax, customs duty, capital stock, franchise, employees' income
withholding, foreign or domestic withholding, social security, unemployment,
disability, workers' compensation, employment-related insurance, real property,
personal property, sales, use, transfer, value added, alternative or add-on
minimum or other tax, fee, assessment or charge of any kind whatsoever,
including any interest, penalties or additions to, or additional amounts in
respect of the foregoing, for each of MFC, the Subsidiaries and all members of
any consolidated, affiliated, combined or unitary group of which MFC or any of
the Subsidiaries is a member.
3.14. CONTRACTS AND COMMITMENTS.
(a) Except as set forth on Schedule 3.14, neither MFC nor any of the
Subsidiaries (i) is a party to any collective bargaining agreement or
contract with any labor union, (ii) is a party to any written or oral
contract for the employment of any officer, individual employee or other
person on a full-time or consulting basis, or relating to severance pay for
any such person, (iii) is a party to any written or oral agreement or
understanding to repurchase assets previously sold (or to indemnify or
otherwise compensate the purchaser in respect of such assets), except for
securities sold under a repurchase agreement providing for a repurchase date
30 days or less after the purchase date, (iv) is a party to any (A) contract
or group of related contracts with the same party for the purchase or sale
of products or services, under which the undelivered balance of such
products and services has a purchase price in excess of $100,000 for any
individual contract or $100,000 for any group of related contracts in the
aggregate, (B) other contract which is a "material contract" within the
meaning of Item 601(b)(10) of Regulation S-K promulgated by the SEC, or (C)
other agreement which is not entered into in the ordinary course of business
and which is not disclosed on Schedules 3.12(a) or 3.12(b), or (v) has any
commitments for capital expenditures in excess of $50,000.
(b) Except as disclosed on Schedule 3.14, (i) to the best knowledge of
MFC and the Subsidiaries, since the date of the Latest Balance Sheets, no
customer has indicated that it will stop or decrease the rate of business
done with MFC or any of the Subsidiaries (except for changes in the ordinary
course of such business) that would, individually or in the aggregate, have
a material adverse effect on the business, operations or financial condition
of MFC and the Subsidiaries, taken as a whole; (ii) each of MFC and the
Subsidiaries have performed all obligations required to be performed by it
prior to the date hereof in connection with the contracts or commitments set
forth on Schedule 3.14, and none of MFC or any of the Subsidiaries is in
receipt of any claim of default under any contract or commitment set forth
on Schedule 3.14, except for any failures to perform, breaches or defaults
which would not, individually or in the aggregate, have a material adverse
effect on the business, operations or financial condition of MFC and the
Subsidiaries taken as a whole; (iii) none of MFC or any of the Subsidiaries
has any present expectation or intention of not fully performing any
material obligation pursuant to any contract or commitment set forth on
Schedule 3.14; and (iv) to the best knowledge of MFC and the Subsidiaries,
there has been no cancellation, breach or anticipated breach by any other
party to any contract or commitment set forth on Schedule 3.14, except for
any cancellation, breach or anticipated breach which would not, individually
or in the aggregate, have a material adverse effect on the business,
operations or financial condition of MFC and the Subsidiaries, taken as a
whole.
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3.15. LITIGATION. Except as set forth on Schedule 3.15, there are no
actions, suits, proceedings, orders or investigations pending or, to the best
knowledge of MFC and the Subsidiaries, threatened against MFC or any of the
Subsidiaries, at law or in equity, or before or by any federal, state or other
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign, except for such actions, suits, proceedings, orders or
investigations which are not reasonably likely to result in losses or expenses
in excess of $50,000. Except as set forth on Schedule 3.15, none of the matters
set forth on such Schedule, individually or in the aggregate, will have or could
reasonably be expected to have a material adverse effect on the business,
operations or financial condition of MFC and the Subsidiaries, taken as a whole.
3.16. NO BROKERS OR FINDERS. Except as disclosed on Schedule 3.16, there
are no claims for brokerage commissions, finder's fees, investment advisory fees
or similar compensation in connection with the transactions contemplated by this
Agreement based on any arrangement, understanding, commitment or agreement made
by or on behalf of MFC or any of the Subsidiaries.
3.17. EMPLOYEES. Except as set forth on Schedule 3.17, none of MFC's
Chairman, Chief Administrative Officer, Chief Financial Officer or Senior Vice
President, Human Resources, has any knowledge (without inquiry) of the announced
or anticipated resignation of (i) any officer of MFC or any of the Subsidiaries
or (ii) other employees at a rate substantially higher than the historical
resignation rate for such employees of MFC or the Subsidiaries. Except as set
forth on Schedule 3.17, MFC and each of the Subsidiaries has complied with all
laws relating to the employment of labor, including provisions thereof relating
to wages, hours, equal opportunity, collective bargaining, non-discrimination
and the payment of social security and other taxes, except where failure to so
comply would not, individually or in the aggregate, have a material adverse
effect on the business, operations or financial condition of MFC and the
Subsidiaries, taken as a whole.
3.18. EMPLOYEE BENEFIT PLANS.
(a) DEFINITIONS. For the purposes of this Section 3.18, unless the context
clearly requires otherwise, the term "Plan" or "Plans" includes all employee
benefit plans as defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), and all other benefit arrangements
(including, without limitation, any employment agreement or any program,
agreement, policy or commitment providing for insurance coverage of employees,
workers' compensation, disability benefits, supplemental unemployment benefits,
vacation benefits, retirement benefits, life, health, disability or accidental
benefits) applicable to the employees of MFC or any of the Subsidiaries, to
which MFC or any of the Subsidiaries contribute, or which MFC or any of the
Subsidiaries have committed to implement for their employees prior to the date
of this Agreement. Unless the context clearly requires otherwise, "Plan" or
"Plans" shall also include any similar program or arrangement maintained by any
organization affiliated by ownership with MFC or any of the Subsidiaries for
which MFC or any of the Subsidiaries are or could be completely or partially
liable for the funding or the administration either as a matter of law or by
agreement but excluding customers of the trust departments of affiliates of MFC
where there is no ownership affiliation between such customers and MFC.
(b) Except as disclosed on Schedule 3.18:
(i) FULL DISCLOSURE OF ALL PLANS. With respect to all employees and
former employees of MFC and the Subsidiaries (and all dependents and
beneficiaries of such employees and former employees):
(A) Neither MFC nor any of the Subsidiaries maintain or contribute
to any nonqualified deferred compensation or retirement plans,
contracts or arrangements;
(B) Neither MFC nor any of the Subsidiaries maintain or contribute
to any qualified defined contribution plans (as defined in Section
3(34) of ERISA or Section 414(i) of the Code);
(C) Neither MFC nor any of the Subsidiaries maintain or contribute
to any qualified defined benefit plans (as defined in Section 3(35) of
ERISA or Section 414(j) of the Code) ("Defined Benefit Plans"); and
(D) Neither MFC nor any of the Subsidiaries maintain or contribute
to any employee welfare benefit plans (as defined in Section 3(1) of
ERISA).
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(ii) FUNDING. With respect to the Plans, (A) all required
contributions which are due have either been made or properly accrued and
(B) neither MFC nor any of the Subsidiaries is liable for any
"accumulated funding deficiency" as that term is defined in Section 412
of the Code or any penalty or excise tax in connection therewith.
(iii) PLAN DOCUMENTS. With respect to all Plans sponsored or
administered by MFC or any Subsidiary and with respect to any other Plan
if available to MFC or any Subsidiary, MFC has furnished FBS with true
and complete copies of (A) the most recent determination letter, if any,
received by MFC or any of the Subsidiaries from the Internal Revenue
Service regarding each qualified Plan, (B) the Form 5500 and all
Schedules and accompanying financial statements, if any, for each Plan
for which such form is required to be filed for the three most recent
fiscal Plan years, (C) the most recently prepared actuarial valuation
report, if any, for each Plan, and (D) copies of the current Plan
documents, trust agreements, insurance contracts and all related
contracts and documents (including any material employee communications)
with respect to each Plan.
(iv) DEFINED BENEFIT PLANS. Neither MFC nor any of the Subsidiaries
nor any affiliate of MFC or any of the Subsidiaries maintains or has
maintained any Defined Benefit Plans for which MFC, any of the
Subsidiaries or FBS have or will have any liability or, which if
terminated, could result in any liability to MFC, the Subsidiaries or FBS
under Title IV of ERISA. There are no unfunded vested liabilities
(determined using the assumptions used by the Plan for funding and
without regard to future salary increases) with respect to Defined
Benefit Plans sponsored by MFC or any Subsidiary. There have been no
reportable events under Section 4043 of ERISA (with respect to which the
30-day notice requirement has not been waived by regulation) with respect
to any Defined Benefit Plan maintained by MFC or any of the Subsidiaries.
No Defined Benefit Plan has been terminated that will result in a
material liability by MFC or any of the Subsidiaries to the Pension
Benefit Guaranty Corporation.
(v) MULTIEMPLOYER PLANS. Neither MFC nor any of the Subsidiaries has
any actual or potential liabilities under Sections 4201 or 4205 of ERISA
for any complete or partial withdrawal from any multiemployer plan.
(vi) FIDUCIARY BREACH; CLAIMS. Neither MFC nor any of the
Subsidiaries nor any of its directors, officers, employees or other
"fiduciaries" (as such term is defined in Section 3(21) of ERISA) has
committed any breach of fiduciary duty imposed by ERISA or any other
applicable law with respect to the Plans which would subject MFC or any
of the Subsidiaries, directly or indirectly, to any liability under ERISA
or any applicable law. There are no actions, suits or claims pending
against MFC or any Subsidiary relating to benefits other than routine,
uncontested claims for benefits.
(vii) PROHIBITED TRANSACTION. Neither MFC nor any of the Subsidiaries
nor any officer, director, employee, agent or fiduciary of any Plan has
incurred any liability for any civil penalty imposed by Section 4975 of
the Code or Section 502(i) of ERISA.
(viii) MATERIAL COMPLIANCE WITH LAW. All Plans have been
consistently administered in accordance with their terms in all material
respects. To the extent required either as a matter of law or to obtain
the intended tax treatment and tax benefits, all Plans comply in all
material respects with the requirements of ERISA and the Code. All Tax
information returns or reports and all other required filings,
disclosures and contributions have been made with respect to all Plans.
No condition exists that limits the right of MFC or any of the
Subsidiaries to amend or terminate any such Plan (except as provided in
such Plans or limited under ERISA or the Code).
(ix) VEBA FUNDING. No Plan is funded in whole or in part through a
voluntary employees' beneficiary association exempt from tax under
Section 501(c)(9) of the Code. The limitations under Sections 419 and
419A of the Code have been computed, all unrelated business income tax
returns have been filed and appropriate adjustments have been made on all
other Tax returns.
(x) RETIREMENT AND COBRA BENEFITS. Neither MFC nor any of the
Subsidiaries have actual or potential liability under current law for
benefits after separation from employment other than (i) benefits
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under Plans described in clauses (A), (B) or (C) of Section 3.18(b)(i),
and (ii) health care continuation benefits described in Section 4980B of
the Code or Part G of Subtitle B of Title I of ERISA or any comparable
provisions under the laws of any state.
(xi) COLLECTIVE BARGAINING. No Plan is maintained in whole or in part
pursuant to collective bargaining.
(xii) EMPLOYEE STATUS. No employee of MFC or any of the Subsidiaries
is absent due to (A) a disability that currently entitles the employee to
benefits under any long-term disability plan sponsored by MFC or any of
the Subsidiaries or (B) military service leave of absence. All employees
of MFC or any of the Subsidiaries are "at will" employees.
(xiii) PARACHUTE PAYMENTS. No Plan requires or would result,
separately or in the aggregate, in the payment of any "excess parachute
payments" within the meaning of Section 280G of the Code, and the
consummation of the transactions contemplated by this Agreement will not
be a factor in causing payments to be made by FBS, MFC or any of the
Subsidiaries that are not deductible (in whole or in part) under Section
280G of the Code.
3.19. INSURANCE. Schedule 3.19 hereto lists each insurance policy
maintained by MFC or any of the Subsidiaries with respect to its properties and
assets. Prior to the date hereof, MFC has delivered to FBS complete and accurate
copies of each of the insurance policies described on Schedule 3.19. All such
insurance policies are in full force and effect, and neither MFC nor any of the
Subsidiaries is in default with respect to its obligations under any of such
insurance policies.
3.20. AFFILIATE TRANSACTIONS. Except as set forth on Schedule 3.20,
neither MFC nor any of the Subsidiaries, nor any executive officer or director
of MFC or any of the Subsidiaries, nor any member of the immediate family of any
such officer or director (which for the purposes hereof shall mean a spouse,
minor child or adult child living at the home of any such officer or director),
nor any entity which any of such persons "controls" (within the meaning of
Regulation O of the FRB), has any loan agreement, note or borrowing arrangement
or any other agreement with MFC or any of the Subsidiaries (other than normal
employment arrangements) or any interest in any property, real, personal or
mixed, tangible or intangible, used in or pertaining to the business of MFC or
any of the Subsidiaries.
3.21. COMPLIANCE WITH LAWS; PERMITS. Each of MFC and the Subsidiaries has
complied in all respects with all applicable laws and regulations of foreign,
federal, state and local governments and all agencies thereof which affect the
business or any owned or leased properties of MFC or any of the Subsidiaries and
to which MFC or any of the Subsidiaries may be subject (including, without
limitation, the Occupational Safety and Health Act of 1970, the HOLA, the FDIA,
the Real Estate Settlement Procedures Act, the Home Mortgage Disclosure Act of
1975, the Fair Housing Act, the Equal Credit Opportunity Act and the Federal
Reserve Act, each as amended, and any other state or federal acts (including
rules and regulations thereunder) regulating or otherwise affecting employee
health and safety or the environment), except where failure to so comply would
not, individually or in the aggregate, have a material adverse effect on the
business, operations or financial condition of MFC and the Subsidiaries, taken
as a whole, or MFCs ability to consummate the transactions contemplated hereby;
and no claims have been filed by any such governments or agencies against MFC or
any of the Subsidiaries alleging such a violation of any such law or regulation
which have not been resolved to the satisfaction of such governments or
agencies. Each of MFC and the Subsidiaries holds all of the permits, licenses,
certificates and other authorizations of foreign, federal, state and local
governmental agencies required for the conduct of its business, except where
failure to obtain such authorizations would not, individually or in the
aggregate, have a material adverse effect on the business, operations or
financial condition of MFC and the Subsidiaries, taken as whole, or the ability
of MFC to consummate the transactions contemplated hereby. Except as disclosed
in Schedule 3.21, neither MFC nor any of the Subsidiaries is subject to any
cease and desist order, written agreement or memorandum of understanding with,
or is a party to any commitment letter or similar undertaking to, or is subject
to any order or directive by, or is a recipient of any extraordinary supervisory
agreement letter from, or has adopted any board resolutions at the request of,
federal or state governmental authorities charged with the supervision or
regulation of savings banks, banks, savings and loan holding companies or bank
holding companies or engaged in the insurance of bank
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deposits (collectively, the "Bank Regulators"), nor have any of MFC or any of
the Subsidiaries been advised by any Bank Regulator that it is contemplating
issuing or requesting (or is considering the appropriateness of issuing or
requesting) any such order, directive, written agreement, memorandum of
understanding, extraordinary supervisory letter, commitment letter, board
resolutions or similar undertaking. Neither MFC nor any Subsidiary is subject to
Section 32 of the Federal Deposit Insurance Act.
