<PAGE> 1
REGISTRATION NO. 33-57245
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
Under the Securities Act of 1933
------------------------------------
FIRSTAR CORPORATION
(Exact name of Registrant as specified in its charter)
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<S> <C> <C>
WISCONSIN 6022 39-0711710
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code No.) Identification No.)
</TABLE>
777 EAST WISCONSIN AVENUE, MILWAUKEE, WISCONSIN 53202 (414) 765-4321
(Address, including ZIP Code and telephone number, including area code,
of registrant's principal executive officers)
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<TABLE>
<S> <C>
HOWARD H. HOPWOOD III COPY TO:
SENIOR VICE PRESIDENT & GENERAL COUNSEL THOMAS O. MARTIN, ESQ.
FIRSTAR CORPORATION DORSEY & WHITNEY
777 EAST WISCONSIN AVENUE PILLSBURY CENTER SOUTH
MILWAUKEE, WISCONSIN 53202 220 SOUTH 6TH STREET
(414) 765-5977 MINNEAPOLIS, MINNESOTA 55402-1498
(Name, address, including ZIP Code, and
telephone number, including area code,
of agent for service)
</TABLE>
------------------------------------
Approximate date of commencement of proposed sale of the securities to the
public: As soon as practicable after this Registration Statement becomes
effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, 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.
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<PAGE> 2
FIRSTAR CORPORATION
CROSS-REFERENCE SHEET TO
PROXY STATEMENT-PROSPECTUS PURSUANT TO
RULE 501(B) OF REGULATION S-K
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LOCATION IN PROXY
ITEM OF FORM S-4 STATEMENT-PROSPECTUS
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<S> <C> <C>
A. INFORMATION ABOUT THE TRANSACTION
1. Forepart of Registration Statement and Outside
Front Cover Page of Prospectus..................... Cross Reference Sheet; Outside
Front Cover Page of Proxy
Statement-Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus......................................... Available Information;
Incorporation of Certain
Information by Reference
3. Risk Factors, Ratio of Earnings to Fixed Charges
and Other Information.............................. Summary
4. Terms of the Transaction........................... Summary; Proposed Merger
5. Pro Forma Financial Information.................... Pro Forma Combining Financial
Statements
6. Material Contacts with the Company Being
Acquired........................................... Proposed Merger
7. Additional Information Required for Reoffering by
Persons and Parties Deemed to be Underwriters...... *
8. Interests of Named Experts and Counsel............. Experts; 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....... Firstar Corporation;
Comparative Rights of
Stockholders
11. Incorporation of Certain Information by
Reference......................................... Incorporation of Certain
Information 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......... *
16. Information with Respect to S-2 or S-3
Companies......................................... Summary; Investors Bank Corp.;
Comparative Rights of
Shareholders; Index to
Investors Bank Corp. Financial
Statements
17. Information with Respect to Companies other than
S-3 or S-2 Companies.............................. *
D. VOTING AND MANAGEMENT INFORMATION
18. Information if Proxies, Consents and
Authorizations are to be Solicited................ Outside Front Cover Page of
Proxy Statement-Prospectus;
Summary; Meeting Information;
Proposed Merger
19. Information if Proxies, Consents or Authorizations
are not to be Solicited or in an Exchange Offer... *
</TABLE>
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* Omitted because answer to item is negative or item is not applicable.
<PAGE> 3
[INVESTORS BANK CORP. LOGO]
February 8, 1995
Dear Stockholder:
We are pleased to enclose materials relating to a Special Meeting of Common
Stockholders of Investors Bank Corp. ("Investors") to be held at 3:30 p.m.
(local time), on Wednesday, March 15, 1995, at the Minneapolis Club, 729 Second
Avenue South, Minneapolis, Minnesota.
The purpose of the meeting is to consider and vote on an Agreement and Plan
of Reorganization among Firstar Corporation ("Firstar"), Firstar Corporation of
Minnesota ("FCM"), a subsidiary of Firstar, and Investors, dated as of August
21, 1994, and the Plan of Merger attached thereto (together, the "Merger
Agreements"), relating to the proposed merger (the "Merger") of Investors with
and into FCM.
Under the terms of the Merger Agreements and upon consummation of the
Merger, each outstanding share of Investors' Common Stock, $0.01 par value
("Investors Common Stock"), will be converted into the right to receive .8676 of
a share of Firstar Common Stock (including associated Preferred Share Purchase
Rights) and each outstanding share of Investors' Cumulative Perpetual Preferred
Stock, Series 1991, $.01 par value ("Investors Preferred Stock"), except such
shares with respect to which appraisal rights have been perfected under sec.262
of the Delaware General Corporation Law, will be converted into the right to
receive $27.50 plus accumulated and unpaid dividends on such stock, payable in
cash.
The Merger is intended to be tax-free to holders of Investors Common Stock
for federal income tax purposes except as described under "PROPOSED MERGER --
Certain Federal Income Tax Consequences" in the accompanying Proxy
Statement-Prospectus. The Merger is expected to be taxable to holders of
Investors Preferred Stock for federal income tax purposes.
The enclosed Proxy Statement-Prospectus of Firstar and Investors contains a
more complete description of the terms of the proposed Merger. You are urged to
read the Proxy Statement-Prospectus carefully.
THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENTS AS
BEING IN THE BEST INTERESTS OF INVESTORS AND ITS STOCKHOLDERS AND RECOMMENDS
THAT HOLDERS OF INVESTORS COMMON STOCK VOTE IN FAVOR OF THE MERGER. IN MAKING
THIS RECOMMENDATION, THE BOARD OF DIRECTORS HAS CONSIDERED NUMEROUS FACTORS,
INCLUDING, BUT NOT LIMITED TO, THE CONSIDERATION OFFERED BY FIRSTAR, THE
STRUCTURE OF THE PROPOSED MERGER, WHICH IS DESIGNED TO MAKE THE MERGER TAX-FREE
FOR FEDERAL INCOME TAX PURPOSES TO HOLDERS OF INVESTORS COMMON STOCK AND TO
ALLOW HOLDERS OF INVESTORS COMMON STOCK TO PARTICIPATE IN THE FUTURE OF THE
COMBINED ORGANIZATION, THE OPINION OF PIPER JAFFRAY INC. AS TO THE FAIRNESS OF
THE CONSIDERATION TO BE RECEIVED BY THE HOLDERS OF INVESTORS COMMON STOCK IN THE
MERGER AND THE RECENT RESULTS OF OPERATIONS AND FINANCIAL POSITION OF INVESTORS
AND FIRSTAR.
Whether or not you plan to attend the Special Meeting, holders of Investors
Common Stock are asked to please fill out, sign, and date the enclosed proxy
card, and return it promptly in the accompanying envelope, which requires no
postage if mailed in the United States. If you later find that you may be
present at the
<PAGE> 4
Special Meeting or for any other reason desire to revoke your proxy, you may do
so at any time before it is voted.
[SIG.]
James M. Burkholder
Chairman of the Board, President
and Chief Executive Officer
PLEASE DO NOT SEND YOUR STOCK CERTIFICATES AT THIS TIME. IF THE MERGER IS
CONSUMMATED, YOU WILL BE SENT INSTRUCTIONS REGARDING THE SURRENDER OF YOUR STOCK
CERTIFICATES.
<PAGE> 5
[INVESTORS BANK CORP. LOGO]
200 EAST LAKE STREET
WAYZATA, MINNESOTA 55391
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD MARCH 15, 1995
To the Stockholders of Investors Bank Corp.:
NOTICE IS HEREBY GIVEN that a special meeting of the holders of Common
Stock of Investors Bank Corp., a Delaware corporation ("Investors")(such stock,
"Investors Common Stock"), will be held at the Minneapolis Club, 729 Second
Avenue South, Minneapolis, Minnesota, on March 15, 1995, at 3:30 p.m. local
time, for the following purposes:
1. To consider and vote upon the approval and adoption of an Agreement
and Plan of Reorganization and a Plan of Merger (the "Merger Agreements"),
each dated as of August 21, 1994, that provide for, among other things, the
merger (the "Merger") of Investors with and into Firstar Corporation of
Minnesota, a wholly owned subsidiary of Firstar Corporation, the conversion
of the outstanding shares of Investors Common Stock into the right to
receive shares of Firstar Corporation Common Stock and associated Preferred
Share Purchase Rights, and the conversion of the outstanding shares of
Investors' Cumulative Perpetual Preferred Stock, Series 1991, $.01 par
value ("Investors Preferred Stock"), into the right to receive cash as
described in the Proxy Statement-Prospectus accompanying this notice; and
2. To transact such other business as may properly be brought before
the Special Meeting or any adjournments thereof.
The close of business on January 30, 1995 has been fixed as the record date
for the determination of stockholders entitled to notice of, and to vote at, the
Special Meeting and any adjournment or postponement thereof. Please note that
holders of Investors Preferred Stock are not entitled to vote on the Merger
Agreements but are entitled to receive this notice of the Special Meeting.
Holders of Investors Preferred Stock have the statutory right, if the
Merger is consummated, to receive payment in cash for the "fair value" of their
shares of Investors Preferred Stock upon compliance with the provisions of
Section 262 of the Delaware General Corporation Law. To perfect these appraisal
rights, a holder of Investors Preferred Stock must deliver a written demand for
appraisal before the vote on the Merger by the holders of Investors Common Stock
is taken and must otherwise comply with this statute. A copy of Section 262 of
the Delaware General Corporation Law is attached as Appendix A to the Proxy
Statement-Prospectus.
The Special Meeting may be postponed or adjourned from time to time by
announcement at the Special Meeting of such postponement or adjournment, and any
and all business for which notice is hereby given may be transacted at the
postponed or adjourned Special Meeting.
THE BOARD OF DIRECTORS OF INVESTORS BELIEVES THE PROPOSED MERGER IS IN THE
BEST INTERESTS OF INVESTORS AND ITS STOCKHOLDERS AND UNANIMOUSLY RECOMMENDS THAT
THE COMMON STOCKHOLDERS OF INVESTORS VOTE "FOR" PROPOSAL NUMBER (1) ABOVE.
Whether or not you plan to attend the Special Meeting, holders of Investors
Common Stock are asked to please complete, date and sign the enclosed proxy,
which is solicited by the Board of Directors of Investors, and return it
promptly in the accompanying envelope. The giving of such proxy does not affect
your right to
<PAGE> 6
vote in person in the event you attend the Special Meeting. You may revoke the
proxy at any time prior to its exercise in the manner described in the Proxy
Statement-Prospectus.
By Order of the Board of Directors,
[SIG.]
James M. Burkholder,
Chairman of the Board
Wayzata, Minnesota
February 8, 1995
PLEASE DO NOT SEND YOUR STOCK CERTIFICATES AT THIS TIME. IF THE MERGER IS
CONSUMMATED, YOU WILL BE SENT INSTRUCTIONS REGARDING THE SURRENDER OF YOUR STOCK
CERTIFICATES.
<PAGE> 7
[FIRSTAR LOGO] [INVESTORS LOGO]
PROXY STATEMENT
INVESTORS BANK CORP.
200 EAST LAKE STREET
WAYZATA, MINNESOTA 55391
(602) 475-8500
SPECIAL MEETING OF COMMON STOCKHOLDERS
------------------------------
PROSPECTUS
FIRSTAR CORPORATION
------------------------------
This Proxy Statement-Prospectus is being furnished to the stockholders of
Investors Bank Corp., a Delaware corporation ("Investors"), in connection with
the solicitation of proxies of common stockholders of Investors by the Board of
Directors of Investors for use at the special meeting of such holders to be held
on March 15, 1995, at the Minneapolis Club, 729 Second Avenue South,
Minneapolis, Minnesota, commencing at 3:30 p.m., local time, and any
adjournments or postponements thereof (the "Special Meeting"). At the Special
Meeting, holders of Investors' common stock, $0.01 par value ("Investors Common
Stock"), will consider and vote upon the approval and adoption of an Agreement
and Plan of Reorganization dated as of August 21, 1994, among Investors, Firstar
Corporation, a Wisconsin corporation ("Firstar"), and Firstar Corporation of
Minnesota, a Minnesota corporation and wholly owned subsidiary of Firstar
("FCM"), and a related Plan of Merger, dated as of August 21, 1994, by and among
Investors, FCM and Firstar, (together the "Merger Agreements"), which provide
for the merger of Investors with and into FCM (the "Merger").
Under the Merger Agreements, each outstanding share of Investors Common
Stock will be converted into the right to receive 0.8676 of a share of common
stock of Firstar, $1.25 par value, and associated Preferred Share Purchase
Rights (collectively referred to herein as "Firstar Common Stock"). Each
outstanding share of Investors' Cumulative Perpetual Preferred Stock, Series
1991, $.01 par value ("Investors Preferred Stock"), except shares of Investors
Preferred Stock with respect to which appraisal rights have been perfected under
Section 262 of the Delaware General Corporation Law ("DGCL"), will be converted
into the right to receive $27.50, plus accumulated and unpaid dividends on such
stock, in cash. For federal income tax purposes, the Merger is expected to be
tax-free to holders of Investors Common Stock (except with respect to cash
received in lieu of fractional shares of Firstar Common Stock) and taxable to
holders of Investors Preferred Stock. For a more complete description of the
Merger Agreements and the terms of the Merger, see "PROPOSED MERGER."
This Proxy Statement-Prospectus also constitutes a prospectus of Firstar
with respect to shares of Firstar Common Stock to be issued in the Merger in
exchange for outstanding shares of Investors Common Stock.
------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS ANY
SUCH COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROXY STATEMENT-PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
------------------------------
Copies of this Proxy Statement-Prospectus are first being mailed to
stockholders of Investors on or about February 8, 1995.
The date of this Proxy Statement-Prospectus is February 6, 1995.
------------------------------
<PAGE> 8
AVAILABLE INFORMATION
Firstar and Investors 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"). Such reports, proxy
statements and other information can be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Room 1024, Washington, D.C. 20549 and at the Regional Offices of the Commission
at Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661; and 7 World Trade Center, Suite 1300, New York, New York 10048.
Copies of such material may also be obtained from the Public Reference Section
of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed
rates. In addition, Firstar Common Stock is listed on the New York Stock
Exchange and the Chicago Stock Exchange, and reports, proxy statements and other
information filed by Firstar with such exchanges may be inspected at the offices
of the New York Stock Exchange, Inc., 20 Broad Street, New York, New York 10005
and the Chicago Stock Exchange Incorporated, 440 South LaSalle Street, Chicago,
Illinois 60605. Investors Common Stock and Investors Preferred Stock are quoted
on the Nasdaq National Market. Reports, proxy statements and other information
concerning Investors may be inspected at the offices of the Nasdaq National
Market, 1735 K Street, N.W., Washington, D.C. 20006.