3.22. ADMINISTRATION OF FIDUCIARY ACCOUNTS. Each Subsidiary has properly
administered, in all respects material and which could reasonably be expected to
be material to the business, operations or financial condition of MFC and the
Subsidiaries, taken as a whole, all accounts for which it acts as a fiduciary,
including but not limited to accounts for which it serves as a trustee, agent,
custodian, personal representative, guardian, conservator or investment advisor,
in accordance with the terms of the governing documents and applicable state and
federal law and regulation and common law. Neither MFC, any Subsidiary, nor any
director, officer or employee of MFC or any Subsidiary has committed any breach
of trust with respect to any such fiduciary account which is material to or
could reasonably be expected to be material to the business, operations or
financial condition of MFC and the Subsidiaries, taken as a whole, and the
accountings for each such fiduciary account are true and correct in all material
respects and accurately reflect the assets of such fiduciary account in all
material respects.
3.23. DISCLOSURE. The representations and warranties of MFC contained in
this Agreement are true and correct in all material respects, and such
representations and warranties do not omit any material fact necessary to make
the statements contained therein, in light of the circumstances under which they
were made, not misleading. There is no fact known to MFC and the Subsidiaries
which has not been disclosed to FBS pursuant to this Agreement, the Schedules
hereto and the MFC 10-K Reports and the MFC 10-Q Report, all taken together as a
whole, which would have or would reasonably be expected to have a material
adverse effect on the business, operations or financial condition of MFC and the
Subsidiaries, taken as a whole, or the ability of MFC to consummate the
transactions contemplated hereby.
3.24. PROSPECTUS/PROXY STATEMENT. At the time the Prospectus/Proxy
Statement is mailed to the shareholders of FBS and MFC in order to obtain
approvals referred to in Section 5.9(a) and at all times subsequent to such
mailing up to and including the times of such approvals, such Prospectus/Proxy
Statement (including any supplements thereto), with respect to all information
set forth therein relating to MFC (including the Subsidiaries) and its
shareholders, MFC Common Stock, this Agreement, the Merger and all other
transactions contemplated hereby, will (a) comply in all material respects with
applicable provisions of the 1933 Act and the 1934 Act, and (b) not contain any
untrue statement of material fact or omit to state a material fact required to
be stated therein or necessary to make the statements contained therein, in
light of the circumstances under which they are made, not misleading.
3.25. POOLING OF INTERESTS. Neither MFC nor any of the Subsidiaries has
taken or agreed to take any action which would disqualify the Merger as a
"pooling of interests" for accounting purposes.
3.26. REGULATORY APPROVALS. As of the date hereof, MFC is not aware of any
reason that the regulatory approvals specified in Section 5.1 would not be
obtained.
3.27. INTEREST RATE RISK MANAGEMENT INSTRUMENTS.
(a) Schedule 3.27 sets forth a true, correct and complete list of all
interest rate swaps, caps, floors and option agreements and other interest
rate risk management arrangements to which MFC or any of the Subsidiaries is
a party or by which any of their properties or assets may be bound. MFC has
delivered or made available to FBS true, correct and complete copies of all
such interest rate risk management agreements and arrangements.
(b) All interest rate swaps, caps, floors and option agreements and
other interest rate risk management arrangements to which MFC or any of the
Subsidiaries is a party or by which any of their properties or assets may be
bound were entered into in the ordinary course of business and, to MFC's
knowledge, in accordance with prudent banking practice and applicable rules,
regulations and policies of the Bank Regulators and with counterparties
believed to be financially responsible at the time and are legal, valid and
binding obligations enforceable in accordance with their terms (except as
may be limited by bankruptcy, insolvency, moratorium,
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reorganization or similar laws affecting the rights of creditors generally
and the availability of equitable remedies), and are in full force and
effect. MFC and each of the Subsidiaries has duly performed in all material
respects all of its obligations thereunder to the extent that such
obligations to perform have accrued; and to MFC's knowledge, there are no
breaches, violations or defaults or allegations or assertions of such by any
party thereunder.
ARTICLE 4
CONDUCT OF BUSINESS PENDING THE MERGER
4.1. CONDUCT OF BUSINESS. From the date of this Agreement to the Effective
Date, unless FBS shall otherwise agree in writing or as otherwise expressly
contemplated or permitted by other provisions of this Agreement, including this
Section 4.1:
(a) the business of MFC and each of the Subsidiaries shall be conducted
only in, and neither MFC nor any of the Subsidiaries shall take any action
except in, the ordinary course, on an arms-length basis and in accordance,
in all material respects, with all applicable laws, rules and regulations
and past practices;
(b) neither MFC nor any of the Subsidiaries shall, directly or
indirectly, (i) amend or propose to amend its Charter or Bylaws; (ii) issue
or sell any of its equity securities, securities convertible into or
exchangeable for its equity securities, warrants, options or other rights to
acquire its equity securities, or any bonds or other securities, except (A)
deposit and other bank obligations in the ordinary course of business and
(B) pursuant to the exercise of the options, warrants, conversion privileges
and other rights set forth on Schedule 3.3 on the date of this Agreement;
(iii) redeem, purchase, acquire or offer to acquire, directly or indirectly,
any shares of capital stock of MFC or any of the Subsidiaries or other
securities of MFC or of any of the Subsidiaries, except pursuant to the
agreements, arrangements or commitments identified on Schedule 3.3; (iv)
split, combine or reclassify any outstanding shares of capital stock of MFC
or any of the Subsidiaries, or declare, set aside or pay any dividend or
other distribution payable in cash, property or otherwise with respect to
shares of capital stock of MFC or any of the Subsidiaries except (A)
dividends paid in cash by the Subsidiaries which are wholly owned by MFC to
MFC, or another wholly owned Subsidiary of MFC, (B) the regular quarterly
cash dividends paid on the MFC Common Stock in an amount not to exceed $.20
per share, and (C) the regular dividends paid in accordance with the terms
of the MFC Preferred Stock; (v) borrow any amount or incur or become subject
to any material liability, except liabilities incurred in the ordinary
course of business, but in no event will MFC or any of the Subsidiaries
enter into any long-term borrowings with a term of greater than one year,
other than (i) as set forth on Schedule 3.27 and (ii) borrowings for the
purpose of interest rate risk management with maturities of less than three
years in an aggregate amount not exceeding $150,000,000 and any related
derivative transactions, without prior consultation with FBS; (vi) discharge
or satisfy any material lien or encumbrance on the properties or assets of
MFC or any of the Subsidiaries or pay any material liability, except in the
ordinary course of business, other than reverse repurchase agreements or
Federal Home Loan Bank borrowings; (vii) sell, assign, transfer, mortgage,
pledge or subject to any lien or other encumberance any of its assets with
an aggregate market value in excess of $50,000, except (x) in the ordinary
course of business, including REO, (y) liens and encumbrances for current
property taxes not yet due and payable and (z) liens and encumbrances which
do not materially affect the value of, or interfere with the past or future
use or ability to convey, the property subject thereto or affected thereby;
(viii) cancel any material debt or claims or waive any rights of material
value, except in the ordinary course of business; (ix) acquire (by merger,
exchange, consolidation, acquisition of stock or assets or otherwise) any
corporation, partnership, joint venture or other business organization or
division or material assets thereof, or assets or deposits that are material
to MFC, except in exchange for debt previously contracted, including REO;
(x) other than as set forth on Schedule 3.11 on the date of this Agreement,
make any single or group of related capital expenditures or commitments
therefor in excess of $50,000 or enter into any lease or group of related
leases with the same party which involves aggregate lease payments payable
of more than $100,000 for any
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individual lease or involves more than $100,000 for any group of related
leases in the aggregate; or (xi) enter into or propose to enter into, or
modify or propose to modify, any agreement, arrangement or understanding
with respect to any of the matters set forth in this Section 4.l(b);
(c) neither MFC nor any of the Subsidiaries shall, directly or
indirectly, enter into or modify any employment, severance or similar
agreements or arrangements with, or grant any bonuses, wage, salary or
compensation increases, or severance or termination pay to, or promote, any
director, officer, employee, group of employees or consultant or hire any
employee with an employee classification above grade "G" (as such
classifications have been described by MFC to FBS), other than (i) bonuses,
increases, promotions or new hires in the ordinary course and in a manner
consistent with past practices as previously disclosed to FBS, (ii) bonuses
payable on the Effective Date as a result of the Merger under the Change in
Control Plans and (iii) retention bonuses in an aggregate amount not to
exceed $300,000 and as to which the identity of the recipient and amount of
each such bonus will be previously agreed upon by FBS and MFC;
(d) neither MFC nor any of the Subsidiaries shall adopt or amend any
bonus, profit sharing, stock option, pension, retirement, deferred
compensation, or other employee benefit plan, trust, fund, contract or
arrangement for the benefit or welfare of any employees, except as required
by law;
(e) each of MFC and the Subsidiaries shall use reasonable efforts to
cause its current insurance policies not to be canceled or terminated or any
of the coverage thereunder to lapse, unless simultaneously with such
termination, cancellation or lapse, replacement policies providing coverage
substantially equal to the coverage under the canceled, terminated or lapsed
policies are in full force and effect;
(f) neither MFC nor any of the Subsidiaries shall enter into any
settlement or similar agreement with respect to, or take any other
significant action with respect to the conduct of, any action, suit,
proceeding, order or investigation which is set forth on Schedule 3.15 or to
which MFC or any of the Subsidiaries becomes a party after the date of this
Agreement, without prior consultation with FBS, provided that neither MFC
nor any of the Subsidiaries shall take any such action with respect to the
litigation matters identified as "Edina Realty Litigation Matters" on
Schedule 3.15 (the "Edina Realty Litigation Matters"), without the prior
written consent of FBS;
(g) each of MFC and the Subsidiaries shall use commercially reasonable
efforts to preserve intact in all material respects the business
organization and the goodwill of each of MFC and the Subsidiaries and to
keep available the services of its officers and employees as a group and
preserve intact material agreements, and MFC shall confer on a regular and
frequent basis with representatives of FBS, as reasonably requested by FBS,
to report on operational matters and the general status of ongoing
operations;
(h) neither MFC nor any of the Subsidiaries shall take any action with
respect to investment securities held or controlled by any of them
inconsistent with past practices, alter its investment portfolio duration
policy as heretofore in effect or, without prior consultation with FBS, take
any action that would have or could reasonably be expected to have a
material effect on the Bank's asset/liability position;
(i) the Bank shall not make any agreements or commitments binding it to
extend credit in the amount per "one borrower" (as previously defined) in
excess of $1,000,000 nor will it purchase any portfolio of loans with an
aggregate principal balance in excess of $100,000,000 without prior
consultation with FBS;
(j) with respect to properties leased by MFC or any of the
Subsidiaries, neither MFC nor any of the Subsidiaries shall renew, exercise
an option to extend, cancel or surrender any lease of real property nor
allow any such lease to lapse, without prior consultation with FBS (other
than leases with remaining terms of six months or less); and
(k) neither MFC nor any of the Subsidiaries shall agree to do any of the
foregoing;
provided, however, that in the event MFC and the Subsidiaries would be
prohibited from taking any action by reason of this Section 4.1 without the
prior written consent of FBS, such action may nevertheless be taken if MFC
or any of the Subsidiaries is expressly required to do so by law or by the
OTS and MFC informs FBS of
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such prohibition or restriction. For purposes of this Agreement, the words
"prior consultation" with respect to any action means advance notice of such
proposed action and a reasonable opportunity to discuss such action in good
faith prior to taking such action.
ARTICLE 5
ADDITIONAL COVENANTS AND AGREEMENTS
5.1. FILINGS AND APPROVALS. Each party will use all reasonable efforts and
will cooperate with the other party in the preparation and filing, as soon as
practicable, of all applications or other documents required to obtain
regulatory approvals and consents from the FRB and the OTS, filings under the
HSR Act and any other applicable regulatory authorities (including any
applications with the OTS or the Office of the Comptroller of the Currency
deemed by FBS to be necessary to allow it to consolidate the operations of the
Bank with the operations of FBS) and provide copies of such applications,
filings and related correspondence to the other party. Prior to filing each
application, registration statement or other document with the applicable
regulatory authority, each party will provide the other party with an
opportunity to review and comment on the nonconfidential portions of each such
application, registration statement or other document. Each party will use all
reasonable efforts and will cooperate with the other parties in taking any other
actions necessary to obtain such regulatory or other approvals and consents,
including participating in any required hearings or proceedings. Subject to the
terms and conditions herein provided, each party will use all reasonable efforts
to take, or cause to be taken, all actions and to do, or cause to be done, all
things necessary, proper or advisable to consummate and make effective as
promptly as practicable the transactions contemplated by this Agreement.
5.2. CERTAIN LOANS AND RELATED MATTERS. MFC will furnish to FBS a complete
and accurate list as of the end of each calendar month after May 1994, within 15
business days after the end of each such calendar month, of (a) all of the
Bank's periodic internal credit quality reports prepared during such calendar
month (which reports will be prepared in a manner consistent with past
practices), (b) all loans of the Bank classified as non-accrual, as
restructured, as 90 days past due, as still accruing and doubtful of collection
or any comparable classification, (c) all REO, including in-substance
foreclosures and real estate in judgment, (d) any current repurchase obligations
of the Bank with respect to any loans, loan participations or state or municipal
obligations or revenue bonds and (e) any standby letters of credit issued by the
Bank.
5.3. MONTHLY FINANCIAL STATEMENTS. MFC shall furnish FBS with MFC's and
each of the Subsidiaries' balance sheets as of the end of each calendar month
after June 1994 and the related statements of income, within 15 business days
after the end of each such calendar month. Such financial statements shall be
prepared on a basis consistent with the Latest Balance Sheets and the Related
Statements and on a consistent basis during the periods involved and shall
fairly present the financial positions of MFC and each of the Subsidiaries as of
the dates thereof and the results of operations of MFC and each of the
Subsidiaries for the periods then ended.
5.4. EXPENSES. All costs and expenses incurred in connection with this
Agreement and the transactions contemplated hereby shall be paid by the party
incurring such costs and expenses.
5.5. NO NEGOTIATIONS, ETC. MFC will not, and will cause the Subsidiaries
and MFC's and the Subsidiaries' respective officers, directors, employees,
agents and affiliates, not to, directly or indirectly, solicit, authorize,
initiate or encourage submission of, any proposal, offer, tender offer or
exchange offer from any person or entity (including any of its or their officers
or employees) relating to any liquidation, dissolution, recapitalization,
merger, consolidation or acquisition or purchase of all or a material portion of
the assets or deposits of, or any equity interest in, MFC or any of the
Subsidiaries or other similar transaction or business combination involving MFC
or any of the Subsidiaries, or, unless MFC shall have determined, after receipt
of a written opinion of counsel to MFC (a copy of which opinion shall be
delivered to FBS), that the Board of Directors of MFC has a fiduciary duty to do
so, (a) participate in any negotiations in connection with or in furtherance of
any of the foregoing or (b) permit any person other than FBS and its
representatives to have any access to the facilities of, or furnish to any
person other than FBS and its representatives any non-public information with
respect to, MFC or
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any of the Subsidiaries in connection with or in furtherance of any of the
foregoing. MFC shall promptly notify FBS if any such proposal or offer, or any
inquiry from or contact with any person with respect thereto, is made, and shall
promptly provide FBS with such information regarding such proposal, offer,
inquiry or contact as FBS may request.
5.6. NOTIFICATION OF CERTAIN MATTERS. Each party shall give prompt notice
to the other party of (a) the occurrence or failure to occur of any event or the
discovery of any information, which occurrence, failure or discovery would be
likely to cause any representation or warranty on its part contained in this
Agreement to be materially untrue or inaccurate when made at the Effective Date
or at any time prior to the Effective Date and (b) any material failure of such
party to comply with or satisfy any covenant, condition or agreement to be
complied with or satisfied by it hereunder.
5.7. ACCESS TO INFORMATION; CONFIDENTIALITY.
(a) MFC shall permit and shall cause each of the Subsidiaries to permit
FBS full access on reasonable notice and at reasonable hours to its
properties and shall disclose and make available (together with the right to
copy) to FBS and to the internal auditors, loan review officers, employees,
attorneys, accountants and other representatives of FBS all books, papers
and records relating to the assets, stock, properties, operations,
obligations and liabilities of MFC and the Subsidiaries, including, without
limitation, all books of account (including, without limitation, the general
ledger), tax records, minute books of directors' and shareholders' meetings,
organizational documents, bylaws, contracts and agreements, filings with any
regulatory authority, accountants' work papers, litigation files (including,
without limitation, legal research memoranda), documents relating to assets
and title thereto (including, without limitation, abstracts, title insurance
policies, surveys, environmental reports, opinions of title and other
information relating to the real and personal property), plans affecting
employees, securities transfer records and shareholder lists, and any books,
papers and records relating to other assets, business activities or
prospects in which FBS may have a reasonable interest, including, without
limitation, its interest in planning for integration and transition with
respect to the business of MFC and the Subsidiaries; provided, however, that
the foregoing rights granted to FBS shall, whether or not and regardless of
the extent to which the same are exercised, in no way affect the nature or
scope of the representations, warranties and covenants of MFC set forth
herein. In addition, MFC shall cause each of the Subsidiaries to instruct
its officers, employees, counsel and accountants to be available for, and
respond to any questions of, such FBS representatives at reasonable hours
and with reasonable notice by FBS to such individuals, and to cooperate
fully with FBS in planning for the integration of the business of MFC and
the Subsidiaries with the business of FBS and its subsidiaries.
(b) FBS shall permit reasonable access to its properties and shall
disclose and make available (together with the right to copy) to MFC and to
its representatives FBS's financial books and records, minute books of
directors' and shareholders' meetings, organizational documents, bylaws, and
filings with any regulatory authority; provided, however, that the foregoing
rights granted to MFC shall, whether or not and regardless of the extent to
which the same are exercised, in no way affect the nature or scope of the
representations, warranties and covenants of FBS set forth herein. In
addition, FBS shall instruct its officers, employees, counsel and
accountants to be available for, and respond to reasonable questions of,
representatives of MFC at reasonable hours and with reasonable notice by MFC
to such individuals.
(c) All information furnished by MFC or FBS pursuant hereto shall be
treated as the sole property of the party furnishing the information until
the Effective Date, and, if the Effective Date shall not occur, the
receiving party shall return to the party which furnished such information,
or destroy, all documents or other materials (including copies thereof)
containing, reflecting or referring to such information. In addition, the
receiving party shall keep confidential all such information and shall not
directly or indirectly use such information for any competitive or other
commercial purpose. In the event that this Agreement shall terminate,
neither party shall disclose, except as required by law or pursuant to the
request of an administrative agency or other regulatory body, the basis or
reason for such termination, without the consent of the other party. The
obligation to keep such information confidential shall not apply to (i) any
information which (A) was already in the receiving party's possession prior
to the disclosure thereof to the receiving party by the
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party furnishing the information, (B) was then generally known to the
public, (C) became known to the public through no fault of the receiving
party or its representatives or (D) was disclosed to the receiving party by
a third party not bound by an obligation of confidentiality or (ii)
disclosures required by law, governmental or regulatory authority.
5.8. FILING OF TAX RETURNS AND ADJUSTMENTS.
(a) MFC, on behalf of MFC and each of the Subsidiaries, shall file (or
cause to be filed) at their own expense, on or prior to the due date, all
Tax returns, including all Plan returns and reports, for all Tax periods
ending on or before the Effective Date where the due date for such returns
or reports (taking into account valid extensions of the respective due
dates) falls on or before the Effective Date; provided, however, that
neither MFC nor any of the Subsidiaries shall file any such Tax returns, or
other returns, elections or information statements with respect to any
liabilities for Taxes (other than federal, state or local sales, use,
withholding or employment tax returns or statements), or consent to any
adjustment or otherwise compromise or settle any matters with respect to
Taxes, without prior consultation with FBS; provided, further, that neither
MFC nor any of the Subsidiaries shall make any election or take any other
discretionary position with respect to Taxes, in a manner inconsistent with
past practices, without the prior written approval of FBS, which approval
shall not be unreasonably withheld. In the event the granting or withholding
of such approval by FBS results in additional Taxes owing for any Tax period
ending on or before the Effective Date, liability for such additional Taxes
shall not cause any representation of MFC relating to Taxes to be untrue.
MFC shall provide FBS with a copy of appropriate workpapers, schedules,
drafts and final copies of each federal and state income Tax return or
election of MFC and each of the Subsidiaries (including returns of all
Plans) at least seven days before filing such return or election and shall
reasonably cooperate with any request by FBS in connection therewith.
(b) FBS, in its sole and absolute discretion, will file (or cause to be
filed) all Tax returns of MFC and each of the Subsidiaries due after the
Effective Date. After the Effective Date, FBS, in its sole and absolute
discretion and to the extent permitted by law, shall have the right to
amend, modify or otherwise change all Tax returns of MFC and each of the
Subsidiaries for all Tax periods.
5.9. REGISTRATION STATEMENT.
(a) For the purposes (i) of holding meetings of the shareholders of FBS
and MFC to approve this Agreement and the Merger and (ii) of registering the
FBS Common Stock to be issued to holders of MFC Common Stock and of options
under the MFC Stock Option Plans (as defined in Section 5.14(a)) in
connection with the Merger with the SEC and with applicable state securities
authorities, the parties hereto shall cooperate in the preparation of an
appropriate registration statement (such registration statement, together
with all and any amendments and supplements thereto, being herein referred
to as the "Registration Statement"), which shall include a prospectus/joint
proxy statement satisfying all applicable requirements of the 1933 Act, the
1934 Act, applicable state securities laws and the rules and regulations
thereunder (such prospectus/joint proxy statement, together with any and all
amendments or supplements thereto, being herein referred to as the
"Prospectus/Proxy Statement").
(b) FBS shall furnish such information concerning FBS as is necessary in
order to cause the Prospectus/ Proxy Statement, insofar as it relates to
FBS, to be prepared in accordance with Section 5.9(a). FBS agrees promptly
to advise MFC if at any time prior to the FBS or MFC shareholders' meetings
any information provided by FBS in the Prospectus/Proxy Statement becomes
incorrect or incomplete in any material respect, and to provide the
information needed to correct such inaccuracy or omission.
(c) MFC shall furnish FBS with such information concerning MFC and the
Subsidiaries as is necessary in order to cause the Prospectus/Proxy
Statement, insofar as it relates to MFC and the Subsidiaries, to be prepared
in accordance with Section 5.9(a). MFC agrees promptly to advise FBS if at
any time prior to the FBS or MFC shareholders' meetings any information
provided by MFC in the Prospectus/Proxy Statement becomes incorrect or
incomplete in any material respect, and to provide FBS with the information
needed to correct such inaccuracy or omission.
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(d) FBS shall promptly file the Registration Statement with the SEC and
applicable state securities agencies. FBS shall use reasonable efforts to
cause the Registration Statement to become effective under the 1933 Act and
applicable state securities laws at the earliest practicable date. MFC
authorizes FBS to utilize in the Registration Statement the information
concerning MFC and the Subsidiaries provided to FBS for the purpose of
inclusion in the Prospectus/Proxy Statement. MFC shall have the right to
review and comment on the form of proxy statement included in the
Registration Statement. FBS shall advise MFC promptly when the Registration
Statement has become effective and of any supplements or amendments thereto,
and FBS shall furnish MFC with copies of all such documents. Prior to the
Effective Date or the termination of this Agreement, each party shall
consult with the other with respect to any material (other than the
Prospectus/ Proxy Statement) that might constitute a "prospectus" relating
to the Merger within the meaning of the 1933 Act.
(e) FBS shall use reasonable efforts to cause to be delivered to MFC a
letter relating to the Registration Statement from Ernst & Young, FBS's
independent auditors, dated a date within two business days before the date
on which the Registration Statement shall become effective and addressed to
MFC, in form and substance reasonably satisfactory to MFC and customary in
scope and substance for letters delivered by independent public accountants
in connection with registration statements similar to the Registration
Statement.
(f) MFC shall use reasonable efforts to cause to be delivered to FBS a
letter relating to the Registration Statement from Ernst & Young, MFC's
independent auditors, dated a date within two business days before the date
on which the Registration Statement shall become effective and addressed to
FBS, in form and substance reasonably satisfactory to FBS and customary in
scope and substance for letters delivered by independent public accountants
in connection with registration statements similar to the Registration
Statement.
(g) FBS shall bear (i) the costs of all SEC filing fees with respect to
the Registration Statement and the costs of qualifying the shares of FBS
Common Stock under state blue sky laws to the extent necessary and (ii) all
printing and mailing costs in connection with the preparation and mailing of
the Prospectus/Proxy Statement to FBS shareholders. MFC shall bear all
printing and mailing costs in connection with the preparation and mailing of
the Prospectus/Proxy Statement to MFC shareholders. FBS and MFC shall each
bear their own legal and accounting expenses in connection with the
Registration Statement.
5.10. AFFILIATE LETTERS. MFC shall use its best efforts to obtain and
deliver to FBS at least 31 days prior to the Effective Date a signed
representation letter substantially in the form of Exhibit A hereto from each
shareholder of MFC who may reasonably be deemed an "affiliate" of MFC within the
meaning of such term as used in Rule 145 under the 1933 Act and for purposes of
qualifying for pooling of interests accounting treatment for the Merger. FBS may
place appropriate legends on the stock certificates of affiliates of MFC.
5.11. ESTABLISHMENT OF ACCRUALS. If requested by FBS prior to March 1,
1995, prior to the public release of financial results for MFC's 1994 fiscal
year (or, if earlier, the business day immediately prior to the Effective Date),
MFC shall, consistent with generally accepted accounting principles, establish
for such fiscal year such additional accruals and reserves as may be necessary
to conform MFC's accounting and credit loss reserve practices and methods to
those of FBS (as such practices and methods are to be applied to MFC from and
after the Effective Date) and reflect FBS's plans with respect to the conduct of
MFC's business following the Merger and to provide for the costs and expenses
relating to the consummation by MFC of the transactions contemplated by this
Agreement; provided, however, that MFC shall not be required to take such action
unless (A) FBS certifies in writing that it has no reason to believe that all
conditions to FBS's obligation to consummate the transactions contemplated by
this Agreement set forth in Article 6 hereof will not be satisfied or waived;
and (B) MFC shall have no reasonable basis for believing that all the conditions
to MFC's obligation to consummate the transactions contemplated by this
Agreement will not be satisfied. In the event that MFC shall not be obligated to
establish the additional accruals and reserves referred to in the preceding
sentence prior to March 1, 1995, and thereafter FBS shall request that MFC
establish such accruals and reserves and the conditions set forth in clauses (A)
and (B) of the preceding sentence are satisfied, MFC shall establish such
accruals and reserves for a period subsequent to the
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1994 fiscal year. Notwithstanding anything to the contrary contained in this
Agreement, no accrual or reserve made by MFC or the Bank pursuant to this
Section 5.11, or any litigation or regulatory proceeding arising out of any such
accrual or reserve, or any other effect on MFC or the Bank resulting from MFC's
compliance with this Section 5.11, shall constitute or be deemed to be a breach,
violation of or failure to satisfy any representation, warranty, covenant,
condition or other provisions of this Agreement or otherwise be considered in
determining whether any such breach, violation or failure to satisfy shall have
occurred.
5.12. EMPLOYEE MATTERS.
(a) GENERAL. Subject to the following agreements, FBS shall have the
right to continue, amend or terminate any of the Plans (as defined in
Section 3.18) in accordance with the terms thereof and subject to any
limitation arising under applicable law. Until FBS shall take such action,
however, such Plans shall continue in force for the benefit of present and
former employees of MFC or the Subsidiaries who have any present or future
entitlement to benefits under any of the Plans ("MFC Employees").
(b) MFC PLANS.
(i) MFC 401(K) PLAN. After the Effective Date, FBS will terminate
the accrual of benefits under the MFC 401(k) plans listed on Schedule
3.18(b)(i)(B) and sponsored by MFC or any Subsidiary not more than two
years after the Effective Date and will take such actions as may be
necessary to cause the assets and liabilities of the MFC 401(k) plans to
be merged with and into the FBS 401(k) plan. As of the Effective Date,
FBS shall take such action as may be necessary to amend the MFC 401(k)
plans to provide that with respect to MFC Employees who are participants
in the MFC 401(k) plans and who are employees of MFC as of the Effective
Date, their accounts under such plans as of the Effective Date shall be
fully vested as of the Effective Date. Benefits accruing between the
Effective Date and the date on which the accrual of benefits is
terminated shall be fully and immediately vested as of that time.
Distributions shall not be permitted from the MFC 401(k) plans merely
because of the discontinuance of accruals or the transfer of assets and
liabilities.
(ii) MFC DIRECTORS' RETIREMENT PLAN. MFC shall calculate and pay in
cash on the Effective Date all amounts reasonably estimated to be
owing to any MFC director pursuant to the MFC Directors' Retirement Plan,
including any estimated "gross up" payment payable as provided therein.
To the extent that any such gross up payment remains payable after the
Effective Date, FBS hereby acknowledges that it will promptly pay such
amounts in full in accordance with the terms of such plan.
(iii) CHANGE IN CONTROL PLANS. Prior to the Effective Date, MFC
shall amend the Change in Control Plans as set forth in Exhibit B
hereto, and FBS hereby agrees to such amendments. FBS acknowledges that
any employment agreement with an executive officer previously disclosed
to it does not constitute a "severance plan" for purposes of such plans.
(iv) MFC BONUS PLANS. On or prior to December 31, 1994, MFC shall
pay all bonuses accrued in 1994 by MFC Employees under the MFC bonus
plans disclosed to FBS.
(v) MFC DEFINED BENEFIT PLAN. Not more than two (2) years after the
Effective Date, FBS will terminate the accrual of benefits under the
MFC qualified defined benefit pension plan and will take such actions as
may be necessary to cause the assets and liabilities of the MFC qualified
defined benefit pension plan to be merged with and into the FBS Personal
Retirement Account. As of the Effective Date, FBS shall take such action
as may be necessary to amend the MFC qualified defined benefit pension
plan to provide that with respect to MFC Employees who are participants
in the MFC qualified defined benefit pension plan and who are employees
of MFC as of the Effective Date, their accrued benefits under such plan
as of the Effective Date shall be fully vested as of the Effective Date.
(c) FBS PLANS.
(i) FBS CAP (401(K)) PLAN. After the Effective Date, FBS shall take
such actions as may be necessary to cause eligible MFC Employees to
become qualified to participate in the FBS Capital Accumulation Plan
(CAP) concurrent with the date that FBS causes accruals to cease under
the MFC
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401(k) plan. All service with MFC and any of the Subsidiaries (whether
before or after the Effective Date) shall be recognized under the CAP for
eligibility and vesting purposes but shall not be recognized for
contribution and allocation purposes. FBS shall take such actions as may
be necessary to cause the CAP to accept transfers of assets and
liabilities from the MFC 401(k) plan.
(ii) FBS DEFINED BENEFIT PLAN. Upon the cessation of accruals under
any MFC Defined Benefit Plan, FBS shall take such actions as may be
necessary to cause eligible MFC Employees to be qualified to participate
in any qualified defined benefit plan generally available at the time to
similarly situated employees of FBS or an affiliate of FBS. All service
with MFC or any of the Subsidiaries and their predecessors, to such
extent taken into account for purposes of the MFC Defined Benefit Plan
(whether before or after the Effective Date) shall be recognized under
the FBS plan for eligibility and vesting purposes but shall not be
required to be recognized for any other purpose.