This Proxy Statement-Prospectus does not contain all of the information set
forth in the Registration Statement on Form S-4 and exhibits thereto (the
"Registration Statement") covering the securities offered hereby which Firstar
has filed with the Commission, certain portions of which have been omitted
pursuant to the rules and regulations of the Commission, and to which portions
reference is hereby made for further information with respect to Firstar,
Investors and the securities offered hereby.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATION
NOT CONTAINED IN THIS PROXY STATEMENT-PROSPECTUS AND, IF GIVEN OR MADE, THE
INFORMATION OR REPRESENTATION SHOULD NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY FIRSTAR, FCM OR INVESTORS. THIS PROXY STATEMENT-PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO PURCHASE THE
SECURITIES OFFERED HEREBY, OR THE SOLICITATION OF A PROXY, IN ANY JURISDICTION
TO OR FROM ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION
OF AN OFFER OR PROXY IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PROXY
STATEMENT-PROSPECTUS NOR ANY DISTRIBUTION OF THE SECURITIES TO WHICH THIS PROXY
STATEMENT-PROSPECTUS RELATES SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF FIRSTAR, FCM OR
INVESTORS SINCE THE DATE OF THIS PROXY STATEMENT-PROSPECTUS.
2
<PAGE> 9
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
THIS PROXY STATEMENT-PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH
ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. COPIES OF DOCUMENTS RELATING TO
FIRSTAR, EXCLUDING EXHIBITS UNLESS SPECIFICALLY INCORPORATED HEREIN, ARE
AVAILABLE UPON REQUEST WITHOUT CHARGE FROM MR. WILLIAM H. RISCH, SENIOR VICE
PRESIDENT-FINANCE AND TREASURER, FIRSTAR CORPORATION, 777 EAST WISCONSIN AVENUE,
MILWAUKEE, WISCONSIN 53202 (TELEPHONE (414) 765-4985). COPIES OF DOCUMENTS
RELATING TO INVESTORS, EXCLUDING EXHIBITS UNLESS SPECIFICALLY INCORPORATED
HEREIN, ARE AVAILABLE WITHOUT CHARGE FROM FRANCES M. JACOBS, ASSISTANT VICE
PRESIDENT -- ADMINISTRATION, INVESTORS BANK CORP., 200 EAST LAKE STREET,
WAYZATA, MINNESOTA, 55391 (TELEPHONE (612) 475-8720). IN ORDER TO ENSURE TIMELY
DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE BY MARCH 8, 1995.
The following documents filed with the Commission are incorporated herein
by reference:
(a) Firstar's Annual Report on Form 10-K for the year ended December
31, 1993;
(b) Firstar's Quarterly Reports on Form 10-Q for the quarters ended
March 31, June 30, and September 30, 1994;
(c) the description of Firstar Common Stock (including the Preferred
Share Purchase Rights) contained in Firstar's registration statements filed
pursuant to Section 12 of the Exchange Act and any amendment or report
filed for the purpose of updating such description;
(d) Investors' Annual Report on Form 10-K for the year ended December
31, 1993;
(e) Investors' Quarterly Reports on Form 10-Q for the quarters ended
March 31, June 30, and September 30, 1994; and
(f) Investors' Current Report on Form 8-K filed August 25, 1994.
All documents filed by Firstar pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date hereof and prior to the Special
Meeting will be deemed to be incorporated by reference into this Proxy
Statement-Prospectus and to be a part hereof from the date of filing of the
documents.
Any statement contained in a document incorporated by reference herein or
deemed to be incorporated herein by reference shall be deemed to be modified or
superseded for purposes hereof to the extent that a statement contained herein
(or in any 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 to constitute a part
hereof except as so modified or superseded.
3
<PAGE> 10
FIRSTAR CORPORATION
AND
INVESTORS BANK CORP
PROXY STATEMENT-PROSPECTUS
TABLE OF CONTENTS
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PAGE
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SUMMARY............................................................................... 6
The Companies...................................................................... 6
Proposed Merger.................................................................... 6
The Meeting........................................................................ 6
Vote Required; Voting Agreements................................................... 7
Recommendation of the Board of Directors........................................... 7
Opinion of Investment Banker....................................................... 7
Appraisal Rights................................................................... 7
Certain Federal Income Tax Consequences of the Merger.............................. 7
Accounting Treatment............................................................... 8
Date of Merger..................................................................... 8
Regulatory Approvals............................................................... 8
Dividends on Investors Stock....................................................... 8
Management and Operations After the Merger......................................... 9
Waivers and Amendments to the Merger Agreements.................................... 9
Termination........................................................................ 9
Termination Fee.................................................................... 9
Interests of Certain Persons in the Merger......................................... 10
Resales of Firstar Common Stock by Affiliates...................................... 10
Preferred Share Purchase Rights.................................................... 10
Markets and Market Prices.......................................................... 10
Comparative Per Common Share Data.................................................. 12
Historical and Pro Forma Selected Financial Contributions.......................... 13
Selected Consolidated Financial Data of Firstar.................................... 14
Selected Consolidated Financial Data of Investors.................................. 15
Recent Developments................................................................ 16
MEETING INFORMATION................................................................... 17
General............................................................................ 17
Date, Place and Time............................................................... 17
Record Date; Vote Required and Revocation of Proxies............................... 17
Voting Agreements.................................................................. 17
Solicitation of Proxies............................................................ 18
PROPOSED MERGER....................................................................... 18
Background of the Merger........................................................... 18
Reasons for the Merger; Recommendation of Investors Board of Directors............. 22
Opinion of Investment Banker....................................................... 23
Terms of the Merger................................................................ 26
Restricted Stock................................................................... 27
Options............................................................................ 27
Warrants........................................................................... 27
Effective Time of the Merger....................................................... 28
Surrender of Certificates.......................................................... 28
Conditions to the Merger........................................................... 29
Regulatory Approvals............................................................... 29
Business Pending the Merger........................................................ 31
Dividends.......................................................................... 32
Termination, Amendment and Waiver.................................................. 32
</TABLE>
4
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<TABLE>
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PAGE
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Management and Operations After the Merger......................................... 34
Interests of Certain Persons in the Merger......................................... 34
Effect on Employee Benefits........................................................ 35
Rights Plan........................................................................ 35
Termination Fee.................................................................... 36
Certain Federal Income Tax Consequences............................................ 36
Accounting Treatment............................................................... 38
Expenses........................................................................... 38
Resale of Firstar Common Stock..................................................... 38
Appraisal Rights................................................................... 39
COMPARATIVE RIGHTS OF STOCKHOLDERS.................................................... 40
Capital Stock...................................................................... 40
Preferred Share Purchase Rights.................................................... 41
Appraisal Rights and Dissenters' Rights............................................ 41
Assessability; Potential Liability For Wages....................................... 42
Takeover Statutes.................................................................. 42
Directors.......................................................................... 44
Liability of Directors; Indemnification............................................ 44
Action Without A Meeting........................................................... 45
Amendment of Corporate Charter..................................................... 45
Shareholder Derivative Proceedings................................................. 45
FIRSTAR CORPORATION................................................................... 45
General............................................................................ 45
Competition........................................................................ 46
Supervision........................................................................ 46
Other Acquisitions and Transactions................................................ 48
Incorporation of Certain Information by Reference.................................. 48
INVESTORS BANK CORP. ................................................................. 48
General............................................................................ 48
Management's Discussion and Analysis of Financial Condition and Results of
Operations....................................................................... 54
Incorporation of Certain Information by Reference.................................. 70
OPINIONS.............................................................................. 70
EXPERTS............................................................................... 70
STOCKHOLDER PROPOSALS................................................................. 70
PRO FORMA COMBINING FINANCIAL STATEMENTS.............................................. 72
INDEX TO INVESTORS FINANCIAL STATEMENTS............................................... F-1
APPENDIX A -- Section 262 of the Delaware General Corporation Law
APPENDIX B -- Merger Agreements
APPENDIX C -- Fairness Opinion of Piper Jaffray Inc.
</TABLE>
5
<PAGE> 12
SUMMARY
The following is a brief summary of certain information with respect to
matters to be considered at the Special Meeting of holders of Investors Common
Stock. As used in this Proxy Statement-Prospectus, the terms "Firstar" and
"Investors" refer to such corporations, respectively, and except where the
context otherwise requires, such entities and their respective subsidiaries. All
information concerning Firstar included in this Proxy Statement-Prospectus has
been furnished by Firstar, and all information concerning Investors has been
furnished by Investors. This summary is not intended to be complete and is
qualified in its entirety by reference to the more detailed information
contained elsewhere in this Proxy Statement of Investors and Prospectus of
Firstar, including the appendices hereto (this "Proxy Statement-Prospectus"),
and the documents incorporated in this Proxy Statement-Prospectus by reference.
Stockholders are urged to review carefully the entire Proxy
Statement-Prospectus.
THE COMPANIES
Firstar Corporation and Firstar Corporation of Minnesota
Firstar, a Wisconsin corporation, whose common stock is listed on the New
York Stock Exchange ("NYSE") and the Chicago Stock Exchange, is a multi-bank
holding company organized in 1929. The principal assets of Firstar are
investments in banks with offices located in the states of Wisconsin, Minnesota,
Illinois, Iowa and Arizona. On September 30, 1994, Firstar had consolidated
total assets of $14.3 billion and stockholders' equity of $1.2 billion.
Firstar's principal executive offices are located at 777 East Wisconsin Avenue,
Milwaukee, Wisconsin 53202 (telephone: (414) 765-4321). See "FIRSTAR
CORPORATION." FCM, a wholly owned subsidiary of Firstar, owns one bank with 24
offices located in Minnesota.
Investors Bank Corp.
Investors, a Delaware corporation, is a unitary savings and loan holding
company that commenced operations in 1984. The principal asset of Investors is
its investment in Investors Savings Bank, F.S.B. ("Investors Bank"), a federally
chartered savings bank with 12 retail banking offices in the Minneapolis-St.
Paul area. On September 30, 1994, Investors had consolidated total assets of
$1.1 billion and stockholders' equity of $54 million. Investors' principal
executive offices are located at 200 East Lake Street, Wayzata, Minnesota 55391
(telephone (612) 475-8500). See "INVESTORS BANK CORP."
PROPOSED MERGER
Firstar, Investors and FCM have entered into an Agreement and Plan of
Reorganization dated as of August 21, 1994 and a related Plan of Merger dated as
of August 21, 1994, providing, among other things, for the merger of Investors
with and into FCM, as a result of which Firstar will directly own 100% of the
stock of the surviving corporation, FCM. If the Merger is consummated, Investors
stockholders will no longer hold any interests in Investors other than
indirectly through their interests in Firstar Common Stock. After the Merger,
the rights of Investors' stockholders will be governed by Wisconsin law and the
Restated Articles of Incorporation and Bylaws of Firstar. See "PROPOSED MERGER."
Upon consummation of the Merger, each outstanding share of Investors Common
Stock will be converted into 0.8676 of a share of Firstar Common Stock, subject
to the payment of cash in lieu of fractional shares (such ratio, the "Exchange
Ratio"), and each outstanding share of Investors Preferred Stock, except for
shares as to which appraisal rights are perfected, will be converted into $27.50
plus any accumulated and unpaid dividends on such stock, payable in cash. See
"PROPOSED MERGER -- Terms of the Merger"; "-- Restricted Stock"; "-- Options";
and "-- Warrants."
THE MEETING
The Special Meeting of the holders of Investors Common Stock will be held
at the Minneapolis Club, 729 Second Avenue South, Minneapolis, Minnesota, on
March 15, 1995 at 3:30 p.m., local time. The close of
6
<PAGE> 13
business on January 30, 1995 is the record date (the "Record Date") for
determining the stockholders of record of Investors entitled to notice of and,
in the case of holders of Investors Common Stock, to vote at the Special Meeting
and any postponement or adjournments thereof. The purpose of the Special Meeting
is to consider and vote upon a proposal to approve the Merger Agreements. For
additional information relating to the Special Meeting, see "MEETING
INFORMATION."
VOTE REQUIRED; VOTING AGREEMENTS
The DGCL requires that the Merger Agreements be approved by the affirmative
vote of holders of a majority of the outstanding shares of Investors Common
Stock entitled to vote at the Special Meeting. As of the Record Date, there were
outstanding 3,508,600 shares of Investors Common Stock, each of which is
entitled to one vote. Holders of Investors Preferred Stock are entitled to
notice of the Special Meeting but are not entitled to vote on the Merger
Agreements.
As of the Record Date, directors and executive officers of Investors owned
beneficially approximately 26% of the outstanding shares of Investors Common
Stock. Each director and executive officer of Investors has entered into an
agreement with Firstar (a "Voting Agreement") to vote his or her shares of
Investors Common Stock in favor of the Merger. A total of 915,053 shares of
Investors Common Stock are covered by the Voting Agreements. As of the Record
Date, directors and executive officers of Firstar owned no shares of Investors
Common Stock. See "MEETING INFORMATION -- Record Date; Voting and Revocation of
Proxies"; and "-- Voting Agreements."
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS OF INVESTORS UNANIMOUSLY RECOMMENDS THAT INVESTORS'
COMMON STOCKHOLDERS VOTE FOR APPROVAL OF THE MERGER AGREEMENTS. The Board, after
consideration of the terms and conditions of the Merger Agreements and other
factors deemed relevant by the Board, including the opinion of Piper Jaffray
Inc., believes that the terms of the Merger Agreements are fair and that the
Merger is in the best interest of Investors and its stockholders. See "PROPOSED
MERGER -- Reasons for the Merger; Recommendation of Investors Board of
Directors"; and "-- Background of the Merger."
OPINION OF INVESTMENT BANKER
Piper Jaffray Inc. has rendered its opinion to the Board of Directors of
Investors that, as of the date of its opinion, the consideration to be received
by the holders of Investors Common Stock upon consummation of the Merger was
fair, from a financial point of view, to such stockholders. The opinion of Piper
Jaffray Inc., attached as Appendix C to this Proxy Statement-Prospectus, sets
forth the assumptions made, the matters considered, and the limitations in the
review undertaken in rendering such opinion. See "PROPOSED MERGER -- Opinion of
Investment Banker."
APPRAISAL RIGHTS
Pursuant to Section 262(b)(1) of the DGCL, holders of Investors Common
Stock will not have any rights of appraisal as a result of the matters to be
voted upon at the Special Meeting. Pursuant to Section 262 of the DGCL, holders
of Investors Preferred Stock may elect to have the "fair value" of their shares
of Investors Preferred Stock (determined in accordance with Delaware law)
individually appraised and paid to them, if the Merger is consummated and if
they comply with the requirements of Section 262 of the DGCL, a copy of which is
attached hereto as Appendix A. Any deviation from such requirements may result
in the loss of appraisal rights. See "PROPOSED MERGER -- Appraisal Rights" and
Appendix A.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The Merger is expected to qualify for federal income tax purposes as a
tax-free reorganization. Investors has received an opinion from Foley & Lardner,
counsel to Firstar, to the effect that the Merger will be treated as a tax-free
reorganization within the meaning of Section 368(a) of the Internal Revenue Code
of 1986, as amended (the "Code"), subject to customary assumptions and
representations. Consummation of the Merger
7
<PAGE> 14
is conditioned on such opinion not having been withdrawn or modified in any
material respect prior to such consummation. Such opinion, however, is not
binding on the Internal Revenue Service. In the event the Merger qualifies as a
tax-free reorganization, (a) holders of Investors Common Stock will generally
recognize no gain or loss for federal income tax purposes as a result of the
exchange of their Investors Common Stock for Firstar Common Stock, except that
gain may be recognized in the event they receive cash in lieu of fractional
shares of Firstar Common Stock, and (b) holders of Investors Preferred Stock
will recognize gain or loss for federal income tax purposes as a result of their
receipt of cash for their shares of stock in the Merger or pursuant to the
exercise of their statutory appraisal rights. See "PROPOSED MERGER -- Certain
Federal Income Tax Consequences."