(iii) WELFARE AND OTHER BENEFITS. FBS shall use its best efforts to
cause any transition by MFC Employees from the welfare and other
generally applicable benefit plans and practices of MFC or its affiliates
not otherwise expressly dealt with in this Section 5.12 to FBS plans and
practices to be effected in a manner that does not result in a
significant financial detriment to the MFC Employees other than any such
financial detriment as a result of higher premium costs in the FBS plan
which are generally applicable to other similarly situated employees of
FBS and its affiliates or to the absence of any FBS counterpart for a
particular MFC plan or practice.
(d) SUCCESSOR STATUS; FURTHER ASSURANCES. FBS hereby expressly assumes
and agrees to perform or cause to be performed all of the obligations of
"successors" under the terms of the MFC Broad-Based Change in Control
Severance Pay Plan, as amended, the MFC Senior Management Change in Control
Severance Pay Plan, as amended, and the MFC Executive Management Change in
Control Severance Pay Plan, as amended (the "Change in Control Plans"), and
the MFC Directors' Retirement Plan.
(e) LIMITATION ON ENFORCEMENT. This Section 5.12 is an agreement
solely between MFC and the Subsidiaries and FBS. Nothing in this Section
5.12, whether express or implied, confers upon any employee of MFC, any of
the Subsidiaries or FBS or any other person, any rights or remedies,
including, but not limited to: (i) any right to employment or recall, (ii)
any right to continued employment for any specified period, or (iii) any
right to claim any particular compensation, benefit or aggregate of
benefits, of any kind or nature whatsoever, as a result of this Section
5.12.
5.13. POOLING OF INTERESTS; TAX TREATMENT. Neither MFC nor any of the
Subsidiaries nor FBS shall take any action which would disqualify the Merger as
a "pooling of interests" for accounting purposes or as a "reorganization" that
would be tax free to the shareholders of MFC pursuant to Section 368(a) of the
Code.
5.14. STOCK OPTIONS AND WARRANTS.
(a) STOCK OPTION PLANS. In the event that each option outstanding or
to be outstanding on the Effective Date under the MFC 1982 Stock Option and
Incentive Plan, the MFC 1990 Stock Option Plan, the MFC 1993 Non-Employee
Director Stock Option Plan and the MFC 1993 Stock Incentive Plan
(collectively, the "MFC Stock Option Plans") is converted into a right to
receive in lieu of all other rights under such option (and each such option
thereafter is terminated and canceled), shares of FBS Common Stock with a
value as of the Effective Date equal to the "fair value" of such option as
determined by an independent third party expert to be mutually selected by
FBS and MFC, FBS will, as of the Effective Date, issue in respect of such
option shares of FBS Common Stock having an Average Price equal to such
"fair value." In the event that each such option is not so converted, then,
at the Effective Date, such option shall be assumed by FBS and shall
thereafter be deemed to constitute an option to acquire, on the same terms
and conditions as were applicable under such option, the same number of
shares of FBS Common Stock as the holder of such option would have been
entitled to receive pursuant to the Merger had such holder exercised such
option in full immediately prior to the Effective Date, at a price per share
equal to (x) the aggregate exercise price for the shares of MFC Common Stock
otherwise purchasable pursuant to such option divided by (y) the number of
full shares of FBS Common Stock deemed purchasable pursuant to such option;
provided, however, that in the case of any
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option to which Section 421 of the Code applies by reason of its
qualification under Section 422 of the Code ("incentive stock options"), the
option price, the number of shares purchasable pursuant to such option and
the terms and conditions of exercise of such options shall be determined in
order to comply with Section 424(a) of the Code. In addition, MFC will use
its best efforts to cause all of the options outstanding and vested under
the MFC Stock Option Plans as of December 31, 1994 to be exercised in full
on or prior to such date.
(b) EMPLOYEE STOCK PURCHASE PLANS. At the Effective Date, each
outstanding option issued pursuant to the MFC Employee Stock Purchase Plan
or the Edina Realty Sales Associate Stock Purchase Plan shall be deemed to
constitute an option to acquire FBS Common Stock on the same terms and
conditions as theretofore applicable, except that the exercise price per
share and the number of shares of stock for which such option is exercisable
shall be adjusted as appropriate in light of the Merger and the Exchange
Ratio in order to prevent any diminution of the value of such options or the
rights of the participants.
(c) MFC WARRANTS. On the Effective Date, FBS shall execute a
supplemental warrant agreement to the Warrant Agreement dated as of November
20, 1990 (the "MFC Warrant Agreement") between MFC and American Stock
Transfer and Trust Company, as Warrant Agent, as provided in Section 10(I)
of the Warrant Agreement, and all outstanding warrants of MFC (the "MFC
Warrants") issued pursuant to such Warrant Agreement shall be assumed by
FBS. Each MFC Warrant shall be deemed to constitute an option to acquire, on
the same terms and conditions as were applicable under such MFC Warrant, the
same number of shares of FBS Common Stock as the holder of such MFC Warrant
would have been entitled to receive pursuant to the Merger had such holder
exercised such option in full immediately prior to the Effective Date, at a
price per share equal to (x) the aggregate exercise price for the shares of
MFC Common Stock otherwise purchasable pursuant to such MFC Warrant divided
by (y) the number of full shares of FBS Common Stock deemed purchasable
pursuant to such MFC Warrant. FBS shall take all corporate action necessary
to reserve for issuance a sufficient number of shares of FBS Common Stock
for delivery upon exercise of MFC Warrants assumed by it in accordance with
this Section 5.14. FBS shall use its best efforts to register the MFC
Warrants and the underlying FBS Common Stock under the 1933 Act as of the
Effective Date and to maintain the effectiveness of such registration
statement or registration statements (and maintain the current status of the
prospectus or prospectuses contained therein) for so long as such MFC
Warrants remain outstanding.
5.15. INDEMNIFICATION AND INSURANCE.
(a) From and after the Effective Date, FBS shall indemnify, defend and
hold harmless each person who is now, or has been at any time prior to the
date hereof or who becomes prior to the Effective Date, an officer, director
or employee of MFC or any of the Subsidiaries (the "Indemnified Parties")
against all losses, claims, damages, costs, expenses (including attorney's
fees), liabilities or judgments or amounts that are paid in settlement
(which settlement shall require the prior written consent of FBS, which
consent shall not be unreasonably withheld) of or in connection with any
claim, action, suit, proceeding or investigation (a "Claim") in which an
Indemnified Party is, or is threatened to be made, a party or a witness
based in whole or in part on or arising in whole or in part out of the fact
that such person is or was a director, officer or employee of MFC or any of
the Subsidiaries if such Claim pertains to any matter or fact arising,
existing or occurring prior to the Effective Date (including, without
limitation, the Merger and other transactions contemplated by this
Agreement), regardless of whether such Claim is asserted or claimed prior
to, at or after the Effective Date (the "Indemnified Liabilities") to the
full extent permitted under applicable Delaware or federal law as of the
date hereof or as amended prior to the Effective Date and under MFC's
Charter and Bylaws as in effect on the date hereof (and FBS shall pay
expenses in advance of the final disposition of any such action or
proceeding to each Indemnified Party to the full extent permitted by law and
under such Charter or Bylaws, upon receipt of any undertaking required by
such Charter, Bylaws or applicable law). Any Indemnified Party wishing to
claim indemnification under this Section 5.15(a), upon learning of any
Claim, shall notify FBS (but the failure so to notify FBS shall not relieve
it from any liability which FBS may have under this Section 5.15(a) except
to the extent such failure prejudices FBS) and shall deliver to FBS any
undertaking required by such Charter, Bylaws or applicable law. FBS shall
use its best efforts to assure, to the extent permitted under applicable
law, that all limitations of liability existing in favor of the Indemnified
Parties as provided in the MFC Charter and Bylaws, as in effect as of the
date hereof, with respect to claims or liabilities arising from
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facts or events existing or occurring prior to the Effective Date
(including, without limitation, the transactions contemplated by this
Agreement), shall survive the Merger. The obligations of FBS described in
this Section 5.15(a) shall continue in full force and effect, without any
amendment thereto, for a period of not less than five years from the
Effective Date; provided, however, that all rights to indemnification in
respect of any Claim asserted or made within such period shall continue
until the final disposition of such Claim; and provided further that nothing
in this Section 5.15(a) shall be deemed to modify applicable Delaware law
regarding indemnification of former officers and directors. Nothing in this
Section 5.15(a) shall affect the obligations to be assumed in the Merger by
FBS to indemnify former directors and officers of MFC or the Bank pursuant
to the terms of the indemnification agreements in effect as of the date
hereof and as disclosed to FBS in Schedule 3.14.
(b) From and after the Effective Date, the directors, officers and
employees of MFC and the Subsidiaries who become directors, officers or
employees of FBS or any of its subsidiaries, except for the indemnification
rights set forth in Section 5.15(a), shall have indemnification rights with
prospective application only. The prospective indemnification rights shall
consist of such rights to which directors, officers and employees of FBS are
entitled under the provisions of the Charter or similar governing documents
of FBS and its subsidiaries, as in effect from time to time after the
Effective Date, as applicable, and provisions of applicable law as in effect
from time to time after the Effective Date.
(c) The obligations of FBS provided under Sections 5.15(a) and 5.15(b)
are intended to benefit, and be enforceable against FBS directly by, the
Indemnified Parties, and shall be binding on all respective successors of
FBS.
(d) For a period of three years after the Effective Date, FBS shall use
its best efforts to provide that portion of directors' and officers'
liability insurance that serves to reimburse officers and directors of MFC
or any of the Subsidiaries (as opposed to FBS or MFC) with respect to claims
against such officers and directors arising from facts or events which
occurred before the Effective Date of at least the same coverage and
amounts, and containing terms and conditions no less advantageous, as that
coverage currently provided by MFC; provided, however, that the annual
premiums for such coverage will not exceed 200% of the annual premiums
currently paid by MFC for such coverage; provided, further, that officers
and directors of MFC or any Subsidiary may be required to make application
and provide customary representations and warranties to FBS's insurance
carrier for the purpose of obtaining such insurance; and provided, further,
that such coverage will have a single aggregate for such three-year period
in an amount not less than the annual aggregate of such coverage currently
provided by MFC.
5.16. EDINA REALTY LITIGATION MATTERS. MFC shall provide FBS regular
updates on the status of the Edina Realty Litigation Matters, shall notify FBS
of any developments with respect to such matters, and shall allow FBS to attend
all settlement negotiations or other meetings relating to the settlement or
other disposition of such matters.
5.17. FBS SEC REPORTS. FBS shall continue to file all reports with the SEC
necessary to permit the shareholders of MFC who are "affiliates" of MFC (within
the meaning of such term as used in Rule 145 under the 1933 Act) to sell the FBS
Common Stock received by them in connection with the Merger pursuant to Rules
144 and 145(d) under the 1933 Act if they would otherwise be so permitted. After
the Effective Date, FBS will file with the SEC reports and other materials
required by the federal securities laws on a timely basis.
5.18. SEC REPORTS. Each of FBS and MFC agree to provide to the other party
copies of all reports and other documents filed with the SEC by it between the
date hereof and the Effective Date within five days after the date such reports
or other documents are filed with the SEC.
5.19. STOCK EXCHANGE LISTING. FBS shall use its best efforts to list on
the New York Stock Exchange, subject to official notice of issuance, the shares
of FBS Common Stock to be issued to the holders of MFC Common Stock in the
Merger.
5.20. SHAREHOLDER APPROVALS. Each of FBS and MFC shall call a meeting of
its shareholders for the purpose of voting upon this Agreement and the Merger,
and shall schedule such meeting based on consultation with the
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other party. The Board of Directors of each of FBS and MFC shall recommend
approval of this Agreement and the Merger, and use its best efforts (including,
without limitation, soliciting proxies for such approvals) to obtain such
shareholder approvals, unless the Board of Directors of either party determines,
after receipt of a written opinion of counsel to such party (a copy of which
shall be delivered to the other party), that recommending such approvals or
using its best efforts to obtain such shareholder approvals would be a breach of
its fiduciary duties.
5.21. FBS BOARD OF DIRECTORS; CONSULTING AGREEMENT.
(a) Following the Effective Date, FBS shall use its best efforts to (i)
secure the election of Norman M. Jones to the FBS Board of Directors for a
term of at least three years and (ii) appoint Mr. Jones as Chairman of the
Board of Directors of the Bank, or its successor following the Merger, for
at least three years, subject to any applicable regulatory requirements.
(b) Prior to the Effective Date, FBS shall enter into a consulting
agreement with Mr. Jones, containing customary terms and conditions,
engaging Mr. Jones for a three-year period following the Effective Date as
an independent consultant to assist FBS in identifying and contacting, on
behalf of FBS, potential financial institution acquisition candidates as
requested from time to time by FBS.
(c) FBS shall pay Mr. Jones, for all of the services rendered by Mr.
Jones pursuant to this Section 5.21, total compensation equal to $200,000
annually.
(d) FBS acknowledges that, on the Effective Date, there shall exist a
"termination" of Mr. Jones employment with MFC under the terms of the MFC
Executive Management Change in Control Severance Pay Plan and FBS shall pay
all benefits payable to Mr. Jones pursuant to the terms of such plan upon
such termination.
ARTICLE 6
CONDITIONS
6.1. CONDITIONS TO OBLIGATIONS OF EACH PARTY. The respective obligations
of each party to effect the transactions contemplated hereby shall be subject to
the fulfillment at or prior to the Effective Date of the following conditions:
(a) REGULATORY APPROVAL. Regulatory approval for the consummation of
the transactions contemplated hereby shall have been obtained from the FRB,
the OTS and any other governmental authority from whom approval is required,
the applicable waiting periods, if any, under the HSR Act shall have expired
or been terminated, and all other statutory or regulatory waiting periods
shall have lapsed. None of such approvals shall contain any conditions or
restrictions that FBS reasonably believes will materially restrict or limit
the business or activities of FBS, MFC or the Subsidiaries or have a
material adverse effect on, or would be reasonably likely to have a material
adverse effect on, the business, operations or financial condition of FBS
and its subsidiaries, taken as a whole, on the one hand, or MFC and the
Subsidiaries, taken as a whole, on the other hand. FBS acknowledges that a
requirement to divest control of Edina Realty, Inc. following the Merger
would not, in and of itself, constitute a failure of the condition in this
Section 6.1(a).
(b) NO INJUNCTION. No injunction or other order entered by a state or
federal court of competent jurisdiction shall have been issued and remain in
effect which would impair the consummation of the transactions contemplated
hereby.
(c) NO PROHIBITIVE CHANGE OF LAW. There shall have been no law,
statute, rule or regulation, domestic or foreign, enacted or promulgated
which would materially impair the consummation of the transactions
contemplated hereby.
(d) NO TERMINATION. No party hereto shall have terminated this
Agreement as permitted herein.
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(e) REGISTRATION STATEMENT. The Registration Statement shall have been
declared effective and shall not be subject to a stop order of the SEC, and,
if the offer and sale of FBS Common Stock in the Merger pursuant to this
Agreement is required to be registered under the securities laws of any
state, the Registration Statement shall not be subject to a stop order of
securities commission in such state.