INVESTORS STOCKHOLDERS SHOULD READ CAREFULLY THE DISCUSSION SET FORTH UNDER
"PROPOSED MERGER -- CERTAIN FEDERAL INCOME TAX CONSEQUENCES" AND ARE URGED TO
CONSULT THEIR OWN TAX ADVISORS AS TO THE SPECIFIC CONSEQUENCES TO THEM OF THE
MERGER UNDER FEDERAL, STATE, LOCAL AND ANY OTHER APPLICABLE TAX LAWS.
ACCOUNTING TREATMENT
Firstar anticipates that the Merger will be accounted for as a
pooling-of-interests. See "PROPOSED MERGER -- Accounting Treatment."
DATE OF MERGER
The Merger Agreements provide that the Merger will be consummated on a date
(the "Closing Date") within five business days after the latest to occur of (a)
expiration of the statutory 15-day to 30-day waiting periods after approval of
the Merger by the Board of Governors of the Federal Reserve System (the "Federal
Reserve Board") and approval of the proposed merger of Investors Bank into FCM's
subsidiary, Firstar Bank of Minnesota, N.A. ("Firstar Bank") (such bank-level
merger, the "Bank Merger"), and related transactions by the United States
Comptroller of the Currency ("OCC"), (b) approval of certain transactions
related to the Bank Merger by the Office of Thrift Supervision of the Department
of the Treasury ("OTS"), and (c) the Special Meeting, or on another mutually
agreed upon date. Notwithstanding the provisions of the Merger Agreements
summarized above, it is presently anticipated that Firstar and Investors will
amend the Merger Agreements to postpone the Closing Date so that the Merger will
not be consummated prior to late April 1995. See "PROPOSED MERGER -- Effective
Time of the Merger"; "-- Conditions to the Merger"; and "-- Regulatory
Approvals."
REGULATORY APPROVALS
The Merger is conditioned upon prior approval by the Federal Reserve Board
and prior approval of the Bank Merger and related transactions by the OCC and in
certain instances by the OTS. Firstar's application to the Federal Reserve Board
seeking approval of the Merger and related matters was approved on January 27,
1995. Investors and Firstar submitted applications in draft form to the OCC in
January 1995 to approve the Bank Merger and related transactions. There are no
assurances that all required regulatory approvals will be obtained or when such
required approvals will be obtained. See "PROPOSED MERGER -- Effective Time of
the Merger"; "-- Conditions to the Merger"; and "-- Regulatory Approvals."
DIVIDENDS ON INVESTORS STOCK
Under the Merger Agreements, Investors is allowed to declare regular
quarterly cash dividends on Investors Common Stock at a rate not in excess of
$.125 per share (but cannot declare or pay such dividends in a quarter in which
the holders of Investors Common Stock will receive dividends on the Firstar
Common Stock they receive in the Merger), and regular quarterly cash dividends
on Investors Preferred Stock as required by Investors' currently effective
Certificate of Incorporation.
8
<PAGE> 15
MANAGEMENT AND OPERATIONS AFTER THE MERGER
In the Merger, Investors will be merged into FCM and the separate corporate
existence of Investors will cease. FCM, as the surviving corporation in the
Merger and a wholly owned subsidiary of Firstar, will continue operations. The
officers and directors of FCM prior to the Merger will continue as the officers
and directors of the surviving corporation, except that James M. Burkholder,
President and Chief Executive Officer of Investors, will be elected to the Board
of Directors of FCM and Firstar Bank. Investors Bank will merge into Firstar
Bank. After the Bank Merger, Firstar Bank's management will be drawn from the
officers of both banks, and its Board of Directors will consist of the same
directors as just before the Bank Merger, except that Mr. Burkholder will be
added to the Board. Mr. Burkholder will also become President and Chief
Executive Officer of Firstar's mortgage banking subsidiary, Firstar Home
Mortgage Corporation. See "PROPOSED MERGER -- Management and Operations of
Investors After the Merger"; and "-- Interests of Certain Persons in the
Merger."
WAIVERS AND AMENDMENTS TO THE MERGER AGREEMENTS
Firstar, FCM and Investors may amend, modify or waive certain terms and
conditions of the Merger Agreements. Any such action taken by Investors
following a favorable vote by its holders of Investors Common Stock at the
Special Meeting may be taken only if the action would not have an adverse effect
on its stockholders, change the amount or kind of consideration in the Merger or
have a similar effect. The amendment to the Merger Agreements to postpone the
Closing Date discussed under the caption "Date of Merger" will not be deemed to
have an adverse effect on Investors stockholders. See "PROPOSED MERGER --
Termination, Amendment and Waiver."
TERMINATION
The Merger may be abandoned (i) by mutual consent of Firstar and Investors
at any time before the Merger takes place; (ii) by either Firstar or Investors
if (a) the Merger has not taken place by August 15, 1995; (b) any warranty or
representation made by the other party in the Merger Agreements is discovered to
have become untrue in any material respect; (c) the other party commits one or
more material breaches of the Merger Agreements; (d) any permanent injunction
preventing the consummation of the Merger shall have become final and
nonappealable; (e) the Federal Reserve Board, the OCC or the OTS has denied
approval of or objected to the Merger, the Bank Merger or related transactions
and neither Firstar nor Investors has filed a petition seeking review of such
order within 30 days; or (f) the Merger Agreements and the Merger are not duly
approved by the holders of Investors Common Stock after a vote thereon at the
Special Meeting; (iii) by Firstar if any person shall have commenced a tender
offer or exchange offer for 20% or more of the Investors Common Stock or
Investors' Board shall have withdrawn, modified or changed its recommendation of
the Merger or the Merger Agreements; (iv) automatically after certain instances
in which Investors pays Firstar the Termination Fee defined below; or (v) by
Investors (a) in the event of certain offers to acquire Investors and payment of
the Termination Fee, or (b) on either of the two trading days occurring
immediately after the ten consecutive trading days ending at the end of the
third business day preceding the date of the Special Meeting if (1) the average
of the daily closing prices of a share of Firstar Common Stock during such ten
trading days is less than $29.00 and (2) the percentage decline in the average
price of the Firstar Common Stock since August 19, 1994 is greater than the
percentage decline in the weighted average price of a selected group of bank
stocks plus .125 (the "walk-away" provision). The average daily closing price
for Firstar Common Stock for the ten trading days ended February 3, 1995 was
$27.86, a percentage decline of 13.27% from August 19, 1994. The percentage
decline in the weighted average price of the selected group of bank stocks over
the same period was approximately 11.12%. See "PROPOSED MERGER -- Termination,
Amendment and Waiver" for important information concerning these termination
rights, including the "walk-away" provision and the enforcement or waiver
thereof by Investors.
TERMINATION FEE
Under the Merger Agreements, upon the occurrence of specified events
("Trigger Events"), Investors must pay Firstar a fee of $4,500,000 (the
"Termination Fee"). The Trigger Events relate generally to offers
9
<PAGE> 16
by, or transactions or proposed transactions with, third parties, acquisition of
specified percentages of Investors' voting stock by third parties, and
solicitation of proxies in opposition to the Merger, none of which has occurred
as of the date hereof, to the best of Firstar's and Investors' knowledge. The
Termination Fee may discourage offers to acquire Investors and is intended to
increase the likelihood that the Merger will be consummated. See "PROPOSED
MERGER -- Termination Fee"; and "-- Expenses."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
The Merger Agreements provide that Firstar and Firstar Bank will appoint
James M. Burkholder as President and Chief Executive Officer of Firstar Home
Mortgage Corporation and elect Mr. Burkholder to the Board of Directors of FCM
and of Firstar Bank. Further, other directors, executive officers and employees
of Investors will have an interest in the Merger under certain employment and
severance agreements, option agreements, restricted stock agreements and
indemnification provisions assumed or executed by Firstar and effective upon
consummation of the Merger. See "PROPOSED MERGER -- Management and Operations of
Investors after the Merger"; and "-- Interests of Certain Persons in the
Merger."
RESALES OF FIRSTAR COMMON STOCK BY AFFILIATES
Resales of Firstar Common Stock issued to "affiliates" of Investors in
connection with the Merger have not been registered under applicable securities
laws in connection with the Merger. Such shares may only be sold (a) under a
separate registration for distribution (which Firstar has not agreed to
provide), (b) pursuant to Rule 145 under the Securities Act of 1933, as amended,
or (c) pursuant to some other exemption from registration. See "PROPOSED MERGER
- -- Resale of Firstar Common Stock."
PREFERRED SHARE PURCHASE RIGHTS
Firstar has adopted a Shareholder Rights Plan, pursuant to which each share
of Firstar Common Stock, including the Firstar Common Stock to be issued in the
Merger, entitles its holder to one-half of a right ("Preferred Share Purchase
Right") to purchase one one-hundredth of a share of Firstar's Series C Preferred
Stock under certain limited circumstances. The Rights have certain anti-takeover
effects. The Rights will cause substantial dilution to a person or group that
attempts to acquire Firstar without conditioning the offer on redemption of the
Rights or on a substantial number of Rights being acquired. The Rights should
not interfere with any merger or other business combination approved by
Firstar's Board of Directors prior to the time that the Rights have become
nonredeemable. See "COMPARATIVE RIGHTS OF STOCKHOLDERS."
MARKETS AND MARKET PRICES
Firstar Common Stock is listed on the NYSE and the Chicago Stock Exchange.
Investors Common Stock and Investors Preferred Stock are quoted on the Nasdaq
National Market.
The following table sets forth the closing price per share of Firstar
Common Stock as reported on the Consolidated Tape System for NYSE stock and the
last reported sale price per share of Investors Common Stock as reported on the
Nasdaq National Market on the dates set forth, which include August 17, 1994,
the latest practicable trading day before Investors publicly announced it was
negotiating with Firstar, August 19, 1994, the last trading day preceding public
announcement of the Merger, and February 3, 1995, the latest practicable trading
day before the printing of this Proxy Statement-Prospectus, as well as the
equivalent per share prices of Investors Common Stock for such dates. The
equivalent per share price of Investors Common
10
<PAGE> 17
Stock at each date represents the closing price of a share of Firstar Common
Stock on such date multiplied by the Exchange Ratio of 0.8676. See "PROPOSED
MERGER -- Terms of the Merger."
<TABLE>
<CAPTION>
EQUIVALENT
FIRSTAR INVESTORS INVESTORS
COMMON STOCK COMMON STOCK PER SHARE PRICE
------------ ------------ ---------------
<S> <C> <C> <C>
Market Value Per Share at:
August 17, 1994................................... $ 32.625 $23.25 $ 28.31
August 19, 1994................................... $ 32.125 $24.50 $ 27.87
September 30, 1994................................ $ 31.00 $24.50 $ 26.90
December 31, 1994................................. $ 26.875 $23.00 $ 23.32
February 3, 1995.................................. $ 28.00 $23.50 $ 24.29
</TABLE>
Because of publicity regarding the potential Merger, Investors issued a
press release on August 18, 1994 to announce that it was engaged in negotiations
with Firstar. Accordingly, Investors believes that the market price on the 19th
reflects speculation as to the likelihood of the consummation of the Merger or a
similar transaction and the anticipated price. See "PROPOSED MERGER --
Background of the Merger."
No assurance can be given as to the market prices of Firstar Common Stock
or Investors Common Stock at any time before the Merger becomes effective or as
to the market price of Firstar Common Stock at any time thereafter. Because the
Exchange Ratio is fixed, it will not compensate holders of Investors Common
Stock for decreases in the market price of Firstar Common Stock which could
occur before the Merger becomes effective. As a result, in the event the market
price of Firstar Common Stock decreases, the value of the Firstar Common Stock
to be received in the Merger in exchange for Investors Common Stock would
decrease. In the event the market price of Firstar Common Stock instead
increases, the value of the Firstar Common Stock to be received in the Merger in
exchange for Investors Common Stock would increase. Investors' stockholders
should note that in certain circumstances Investors may, at its option,
terminate the Merger Agreements before they take effect pursuant to the
walk-away provision. See "PROPOSED MERGER -- Termination, Amendment and Waiver."
Investors' stockholders are advised to obtain current market quotations for
Firstar Common Stock and Investors Common Stock.
Following the Merger, Investors Common Stock will no longer exist and, as a
result, will no longer be quoted on the Nasdaq National Market.
11
<PAGE> 18
COMPARATIVE PER COMMON SHARE DATA
The following table presents selected comparative unaudited per common
share data for Firstar Common Stock and Investors Common Stock as of and for the
three years ended December 31, 1993 and as of and for the nine months ended
September 30, 1994 on a historical and pro forma combined basis and for
Investors Common Stock on a pro forma equivalent basis giving effect to the
Merger accounted for as a pooling-of-interests. For a description of the
pooling-of-interests accounting basis with respect to the Merger and the related
effects on the historical financial statements of Firstar, see "PROPOSED MERGER
- -- Accounting Treatment." The information is derived from the consolidated
historical financial statements of Firstar and Investors, including the related
notes thereto, incorporated by reference into or included in this Proxy
Statement-Prospectus, and the pro forma financial statements, including the
notes thereto, appearing elsewhere herein. This information should be read in
conjunction with such historical and pro forma financial statements and the
related notes thereto. See "INCORPORATION OF CERTAIN INFORMATION BY REFERENCE",
"PRO FORMA COMBINING FINANCIAL STATEMENTS" and "INDEX TO INVESTORS FINANCIAL
STATEMENTS."
This information is not necessarily indicative of the results of the future
operations of the combined entity or the actual results that would have occurred
had the Merger been consummated prior to the periods indicated.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
NINE MONTHS ENDED ----------------------------
SEPTEMBER 30, 1994 1993 1992 1991
------------------ ------- ------- ------
<S> <C> <C> <C> <C>
Firstar -- Historical:
Net income.................................... $ 2.36 $ 3.15 $ 2.62 $2.14
Cash dividends declared....................... .86 1.00 .80 .705
Book value (at period end).................... 19.37 17.96 15.94 14.17
Investors -- Historical:
Net income.................................... $ 1.86 $ 2.49 $ 1.98 $1.51
Cash dividends declared....................... .38 .38 .18 --
Book value (at period end).................... 13.27 11.90 9.60 7.80
Firstar-Investors -- Pro Forma Combined:
Net income(1)................................. $ 2.34 $ 3.15 $ 2.61 $2.12
Cash dividends declared(2).................... .86 1.00 .80 .705
Book value (at period end)(3)................. 19.16 17.78 15.73 13.95
Investors -- Equivalent Pro Forma Combined(4):
Net income.................................... $ 2.03 $ 2.73 $ 2.26 $1.84
Cash dividends declared....................... .75 .87 .69 .61
Book value (at period end).................... 16.62 15.43 13.65 12.10
</TABLE>
- ---------------
(1) The pro forma combined net income per common share (based on weighted
average shares outstanding) is based upon the combined historical net income
for Firstar and Investors reduced for dividend payments on Firstar's
outstanding series B preferred stock (which was redeemed in 1993) and
Investors Preferred Stock, divided by the average pro forma common shares of
the combined entity.
(2) The pro forma combined dividends declared assume no changes in historical
dividends per share declared by Firstar.