(f) FEDERAL TAX OPINION. An opinion of Oppenheimer Wolff & Donnelly
shall have been obtained with respect to the Merger, based on customary
reliance and subject to customary qualifications, to the effect that for
federal income tax purposes:
(i) The Merger will qualify as a "reorganization" under Section
368(a) of the Code;
(ii) No gain or loss will be recognized by any MFC shareholder
(except in connection with the receipt of cash) upon the exchange of MFC
Common Stock for FBS Common Stock in the Merger;
(iii) The basis of the FBS Common Stock received by a MFC shareholder
who exchanges MFC Common Stock for FBS Common Stock will be the same as
the basis of the MFC Common Stock surrendered in exchange therefor
(subject to any adjustments required as the result of receipt of cash in
lieu of a fractional share of FBS Common Stock);
(iv) The holding period of the FBS Common Stock received by a MFC
shareholder receiving FBS Common Stock will include the period during
which the MFC Common Stock surrendered in exchange therefor was held
(provided that the MFC Common Stock of such MFC shareholder was held as a
capital asset at the Effective Date); and
(v) Cash received by a MFC shareholder in lieu of a fractional share
interest of FBS Common Stock will be treated as having been received as a
distribution in full payment in exchange for the fractional share
interest of FBS Common Stock which he would otherwise be entitled to
receive, and will qualify as capital gain or loss (assuming the MFC
Common Stock was a capital asset in his hands at the Effective Date).
Such opinion shall be delivered on and dated as of the Effective Date
and on and as of such earlier date as may be required by the SEC in
connection with the Registration Statement.
(g) The FBS Common Stock to be issued to holders of MFC Common Stock in
the Merger shall have been approved for listing on the NYSE on official
notice of issuance.
6.2. ADDITIONAL CONDITIONS TO OBLIGATION OF MFC. The obligation of MFC to
consummate the transactions contemplated hereby in accordance with the terms of
this Agreement is also subject to the following conditions:
(a) REPRESENTATIONS AND COMPLIANCE. The representations and warranties
of FBS set forth in Article 2 shall have been true and correct as of the
date hereof, and shall be true and correct as of the Effective Date as if
made at and as of the Effective Date, except where the failure to be true
and correct would not have, or would not reasonably be expected to have, a
material adverse effect on the business, operations or financial condition
of FBS and its subsidiaries, taken as a whole; and FBS shall in all material
respects have performed each obligation and agreement and complied with each
covenant to be performed and complied with by it hereunder at or prior to
the Effective Date.
(b) OFFICER'S CERTIFICATE. FBS shall have furnished to MFC a
certificate of the Vice Chairman and Chief Financial Officer of FBS, dated
as of the Effective Date, in which such officer shall certify that he has no
reason to believe that the conditions set forth in Section 6.2(a) have not
been fulfilled.
(c) FBS SECRETARY'S CERTIFICATE. FBS shall have furnished to MFC (i)
copies of the text of the resolutions by which the corporate action on the
part of FBS necessary to approve this Agreement and the transactions
contemplated hereby were taken, (ii) a certificate dated as of the Effective
Date executed on behalf of FBS by its corporate secretary or one of its
assistant corporate secretaries certifying to MFC that such copies are true,
correct and complete copies of such resolutions and that such resolutions
were duly adopted and have not been amended or rescinded and (iii) an
incumbency certificate dated as of the Effective
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Date executed on behalf of FBS by its corporate secretary or one of its
assistant corporate secretaries certifying the signature and office of each
officer of FBS executing this Agreement or any other agreement, certificate
or other instrument executed pursuant hereto.
(d) OPINION OF COUNSEL TO FBS. MFC shall have received an opinion
letter dated as of the Effective Date addressed to MFC from Michael J.
O'Rourke, Esq., Executive Vice President and General Counsel of FBS, based
on customary reliance and subject to customary qualifications, to the effect
that:
(i) FBS is a corporation duly incorporated, validly existing and in
good standing under the laws of the State of Delaware. FBS is registered
as a bank holding company under the Bank Holding Company Act.
(ii) FBS has the corporate power to consummate the transactions on
its part contemplated by this Agreement. FBS has taken all requisite
corporate action to authorize this Agreement, and this Agreement has been
duly executed and delivered by FBS and constitutes the valid and binding
obligation of FBS enforceable in accordance with its terms, subject as to
the enforcement of remedies to applicable bankruptcy, insolvency,
moratorium and other laws affecting the rights of creditors generally and
to judicial limitations on the enforcement of the remedy of specific
performance.
(iii) The execution and delivery of this Agreement by FBS and the
consummation of the transactions contemplated hereby will not constitute
a breach, default or violation under its Charter or Bylaws or, to his
knowledge, (A) any agreement, arrangement or understanding to which FBS
is a party, (B) any license, franchise or permit or (C) any law,
regulation, order, judgment or decree.
(iv) No authorization, consent or approval of, or filing with, any
public body, court or authority is necessary for the consummation by FBS
of the transactions contemplated hereby which has not been obtained or
made.
(v) The shares of FBS Common Stock to be issued pursuant to this
Agreement will be, when issued, duly authorized, validly issued, fully
paid and nonassessable.
(e) SHAREHOLDER APPROVAL. This Agreement and the Merger shall have
been approved by the affirmative vote of the holders of the percentage of
MFC capital stock required for such approval under the provisions of MFC's
Charter and Bylaws, the DGCL and the rules of the NYSE.
(f) MATERIAL ADVERSE CHANGE. Since the date of this Agreement, there
has been no material adverse change in, and no event, occurrence or
development in the business of FBS or its subsidiaries that, taken together
with other events, occurrences and developments with respect to such
business, would have or would reasonably be expected to have a material
adverse effect on, the business, operations or financial condition of FBS
and its subsidiaries, taken as a whole.
(g) FAIRNESS OPINION. Prior to mailing the Prospectus/Proxy Statement
and immediately prior to the Effective Date, MFC shall have received a
written opinion in a form reasonably acceptable to MFC from Dain Bosworth
Incorporated (or another investment banking firm reasonably acceptable to
MFC) to the effect that the consideration to be delivered in the Merger is
fair from a financial point of view to the holders of MFC Common Stock.
6.3. ADDITIONAL CONDITIONS TO OBLIGATION OF FBS. The obligation of FBS to
consummate the transactions contemplated hereby in accordance with the terms of
this Agreement is also subject to the following conditions:
(a) REPRESENTATIONS AND COMPLIANCE. The representations and warranties
of MFC in this Agreement shall have been true and correct as of the date
hereof, and such representations and warranties shall be true and correct as
of the Effective Date as if made at and as of the Effective Date, except
where the failure to be true and correct would not have, or would not
reasonably be expected to have, a material adverse effect on the business,
operations or financial condition of MFC and the Subsidiaries taken as a
whole; and MFC shall in all material respects have performed each obligation
and agreement and complied with each covenant to be performed and complied
with by it hereunder at or prior to the Effective Date.
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(b) OFFICER'S CERTIFICATE OF MFC. MFC shall have furnished to FBS a
certificate of the Chief Executive Officer and Chief Financial Officer of
MFC, dated as of the Effective Date, in which such officers shall certify
that they have no reason to believe that the conditions set forth in Section
6.3(a) have not been fulfilled.
(c) SECRETARY'S CERTIFICATES. MFC shall have furnished to FBS (i)
copies of the text of the resolutions by which the corporate action on the
part of MFC necessary to approve this Agreement and the transactions
contemplated hereby were taken, (ii) certificates dated as of the Effective
Date executed on behalf of MFC by its corporate secretary or one of its
assistant corporate secretaries certifying to FBS that such copies are true,
correct and complete copies of such resolutions and that such resolutions
were duly adopted and have not been amended or rescinded and (iii) an
incumbency certificate dated as of the Effective Date executed on behalf of
MFC by its corporate secretary or one of its assistant corporate secretaries
certifying the signature and office of each officer executing this Agreement
or any other agreement, certificate or other instrument executed pursuant
hereto.
(d) OPINION OF COUNSEL TO MFC. FBS shall have received an opinion
letter dated as of the Effective Date addressed to FBS from Oppenheimer
Wolff & Donnelly, counsel to MFC (provided that the opinions contained in
subparagraphs (iv), (vi) and (viii) of this Section 6.3(d) may be provided
by J. Michael Nilles, Esq., Executive Vice President and General Counsel of
MFC), based on customary reliance and subject to customary qualifications,
to the effect that:
(i) MFC is a corporation duly incorporated, validly existing and in
good standing under the laws of the State of Delaware. MFC is registered
as a savings and loan holding company under the Savings and Loan Holding
Company Act.
(ii) The Bank is a federally chartered savings bank duly organized,
validly existing and in good standing under the laws of the United
States.
(iii) Each of the Principal Nonbanking Subsidiaries (other than the
Bank) is a corporation duly organized, validly existing and in good
standing under the laws of its state of incorporation.
(iv) Each of MFC, the Bank and the Principal Nonbanking Subsidiaries
has the requisite corporate and other power and authority (including all
licenses, permits and authorizations) to own and operate its properties
and to carry on its business as now conducted. Each of MFC, the Bank and
the Principal Nonbanking Subsidiaries is licensed or qualified to do
business in every jurisdiction in which the nature of its business or its
ownership of property requires it to be licensed or qualified, except
where the failure to be so licensed or qualified would not have or would
not be reasonably expected to have a material adverse effect on the
business, operations, financial condition or operating results of MFC,
the Bank or any of the Principal Nonbanking Subsidiaries.
(v) The execution and delivery of this Agreement by MFC and the
consummation of the transactions contemplated hereby and thereby will not
constitute a breach, default or violation under the respective Charter or
Bylaws of MFC, the Bank or any of the Principal Nonbanking Subsidiaries
or, to such counsel's knowledge, (A) any material agreement, arrangement
or understanding to which MFC, the Bank or any of the Principal
Nonbanking Subsidiaries is a party, (B) any material license, franchise
or permit or (C) any material law, regulation, order, judgment or decree.
(vi) The authorized capital of MFC consists of 60,000,000 shares of
MFC Common Stock and 10,000,000 shares of preferred stock; all of the
issued and outstanding shares of the capital stock of MFC are duly
authorized, validly issued, fully paid and nonassessable. No holder of
the capital stock of MFC is entitled to any preemptive or other similar
rights with respect to the capital stock of MFC.
(vii) All of the issued and outstanding shares of each of the Bank
and the Principal Nonbanking Subsidiaries are duly authorized, validly
issued, fully paid and nonassessable.
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(viii) Except as set forth in Schedule 3.15, to the knowledge of
such counsel, there are no actions, suits, proceedings, orders or
investigations pending or threatened against MFC, the Bank or any of the
Principal Nonbanking Subsidiaries, at law or in equity, or before or by
any federal, state or other governmental department, commission, board,
bureau, agency or instrumentality.
(ix) MFC has the corporate power to consummate the transactions on
its part contemplated by this Agreement. MFC has duly taken all requisite
corporate action to authorize this Agreement and this Agreement has been
duly executed and delivered by MFC and constitutes the valid and binding
obligation of MFC enforceable in accordance with its terms, subject as to
the enforcement of remedies to applicable bankruptcy, insolvency,
moratorium and other laws affecting the rights of creditors generally and
to judicial limitations on the enforcement of the remedy of specific
performance.
(x) No authorization, consent or approval of, or filing with any
public body, court or public authority, is necessary for the consummation
by MFC of the transactions contemplated hereby which has not been
obtained or made.
(e) SHAREHOLDER APPROVAL. This Agreement and the Merger shall have
been approved by the affirmative vote of holders of the percentage of FBS
capital stock required for such approval under the Charter and Bylaws of
FBS, the DGCL and the rules of the NYSE.
(f) AFFILIATE LETTERS. MFC shall have delivered to FBS the letters
required to be delivered pursuant to Section 5.10.
(g) POOLING OF INTERESTS ACCOUNTING. No event shall have occurred
which, in the reasonable opinion of FBS and concurred in by Ernst & Young,
would prevent the Merger from being accounted for as a pooling of interests,
and FBS shall have received from Ernst & Young an opinion that the Merger
shall qualify as a pooling of interests for accounting purposes.
(h) ADVERSE PROCEEDINGS. There shall not be threatened, instituted or
pending any action or proceeding before any court or governmental authority
or agency, domestic or foreign, (i) challenging or seeking to make illegal,
or to delay or otherwise directly or indirectly to restrain or prohibit, the
consummation of the transactions contemplated hereby or seeking to obtain
material damages in connection with the transactions contemplated hereby,
(ii) seeking to prohibit direct or indirect ownership or operation by FBS of
all or a material portion of the business or assets of MFC or any of the
Subsidiaries or of FBS or any of its subsidiaries, or to compel FBS or any
of its subsidiaries or MFC or any of the Subsidiaries to dispose of or to
hold separately all or a material portion of the business or assets of FBS
or any of its subsidiaries or of MFC or any of the Subsidiaries, as a result
of the transactions contemplated hereby, or (iii) seeking to require direct
or indirect divestiture by FBS of any material portion of its business or
assets or of MFC's or the Subsidiaries' business or assets. FBS acknowledges
that an action or proceeding seeking to divest control of Edina Realty, Inc.
following the Merger would not, in and of itself, constitute a failure of
the condition in this Section 6.3(h).
(i) GOVERNMENTAL ACTION. There shall not be any action taken, or any
statute, rule, regulation, judgment, order or injunction proposed, enacted,
entered, enforced, promulgated, issued or deemed applicable to the
transactions contemplated hereby by any federal, state or other court,
government or governmental authority or agency, which would reasonably be
expected to result, directly or indirectly, in any of the consequences
referred to in Section 6.3(h).
(j) FAILURE TO DISCLOSE. FBS shall not have discovered any fact or
circumstance existing as of the date of this Agreement which has not been
disclosed to FBS, as of the date of this Agreement, in this Agreement, any
Schedule hereto, or any document specifically required to be furnished to
FBS hereunder, regarding MFC or any of the Subsidiaries which would,
individually or in the aggregate with other such facts and circumstances,
(i) materially impair the consummation of the transactions contemplated by
this Agreement, or (ii) have a material adverse effect on the business,
operations or financial condition of MFC and the Subsidiaries, taken as a
whole.
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(k) MATERIAL ADVERSE CHANGE. Since the date of this Agreement, there
has been no material adverse change in, and no event, occurrence or
development in the business of MFC or the Subsidiaries that, taken together
with other events, occurrences and developments with respect to such
business, would have or would reasonably be expected to have a material
adverse effect on, the business, operations or financial condition of MFC
and the Subsidiaries, taken as a whole.
(l) STOCK OPTION AGREEMENT. Immediately following the execution and
delivery of this Agreement, FBS and MFC shall have executed and delivered
the Stock Option Agreement.
ARTICLE 7
TERMINATION, AMENDMENT AND WAIVER
7.1. TERMINATION. This Agreement may be terminated prior to the Effective
Date:
(a) by mutual consent of FBS and MFC;
(b) by either FBS or MFC, if any of the conditions to such party's
obligation to consummate the transactions contemplated in this Agreement
shall have become impossible to satisfy;
(c) by either FBS or MFC, if this Agreement and the Merger are not duly
approved by the shareholders of each of MFC and FBS, in each case at a
meeting of shareholders (or any adjournment thereof) duly called and held
for such purpose;
(d) by FBS or MFC if the Effective Date is not on or before September
30, 1995 (unless the failure to consummate the Merger by such date shall be
due to the action or failure to act of the party seeking to terminate this
Agreement in breach of such party's obligations under this Agreement);
(e) by FBS or MFC if the Average Price is less than $29.50;
(f) by MFC if (1) any corporation, partnership, person, other entity or
group, as defined in the 1934 Act (other than FBS or any affiliate of FBS)
(a "Person"), shall have commenced (as such term is used in Rule 14d-2(b)
under the 1934 Act) a bona fide tender offer for all outstanding shares of
MFC Common Stock or any Person shall have made a bona fide written offer
involving a merger or consolidation of MFC or the acquisition of all or
substantially all of its assets, and (2) MFC's Board of Directors shall
determine, based on advice of MFC's independent financial advisors that such
offer is a material economic improvement to the Company's shareholders when
compared to the Merger, and (3) MFC's Board of Directors determines upon the
advice of its legal counsel that if they failed to recommend such offer or
accept such proposal then such failure would be likely to result in a breach
of the directors' fiduciary duties; provided, however, that MFC may not
terminate the Agreement pursuant to this Section 7.1(f) until the expiration
of five business days after written notice of any such offer or proposal
referenced in this Section 7.1(f) has been delivered to FBS, together with a
summary of the terms of any such offer or proposal;
(g) by FBS if, after the date hereof, any Person shall have commenced
(as such term is used in Rule 14d-2(b) under the 1934 Act) a bona fide
tender offer or exchange offer to acquire at least 20% of the then
outstanding shares of MFC Common Stock, or if the Board of Directors of MFC
shall have withdrawn, modified or changed its recommendation of this
Agreement or the Merger; or
(h) by FBS if after the date hereof, there shall have occurred a
"Subsequent Triggering Event" as defined in the Stock Option Agreement.
Any party desiring to terminate this Agreement shall give written
notice of such termination and the reasons therefor to the other party.
7.2. EFFECT OF TERMINATION. If this Agreement is terminated as permitted
by Section 7.1, such termination shall be without liability or obligation of any
party (or any shareholder, officer, employee, agent, consultant or
representative of such party) to any other party to this Agreement, except (a)
that if such termination is (i) by MFC pursuant to (A) Section 7.1(b) as a
result of a failure of the condition contained in Section 6.2(g), or
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(B) Section 7.1(f) or (ii) by FBS pursuant to (A) Section 7.1(g), (B) Section
7.1(h), or (C) Section 7.1(b) as a result of the failure of the condition
contained in Section 6.3(a) because of the willful and material breach by MFC of
any obligation, agreement or covenant referred to therein (a "willful and
material" breach for the purposes of this Section 7.2 shall be deemed to have
occurred if MFC has intentionally and knowingly taken, or intentionally and
knowingly failed to take, any action which causes such breach), then MFC shall
pay to FBS within three business days of such termination, a termination fee of
$35,000,000 by wire transfer in immediately available funds to an account
designated by FBS, (b) as may be otherwise provided in law or in equity, and (c)
except as provided in Section 8.6.
7.3. AMENDMENT. This Agreement may not be amended except by an instrument
in writing approved by the parties to this Agreement and signed on behalf of
each of the parties hereto.
7.4. WAIVER. At any time prior to the Effective Date, any party hereto may
(a) extend the time for the performance of any of the obligations or other acts
of any other party hereto or (b) waive compliance with any of the agreements of
any other party or with any conditions to its own obligations, in each case only
to the extent such obligations, agreements and conditions are intended for its
benefit.
ARTICLE 8
GENERAL PROVISIONS
8.1. PUBLIC STATEMENTS. Neither MFC nor FBS shall make any public
announcement or statement with respect to the Merger, this Agreement or any
related transactions without the approval of the other party; provided, however,
that either FBS or MFC may, upon reasonable notice to the other party, make any
public announcement or statement that it believes is required by federal
securities law. To the extent practicable, each of FBS and MFC will consult with
the other with respect to any such public announcement or statement.
8.2. NOTICES. All notices and other communications hereunder shall be in
writing and shall be sufficiently given if made by hand delivery, by fax, by
telecopier, by overnight delivery service, or by registered or certified mail
(postage prepaid and return receipt requested) to the parties at the following
addresses (or at such other address for a party as shall be specified by it by
like notice):
if to FBS:
First Bank System, Inc.
First Bank Place
601 Second Avenue South
Minneapolis, Minnesota 55402-4302
Attention: Richard A. Zona, Vice Chairman
and Chief Financial Officer
Fax: (612) 973-0410
with a copy to:
Dorsey & Whitney
220 South Sixth Street
Minneapolis, Minnesota 55402
Attention: Lee R. Mitau, Esq.
Fax: (612) 340-8738
if to MFC:
Metropolitan Financial Corporation
1000 South Seventh Street
Minneapolis, Minnesota 55402
Attention: Norman M. Jones, Chairman
Fax: (612) 339-6011
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with a copy to:
Oppenheimer Wolff & Donnelly
3400 Plaza VII Building
45 South Seventh Street
Minneapolis, Minnesota 55402
Attention: Bruce A. Machmeier, Esq.
Fax: (612) 344-9376
All such notices and other communications shall be deemed to have been duly
given as follows: when delivered by hand, if personally delivered; five business
days after being deposited in the mail, postage prepaid, if delivered by mail;
when receipt acknowledged, if faxed or telecopied; and the next day after being
delivered to an overnight delivery service.
8.3. INTERPRETATION. When a reference is made in this Agreement to
subsidiaries of FBS, the word "subsidiary" means any "majority-owned subsidiary"
(as defined in Rule 12b-2 under the 1934 Act) of FBS, as the context requires;
provided, however, that neither MFC nor any of the Subsidiaries shall at any
time be considered a subsidiary of FBS for purposes of this Agreement. The
headings contained in this Agreement are for reference purposes only and shall
not affect in any way the meaning or interpretation of this Agreement.
References to Sections and Articles refer to Sections and Articles of this
Agreement unless otherwise stated. Words such as "herein," "hereinafter,"
"hereof," "hereto," "hereby" and "hereunder," and words of like import, unless
the context requires otherwise, refer to this Agreement (including the Exhibits
and Schedules hereto). As used in this Agreement, the masculine, feminine and
neuter genders shall be deemed to include the others if the context requires.
8.4. SEVERABILITY. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, void or
unenforceable, the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect and shall
in no way be affected, impaired or invalidated, and the parties shall negotiate
in good faith to modify this Agreement and to preserve each partys anticipated
benefits under this Agreement.
8.5. MISCELLANEOUS. This Agreement (together with all other documents and
instruments referred to herein): (a) constitutes the entire agreement, and
supersedes all other prior agreements and undertakings, both written and oral,
among the parties, with respect to the subject matter hereof; (b) is not
intended to confer upon any person other than each party hereto any rights or
remedies hereunder, except as provided in Section 5.15; (c) shall be governed in
all respects, including validity, interpretation and effect, by the internal
laws of the State of Minnesota, without giving effect to the principles of
conflict of laws thereof; (d) shall not be assigned by operation of law or
otherwise. This Agreement may be executed in two or more counterparts which
together shall constitute a single agreement.
8.6. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS. The
representations and warranties of the parties set forth herein shall not survive
the consummation of the Merger, but covenants that specifically relate to
periods, activities or obligations subsequent to the Merger shall survive the
Merger. In addition, if this Agreement is terminated pursuant to Section 7.1,
the covenants contained in Sections 5.4, 5.7(c) and 7.2 shall survive such
termination.
8.7. SCHEDULES. The Schedules referred to in this Agreement shall be
delivered as of the date hereof under cover of a letter from the Chief Executive
Officer of MFC.
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IN WITNESS WHEREOF, FBS and MFC have caused this Agreement to be executed on
the date first written above by their respective officers.
FIRST BANK SYSTEM, INC.
By_______/s/_JOHN F. GRUNDHOFER_______
Its Chairman, President and Chief
Executive Officer
METROPOLITAN FINANCIAL CORPORATION
By_________/s/_NORMAN M. JONES________
Its Chairman of the Board and Chief
Executive Officer
A-37
<PAGE>
APPENDIX B
[LETTERHEAD]
November __, 1994
The Board of Directors
Metropolitan Financial Corporation
1000 South Seventh Street
Minneapolis, MN 55402
Ladies and Gentlemen:
You have requested our opinion, as of the date hereof, as to the fairness,
from a financial point of view to the common stock shareholders of Metropolitan
Financial Corporation, a Delaware corporation ("MFC" or the "Company"), of the
terms of the proposed merger (the "Merger") of the Company with and into First
Bank System, Inc. ("FBS"). The terms of the Merger are set forth in the
Agreement of Merger and Consolidation dated July 21, 1994, (the "Agreement") and
include the approval of the Agreement by shareholders representing a majority of
the outstanding shares of MFC common stock and subsequent conversion of each
share of MFC common stock, and each right to acquire a share of MFC common
stock, into .6803 shares of fully registered and tradable FBS common stock,
subject to adjustment as provided in the Agreement (the "Exchange Ratio"). Based
upon the closing price indicated for FBS common stock as of November __, 1994,
$_____ per share, and an Exchange Ratio of .6803 shares, each shareholder of MFC
common stock would receive $_____ in FBS common stock for each share of MFC
common stock held. The Agreement provides that if the Average Price of FBS
common stock is less than $33.00, then, the Exchange Ratio will be increased by
multiplying the Exchange Ratio by the quotient of (i) $33.00 divided by (ii) the
Average Price. The Agreement also provides if the Average Price of FBS common
stock is greater than $40.50, then the Exchange Ratio will be decreased by
multiplying the Exchange Ratio by the quotient of (i) $40.50 divided by (ii) the
Average Price. Also, the Board of Directors of FBS or MFC may terminate the
Merger if the Average Price of FBS common stock is less than $29.50 per share or
under certain other provisions contained in the Agreement. Average Price is
based on the average closing market price per share of FBS common stock during
the twenty consecutive trading days ending on the third trading day prior to the
last date of the meetings of shareholders scheduled to obtain the shareholder
approvals referred to in the Agreement.
Dain Bosworth Incorporated ("Dain Bosworth"), as part of its investment
banking business, is continually engaged in the valuation of businesses and
their securities in connection with mergers and acquisitions, negotiated
underwritings, competitive bids, secondary distributions of listed and unlisted
securities, private placements, and valuations for estate, corporate, and other
purposes. Dain Bosworth is familiar with the Company having provided certain
investment banking services to the Company from time to time including acting as
underwriter of the public offering of (i) convertible preferred stock in July
1989, (ii) preferred stock and warrants in November 1990 and (iii) subordinated
notes in September 1992. We have also provided investment banking services to
the Company in connection with three financial advisory assignments commencing
in March 1992, September 1993 and June 1994. In connection with the Merger, Dain
Bosworth has also issued an opinion to the Board of Directors of MFC related to
the consideration to be paid by FBS to the holders of the $2.875 Cumulative
[LETTERHEAD]
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Perpetual Preferred Stock, Series B, of MFC for such outstanding shares. We also
have provided certain investment banking services to FBS or its subsidiaries
from time to time, and may provide certain investment banking services to FBS in
the future. Dain Bosworth, and its parent company, Inter-Regional Financial
Group, Inc., maintain significant banking relationships with FBS. Also, Dain
Bosworth has from time to time issued research reports and recommendations on
the common stock of both MFC and FBS and, in the ordinary course of business,
Dain Bosworth may periodically have positions in the common stock of the Company
and FBS.
In connection with this opinion, we have, among other things, reviewed
certain publicly available information regarding the Company and FBS and other
financial and operating information supplied to us by the Company, including
certain historical audited financial statements, certain interim unaudited
financial statements, and certain financial projections relating to the Company.
We have visited the corporate offices of the Company and FBS and have held
discussions with members of the senior management of both companies. In
addition, we made inquiries of the management of MFC regarding the past and
current business operations, financial condition, and future prospects for the
Company. We have reviewed the Agreement and selected other documents connected
with the Merger. In addition, we have held discussions with senior management of
MFC and FBS to understand the companies' reasons for wanting to complete the
Merger.
We have analyzed the historical reported market prices and trading activity
of the common stock of MFC, as well as the Company's historical and projected
revenue, earnings, and capitalization. We have also analyzed the historical
reported market prices and trading activity of the common stock of FBS. We have
compared financial and stock market information on MFC and FBS to similar
information for certain publicly traded companies. We have also reviewed, to the
extent publicly available, the terms of selected relevant mergers and
acquisitions, analyzed the general economic outlook of companies in the bank and
thrift industries, and performed other studies and analyses as we considered
appropriate.
Dain Bosworth was instructed not to solicit, and did not solicit, proposals
from other parties regarding the acquisition of MFC. In preparing our opinion we
have relied upon the accuracy and completeness of all information provided or
otherwise made available to us by the Company and FBS, and we have not
independently verified such information. Also, we have not made an independent
appraisal of the assets of the Company or FBS, and we do not express an opinion
regarding the liquidation value of MFC. The opinion herein affirms our opinion
dated July 21, 1994, addressed to the Board of Directors of MFC.
Based upon the foregoing, and other matters that we considered relevant, it
is our opinion that, as of the date hereof, the consideration to be received
pursuant to the terms of the Merger is fair to the common stock shareholders of
Metropolitan Financial Corporation from a financial point of view.
Very truly yours,
DAIN BOSWORTH INCORPORATED
[LOGO]
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APPENDIX C
[Letterhead of Montgomery Securities]
July 20, 1994
Members of the Board of Directors
Metropolitan Financial Corporation
1000 Metropolitan Centre
333 South Seventh Street
Minneapolis, Minnesota 55402
Gentlemen:
We understand that Metropolitan Financial Corporation, a Delaware
corporation (the "Company"), and First Bank System, Inc., a Delaware corporation
("FBS"), proposes to enter into an Agreement of Merger and Consolidation, dated
July 21, 1994 (the "Agreement"), pursuant to which the Company will be merged
with and into FBS, which will be the surviving entity (the "Merger"). Pursuant
to the Merger, as more fully described in the Agreement, we understand that each
share of outstanding common stock, $0.01 par value, of the Company will be
converted into .6803 shares of common stock, $1.25 par value, of FBS, which
equates to a price of $24.66 per share of common stock of the Company based on
the closing price of the common stock of FBS on July 20, 1994 of $36.25 (the
"Consideration"). The Consideration is subject to adjustment as provided in the
Agreement if, among other things, the Average Price (as defined in the
Agreement) of a share of the common stock of FBS is less than $33.00 or greater
than $40.50.
You have asked for our opinion as to whether the Consideration to be
received by the common stockholders of the Company pursuant to the Merger is
fair to such common stockholders from a financial point of view, as of the date
hereof. As you are aware, we were not retained to nor did we advise the Company
with respect to alternatives to the Merger or the Company's decision to proceed
with or effect the Merger. Further, you have not asked us to nor do we express
any opinion as to the fairness of the consideration to be received by the
preferred stockholders of the Company pursuant to the Merger.
In connection with our opinion, we have, among other things:
(i) reviewed certain publicly available financial and other data with
respect to the Company and FBS including the consolidated financial
statements for recent years and interim periods to date and certain
other relevant financial and operating data relating to the Company
and FBS made available to us from published sources and from the
internal records of the Company;
(ii) reviewed the form of the Merger Agreement;
(iii) reviewed certain historical market prices and trading volumes of
the common stock of the Company and the common stock of FBS as
reported by the New York Stock Exchange;
(iv) compared the Company and FBS from a financial point of view with
certain other companies in the financial services industry that we
deemed to be relevant;
(v) considered the financial terms, to the extent publicly available, of
selected recent acquisitions of financial institutions that we
deemed to be comparable, in whole or in part, to the Merger;
(vi) reviewed and discussed with representatives of the management of
the Company and FBS certain information of a business and financial
nature regarding the Company and FBS, furnished to us by the
Company and FBS, including financial forecasts and related
assumptions of the Company;
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(vii) made inquiries regarding and discussed the Merger and the Agreement
and other matters related thereto with the Company's counsel; and
(viii) performed such other analyses and examinations as we have deemed
appropriate.