(3) The pro forma combined book values per share of Firstar Common Stock are
based upon the historical total common equity for Firstar and Investors
divided by total pro forma common shares of the combined entity assuming
exchange of the Investors Common Stock for Firstar Common Stock as provided
for herein.
(4) The equivalent pro forma combined income, dividends and book value per share
of Investors Common Stock represent the pro forma combined amounts
multiplied by the Exchange Ratio of .8676.
12
<PAGE> 19
HISTORICAL AND PRO FORMA SELECTED FINANCIAL CONTRIBUTIONS
The following table sets forth certain consolidated financial data of
Firstar and Investors as of and for the nine months ended September 30, 1994,
and also sets forth such data on a pro forma combined basis after giving effect
to the acquisition of Investors and other pending Firstar acquisitions. The
information is derived from the consolidated historical financial statements of
Firstar and Investors, including the related notes thereto, incorporated by
reference into or included in this Proxy Statement-Prospectus, and the pro forma
financial statements, including the notes thereto, appearing elsewhere herein.
See "INCORPORATION OF CERTAIN INFORMATION BY REFERENCE," "PRO FORMA COMBINING
FINANCIAL STATEMENTS" and "INDEX TO INVESTORS FINANCIAL STATEMENTS."
<TABLE>
<CAPTION>
PRO FORMA
COMBINED OTHER PENDING
FIRSTAR INVESTORS FIRSTAR & ACQUISITIONS PRO FORMA
HISTORICAL HISTORICAL INVESTORS PRO FORMA COMBINED
----------- ---------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C>
For the nine months ended
September 30, 1994:
Total revenue:
Amount....................... $ 927,432 $ 59,498 $ 986,930 $ 127,718 $ 1,114,648
Percentage of total.......... 83.20% 5.34% 88.54% 11.46% 100.00%
Net income:
Amount....................... $ 151,596 $ 6,199 $ 157,795 $ 14,527 $ 172,322
Percentage of total.......... 87.97% 3.60% 91.57% 8.43% 100.00%
At September 30, 1994:
Total assets:
Amount....................... $14,329,204 $1,058,677 $15,387,881 $ 2,282,775 $17,670,656
Percentage of total.......... 81.09% 5.99% 87.08% 12.92% 100.00%
Stockholders' equity:
Amount....................... $ 1,241,011 $ 44,332 $ 1,285,343 $ 194,389 $ 1,479,732
Percentage of total.......... 83.87% 2.99% 86.86% 13.14% 100.00%
Shares of common stock:
Amount....................... 64,054,211 3,040,982* 67,095,193 9,596,489* 76,691,682
Percentage of total.......... 83.52% 3.97% 87.49% 12.51% 100.00%
</TABLE>
- ---------------
* Equivalent pro forma shares of Firstar
13
<PAGE> 20
SELECTED CONSOLIDATED FINANCIAL DATA OF FIRSTAR
The following table sets forth in summary form certain selected
consolidated financial data of Firstar. The financial data included for the five
years ended December 31, 1993, are derived from the audited consolidated
financial statements of Firstar. The financial data included for the nine-month
periods ended September 30, 1994 and 1993, are derived from the unaudited
historical financial statements of Firstar and reflect, in the opinion of
management of Firstar, all adjustments necessary for a fair presentation of such
data. Results for the nine months ended September 30, 1994 are not necessarily
indicative of the results which may be expected for the year as a whole. This
information should be read in conjunction with the financial review and
consolidated financial statements of Firstar, and the related notes thereto,
included in the documents incorporated by reference in this Proxy
Statement-Prospectus. See "INCORPORATION OF CERTAIN INFORMATION BY REFERENCE."
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
------------------- ----------------------------------------------------
1994 1993 1993 1992 1991 1990 1989
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Income Summary (Thousands of dollars):
Net interest revenue.......................... $440,106 $423,108 $568,056 $539,152 $480,596 $429,954 $413,102
Provision for loan losses..................... 8,274 18,451 24,567 44,821 50,276 49,161 52,362
-------- -------- -------- -------- -------- -------- --------
Net interest revenue after loan loss
provision................................... 431,832 404,657 543,489 494,331 430,320 380,793 360,740
Other operating revenue....................... 249,612 251,668 342,265 300,767 272,535 248,301 225,521
Other operating expense....................... 454,665 434,506 587,744 557,566 515,536 464,800 429,508
-------- -------- -------- -------- -------- -------- --------
Income before income taxes.................... 226,779 221,819 298,010 237,532 187,319 164,294 156,753
Provision for income tax...................... 75,183 70,041 93,716 71,547 52,988 46,837 45,618
Net income.................................... $151,596 $151,778 $204,294 $165,985 $134,331 $117,457 $111,135
======== ======== ======== ======== ======== ======== ========
Per common share:
Net income.................................... $ 2.36 $ 2.35 $ 3.15 $ 2.62 $ 2.14 $ 1.82 $ 1.72
Dividends..................................... .86 .74 1.00 .80 .705 .635 .545
Selected Period-End Balances
(Millions of dollars):
Total assets.................................. $ 14,329 $ 13,429 $ 13,794 $ 13,169 $ 12,309 $ 12,020 $ 11,163
Loans......................................... 9,520 8,533 8,984 8,111 7,545 7,346 6,871
Deposits...................................... 10,648 10,761 11,164 10,884 10,063 9,721 8,931
Long-term debt................................ 125 127 126 158 144 185 166
Stockholders' equity.......................... 1,241 1,172 1,156 1,048 916 844 790
Selected Financial Ratios:
Net income as a % of average assets........... 1.50% 1.59% 1.59% 1.36% 1.16% 1.06% 1.07%
Net income as a % of average common equity.... 16.84 18.81 18.61 17.43 15.85 14.83 15.65
Net interest margin %......................... 5.05 5.23 5.21 5.27 5.00 4.76 4.88
Total capital to risk-adjusted assets......... 13.43 13.81 13.18 13.20 11.92 11.94 12.09
Nonperforming assets as a % of period-end
loans and other real estate................. .73 .81 .72 1.09 1.43 1.87 1.61
Reserve for loan losses as a % of period-end
loans....................................... 1.80 2.06 1.95 2.08 2.00 1.83 1.69
Net charge-offs as a % of average loans....... .27 .27 .25 .43 .47 .48 .66
</TABLE>
14
<PAGE> 21
SELECTED CONSOLIDATED FINANCIAL DATA OF INVESTORS
The following table sets forth in summary form certain selected
consolidated financial data of Investors. The financial data included for the
four years ended December 31, 1993, and the six months ended December 31, 1989,
are derived from the audited consolidated financial statements of Investors. The
financial data included for the nine-month periods ended September 30, 1994 and
1993, are derived from the unaudited historical financial statements of
Investors and reflect, in the opinion of management of Investors, all
adjustments necessary for a fair presentation of such data. Results for the nine
months ended September 30, 1994 are not necessarily indicative of the results
which may be expected for the year as a whole. This information should be read
in conjunction with the financial review and consolidated financial statements
of Investors, and the related notes thereto, included in the documents
incorporated by reference in this Proxy Statement-Prospectus. See "INCORPORATION
OF CERTAIN INFORMATION BY REFERENCE", "INVESTORS BANK CORP. -- Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"INDEX TO INVESTORS FINANCIAL STATEMENTS."
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SIX MONTHS
SEPTEMBER 30, YEARS ENDED DECEMBER 31, ENDED
----------------- ------------------------------------- DECEMBER 31,
1994 1993 1993 1992 1991 1990 1989
------- ------- ------- ------- ------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Income Summary (Thousands of dollars):
Net interest revenue.............................. $19,765 $18,725 $25,117 $22,162 $18,139 $12,907 $4,166
Provision for loan losses......................... 334 445 631 869 1,010 803 256
------- ------- ------- ------- ------- ------- ------
Net interest revenue after loan loss provision.... 19,431 18,280 24,486 21,293 17,129 12,104 3,910
Other operating revenue........................... 14,754 13,300 18,630 14,255 9,756 8,112 4,280
Other operating expense........................... 21,130 19,098 26,462 22,509 18,452 16,779 6,918
------- ------- ------- ------- ------- ------- ------
Income before income taxes........................ 13,055 12,482 16,654 13,039 8,433 3,437 1,272
Provision for income tax.......................... 5,450 5,012 6,629 5,227 3,397 1,396 516
------- ------- ------- ------- ------- ------- ------
Net income........................................ $ 7,605 $ 7,470 $10,025 $ 7,812 $ 5,036 $ 2,041 $ 756
======= ======= ======= ======= ======= ======= =======
Per common share:
Net income........................................ $ 1.86 $ 1.86 $ 2.49 $ 1.98 $ 1.51 $ .66 $ 1.24
Dividends......................................... .38 .28 .38 .18 -- -- --
Selected Period-End Balances
(Millions of dollars):
Total assets...................................... $ 1,069 $ 964 $ 1,017 $ 816 $ 606 $ 610 $ 552
Loans............................................. 972 867 881 713 533 542 500
Deposits.......................................... 613 574 603 512 510 506 471
Long-term debt.................................... 128 206 191 169 3 10 10
Stockholders' equity.............................. 54 45 47 39 33 20 18
Selected Financial Ratios:
Net income as a % of average assets............... 1.03% 1.16% 1.13% 1.14% .84% .35% .28%
Net income as a % of average common equity........ 21.63 26.02 25.56 24.20 22.04 10.90 8.80
Net interest margin % ............................ 2.76 3.01 2.94 3.39 3.23 2.36 1.69
Total capital to risk-adjusted assets............. 11.15 11.21 11.56 11.44 9.79 8.43 8.56
Nonperforming assets as a % of period-end loans
and other real estate........................... .39 .92 .97 1.29 2.07 1.86 2.39
Reserve for loan losses as a % of period-end
loans........................................... .34 .34 .34 .36 .37 .20 .09
Net charge-offs as a % of average loans........... -- .01 .03 .04 .02 .04 .13
</TABLE>
15
<PAGE> 22
RECENT DEVELOPMENTS
Firstar. On January 19, 1995, Firstar announced earnings results for the
fourth quarter of 1994 and for all of 1994, in each case based upon unaudited
financial information. Firstar announced earnings for the fourth quarter of 1994
of $56.1 million, or $.86 per share, representing an increase of 7.5% from
earnings of $52.5 million, or $.80 per share, for the same period in 1993.
Firstar also announced earnings of $207.7 million for 1994, representing an
increase of 1.7% from $204.3 million in 1993. On a per common share basis, 1994
earnings were $3.22, up 2.2% from $3.15 in 1993. Firstar indicated that the
increase in fourth quarter earnings and for the year 1994 were primarily due to
strong consumer and commercial loan growth.
Average total loans were up 11.1% for the year. Commercial loans rose by
11.8%, while consumer loans increased by 10.2%. Although Firstar's net interest
margin narrowed 0.18% over the year to 5.03%, asset growth offset that decline
and net interest revenue increased 5.2% to $597.6 million.
Trust and investment management revenue rose 7.0% in 1994, while credit
card revenue increased 4.6% for the year due to a very strong fourth quarter.
However, a slowdown in mortgage lending offset these gains, resulting in a 2.1%
net decrease in revenue from fee-based products.
Total assets at the end of 1994 were $15.1 billion, up 9.5% from a year
earlier, while stockholders' equity at the end of 1994 was $1.31 billion, an
increase of 13.0% from a year earlier. Nonperforming assets declined 12.4% to
$56.8 million at the end of 1994, from $64.9 million at the end of 1993.
On January 31, 1995, Firstar completed its acquisition of First Colonial
Bankshares Corporation ("First Colonial"), a multi-bank holding company located
in Chicago, Illinois, with consolidated assets of $1.8 billion as of September
30, 1994. First Colonial was merged into, and became, a wholly-owned subsidiary
of Firstar. The acquisition was accounted for as a pooling-of-interests. See
"FIRSTAR CORPORATION -- Other Acquisitions and Transactions."
Investors. On January 30, 1995, Investors announced earnings results for
the fourth quarter of 1994 and for all of 1994, in each case based upon
unaudited financial information. Investors announced net earnings for the fourth
quarter of 1994 of $740,000 or $.14 per share, representing a decrease of 71%
when compared to $2.6 million, or $.63 per share, for the same period in 1993.
Investors also announced earnings for 1994 of $8.3 million, or $2.00 per share,
representing a decrease of 17% from $10.0 million, or $2.49 per share, for 1993.
Investors indicated that the decrease in fourth quarter earnings and for the
year 1994 was primarily due to compliance by Investors with its obligation
pursuant to the Merger Agreements not to sell any servicing rights after the
third quarter of 1994 and to other merger-related charges and to a lesser extent
to the decreased strength of the mortgage market.
Net interest income for the quarter and year ended December 31, 1994 was
$6.8 million and $26.5 million, respectively, both of which represented an
increase of 6% from the amounts reported for the same periods in 1993. These
increases were due to an increase in interest-earning assets to $1.1 billion at
December 31, 1994 compared to $982 million at December 31, 1993. Noninterest
income for the fourth quarter and year ended December 31, 1994 declined to $2.1
million and $16.8 million, respectively. The declines were due to the absence of
gains on sales of servicing rights in the fourth quarter of 1994. Investors'
servicing fee income was $5.2 million for 1994, an increase of 84% from the $2.8
million reported for 1993. The increase reflects the fact that prepayment
adjustments were not required in 1994 but were required in 1993. Commissions on
title insurance sales for the fourth quarter of 1994 were $57,000, a decrease of
81% compared to the fourth quarter of 1993, and $427,000 for 1994, a decrease of
54% from 1993. The decline in such commissions reflects generally the decline in
mortgage originations in 1994 versus 1993.
Investors indicated that nonperforming assets decreased 46% to $4.6 million
at December 31, 1994.
16
<PAGE> 23
MEETING INFORMATION
GENERAL
This Proxy Statement-Prospectus is being furnished to the stockholders of
Investors in connection with the solicitation by the Board of Directors of
Investors of proxies to be voted at the Special Meeting of holders of Investors
Common Stock to be held on March 15, 1995, and any adjournment thereof. The
purpose of the Special Meeting and of the solicitation is (i) to obtain approval
of the holders of Investors Common Stock of the Merger Agreements and (ii) the
transaction of such other business as may properly come before the meeting or
any adjournments thereof. Each copy of this Proxy Statement-Prospectus mailed to
holders of Investors Common Stock is accompanied by a form of proxy for use at
the Special Meeting.
DATE, PLACE AND TIME
The Special Meeting will be held at the Minneapolis Club, 729 Second Avenue
South, Minneapolis, Minnesota, on March 15, 1995, at 3:30 p.m. (local time).
RECORD DATE; VOTING REQUIRED AND REVOCATION OF PROXIES
The close of business on January 30, 1995, has been fixed by the Board of
Directors of Investors as the Record Date for the determination of stockholders
entitled to notice of and to vote at, the Special Meeting. On that date there
were outstanding and entitled to vote 3,508,600 shares of Investors Common
Stock, of which 915,053 (26%) were held by directors or executive officers of
Investors. Neither Firstar nor FCM or any of their directors or executive
officers own any shares of Investors Common Stock.
Each outstanding share of Investors Common Stock entitles the record holder
thereof to one vote on all matters to be acted upon at the Special Meeting.
Holders of Investors Preferred Stock are not entitled to vote at the Special
Meeting. The presence, in person or by proxy, of at least a majority of the
total number of outstanding shares of Investors Common Stock entitled to vote at
the Special Meeting is necessary to constitute a quorum at the Special Meeting.
Under Delaware law, the affirmative vote of at least a majority of the total
number of outstanding shares of Investors Common Stock entitled to vote at the
Special Meeting is required to approve and adopt the Merger Agreements. If an
executed proxy card is returned and the stockholder 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 of 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. Both abstentions and broker nonvotes have the same effect as
votes against the Merger Agreements. If the accompanying proxy card is properly
executed and returned to Investors in time to be voted at the 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 Agreements and for any proposal to adjourn the Special
Meeting if necessary to permit further solicitation of proxies.
The Board of Directors of Investors does not know of any matters other than
those described in the notice of the Special Meeting that are to come before the
Special Meeting. If any other matters are properly brought before the 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 best
judgment.
VOTING AGREEMENTS
As a condition to Firstar entering into the Merger Agreements, each of the
directors and executive officers of Investors has entered into a voting
agreement with Firstar. Each Voting Agreement provides that the signing
stockholder will vote all of his or her shares of Investors Common Stock in
favor of the Merger at the Special Meeting and prohibits such stockholder from
voting his or her shares in favor of any acquisition of
17
<PAGE> 24
stock or all or substantially all the assets of Investors by, or merger or
consolidation of Investors with, any party other than Firstar or its affiliates.
Further, each Voting Agreement requires that each such stockholder make adequate
provision to assure that his or her shares of Investors Common Stock remain
subject to the Voting Agreement before transferring any shares of Investors
Common Stock to a third party transferee. Each Voting Agreement terminates upon
the earlier of the Effective Time of the Merger (as defined below) or
termination of the Merger Agreements. See "PROPOSED MERGER -- Effective Time of
the Merger"; and "-- Termination, Amendment and Waiver."
The Voting Agreements bind the signatories thereto only in their capacity
as stockholders of Investors. Accordingly, while the directors of Investors are
contractually bound to vote as stockholders in favor of the Merger and against
competing proposals, should any be presented, their fiduciary duties as
directors nevertheless required them to act, in their capacity as directors, in
the best interests of Investors when they decided to approve and adopt the
Merger Agreements and recommend that the holders of Investors Common Stock vote
for the Merger and the Merger Agreements. The directors will continue to be
bound by their fiduciary duties as directors of Investors with respect to any
decisions they may take in connection with the Merger or otherwise.
The total number of shares of Investors Common Stock subject to the Voting
Agreements is 915,053, or 26% of the total shares outstanding as of the Record
Date and entitled to vote at the Special Meeting.
SOLICITATION OF PROXIES
In addition to solicitation by mail, directors, officers, and employees of
Investors, who will not be specifically compensated for such services, may
solicit proxies from the stockholders of Investors, personally or by telephone
or telegram or other forms of communication. Brokerage houses, nominees,
fiduciaries, and other custodians will be requested to forward soliciting
materials to beneficial owners and will be reimbursed for their reasonable
expenses incurred in sending proxy material to beneficial owners. Investors does
not anticipate that anyone will be specially engaged to solicit proxies or that
special compensation will be paid for that purpose, but Investors reserves the
right to do so should it conclude that such efforts are needed. Investors will
bear its own expenses in connection with the solicitation of proxies for the
Special Meeting, except that Firstar and Investors have agreed to share equally
in the expense of printing this Proxy Statement-Prospectus and the expense of
all SEC and other regulatory filing fees incurred in connection therewith. See
"PROPOSED MERGER -- Expenses."
HOLDERS OF INVESTORS COMMON STOCK ARE REQUESTED TO COMPLETE, DATE, AND SIGN
THE ACCOMPANYING PROXY AND RETURN IT PROMPTLY TO INVESTORS IN THE ENCLOSED
POSTAGE-PREPAID ENVELOPE.
PROPOSED MERGER
The following description of the Merger is qualified in its entirety by
reference to the Merger Agreements, which are attached as Appendix B to this
Proxy Statement-Prospectus and are incorporated herein by reference. All
Investors stockholders are urged to read the Merger Agreements in their
entirety.
BACKGROUND OF THE MERGER
The past several years have been a period of significant consolidation in
the financial services industry. Although Investors has examined a number of
potential acquisition candidates, the size of its operations and its lack of
visibility have impeded its ability to effectively compete in the bidding
process. During this same period, all of Investors' primary competitors have
participated in the consolidation process, either as acquiring companies or as
targets of acquisition. Investors had received indications of interest from
several financial institutions prior to 1994, none of which progressed beyond
preliminary discussions.
During November 1993, the Board of Directors of Investors met to consider
the long-term strategic direction of Investors. The Board determined that,
although it would entertain offers to acquire Investors that provided
significantly more appreciation potential to Investors stockholders than
continued operation as an
18
<PAGE> 25
independent company, it would not seek the sale of Investors but would instead
continue to concentrate on the high returns Investors had historically provided
to its stockholders. As part of that process, the directors discussed in general
the terms of acquisition offers that would be necessary to entice Investors into
discussions.
James Burkholder was first contacted by Richard Schoenke of Firstar Bank in
December 1993 to arrange a lunch meeting. The meeting was held on January 11,
1994 and consisted generally of discussions regarding the financial institution
industry common to both institutions. At the close of the meeting, Mr. Schoenke
inquired whether Investors would have any interest in discussing an alliance
with Firstar. Mr. Burkholder's response was that Investors was not for sale and
that it really did not know much about Firstar. Firstar subsequently forwarded
more information to Investors regarding Firstar's operations.
The contact from Firstar was reported at the January meeting of the Board
of Directors of Investors and information regarding Firstar was distributed. The
Board took no action but acknowledged that Firstar appeared to be a healthy
institution.
In late January, Mr. Schoenke telephoned again and there was a general
discussion of the quality of each organization. Mr. Schoenke and Mr. Burkholder
scheduled and held another meeting, which included John Lohmann, Executive Vice
President, Secretary and a director of Investors, and Jon Stowe, Executive Vice
President-Mergers and Acquisitions of Firstar, in Mr. Schoenke's offices on
March 1, 1994. Firstar inquired at this time as to whether the Board of
Directors of Investors would be receptive to discussions with Firstar about a
business combination. Investors responded that Investors was a sound and well
run organization and had no particular desire to combine its operations with
another institution, but that the Investors Board might be receptive to further
discussions. Firstar responded that it would need to review certain information
before proceeding further in discussions. Management of Investors agreed to
discuss the matter with the Investors Board at the meeting to be held at the end
of March and suggested that any information provided would have to be preceded
by a confidentiality agreement. A confidentiality agreement was executed on
March 10, 1994, and preliminary information was provided by Investors to Firstar
on March 15, 1994.
Management reported execution of the confidentiality agreement and
discussed with the Board the information contained in publicly available reports
of Firstar at the regular meeting of the Board of Directors held March 22, 1994.
Counsel was present and discussed with the Board recent trends in law relating
to duties in connection with combinations. The Board discussion focused on the
continued preliminary nature of the discussions, information regarding Firstar
and general information regarding consolidation in the industry.
Firstar contacted Investors again by phone in early April, requested
additional nonpublic information from Investors, and scheduled a meeting for May
4, 1994. A special meeting of the Executive Committee of Investors was called
and held April 27, 1994 to discuss the advisability of continuing to provide
information to and to discuss a combination with Firstar. Members of the
Committee discussed the potential structure a business combination would take.
The Committee advised management of the importance of making clear to Firstar
the mortgage banking capabilities and advantages of Investors. The Committee
also discussed the importance of Investors' off-balance sheet assets, ARM
portfolio, and the limited interest rate sensitivity of its loan portfolio.
During late April, Firstar was provided additional financial information
regarding Investors, and Investors solicited and received more detailed
information regarding Firstar. During these discussions with Firstar, very
preliminary pricing was discussed.
At the regular meeting of the Board of Directors of Investors held May 3,
1994, the Board discussed the continuing interest expressed by Firstar and the
range of pricing suggested by Firstar. Mr. Burkholder described to the Board the
information that had been provided by Investors to Firstar. The Board examined
and discussed Firstar's 1993 annual report, several analysts' reports relating
to Firstar that had been obtained by management and other information regarding
the operations of Firstar. The Board discussed at length the financial
statements of Firstar, the character of its assets and liabilities, the market
area and businesses it served, and the absence of significant redundant
operations between the two institutions. The Board also discussed the pricing
parameters being used by Firstar and the appropriate indicia of value of
Investors.
19
<PAGE> 26
Several additional phone conversations occurred between Investors and
Firstar during May regarding issues that would be presented if a combination was
considered. On June 7, 1994, the executive officers of Investors toured
Firstar's Milwaukee operations and met with Roger Fitzsimonds, Chairman of
Firstar, John Becker, President of Firstar, and several others. The general
tenor of the meetings at this point was that Firstar was interested in a
combination of Investors and Firstar's Minnesota banking operations. Based on
these discussions, the parties agreed to continue to perform due diligence
adequate to consider pricing and to consider whether an offer would be
forthcoming.
Firstar sent a team of individuals to Minneapolis to review loan files for
commercial real estate (off site) in early June 1994. Telephone conversations
continued during June 1994. On June 23, 1994, James Burkholder met again with
Roger Fitzsimonds in Minneapolis to discuss the status of the review. Investors
suggested that Firstar needed to come to some decision. At this time, Investors
was told to expect an offer by July 15, 1994.
These developments, together with comparative income statement information
for Firstar and Investors for the year ended December 31, 1993, several articles
regarding Firstar and financial institution mergers, and a summary of all first
quarter thrift acquisitions published by an industry periodical were considered
by the Board of Directors of Investors at its regular meeting on June 28, 1994.
The Board discussed certain criteria that Firstar proposed to use to evaluate
Investors for pricing purposes. The Board also discussed the expressed reasons
for Firstar's interest, including Firstar's desire to expand regionally and the
similar corporate cultures maintained by the two organizations. The Board
discussed Firstar's strengths in asset quality, data processing capability,
commercial lending and trust services, and financial performance ratios, noting
the complementary nature of Firstar's operations to those of Investors.
On July 15, 1994, Investors received a letter from Firstar outlining the
general terms upon which Firstar would be interested in proceeding with a
combination of Investors with FCM, including pricing at $28 in value of Firstar
Common Stock for each share of Investors Common Stock. The term letter was
immediately transmitted to each member of the Board of Investors. On the
afternoon of July 15, 1994, counsel to Investors contacted Piper Jaffray Inc.
("Piper Jaffray") and asked that it be prepared to make a presentation at a
scheduled July 19, 1994, Board meeting regarding Piper Jaffray's possible
retention as financial advisor in connection with the potential combination.
The Board of Directors met on July 19, 1994, and discussed the term letter
in detail. Piper Jaffray presented information regarding the work it would
perform if engaged as financial advisor and discussed the terms of such
engagement with the Board. Counsel to Investors reviewed with members of the
Board the duties and responsibilities of Investors' directors under corporate
law and regulatory requirements. The Board considered and discussed with members
of management the provisions of the letter, focusing on pricing and its
relationship to book value and as a multiple of earnings. Based on such
discussions, the Board authorized management to continue negotiations with
Firstar and to retain Piper Jaffray to render a fairness opinion.
During the following week, James Burkholder, with input from several
directors, engaged in discussions with Jon Stowe of Firstar regarding pricing
and other specific terms of the proposed combination. As a result of those
discussions, on July 22, 1994, Firstar increased the price it was offering for
each share of Investors Common Stock.
At a special meeting held July 27, 1994, the Board of Investors discussed
the progress made through such negotiations. The discussion focused on pricing
and the financial ratios upon which such pricing would be based. The Board
discussed with Piper Jaffray such potential ratios and the effect of Investors'
leverage on the same. Based on the discussion at such meeting, and although the
parties had not reached final agreement as to pricing, Mr. Burkholder called Mr.
Stowe and indicated that the parties were close enough on terms to justify
preparation of proposed Merger Agreements. Mr. Stowe indicated that a draft of
such agreements would be forthcoming on or about August 10, 1994.
The Board of Directors held a regular meeting on August 3, 1994. At this
meeting, directors discussed with management and counsel the proposed terms of
employment agreements with Investors' executive officers that would take effect
after the Merger and the conduct of Firstar's due diligence investigation
20
<PAGE> 27
regarding Investors as well as Firstar's acquisition of First Colonial, which
had been announced on August 1, 1994. Piper Jaffray described to and discussed
with the Board its preliminary due diligence investigation of Firstar. The Board
discussed with management open issues regarding the proposed combination and the
likely timing of the remaining portion of the transaction.
Investors received a draft of the Merger Agreements on August 11, 1994.
Investors met with its counsel on August 12, 1994 and such counsel prepared
comments and responded to such draft on August 14, 1994. Counsel discussed the
changes with counsel to Firstar on August 15, 1994 and Firstar submitted a
revised draft on the afternoon of August 17, 1994. Investors had additional
pricing discussions with Firstar during such week but had not reached final
agreement as to pricing before August 18, 1994.
The morning issue of the Minneapolis Star and Tribune on August 18, 1994
reported that Investors was engaged in merger discussions with Firstar.
Investors immediately met with its counsel and issued a press release generally
confirming the newspaper article.
At a previously scheduled special meeting of the Board of Directors of
Investors on August 18, 1994, the Board discussed with management, counsel and
representatives of Piper Jaffray the ongoing negotiations regarding pricing and
all of the provisions of the Merger Agreements and associated documents. The
Board discussed the most recent exchange ratio proposed by Firstar in view of
the decline in the market price of Firstar Common Stock after announcement of
the First Colonial transaction. The Board authorized and directed management to
continue such negotiations with a view toward terminating discussions if a more
favorable ratio could not be obtained. The Board also agreed with management and
counsel that a number of provisions of the Merger Agreements required further
negotiation. Because the terms were not finalized and pricing had not been
agreed to, the meeting was adjourned and an additional Board meeting was
scheduled for Saturday, August 20, 1994.
Mr. Burkholder, with the assistance of counsel and several directors,
continued to negotiate the exchange ratio and the outstanding issues relating to
the terms contained in the proposed Merger Agreements during the evening of
August 18 and morning of August 19, 1994. Mr. Burkholder and the other executive
officers of Investors also negotiated the terms of amendments to their
employment and severance agreements with Investors (and in the case of Daniel
Arrigoni, a new employment agreement), which amendments and new agreement will
take effect upon consummation of the Merger. See "PROPOSED MERGER -- Interests
of Certain Persons in the Merger." Investors and Firstar reached general
agreement regarding the exchange ratio on August 19.
At a special meeting held August 20, 1994, the Board considered the general
terms of the Merger Agreements in the context of the exchange ratio that had
been negotiated. At such meeting, members of Investors' management, together
with Investors' legal advisors and Piper Jaffray, reviewed with the Investors
Board of Directors, among other things, the background of the transaction, the
potential benefits of the transaction, including the strategic rationale for the
transaction, financial and valuation analyses of the transaction and the status
of the terms of the transaction documents. Piper Jaffray reviewed with the Board
its preliminary opinion, based on the draft of the Merger Agreements and the
exchange ratio that had been negotiated, that the consideration was fair from a
financial point of view to the holders of Investors Common Stock. The Board
discussed with counsel several remaining issues under the proposed Merger
Agreements, and management and counsel negotiated such provisions during a
temporary adjournment of the meeting. Because the provisions negotiated had not
been reviewed by the Board, an additional Board meeting was scheduled and held
at 10:00 a.m. on August 21, 1994.