In connection with our review, we have not independently verified any of the
foregoing information, have relied on all such information and assumed that all
such information is complete and accurate in all material respects. With respect
to the financial forecasts for the Company provided to us by the Company's
management, we have assumed for purposes of our opinion that they have been
reasonably prepared on bases reflecting the best available estimates and
judgments of the Company's management at the time of preparation as to the
future financial performance of the Company and that they provide a reasonable
basis upon which we can form our opinion. We have also assumed that there have
been no material changes in the Company's or FBS's assets, financial condition,
results of operations, business or prospects since the date of the last
financial statements made available to us. We have relied on advice of counsel
to the Company as to all legal matters with respect to the Company, the Merger
and the Agreement. In addition, we have not made an independent evaluation,
appraisal or physical inspection of the assets or individual properties of the
Company or FBS, nor have we been furnished with any such appraisals. Further,
our opinion is based on economic, monetary and market conditions existing as of
the date hereof.
In the ordinary course of our business, we actively trade the equity
securities of the Company and FBS for our own account and for the accounts of
customers and, accordingly, may at any time hold a long or short position in
such securities. Certain partners of Montgomery Securities also own shares of
the common stock of the Company and FBS.
Based upon the foregoing and in reliance thereon, it is our opinion that the
Consideration to be received by the common stockholders of the Company pursuant
to the Merger is fair to such common stockholders from a financial point of
view, as of the date hereof.
This opinion is furnished pursuant to our engagement letter, dated July 7,
1994. Except with respect to the use of this opinion in connection with the
Proxy Statement/Prospectus relating to the Merger, this opinion may not be used
or referred to be the Company or quoted or disclosed to any person in any manner
without our prior written consent. This opinion is not intended to be and shall
not be deemed to be a recommendation to any stockholder of the Company as to how
such stockholder should vote with respect to the Merger.
Very truly yours,
MONTGOMERY SECURITIES
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APPENDIX D
[LETTERHEAD]
November 28, 1994
Board of Directors
First Bank System, Inc.
First Bank Place
601 Second Avenue South
Minneapolis, MN 55402-4302
Ladies and Gentlemen:
You have requested our opinion as to the fairness, from a financial point of
view, to the common shareholders of First Bank System, Inc. (the "Company") of
the consideration to be paid by the Company in connection with the proposed
merger (the "Merger") of the Company and Metropolitan Financial Corporation
("Metropolitan"), pursuant to the Agreement of Merger and Consolidation dated
July 21, 1994 by and between Metropolitan and the Company (the "Agreement"). All
capitalized terms used but not otherwise defined herein shall have the meanings
provided in the Agreement.
We understand that in the Merger:
(a) The holders of MFC Common Stock shall be entitled to receive .6803
shares of FBS Common Stock (the "Exchange Ratio") in exchange for each
share of MFC Common Stock. The Exchange Ratio shall be subject to
adjustment as described in paragraph (c) below.
(b) The holders of MFC Preferred Stock shall be entitled to receive in
exchange for each share of MFC Preferred Stock $27.00 in cash, plus
the amount of any accumulated and unpaid dividends on each such share
of MFC Preferred Stock to but excluding the Effective Date, calculated
in accordance with the terms of such MFC Preferred Stock.
(c) If the Average Price of FBS Common Stock is less than $33.00, the
Exchange Ratio shall be adjusted by multiplying the Exchange Ratio by
the ratio of $33.00 to such Average Price. If the Average Price of FBS
Common Stock is greater than $40.50, the Exchange Ratio shall be
adjusted by multiplying the Exchange Ratio by the ratio of $40.50 to
such Average Price.
(d) The term "Average Price" means the average of the closing prices of
FBS Common Stock as quoted on the New York Stock Exchange for the 20
trading days ending three business days prior to the last date of the
meetings of shareholders of the Company and Metropolitan held for the
purpose of approving the Agreement and the Merger.
Please be advised that while certain provisions of the Merger are summarized
above, the terms of the Merger are more fully described in the Agreement. As a
result, the description of the Merger and certain other information contained
herein is qualified in its entirety by reference to the more detailed
information appearing or incorporated by reference in the Agreement.
D-1
<PAGE>
[LETTERHEAD]
In arriving at our opinion, we have reviewed (1) the Agreement and (2)
certain financial and other publicly available information with respect to
Metropolitan and the Company, including among other things (i) with respect to
Metropolitan, Annual Reports on Form 10-K for each of the five years ending
December 31, 1989 through December 31, 1993, the Quarterly Report on Form 10-Q
for the quarter ending September 30, 1994, and certain other financial
information and (ii) with respect to the Company, Annual Reports on Form 10-K
for each of the five years ending December 31, 1989 through December 31, 1993,
the Quarterly Report on Form 10-Q for the quarter ending September 30, 1994, and
certain other financial information. In addition, we have reviewed the financial
and other terms of certain other acquisitions involving thrifts and thrift
holding companies we deemed to be comparable to the Merger, and the reported
price and trading activity for the securities of certain companies we deemed
comparable to the Company and Metropolitan, current and historical market prices
of the Preferred Stock and Common Stock of Metropolitan and the common stock of
the Company, and certain internal financial analyses and forecasts prepared by
the Company and Metropolitan, and have performed such other studies and analyses
as we deemed necessary or appropriate.
We also have held discussions with certain members of the senior management
of the Company and Metropolitan regarding the Merger and certain aspects of the
past and current business operations, financial condition and future prospects
of their respective companies, the effects of the Merger on the financial
condition and future prospects of the Company, and certain other matters we
believed necessary or appropriate to our inquiry.
In arriving at our opinion, we have relied upon and assumed, without
independent verification, the accuracy and completeness of all information that
was publicly available or was furnished to us by the Company or Metropolitan or
otherwise reviewed by us. We have not acted as experts in considering the loan
portfolios of the Company or Metropolitan or the allowances for loan losses with
respect thereto. In addition, in arriving at our opinion, we have not made an
independent evaluation or appraisal of any assets or liabilities of the Company
or Metropolitan or any of their subsidiaries. We have also assumed that the
Agreement accurately reflects all of the terms relevant to our opinion upon
which the parties will consummate the Merger.
In relying on financial analyses and forecasts provided to us, we have
assumed that they have been reasonably prepared based on assumptions reflecting
the best currently available estimates and judgments by management as to the
expected future results of operations and financial condition of the Company and
Metropolitan to which such analyses or forecasts relate. We have also assumed
that the Merger will have the tax consequences described in the Agreement, and
that the other transactions contemplated by the Agreement will be consummated as
described in the Agreement. We have relied as to all legal matters relating to
the Merger and the Agreement upon the advice of your counsel.
Our opinion is necessarily based on economic, market and other conditions as
in effect on, and the information made available to us as of, the date hereof.
We are expressing no opinion herein as to the price at which the common
shares of the Company will trade if and when issued or at any further time.
Other factors after the date hereof may affect the value of the businesses of
the Company and Metropolitan after consummation of the Merger, including but not
limited to (i) the total or partial disposition of the common stock of the
Company by shareholders of the Company or Metropolitan within a short period of
time after the effective date of the Merger, (ii) changes in prevailing interest
rates and other factors which generally influence the price of securities, (iii)
adverse changes in capital markets, (iv) the occurrence of unanticipated adverse
changes in the financial condition, business, assets, results of operations or
prospects of the Company or of Metropolitan, (v) any actions by or restrictions
of federal, state or other governmental agencies or regulatory authorities, and
(vi) timely execution of all necessary agreements to complete the Merger on
terms and conditions that are acceptable to all parties at interest.
D-2
<PAGE>
[LETTERHEAD]
In the ordinary course of their businesses, J.P. Morgan Securities Inc.
("J.P. Morgan") and its affiliates may actively trade the debt and equity
securities of the Company or Metropolitan, for their own accounts, or for the
accounts of customers, and accordingly, may at any time hold a long or short
position in such securities. J.P. Morgan is regularly engaged in a full range of
investment banking activities, including mergers and acquisitions and the
underwriting and placement of debt and equity securities. From time to time, we
have offered and provided traditional investment banking services to the
Company. Please be advised that pursuant to an agreement with Morgan Guaranty
Trust Company of New York, an affiliate of J.P. Morgan, the Company has acquired
the corporate trust business of J.P. Morgan for an undisclosed sum.
On the basis of the foregoing, it is our opinion that the consideration to
be paid by the Company in the Merger is fair, from a financial point of view, to
the common stockholders of the Company.
This opinion may be reproduced in full in any proxy or information statement
mailed to stockholders of the Company but may not otherwise be disclosed
publicly in any manner without our prior written approval and must be treated as
confidential.
Very truly yours,
J.P. Morgan Securities Inc.
By /s/__NICHOLAS B. PAUMGARTEN
Name: Nicholas B. Paumgarten
Title: Managing Director
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Under Delaware law, the directors and officers of First Bank System, Inc.
(the "Company") are entitled, under certain circumstances, to be indemnified by
the Company against all expenses and liabilities incurred or imposed upon them
as a result of suits brought against them as such directors and officers, if
they act in good faith and in a manner they reasonably believe to be in or not
opposed to the best interests of the Company, and, with respect to any criminal
action or proceeding, have no reasonable cause to believe their conduct was
unlawful, except that no indemnification shall be made against expenses in
respect of any claim, issue or matter as to which they shall have been adjudged
to be liable to the Company, unless and only to the extent that the court in
which such action or suit was brought shall determine upon application that,
despite the adjudication of liability but in view of all the circumstances of
the case, they are fairly and reasonably entitled to be indemnified for such
expenses which such court shall deem proper. Any such indemnification may be
made by the Company only as authorized in each specific case upon a
determination by the stockholders or disinterested directors that
indemnification is proper because the indemnitee has met the applicable
statutory standard of conduct.
Article Ninth of the Company's Restated Certificate of Incorporation, as
amended, provides that a director shall not be liable to the Company or its
stockholders for monetary damages for a breach of fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of loyalty to the
Company or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
the Delaware statutory provisions making directors personally liable for
unlawful dividends or unlawful stock repurchases or redemptions or (iv) for any
transaction from which the director derived an improper personal benefit.
The Bylaws of the Company provide that the officers and directors of the
Company and certain others shall be indemnified substantially to the same extent
permitted by Delaware law.
The Company maintains a standard policy of officers' and directors'
liability insurance.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS.
2.1 Agreement of Merger and Consolidation dated July 21, 1994, by
and between First Bank System, Inc. and Metropolitan Financial
Corporation. (Included in Proxy Statement/Prospectus as
Appendix A.) The registrant agrees to furnish supplementally a
copy of omitted schedules to the Commission upon request.
4.1 Restated Certificate of Incorporation, as amended, of First
Bank System, Inc. (Incorporated by reference to Exhibit 2.1 to
the registrant's Form 8-A/A-2 dated October 6, 1994, File No.
1-6880.)
4.2 Certificate of Designation for First Bank System, Inc. Series
1990A Preferred Stock. (Incorporated by reference to Exhibit
4.4 to Amendment No. 1 to the registrant's Registration
Statement on Form S-3, File No. 33-42650.)
II-1
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4.3 Certificate of Designation for First Bank System, Inc. Series
1991A Convertible Preferred Stock. (Incorporated by reference
to Exhibit 4.3 to the registrant's Registration Statement on
Form S-4, File No. 33-50700.)
4.4 Certificate of Designation for First Bank System, Inc. Series A
Junior Participating Preferred Stock, as amended. (Incorporated
by reference to Exhibit 2.4 to the registrant's Form 8-A/A-2
dated October 6, 1994, File No. 1-6880.)
4.5 Bylaws of First Bank System, Inc. (Incorporated by reference to
Exhibit 3B to the registrant's Annual Report on Form 10-K for
the year ended December 31, 1993, File No. 1-6880.)
4.6 Rights Agreement dated as of December 21, 1988, between First
Bank System, Inc. and Morgan Shareholder Services Trust Company
(now known as First Chicago Trust Company of New York).
(Incorporated by reference to Exhibit 1 to the registrant's
Current Report on Form 8-K dated January 5, 1989, File No.
1-6880.)
4.7 Amendment No. 1 dated as of May 30, 1990, to Rights Agreement.
(Incorporated by reference to Exhibit 4(a) to the registrant's
Current Report on Form 8-K dated June 5, 1990, File No.
1-6880.)
4.8 Amendment No. 2 dated as of February 17, 1993, to Rights
Agreement. (Incorporated by reference to Exhibit 4(a) to the
registrant's Current Report on Form 8-K filed March 1, 1993,
File No. 1-6880.)
4.9 Stock Purchase Agreement, dated as of May 30, 1990, among
Corporate Partners, L.P., Corporate Offshore Partners, L.P.,
The State Board of Administration of Florida and First Bank
System, Inc. (without exhibits). (Incorporated by reference to
Exhibit 4.8 to Amendment No. 1 to the registrant's Registration
Statement on Form S-3, File No. 33-42650.)
4.10 First Amendment, dated as of June 30, 1990, to Stock Purchase
Agreement among Corporate Partners, L.P., Corporate Offshore
Partners, L.P., The State Board of Administration of Florida
and First Bank System, Inc. (Incorporated by reference to
Exhibit 4.9 to Amendment No. 1 to the registrant's Registration
Statement on Form S-3, File No. 33-42650.)
4.11 Second Amendment, dated July 18, 1990, to Stock Purchase
Agreement among Corporate Partners, L.P., Corporate Offshore
Partners, L.P., The State Board of Administration of Florida
and First Bank System, Inc. (Incorporated by reference to
Exhibit 4.10 to Amendment No. 1 to the registrant's
Registration Statement on Form S-3, File No. 33-42650.)
4.12 Stock Purchase Agreement, dated as of May 30, 1990, between The
State Board of Administration of Florida and First Bank System,
Inc. (without exhibits). (Incorporated by reference to
Exhibit 4.11 to Amendment No. 1 to the registrant's
Registration Statement on Form S-3, File No. 33-42650.)
4.13 Form of Periodic Stock Purchase Right. (Incorporated by
reference to Exhibit 4.12 to Amendment No. 1 to the
registrant's Registration Statement on Form S-3, File No.
33-42650.)
II-2
<PAGE>
4.14 Form of Risk Event Warrant. (Incorporated by reference to
Exhibit 4.13 to Amendment No. 1 to the registrant's
Registration Statement on Form S-3, File No. 33-42650.)
4.15 Registration Rights Agreement, dated as of July 18, 1990, among
Corporate Partners, L.P., Corporate Offshore Partners, L.P.,
The State Board of Administration of Florida and First Bank
System, Inc. (Incorporated by reference to Exhibit 4.14 to
Amendment No. 1 to the registrant's Registration Statement on
Form S-3, File No. 33-42650.)
4.16 Registration Rights Agreement, dated as of July 18, 1990,
between The State Board of Administration of Florida and First
Bank System, Inc. (Incorporated by reference to Exhibit 4.14 to
Amendment No. 1 to the registrant's Registration Statement on
Form S-3, File No. 33-42650.)
*5.1 Opinion and consent of Dorsey & Whitney as to legality of the
securities being registered.
*8.1 Opinion and consent of Oppenheimer Wolff & Donnelly as to
certain federal income tax consequences described in the Proxy
Statement/Prospectus.
23.1 Consent of Dorsey & Whitney. (Included in Exhibit 5.1.)
23.2 Consent of Oppenheimer Wolff & Donnelly. (Included in Exhibit
8.1.)
*23.3 Consent of Ernst & Young LLP (relating to financial statements
of First Bank System, Inc.).
*23.4 Consent of Ernst & Young LLP (relating to financial statements
of Metropolitan Financial Corporation).
**23.5 Consent of Dain Bosworth Incorporated.
**23.6 Consent of Montgomery Securities.
**23.7 Consent of J.P. Morgan Securities Inc.
*24.1 Powers of Attorney.
99.1 Opinion of Dain Bosworth Incorporated. (Included in Proxy
Statement/Prospectus as Appendix B.)