At the special meeting held August 21, 1994, the Board met with counsel and
reviewed final drafts of the Merger Agreements, voting agreements, proposed
employment agreements with management, and other related documents. The Board
engaged directly in negotiation with Firstar of several final revisions to such
agreements. The remaining issues under the proposed Merger Agreements were
resolved through such negotiations. The Board of Directors unanimously approved
the Merger Agreements and the transactions contemplated thereby, and authorized
members of management to execute the proposed Merger Agreements with changes
therein authorized by a special committee appointed at such meeting. The special
committee
21
<PAGE> 28
met and ratified a change in the proposed Merger Agreements during the early
evening on the same day and the Merger Agreements were then executed.
REASONS FOR THE MERGER; RECOMMENDATION OF INVESTORS BOARD OF DIRECTORS
Investors. The Board of Directors of Investors believes that the terms of
the Merger are fair and in the best interest of Investors' stockholders. The
Board of Directors consulted with its legal and financial advisors as well as
management of Investors and carefully considered a variety of factors in
evaluating the Merger. Although it did not assign any specific weight thereto,
among the factors the Board of Directors of Investors considered were the
following:
(i) Investors' recent results of operations and financial position;
(ii) Future prospects for Investors' business, with particular
consideration of the effects of interest rate movements and changing
competition on the home finance and mortgage banking industry in the
markets that Investors serves;
(iii) The historical market value, book value, dividends, and
multiples of earnings of Investors Common Stock as compared to the
historical market value, book value, dividends, and multiples of earnings
of Firstar Common Stock;
(iv) The financial terms of recent comparable business combinations in
the financial institution industry;
(v) The results of operations and financial position of Firstar;
(vi) The future prospects for Firstar's business, with particular
emphasis on the diversification of the financial products offered by
Firstar;
(vii) The size and market share of Firstar in light of the
concentration in the Minneapolis banking market and the growing disparity
in resources between large bank holding companies and Investors;
(viii) The market liquidity of Firstar Common Stock;
(ix) The absence of significant redundancy between Investors' mortgage
banking expertise and Firstar's strong commercial banking and trust
operations and the potential for expansion of both businesses through
combination;
(x) The continued significant consolidation in the financial
institution industry and the competitive effects of such consolidation; and
(xi) The opinion of Piper Jaffray that the consideration to be
received by holders of Investors Common Stock was, as of the date of its
opinion, fair from a financial point of view.
In addition, the Board of Directors considered the impact of the Merger on
the depositors of Investors Bank, and on the employees, customers and the
communities in which it operates.
After careful consideration and review of these factors and other
considerations, the Board of Directors concluded that the Merger is in the best
interests of Investors and its stockholders and that the Merger was preferable
to the other alternatives available to Investors, such as remaining independent
or soliciting bids through an auction process or a more limited bid process. In
the judgment of the Board of Directors, the Merger should result in a
significant cost savings and expanded operations for the combined entity,
enhance the services offered to Investors' customers and at the same time
provide holders of Investors Common Stock with the potential of increased
long-term value.
FOR THE REASONS SET FORTH ABOVE, THE BOARD OF DIRECTORS OF INVESTORS
UNANIMOUSLY RECOMMENDS THAT HOLDERS OF INVESTORS COMMON STOCK VOTE TO APPROVE
THE MERGER AND THE MERGER AGREEMENTS.
Firstar. Firstar concluded that the Merger would be in the best interests
of Firstar and its shareholders. Numerous factors were considered by the Board
of Directors of Firstar in approving the terms of the Merger.
22
<PAGE> 29
These factors included information concerning the financial structure, results
of operations, and prospects of Firstar and Investors; the capital adequacy of
the resulting entity; the composition of the businesses of the two
organizations; the overall compatibility of the management and employees of the
organizations; the outlook for both organizations in the rapidly changing
banking and financial services industry; the historical and current market
prices of each company's stock and certain other bank holding companies whose
securities are publicly traded, the relationship of the consideration to be paid
in the Merger to such market prices and the book value and earnings per share of
Investors; and the financial terms of certain other recent business combinations
in the banking industry. See "PRO FORMA COMBINING FINANCIAL STATEMENTS."
The Board of Directors of Firstar believes that the expansion of Firstar's
customer base and assets in the Minneapolis-St. Paul area will enable the new
organization to realize certain economies of scale, to provide a wider and
improved array of financial services to its customers and those of Investors and
to achieve added flexibility in dealing with the region's changing competitive
environment. Additionally, the Board of Directors of Firstar believes that the
Merger will provide the combined company with the market position and financial
resources it needs to meet the competitive challenges arising from changes in
the banking and financial industry.
OPINION OF INVESTMENT BANKER
Piper Jaffray was retained by Investors on July 22, 1994 to render its
opinion regarding the fairness, from a financial point of view, of the
consideration proposed to be paid to the holders of Investors Common Stock in
the proposed Merger. Piper Jaffray delivered to Investors directors on August
20, 1994, its oral opinion subsequently confirmed in writing to the effect that,
as of the date of the opinion and based on and subject to the assumptions,
factors and limitations set forth in the opinion and as described below, the
consideration proposed to be paid to the holders of Investors Common Stock in
the Merger was fair, from a financial point of view, to such stockholders. This
opinion was subsequently reaffirmed by issuance to the Investors Board of a
Piper Jaffray opinion, dated February 3, 1995. Those opinions are herein
individually and collectively referred to as the "Opinion." A copy of the
Opinion letter dated February 3, 1995 is attached to this Proxy Statement-
Prospectus as Appendix C and is incorporated herein by reference. The August 20,
1994 Opinion is substantially identical to the Opinion attached hereto. Holders
of Investors Common Stock are urged to read the attached Opinion in its
entirety.
Piper Jaffray was not requested to and did not make any recommendation to
the Investors Board as to the form or amount of the consideration to be received
by the stockholders of Investors in the Merger, which was determined through
negotiations between Firstar and Investors. The Opinion is directed to the
Investors Board only and does not constitute a recommendation to any Investors
stockholder as to how such stockholder should vote at the Special Meeting. Piper
Jaffray was not requested to opine as to, and the Opinion does not address, (i)
Investors' underlying business decision to proceed with or effect the Merger or
(ii) whether the consideration proposed to be paid to the holders of Investors
Preferred Stock was fair from a financial point of view.
In arriving at the Opinion, Piper Jaffray reviewed, among other things, (i)
the Merger Agreements, (ii) certain publicly available information relative to
the business, financial condition and operations of Investors, (iii) certain
internal financial planning information of Investors furnished by management of
Investors, (iv) certain financial and securities data of Investors and companies
deemed similar to Investors or representative of the business sector in which
Investors operates, (v) to the extent publicly available, the financial terms of
certain acquisition transactions, (vi) certain publicly available information
relative to Firstar, and (vii) certain financial and securities data of Firstar
and companies deemed similar to Firstar or representative of the business sector
in which Firstar operates. In addition, Piper Jaffray engaged in discussions
with members of management of Firstar and Investors concerning the respective
financial condition, current operating results and business outlook of Firstar
and Investors.
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<PAGE> 30
In delivering the Opinion to the Investors Board on August 20, 1994, Piper
Jaffray prepared and delivered to the Investors Board certain written materials
containing various analyses and other information material to the Opinion. The
following is a summary of these materials:
STOCK TRADING ANALYSES. Piper Jaffray reviewed the stock trading history of
each of Investors and Firstar. Piper Jaffray presented the following stock
trading data:
<TABLE>
<CAPTION>
INVESTORS FIRSTAR
--------- -------
<S> <C> <C>
Average daily trading volume 8/18/93-8/18/94................ 3,197 57,077
Closing price on 8/18/94.................................... $ 24.75 $ 32.63
Year preceding 8/18/94
High...................................................... $ 24.75 $ 35.38
Low....................................................... $ 15.38 $ 29.88
Most recently declared dividend annualized per share........ $ .50 $ 1.20
Yield....................................................... 2.02% 3.68%
Pro forma equivalent dividend for Investors at 0.8676
exchange ratio............................................ $ 1.04
</TABLE>
Based on the closing price of Firstar Common Stock on August 18, 1994 of $32.63
and the proposed exchange ratio, Piper Jaffray calculated an implied purchase
price per share of Investors Common Stock of $28.31.
COMPARABLE PUBLIC COMPANY ANALYSIS. Piper Jaffray compared certain
financial information and valuation ratios relating to Investors and Firstar to
corresponding data and ratios from groups of selected publicly traded companies
deemed comparable to Investors (the "Investors Comparables") and to Firstar (the
"Firstar Comparables"). The Investors Comparables and the Firstar Comparables
are collectively referred to as the "Comparable Companies". The Investors
Comparables comprised six thrifts based in the Midwest and one in the Pacific
Northwest, with assets of between $600 million and $1.6 billion. The Firstar
Comparables comprised seven regional bank holding companies with assets of
between $6.5 billion and $51 billion.
Piper Jaffray calculated valuation ratios for the Investors Comparables as
follows: price to latest 12 months (LTM) earnings per share (EPS) of 7.1x to
12.6x, with a median of 10.18x and a mean of 10.0x; price to calendar 1994 EPS
estimates of 7.34x to 12.40x, with a median of 10.05x and a mean of 10.16x;
price to next fiscal year EPS of 6.4x to 12.7x with a median of 10.57x and a
mean of 9.90x; price to book value of 1.08x to 1.44x, with a median of 1.10x and
a mean of 1.16x; and price to tangible book value of 1.08x to 1.67x, with a
median of 1.17x and a mean of 1.25x. These compared to corresponding ratios for
Investors, based on the implied purchase price, of 11.37x, 10.76x, 10.76x, 2.22x
and 2.22x, respectively.
Piper Jaffray calculated valuation ratios for the Firstar Comparables as
follows: price to LTM EPS of 10.80x to 13.58x, with a median of 11.54x and a
mean of 11.72x; price to 1994 EPS estimates of 9.97x to 13.04x, with a median of
10.72x and a mean of 10.95x; price to book value of 1.12x to 2.38x, with a
median of 1.62x and a mean of 1.67x; and a price to tangible book value of 1.31x
to 3.0x, with a median of 1.79x and a mean of 1.99x. These compared to
corresponding ratios for Firstar, based on the closing price of Firstar common
stock on August 18, 1994, of 10.59x, 9.46x, 1.73x and 1.88x, respectively.
COMPARABLE TRANSACTION ANALYSIS. Piper Jaffray reviewed recent merger and
acquisition transactions for which information was publicly available involving
Midwest thrifts, a seller receiving consideration of between $40 million and
$200 million, consideration comprised solely of stock and an announcement date
after December 31, 1990. This review produced ten transactions (the "Comparable
Transactions") deemed relevant to the proposed Merger. Piper Jaffray presented
the following valuation multiples for the Comparable Transactions: price to LTM
EPS of 7.59x to 17.37x, with a median of 14.12x and a mean of 13.52x; price to
book value of 1.23x to 1.90x, with a median of 1.60x and a mean of 1.57x; and
price to tangible book value of 1.32x to 2.33x, with a median of 1.69x and a
mean of 1.70x. These ratios were compared by Piper Jaffray to corresponding
ratios for Investors, based on the implied purchase price, of 10.72x and 12.81x
to 13.95x (as adjusted for incremental leverage), 2.43x and 2.43x, respectively.
In calculating a price to LTM EPS ratio for
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<PAGE> 31
Investors, Piper Jaffray adjusted EPS to remove the assumed incremental benefit
to EPS associated with Investors' leverage, as none of the target companies
included in the Comparable Transactions had such holding company leverage. For
this purpose, Piper Jaffray assumed various incremental asset levels capable of
being supported by Investors' existing subordinated debt (which had been
contributed to its banking subsidiary, thereby allowing such subsidiary to
support incremental asset levels) ranging from $70.1 million to $116.9 million,
a positive earnings spread on such assets of 2.5%, and a resulting benefit to
LTM EPS due to such subordinated debt of from $.28 to $.46.
Piper Jaffray also calculated an implied percentage premium to holders of
Investors Common Stock based on the implied purchase price and various prices
for the Investors Common Stock prior to announcement of the transaction (assumed
to be August 18, 1994); and compared these implied premiums to those calculated
for the Comparable Transactions. This analysis produced a 21.8% implied premium
in the Merger over the one day prior to announcement price, which compared to a
range of 0.0% to 42.6%, a mean of 26.4% and a median of 29.7% for the one day
prior to announcement premium for the Comparable Transactions; a 51% implied
premium in the Merger over the thirty days prior to announcement price, which
compared to a range of 10.1% to 67.3%, a median of 35.3% and a mean of 36.6% for
the thirty days prior to announcement premium for the Comparable Transactions;
and a 66.5% implied premium in the Merger over the ninety days prior to
announcement price, which compared to a range of 21.6% to 77.7%, a median of
43.6% and a mean of 46.2% for the ninety days prior to announcement premium for
the Comparable Transactions.
DISCOUNTED DIVIDEND ANALYSIS. Using internal financial planning data
prepared by management of Investors for the years ending December 31, 1994
through 1999, Piper Jaffray estimated the future dividend payments which could
be made to holders of Investors Common Stock assuming the maintenance of certain
capital levels. Piper Jaffray calculated terminal values based upon a range of
terminal value multiples of forecasted 1999 net income of 9.0x to 12.0x and book
value of 1.50x to 2.0x. Based upon the projected cash flows and applying a range
of discount rates of 14% to 18%, this analysis yielded ranges of estimated
present values for the Investors Common Stock of $22.85 to $33.17 (using
multiples of forecasted net income to calculate terminal value), and $20.20 to
$28.97 (using multiples of forecasted book value to calculate terminal value).
In reaching its conclusion as to fairness of the consideration to be
received in the Merger and in its presentation to the Investors Board of
Directors, Piper Jaffray did not rely on any single analysis or factor described
above, assign relative weights to the analyses or factors considered by it, or
make any conclusions as to how the results of any given analysis, taken alone,
supported its Opinion. The preparation of a fairness opinion is a complex
process and not necessarily susceptible to partial analyses or summary
description. Piper Jaffray believes that its analyses must be considered as a
whole and that selecting portions of its analyses and of the factors considered
by it, without considering all factors and analyses, would create a misleading
view of the processes underlying the Opinion. The analyses of Piper Jaffray are
not necessarily indicative of actual values or future results, which may be
significantly more or less favorable than suggested by such analyses. Analyses
relating to the value of companies do not purport to be appraisals or valuations
or necessarily reflect the price at which companies may actually be sold. No
company or transaction used in any comparable analysis as a comparison is
identical to Firstar, Investors or the Merger. Accordingly, an analysis of the
results is not mathematical; rather, it involves complex considerations and
judgments concerning differences in the various characteristics of the
Comparable Transactions to which the Merger was compared and in financial and
operating characteristics of the Comparable Companies and other factors that
could affect the public trading value of the Comparable Companies to which
Investors and Firstar were compared.
For purposes of the Opinion, Piper Jaffray relied upon and assumed the
accuracy, completeness and fairness of the financial and other information made
available to it and did not attempt independently to verify such information.