99.2 Opinion of Montgomery Securities. (Included in Proxy
Statement/Prospectus as Appendix C.)
99.3 Opinion of J.P. Morgan Securities Inc.. (Included in Proxy
Statement/Prospectus as Appendix D.)
99.4 Stock Option Agreement dated July 21, 1994, between First Bank
System, Inc. and Metropolitan Financial Corporation.
(Incorporated by reference to Exhibit 2.2 to the registrant's
Current Report on Form 8-K dated August 5, 1994, File No.
1-6880.)
*99.5 Form of proxy for Special Meeting of shareholders of First Bank
System, Inc.
II-3
<PAGE>
*99.6 Form of proxy for Special Meeting of shareholders of
Metropolitan Financial Corporation.
99.7 Certificate of Incorporation of Metropolitan Financial
Corporation, as amended. (Incorporated by reference to
Exhibit 4.2 to Metropolitan Financial Corporation's
Registration Statement on Form S-8 (File No. 33-35207)).
99.8 Bylaws of Metropolitan Financial Corporation, as amended.
(Incorporaated by reference to Exhibit 3.2 to Metropolitan
Financial Corporation's Annual Report on Form 10-K for
the year ended December 31, 1993 (File No. 1-9018)).
99.9 Employment Agreement, dated May 29, 1990, between J. Michael
Nilles and Metropolitan Financial Corporation. (Incorporated
by reference to Exhibit 10.17 to Metropolitan Financial
Corporation's Annual Report on Form 10-K for the year ended
December 31, 1993 (File No. 1-9018).)
- -------------------------
* Previously filed.
** Filed herewith.
(b) FINANCIAL STATEMENT SCHEDULES.
None.
(c) REPORTS, OPINIONS AND APPRAISALS.
The opinions of Dain Bosworth Incorporated, Montgomery Securities and
J.P. Morgan Securities Inc. are included in the Proxy Statement/Prospectus as
Appendices B, C and D, respectively, and referred to above as Exhibits 99.1,
99.2 and 99.3, respectively.
ITEM 22. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3)
of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration statement
(or the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental change
in the information set forth in the registration statement; and
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in the
registration statement or any material change to such information
in the registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof; and
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or 15(d) of the Securities
Exchange Act of 1934 that is incorporated by reference in the registration
statement shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
(c) The undersigned registrant hereby undertakes that prior to any public
reoffering of the securities registered hereunder through use of a prospectus
which is a part of this registration statement, by any person or party who is
deemed to be an underwriter within the meaning of Rule 145(c), the issuer
undertakes that such reoffering prospectus will contain the information called
for by the applicable registration form with respect to reofferings by persons
who may be deemed underwriters, in addition to the information called for by the
other items of the applicable form.
(d) The registrant undertakes that every prospectus (i) that is filed
pursuant to paragraph (c) immediately preceding, or (ii) that purports to meet
the requirements of section 10(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(e) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to its articles, bylaws or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(f) The undersigned registrant hereby undertakes to respond to requests
for information that is incorporated by reference into the prospectus pursuant
to Items 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(g) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 3 to the registration statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Minneapolis, State of Minnesota, on November 28, 1994.
FIRST BANK SYSTEM, INC.
By /s/ JOHN F. GRUNDHOFER
-------------------------------------
John F. Grundhofer
Chairman, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 3 to the registration statement has been signed by the following persons in
the capacities and on the dates indicated.
SIGNATURE AND TITLE DATE
------------------- ----
/s/ JOHN F. GRUNDHOFER November 28, 1994
- --------------------------------------------
John F. Grundhofer,
Chairman, President, Chief Executive Officer
and Director (principal executive officer)
/s/ RICHARD A. ZONA November 28, 1994
- --------------------------------------------
Richard A. Zona,
Vice Chairman and Chief Financial
Officer (principal financial officer)
/s/ DAVID J. PARRIN November 28, 1994
- --------------------------------------------
David J. Parrin,
Senior Vice President and Controller
(principal accounting officer)
* November 28, 1994
- --------------------------------------------
Coleman Bloomfield, Director
* November 28, 1994
- --------------------------------------------
Roger L. Hale, Director
* November 28, 1994
- --------------------------------------------
Delbert W. Johnson, Director
II-6
<PAGE>
* November 28, 1994
- --------------------------------------------
John H. Kareken, Director
* November 28, 1994
- --------------------------------------------
Richard L. Knowlton, Director
* November 28, 1994
- --------------------------------------------
Kenneth A. Macke, Director
* November 28, 1994
- --------------------------------------------
Marilyn C. Nelson, Director
* November 28, 1994
- --------------------------------------------
Will F. Nicholson, Jr., Director
* November 28, 1994
- --------------------------------------------
Nicholas R. Petry, Director
* November 28, 1994
- --------------------------------------------
Edward J. Phillips, Director
* November 28, 1994
- --------------------------------------------
James J. Renier, Director
* November 28, 1994
- --------------------------------------------
S. Walter Richey, Director
* November 28, 1994
- --------------------------------------------
Richard L. Robinson, Director
* November 28, 1994
- --------------------------------------------
Richard L. Schall, Director
* November 28, 1994
- --------------------------------------------
Lyle E. Schroeder, Director
* By /s/ DAVID J. PARRIN
- --------------------------------------------
David J. Parrin,
Pro se and as Attorney-in-Fact
II-7
<PAGE>
EXHIBIT INDEX
2.1 Agreement of Merger and Consolidation dated July 21, 1994, by
and between First Bank System, Inc. and Metropolitan Financial
Corporation. (Included in Proxy Statement/Prospectus as
Appendix A.) The registrant agrees to furnish supplementally a
copy of omitted schedules to the Commission upon request.
4.1 Restated Certificate of Incorporation, as amended, of First
Bank System, Inc. (Incorporated by reference to Exhibit 2.1 to
the registrant's Form 8-A/A-2 dated October 6, 1994, File No.
1-6880.)
4.2 Certificate of Designation for First Bank System, Inc. Series
1990A Preferred Stock. (Incorporated by reference to Exhibit
4.4 to Amendment No. 1 to the registrant's Registration
Statement on Form S-3, File No. 33-42650.)
4.3 Certificate of Designation for First Bank System, Inc. Series
1991A Convertible Preferred Stock. (Incorporated by reference
to Exhibit 4.3 to the registrant's Registration Statement on
Form S-4, File No. 33-50700.)
4.4 Certificate of Designation for First Bank System, Inc. Series A
Junior Participating Preferred Stock, as amended. (Incorporated
by reference to Exhibit 2.4 to the registrant's Form 8-A/A-2
dated October 6, 1994, File No. 1-6880.)
4.5 Bylaws of First Bank System, Inc. (Incorporated by reference to
Exhibit 3B to the registrant's Annual Report on Form 10-K for
the year ended December 31, 1993, File No. 1-6880.)
4.6 Rights Agreement dated as of December 21, 1988, between First
Bank System, Inc. and Morgan Shareholder Services Trust Company
(now known as First Chicago Trust Company of New York).
(Incorporated by reference to Exhibit 1 to the registrant's
Current Report on Form 8-K dated January 5, 1989, File No.
1-6880.)
4.7 Amendment No. 1 dated as of May 30, 1990, to Rights Agreement.
(Incorporated by reference to Exhibit 4(a) to the registrant's
Current Report on Form 8-K dated June 5, 1990, File No.
1-6880.)
4.8 Amendment No. 2 dated as of February 17, 1993, to Rights
Agreement. (Incorporated by reference to Exhibit 4(a) to the
registrant's Current Report on Form 8-K filed March 1, 1993,
File No. 1-6880.)
4.9 Stock Purchase Agreement, dated as of May 30, 1990, among
Corporate Partners, L.P., Corporate Offshore Partners, L.P.,
The State Board of Administration of Florida and First Bank
System, Inc. (without exhibits). (Incorporated by reference to
Exhibit 4.8 to Amendment No. 1 to the registrant's Registration
Statement on Form S-3, File No. 33-42650.)
4.10 First Amendment, dated as of June 30, 1990, to Stock Purchase
Agreement among Corporate Partners, L.P., Corporate Offshore
Partners, L.P., The State Board of Administration of Florida
and First Bank System, Inc. (Incorporated by reference to
Exhibit 4.9 to Amendment No. 1 to the registrant's Registration
Statement on Form S-3, File No. 33-42650.)
<PAGE>
4.11 Second Amendment, dated July 18, 1990, to Stock Purchase
Agreement among Corporate Partners, L.P., Corporate Offshore
Partners, L.P., The State Board of Administration of Florida
and First Bank System, Inc. (Incorporated by reference to
Exhibit 4.10 to Amendment No. 1 to the registrant's
Registration Statement on Form S-3, File No. 33-42650.)
4.12 Stock Purchase Agreement, dated as of May 30, 1990, between The
State Board of Administration of Florida and First Bank System,
Inc. (without exhibits). (Incorporated by reference to
Exhibit 4.11 to Amendment No. 1 to the registrant's
Registration Statement on Form S-3, File No. 33-42650.)
4.13 Form of Periodic Stock Purchase Right. (Incorporated by
reference to Exhibit 4.12 to Amendment No. 1 to the
registrant's Registration Statement on Form S-3, File No.
33-42650.)
4.14 Form of Risk Event Warrant. (Incorporated by reference to
Exhibit 4.13 to Amendment No. 1 to the registrant's
Registration Statement on Form S-3, File No. 33-42650.)
4.15 Registration Rights Agreement, dated as of July 18, 1990, among
Corporate Partners, L.P., Corporate Offshore Partners, L.P.,
The State Board of Administration of Florida and First Bank
System, Inc. (Incorporated by reference to Exhibit 4.14 to
Amendment No. 1 to the registrant's Registration Statement on
Form S-3, File No. 33-42650.)
4.16 Registration Rights Agreement, dated as of July 18, 1990,
between The State Board of Administration of Florida and First
Bank System, Inc. (Incorporated by reference to Exhibit 4.14 to
Amendment No. 1 to the registrant's Registration Statement on
Form S-3, File No. 33-42650.)
*5.1 Opinion and consent of Dorsey & Whitney as to legality of the
securities being registered.
*8.1 Opinion and consent of Oppenheimer Wolff & Donnelly as to
certain federal income tax consequences described in the Proxy
Statement/Prospectus.
23.1 Consent of Dorsey & Whitney. (Included in Exhibit 5.1.)
23.2 Consent of Oppenheimer Wolff & Donnelly. (Included in Exhibit
8.1.)
*23.3 Consent of Ernst & Young LLP (relating to financial statements
of First Bank System, Inc.).
*23.4 Consent of Ernst & Young LLP (relating to financial statements
of Metropolitan Financial Corporation).
**23.5 Consent of Dain Bosworth Incorporated.
**23.6 Consent of Montgomery Securities.
**23.7 Consent of J.P. Morgan Securities Inc.
*24.1 Powers of Attorney.
<PAGE>
99.1 Opinion of Dain Bosworth Incorporated. (Included in Proxy
Statement/Prospectus as Appendix B.)
99.2 Opinion of Montgomery Securities. (Included in Proxy
Statement/Prospectus as Appendix C.)
99.3 Opinion of J.P. Morgan Securities Inc.. (Included in Proxy
Statement/Prospectus as Appendix D.)
99.4 Stock Option Agreement dated July 21, 1994, between First Bank
System, Inc. and Metropolitan Financial Corporation.
(Incorporated by reference to Exhibit 2.2 to the registrant's
Current Report on Form 8-K dated August 5, 1994, File No.
1-6880.)
*99.5 Form of proxy for Special Meeting of shareholders of First Bank
System, Inc.
*99.6 Form of proxy for Special Meeting of shareholders of
Metropolitan Financial Corporation.
99.7 Certificate of Incorporation of Metropolitan Financial
Corporation, as amended. (Incorporated by reference to
Exhibit 4.2 to Metropolitan Financial Corporation's
Registration Statement on Form S-8 (File No. 33-35207)).
99.8 Bylaws of Metropolitan Financial Corporation, as amended.
(Incorporaated by reference to Exhibit 3.2 to Metropolitan
Financial Corporation's Annual Report on Form 10-K for
the year ended December 31, 1993 (File No. 1-9018)).
99.9 Employment Agreement, dated May 29, 1990, between J. Michael
Nilles and Metropolitan Financial Corporation. (Incorporated
by reference to Exhibit 10.17 to Metropolitan Financial
Corporation's Annual Report on Form 10-K for the year ended
December 31, 1993 (File No. 1-9018).)
- -------------------------
* Previously filed.
** Filed herewith.
<PAGE>
EXHIBIT 23.5
[DAIN BOSWORTH LETTERHEAD] CORPORATE FINANCE DEPARTMENT
CONSENT
We hereby consent to the use of our opinion to the Board of Directors of
Metropolitan Financial Corporation included as Appendix B to the Proxy
Statement/Prospectus which forms a part of the Registration Statement on Form
S-4 of First Bank System, Inc. relating to the proposed merger of Metropolitan
Financial Corporation with and into First Bank System, Inc., and to the
reference to such opinion in such Proxy Statement/Prospectus. In giving such
consent, we do not admit that we come within the category of persons whose
consent is required under Section 7 of the Securities Act of 1933, as amended,
or the rules and regulations of the Securities and Exchange Commission
thereunder, nor do we thereby admit that we are experts with respect to any
part of such Registration Statement within the meaning of the term "experts" as
used in the Securities Act of 1933, as amended, or the rules and regulations of
the Securities and Exchange Commission thereunder.
DAIN BOSWORTH INCORPORATED
/s/ Dain Bosworth Incorporated
November 29, 1994
<PAGE>
EXHIBIT 23.6
[MONTGOMERY SECURITIES LETTERHEAD]
November 28, 1994
Metropolitan Financial Corporation
100 Metro Center
333 South 7th Street
Minneapolis, MN 55402
Gentlemen:
This letter will constitute our consent to include our opinion dated July 20,
1994, regarding the acquisition of Metropolitan Financial Corporation by First
Bank System, Inc. ("FBI") by means of a merger, in FBI's registration statement
on Form S-4 to be filed with the Securities and Exchange Commission and the
summarization of our opinion in such registration statement.
In giving such consent, we do not admit that we come within the category of
persons whose consent is required under Section 7 of the Securities Act of 1933,
as amended, or the rules and regulations of the Securities and Exchange
Commission promulgated thereunder, nor do we hereby admit that we are experts
with respect to any part of such Registration Statement within the meaning of
the term "experts" as used in the Securities Act of 1933, as amended, and the
rules and regulations of the Securities and Exchange Commission promulgated
thereunder.
Very truly yours,
By: /s/ Joseph M. Schell
--------------------------
Joseph M. Schell
Managing Director
<PAGE>
EXHIBIT 23.7
CONSENT OF J.P. MORGAN SECURITIES INC.
We hereby consent to use of our opinion letter dated November 28, 1994
to the Board of Directors of First Bank System, Inc., included in Annex D to
the Prospectus which forms a part of the Registration Statement on Form S-4
relating to the proposed merger of Metropolitan Financial Corporation with and
into First Bank System, Inc. and to the references to such opinion in such
Prospectus. In giving such consent, we do not admit that we come within the
category of persons whose consent is required under Section 7 of the Securities
Act of 1933, as amended, or the rule and regulations of the Securities and
Exchange Commission thereunder, nor do we hereby admit that we are experts
with respect to any part of such Registration Statement within the meaning of
the term "experts" as used in the Securities Act of 1933, as amended, or the
rules and regulations of the Securities and Exchange Commission thereunder.
J.P. MORGAN SECURITIES INC.
By: /s/ Nicholas B. Paumgarten
--------------------------------
Nicholas B. Paumgarten
Managing Director
November 28, 1994