Piper Jaffray relied upon the assurances of Investors and Firstar managements
that the information provided by Investors and Firstar had a reasonable basis
and, with respect to financial planning data and other business outlook
information, reflected the best available estimates, and that they were not
aware of any information or fact that would make the information provided to
Piper Jaffray incomplete or misleading. In arriving at the Opinion, Piper
Jaffray did not perform, nor was it furnished, any appraisal or valuation of
specific assets or liabilities of Investors and Firstar and expressed no opinion
regarding the
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<PAGE> 32
liquidation value of any entity. No limitations were imposed by Investors on the
scope of Piper Jaffray's investigation or the procedures to be followed in
rendering its Opinion. Piper Jaffray, however, was not authorized by the
Investors Board to solicit, and did not solicit, other entities for purposes of
a possible business combination transaction with Investors. Piper Jaffray
expressed no opinion as to the price at which shares of Firstar Common Stock may
trade at any future time. The Opinion is based upon information available to
Piper Jaffray and the facts and circumstances as they existed and were subject
to evaluation on the dates of the Opinion. Events occurring after such dates
could materially affect the assumptions used in preparing the Opinion.
Piper Jaffray, as a customary part of its investment banking business, is
engaged in the evaluation of businesses and their securities in connection with
mergers and acquisitions, underwritings and other distributions of securities,
private placements and evaluations for estate, corporate and other purposes. The
Investors Board selected Piper Jaffray because of its expertise, reputation and
familiarity with the financial services industry in general and the Midwestern
banking market and Investors in particular.
Piper Jaffray has provided financial advisory and investment banking
services to Investors since 1989. Piper Jaffray acted as underwriter for a
public offering of subordinated debentures of Investors' principal banking
subsidiary completed in March 1989, as dealer-manager for an exchange offer of
Investors' preferred stock and warrants in October 1991, and as co-managing
underwriter for a public offering of Investors' subordinated debentures
completed in December 1992. Since Investors' initial public offering of common
stock, Piper Jaffray has made a market in Investors Common Stock, Investors
Preferred Stock, and Investors notes and warrants, and has published market
research on Investors. In the normal course of its market making activities,
Piper Jaffray may, from time to time, have a long or short position in and buy
and sell Investors' securities, which positions, on occasion, may be material in
size relative to the volume of trading activity.
For rendering its Opinion to the Investors Board of Directors in connection
with the Merger, Investors has paid Piper Jaffray a fee of $75,000 upon
rendering its Opinion dated August 20, 1994 and $75,000 upon rendering its
Opinion dated February 3, 1995. The fees payable to Piper Jaffray are not
contingent upon consummation of the Merger. Whether or not the Merger is
consummated, Investors has agreed to pay the reasonable out-of-pocket expenses
of Piper Jaffray and to indemnify Piper Jaffray against certain liabilities
incurred (including liabilities under the federal securities laws) in connection
with the engagement of Piper Jaffray by Investors.
TERMS OF THE MERGER
At the Effective Time of the Merger, Investors will merge with and into
FCM, which will be the surviving corporation. The Articles of Incorporation and
By-laws of FCM in effect at the Effective Time will govern the surviving
corporation until amended or repealed in accordance with applicable law. At the
Effective Time, each outstanding share of Investors Common Stock will be
converted into the right to receive 0.8676 of a share of Firstar Common Stock
and each outstanding share of Investors Preferred Stock will be converted into
the right to receive $27.50 plus accumulated and unpaid dividends on such shares
of Investors Preferred Stock to the Effective Time, payable in cash.
The Merger Agreements provide that, if between the date of the Merger
Agreements and the Effective Time, Firstar declares a stock dividend or
distribution upon or subdivides, splits up, reclassifies or combines its shares
of Firstar Common Stock or declares a dividend or makes a distribution on
Firstar Common Stock of any security convertible into Firstar Common Stock,
appropriate adjustment or adjustments will be made in the Exchange Ratio
applicable to Investors Common Stock.
No fractional shares of Firstar Common Stock will be issued in the Merger.
Instead, Firstar will pay to each holder of Investors Common Stock who would
otherwise be entitled to a fractional share an amount of cash equal to the
fraction of a share of Firstar Common Stock to which the Investors stockholder
would otherwise be entitled multiplied by the closing price per share of Firstar
Common Stock at the Effective Time on the NYSE. The shares of Firstar Common
Stock and shares of common stock of FCM issued and outstanding immediately prior
to the Effective Time will remain issued and outstanding.
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<PAGE> 33
The terms of the Merger were determined on the basis of arm's length
negotiations.
RESTRICTED STOCK
Certain executive officers of Investors hold restricted stock ("Investors
Restricted Stock") issued pursuant to Restricted Stock Award Agreements entered
into with Investors in 1992 and 1994 (the "Investors Restricted Stock
Agreements"). The restricted stock issued in 1992 vests over a ten-year period
at the rate of 10% per year and the restricted stock issued in 1994 vests over a
three-year period at the rate of 33 1/3% per year. A total of 64,778 shares of
Investors Restricted Stock were outstanding as of January 30, 1995. Upon
consummation of the Merger, each outstanding share of Investors Restricted Stock
issued in 1992 that is not fully vested will become the right to receive the
number of shares of Firstar Common Stock with a value as of the Effective Time
equal to the "fair value" of the shares of such Investors Restricted Stock. Upon
consummation of the Merger, the Investors Restricted Stock issued in 1994 will
automatically become the number of shares of restricted stock of Firstar,
without alteration of the terms of the applicable Investors Restricted Stock
Agreements, including vesting, as is equal to the number of such shares of
Investors Restricted Stock multiplied by the Exchange Ratio.
OPTIONS
Options to purchase Investors Common Stock ("Investors Stock Options") are
outstanding under the Investors Restated Stock Option Plan and the Investors
1993 Stock Incentive Plan (collectively, the "Investors Stock Option Plans"). A
total of 260,108 Investors Stock Options were outstanding as of January 30,
1995, of which 169,983 were held by Investors' directors and officers. Upon
consummation of the Merger, each Investors Stock Option that is outstanding
immediately prior to the Effective Time will automatically become an option to
purchase the number of shares of Firstar Common Stock (a "Firstar Stock Option")
as would have been received had such option been fully exercised before the
Merger. The number of shares subject to the Firstar Stock Options will be
determined by multiplying the number of shares of Investors Common Stock subject
to the Investors Stock Option by 0.8676, the Exchange Ratio. The exercise price
per share of Firstar Common Stock will be equal to the exercise price per share
of Investors Common Stock under the Investors Stock Option divided by 0.8676.
Pursuant to the terms of the agreements awarding options under the Investors
Stock Option Plans, the Investors Stock Options, to the extent not already
exercisable, become immediately exercisable upon a "change in control" (which
includes a transaction such as the Merger). Therefore, the Firstar Stock Options
that will replace the Investors Stock Options upon consummation of the Merger
will be immediately exercisable. Each Firstar Stock Option will otherwise be
exercisable on the same terms and conditions as applied to the Investors Stock
Options.
WARRANTS
Warrants, each of which represents the right to purchase 2/3 share of
Investors Common Stock (the "Investors Warrants"), are outstanding under a
Warrant Agreement dated October 15, 1991 (the "Investors Warrant Agreement"). As
of January 30, 1995, Investors had outstanding Investors Warrants that entitled
the holders to purchase 201,427 shares of Investors Common Stock. Firstar has
agreed to execute a supplement to the Investors Warrant Agreement, effective as
of the Effective Time (the "Supplemental Warrant Agreement"). Upon consummation
of the Merger and pursuant to the Supplemental Warrant Agreement, each Investors
Warrant that is outstanding immediately prior to the Effective Time will
automatically become a warrant to purchase the number of shares of Firstar
Common Stock (a "Firstar Warrant") as would have been received had such Warrant
been fully exercised before the Merger. The number of shares subject to the
Firstar Warrants will be determined by multiplying the number of shares of
Investors Common Stock subject to the Investors Warrant by 0.8676, the Exchange
Ratio. The purchase price per share of Firstar Common Stock will be equal to the
purchase price per share of Investors Common Stock under the Investors Warrant
($11.0625) divided by 0.8676 ($12.751).
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<PAGE> 34
EFFECTIVE TIME OF THE MERGER
Subject to satisfaction or waiver of all other conditions to the Merger,
the closing of the Merger will take place on a date (the "Closing Date") to be
specified by Firstar and Investors which is required to be no later than the
fifth business day after the later to occur of (i) approval of the Merger by the
Federal Reserve Board and of the Bank Merger and related transactions by the OCC
and, in certain cases, the OTS and the expiration of any waiting periods, and
(ii) the date on which the Special Meeting is held. If the closing does not take
place on the date referred to in the preceding sentence because any condition to
the obligations of Firstar and FCM, on the one hand, or Investors, on the other
hand, under the Merger Agreements is not met on that date, the other party may
postpone the closing from time to time to any designated subsequent business day
not more than ten business days after the original or postponed date on which
the closing was to occur. Notwithstanding the provisions of the Merger
Agreements summarized above, it is presently anticipated that Firstar and
Investors will amend the Merger Agreements to postpone the Closing Date so that
the Merger will not be consummated prior to late April 1995. Such an amendment
would not require the approval of the stockholders of Investors. See
"Termination, Amendment and Waiver." As soon as practicable on or after the
Closing Date, executed Articles of Merger will be filed with the Secretary of
State of the State of Minnesota and an executed Certificate of Merger will be
filed with the Secretary of State of the State of Delaware, and the Merger will
become effective upon the filing of such Articles of Merger and Certificate of
Merger (the "Effective Time"). Subject to the execution of the amendment of the
Merger Agreements referred to above, the Closing Date is currently expected to
occur in late April 1995. See "Conditions to the Merger" and "Regulatory
Approvals."
SURRENDER OF CERTIFICATES
As soon as reasonably practicable after the Effective Time, Firstar Trust
Company, or such other bank or trust company designated as exchange agent for
Firstar (the "Exchange Agent"), is required to mail to each holder of record of
Investors Common Stock and Investors Preferred Stock a letter of transmittal and
instructions for use in effecting the surrender of such holder's Investors stock
certificates for certificates representing Firstar Common Stock
("Certificates").
INVESTORS STOCKHOLDERS SHOULD NOT SEND IN THEIR STOCK CERTIFICATES UNTIL
THEY RECEIVE THE LETTER OF TRANSMITTAL FORM AND INSTRUCTIONS.
Common Stock. Upon surrender to the Exchange Agent of one or more
certificates for Investors Common Stock, together with a properly completed
letter of transmittal, there will be issued and mailed to the holder a
Certificate or Certificates to which the holder is entitled and, where
applicable, a check for the amount representing any fractional share. A
Certificate may be issued in a name other than the name in which the surrendered
certificate is registered only if a certificate representing such Investors
Common Stock is presented to the Exchange Agent, accompanied by all documents
required to evidence and effect a transfer to the new name and by evidence that
any applicable stock transfer taxes have been paid.
All Firstar Common Stock issued pursuant to the Merger will be deemed
issued as of the Effective Time. No dividends or other distributions declared or
made after the Effective Time with respect to Firstar Common Stock with a record
date after the Effective Time will be paid to the holder of any unsurrendered
certificate representing Investors Common Stock with respect to the shares of
Firstar Common Stock represented thereby, and no cash payment in lieu of
fractional shares will be paid to any such holder, until the holder of record of
such certificate surrenders the certificate. Subject to the effect of applicable
laws, following surrender of any certificate, there will be paid to the record
holder of the Certificates issued in exchange, without interest, (i) at the time
of such surrender, the amount of any cash payable in lieu of a fractional share
of Firstar Common Stock and the amount of dividends or other distributions with
record and payment dates after the Effective Time and before the date of such
surrender and (ii) at the appropriate payment date, the amount of dividends or
other distributions with a record date after the Effective Time but prior to
surrender and a payment date subsequent to surrender payable with respect to the
whole shares of Firstar Common Stock represented by the Certificates. In no
event shall the persons entitled to receive such dividends, distributions and
cash in lieu of fractional shares be entitled to receive interest on amounts
payable.
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<PAGE> 35
Preferred Stock. Upon surrender to the Exchange Agent of one or more
certificates for Investors Preferred Stock, together with a properly completed
letter of transmittal, there will be issued and mailed to the holder a check for
the amount of cash to which the holder is entitled, including accumulated and
unpaid cash dividends with a record date prior to the Effective Time. In no
event shall the person entitled to receive such cash be entitled to receive
interest on amounts payable.
CONDITIONS TO THE MERGER
The Merger will occur only if the Merger Agreements are approved by the
requisite vote by the holders of Investors Common Stock. Consummation of the
Merger is subject to the satisfaction of certain other conditions unless waived
to the extent waiver is permitted by applicable law. Such conditions include the
following, which constitute all material conditions: (i) the receipt of all
necessary regulatory approvals of the Merger, the Bank Merger and certain
related transactions, including the approvals of the Federal Reserve Board, the
OCC and the OTS, with no conditions that are not reasonably acceptable to
Firstar; (ii) the effectiveness of the Registration Statement and the absence of
a stop order suspending such effectiveness or proceedings seeking a stop order;
(iii) the absence of a temporary restraining order, injunction or other order of
any court of competent jurisdiction or other legal restraint or prohibition
preventing the consummation of the Merger; (iv) authorization for listing on the
NYSE upon official notice of issuance of the shares of Firstar Common Stock
issuable in the Merger; (v) the absence of any material adverse change since
December 31, 1993, in the financial condition, results of operations or business
of Investors and Firstar, as the case may be, other than any changes resulting
primarily by reason of changes in banking business of Investors and Firstar; and
(vi) the continued accuracy of representations and warranties by Firstar and
Investors regarding, among other things, the organization of the parties,
financial statements, capitalization, pending and threatened litigation,
enforceability of the Merger Agreements, compliance with law, and tax matters.
See "Termination, Amendment and Waiver" and "Regulatory Approvals."
In addition, unless waived, each party's obligation to effect the Merger is
subject to performance by the other party of its obligations under the Merger
Agreements and the receipt of certain certificates from the other party and
legal opinions.
REGULATORY APPROVALS
The Merger is subject to prior approval by the Federal Reserve Board under
the Bank Holding Company Act of 1956, as amended (the "BHC Act"), which requires
that the Federal Reserve Board take into consideration, among other factors, the
financial and managerial resources and future prospects of the respective
institutions and the convenience and needs of the communities to be served. The
BHC 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, or if its effect in any section of the country may be
substantially to lessen competition or to tend to create a monopoly, or if it
would in any other manner be a restraint of trade, unless the Federal Reserve
Board finds that the anticompetitive effects of the Merger are clearly
outweighed in the public interest by the probable effect of the transaction in
meeting the convenience and needs of the communities to be served. The Federal
Reserve Board has the authority to deny an application if it concludes that the
combined organization would have an inadequate capital position. Furthermore,
the Federal Reserve Board must also assess the records of the depository
subsidiaries of Firstar and Investors under the Community Reinvestment Act of
1977, as amended (the "CRA"). The CRA requires that the Federal Reserve Board
analyze, and take into account when evaluating an application, each depository
institution's record of meeting the credit needs of its local communities,
including low- and moderate-income neighborhoods, consistent with safe and sound
operation.
Under the BHC Act, the Merger may not be consummated until up to 30 days
following the date of Federal Reserve Board approval, during which time the
United States Department of Justice may challenge the Merger on antitrust
grounds. The commencement of an antitrust action would stay the effectiveness of
the Federal Reserve Board's approval unless a court specifically orders
otherwise.
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<PAGE> 36
Firstar submitted an application with the Federal Reserve Bank of Chicago
(the "Federal Reserve Bank") that was approved by the Federal Reserve Bank on
January 27, 1995. The Federal Reserve Bank processed and approved the
application under delegated authority from the Federal Reserve Board. The
approval contained a 15 day period for the Department of Justice to challenge
the Merger on antitrust grounds. There can be no assurance that the Department
of Justice will not challenge the Merger or, if such challenge is made, the
result thereof.
Under the Merger Agreements, the Merger is subject to prior approval by the
OCC of the Bank Merger. The Merger is also subject to prior approval by the OCC
of, and notification to the OTS concerning, a series of transactions designed
solely to facilitate the Bank Merger, all of which will occur on the Closing
Date immediately before the Merger (together, the "Related Transactions").
First, Investors will charter two de novo national banks (the "Interim Banks")
that will never operate. Second, Investors Bank will transfer a total of seven
of its branches to the Interim Banks (the "Purchase and Assumption
Transactions"). Third, Investors Bank will convert to a national bank (the
"Conversion"). In the last Related Transaction, the Interim Banks will merge
into Investors Bank, the surviving national bank.
Investors Bank will never operate as a national bank prior to its
acquisition by Firstar and subsequent merger into Firstar Bank. Immediately
after the Related Transactions and on the same day, Firstar will acquire
Investors in the Merger between Investors and FCM and will then effect the Bank
Merger between Investors Bank and Firstar Bank.
The Bank Merger and the Related Transactions are subject to prior approval
by the OCC under the Bank Merger Act (the "BMA"), Section 5(d)(3) of the Federal
Deposit Insurance Act, 12 U.S.C. sec.1815(d)(3) (the "Oakar Amendment"), and
Section 5(d)(2)(G) of the Federal Deposit Insurance Act, 12 U.S.C.
sec.1815(d)(2)(G) (the "Sasser Amendment"). The Oakar Amendment and the Sasser
Amendment require that the OCC, in reviewing any application for transactions
subject thereto, consider the factors set forth in the BMA. The BMA requires
that the OCC take into consideration the financial and managerial resources and
future prospects of the respective institutions and the convenience and needs of
the communities served. The BMA prohibits the OCC from approving the Bank Merger
and the Related Transactions if they would result in a monopoly or be in the
furtherance of any combination or conspiracy to monopolize or to attempt to
monopolize the business of banking in any part of the United States, or if their
effect in any section of the country may be substantially to lessen competition
or tend to create a monopoly, or if they would in any other manner be a
restraint of trade, unless the OCC finds that any anticompetitive effects are
clearly outweighed in the public interest by the probable effect of the
transactions in meeting the convenience and needs of the communities to be
served. Furthermore, the OCC must also assess the records of Investors Bank and,
in the case of the Bank Merger, Firstar Bank under the CRA. The OCC has the
authority to deny an application if it concludes that the combined organization
would have an inadequate capital position.
Under the BMA, the Bank Merger may not be consummated until up to 30 days
following the date of OCC approval, during which time the United States
Department of Justice may challenge the Bank Merger on antitrust grounds. The
commencement of an antitrust action would stay the effectiveness of the OCC's
approval unless a court specifically orders otherwise.
Investors and Firstar submitted draft applications with the OCC in January
1995. Investors and Firstar will submit final applications after OCC approval of
the form and informational sufficiency of the draft applications, which is
expected to occur in February 1995. Firstar anticipates that the OCC will act on
the final applications by the end of March 1995.
The Purchase and Assumption Transactions are subject to prior approval by
the OTS under the Home Owners' Loan Act, as amended. The Conversion is subject
to a notice filing with the OTS. Investors Bank will submit notice filings to
the OTS (consisting of copies of Investors' final OCC filings) concerning the
Purchase and Assumption Transactions and the Conversion when the OCC approves
the final form of Investors' draft applications to the OCC for approval of the
Purchase and Assumption Transactions and the Conversion. If the OTS does not act
on the notice filings for the Purchase and Assumption Transactions within 30
days, the notices will be deemed approved automatically. OTS approval of the
Conversion prior to its consummation is not required.
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There can be no assurance that the requisite regulatory approvals will be
obtained, and if such approvals are obtained, there can be no assurance as to
the timing thereof. There can likewise be no assurance that the Department of
Justice will not challenge the Merger or the Bank Merger or, if such a challenge
is made, as to the result thereof.
The Merger cannot proceed in the absence of all requisite regulatory
approvals. See "Conditions to the Merger," "Effective Time of the Merger" and
"Termination, Amendment and Waiver." In the Merger Agreements, Firstar and
Investors have agreed to use all reasonable efforts and to cooperate with each
other in taking any actions necessary to obtain the requisite regulatory
approvals, including participating in any required hearings or proceedings,
without any condition not reasonably satisfactory to Firstar. There can be no
assurance that any regulatory approvals will not contain a condition not
reasonably satisfactory to Firstar.
Firstar and Investors are not aware of any other governmental approvals or
actions that are required for consummation of the Merger except as described
above. Should any other approval or action be required, it is presently
contemplated that such approval or action would be sought. There can be no
assurance that any such approval or action, if needed, could be obtained, and if
such approvals or actions are obtained, there can be no assurance as to the
timing thereof.
BUSINESS PENDING THE MERGER
Under the Merger Agreements, Investors is generally obligated to, and
obligated to cause its subsidiaries to, operate their respective businesses only
in the usual, regular and ordinary course consistent with past practices;
preserve substantially intact its business organization and assets, maintain its
rights and franchises, use its reasonable best efforts to retain the services of
employees and maintain its relationships with customers; maintain its
properties; keep in full force and effect insurance; perform obligations under
material agreements; and comply with material obligations imposed by laws. The
Merger Agreements also provide that prior to the Effective Time, without
Firstar's prior written consent, Investors may not, and may not allow its
subsidiaries to, among other things: (i) incur any material liabilities or
obligations, except in the ordinary course; (ii) increase the compensation of
employees, directors or officers, except in accordance with past practice or
amend any employment or similar agreement with officers or directors; (iii)
change retirement benefits or other benefit plans, or enter into employment or
similar agreements; (iv) change or make grants under the Investors Stock Option
Plans; (v) effect any fundamental corporate acquisition or sale of assets; (vi)
issue or redeem any of its capital stock, other than (A) repurchases of
Investors Common Stock in satisfaction of Investors' obligation under the Merger
Agreements as described in the next paragraph, or (B) the issuance of Investors
Common Stock upon the exercise of Investors Stock Options or pursuant to the
Investors Warrants, (vii) propose or adopt any amendments to its corporate
charter or bylaws in any way adverse to Firstar; (viii) except in fiduciary
capacities, purchase any shares of Firstar Common Stock; (ix) change the
lending, investment, liability, management and other material policies
concerning the banking business of Investors; (x) make any additional borrowings
or renew any borrowings from the Federal Home Loan Bank of Des Moines, except in
the ordinary course; (xi) renew, extend, cancel or surrender real property
leases without prior consultation with Firstar; or (xii) sell any mortgage loan
servicing rights, except for a sale that has been consummated.
Investors has agreed to use its best efforts, consistent with law,
pooling-of-interests accounting rules and the provisions of the Code governing
tax-free reorganizations, to repurchase enough Investors Common Stock to satisfy
anticipated future issuances of such stock upon the exercise of Investors Stock
Options or pursuant to the Investors Warrants, at an aggregate purchase price no
greater than $2.0 million.
Investors also agreed (i) to notify Firstar immediately if any person makes
a proposal concerning a Competing Transaction, as defined below, (ii) after the
receipt of all necessary regulatory approvals of the Merger and the Bank Merger,
to sell such investment securities as Firstar may request, (iii) to cause any
subsidiary that proposes to acquire real property to conduct an environmental
assessment of such property and (iv) to redeem in full as soon as practicable on
or after January 1, 1995, its 10% subordinated Debentures due April 1, 1996.
Such redemption occurred as of January 3, 1995.
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In addition, the Merger Agreements provide that, prior to the Effective
Time, Investors may not initiate, solicit or encourage, or take any other action
to facilitate, any inquiries or the making of any proposal which constitutes, or
may reasonably be expected to lead to, any "Competing Transaction," or negotiate
with any person in furtherance of such inquiries or to obtain a Competing
Transaction, or agree to or endorse any Competing Transaction, or authorize or
permit any of its officers, directors, employees, financial advisor, attorney,
accountant or other representative to take any such action. "Competing
Transaction" means any of the following involving Investors or any of its
subsidiaries: any merger or other business combination; a sale or other
disposition of a substantial portion of assets; a sale of capital stock or a
right to acquire capital stock constituting more than 15% of Investors capital
stock; a tender offer or exchange offer for at least 15% of the outstanding
shares of any class of its capital stock; a solicitation of proxies in
opposition to approval of the Merger by Investors stockholders; or a public
announcement of a bona fide proposal, plan or intention to do any of the
foregoing. The Merger Agreements provide, however, that the Board of Directors
of Investors is not prohibited from (i) furnishing or permitting certain persons
to furnish information to any party that requests information as to Investors if
the Board of Directors, based upon the advice of counsel, determines in good
faith that such action is required to comply with its fiduciary duties to
stockholders and, prior to furnishing information, Investors receives a
confidentiality agreement, (ii) furnishing information to, or entering into
discussions or negotiations with, any party that makes an unsolicited bona fide
written proposal to acquire Investors, if the Board, based upon written advice
from Dorsey & Whitney P.L.L.P., or other counsel acceptable to Firstar,
determines in good faith that such action is required to comply with its
fiduciary duties to stockholders and, prior to furnishing information, Investors
receives a confidentiality agreement, (iii) complying with Rule 14e-2
promulgated under the Exchange Act, or (iv) making any public statement required
by law or the Nasdaq Stock Market.
Investors has agreed to, through its Board of Directors, (i) unanimously
recommend to its stockholders approval of the Merger Agreements; (ii) not
withdraw, modify, or amend such recommendation; and (iii) use its best efforts
to obtain stockholder approval. However, the Merger Agreements do not prohibit
the Board of Directors of Investors from failing to recommend such approval or
withdrawing, modifying or amending its recommendation as a result of the receipt
by such Board of Directors of a bona fide proposal from a third party not
affiliated with Investors to acquire control of Investors or substantially all
of the assets of Investors after August 21, 1994, if (A) the Board of Directors
of Investors, based upon written advice from Dorsey & Whitney P.L.L.P., or other
counsel acceptable to Firstar, determines in good faith that such action is
required to comply with its fiduciary duty to stockholders, (B) Investors' Board
has no reason to believe that the written proposal is not made in good faith and
(C) Investors' Board takes such action as is necessary to allow Investors'
stockholders to vote upon the Merger Agreements in accordance with the DGCL.
DIVIDENDS
Under the Merger Agreements, Investors is allowed to declare quarterly cash
dividends on Investors Common Stock at a rate not in excess of $.125 per share,
and regular quarterly cash dividends on Investors Preferred Stock as required by
Investors' Certificate of Incorporation; provided, however, that Investors
cannot declare or pay any dividends on Investors Common Stock in the quarter in
which the Merger occurs if the holders of Investors Common Stock are entitled to
receive dividends on the shares of Firstar Common Stock they receive in the
Merger in that quarter.
TERMINATION, AMENDMENT AND WAIVER
The Merger Agreements provide that the Merger Agreements may be terminated,
whether before or after approval of the matters presented in connection with the
Merger by the stockholders of Investors or Firstar, (i) by mutual consent of
Firstar and Investors; (ii) by either Firstar or Investors (A) if there has been
a material breach of a representation, warranty, covenant or agreement on the
part of the other party set forth in the Merger Agreements or (B) if any
representation or warranty of the other party shall be discovered to have become
materially untrue, in either case which breach or other condition has not been
cured within ten business days following receipt by the nonterminating party of
notice of such breach or other condition; (iii) by either Firstar or Investors
if any permanent injunction preventing the consummation of the Merger
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shall have become final and non-appealable; (iv) by either Firstar or Investors
if the Merger shall not have been consummated before August 15, 1995, for a
reason other than the failure of the terminating party to comply with its
obligations under the Merger Agreements; (v) by either Firstar or Investors if
the Federal Reserve Board, the OCC or the OTS has denied approval of the Merger,
the Bank Merger or the Related Transactions and neither Firstar nor Investors
has, within 30 days after the entry of the order denying such approval, filed a
petition seeking review of such order; (vi) by either Investors or Firstar if
the Merger Agreements and the Merger are not approved after the vote at the
Special Meeting.
The Merger Agreements also provide that they may be terminated by Investors
five business days after written notice to Firstar if any person shall have
commenced a bona fide tender offer for all outstanding Investors Common Stock or
shall have made a bona fide written offer for the acquisition of Investors, and
(i) Investors' Board of Directors determines, (A) based on advice of Investors'
financial advisors, that such offer is a material economic improvement to
Investors' stockholders, and (B) based on written advice from Dorsey & Whitney
P.L.L.P., or other counsel acceptable to Firstar, that recommending or accepting
such offer is required for the Board to comply with its fiduciary duties and
(ii) Investors or the person making such offer shall have irrevocably paid the
Termination Fee.
The Merger Agreements automatically terminate upon the irrevocable payment
to Firstar of the Termination Fee following the occurrence of a Trigger Event,
unless, generally, there has been conduct by Investors that is not permitted
under the Merger Agreements based upon the Investors Board's good faith
determination of its fiduciary duties, based upon the written advice of counsel.
The Merger Agreements may be terminated by Firstar if (i) after August 21,
1994 any person shall have commenced a bona fide tender offer or exchange offer
to acquire at least 20% of the then outstanding shares of Investors Common
Stock, or (ii) the Board shall have withdrawn, modified or changed its
recommendation of the Merger Agreements or the Merger.
The Merger Agreements also provide that they may be terminated by Investors
on either of the two trading days occurring immediately after the ten
consecutive trading days ending at the end of the third business day preceding
the date of the Special Meeting (the "Ten-Day Calculation Period"), if both of
the following conditions are satisfied: (i) the average of the daily closing
prices of a share of Firstar Common Stock as reported on the Consolidated Tape
System for NYSE stocks during the Ten-Day Calculation Period is less than $29.00
and (ii) the percentage decline in the price of Firstar Common Stock after
August 19, 1994, determined by reference to such average of the daily closing
prices, exceeds the sum of the percentage decline in the weighted average price
of a selected group of bank stocks plus .125. This provision is known as the
"walk-away" provision. If the foregoing conditions were applied as of February
3, 1995, the applicable average Firstar Common Stock price would be $27.86 per
share, representing a percentage decline in the price of such stock from August
19, 1994 that exceeded by approximately 2.15% the percentage decline in the
weighted average price of such group of bank stocks. The selected group of bank
stocks is identified on Exhibit 10.01 to the Merger Agreements, included as
Appendix B to this Proxy Statement-Prospectus.
Thus, if the two conditions precedent to the "walk-away" provision were
applied as of the date of this Proxy Statement-Prospectus, Investors would not
have the right to terminate the Merger Agreements based upon the "walk-away"
provision. However, if the "walk-away" provision becomes operative prior to the
Special Meeting, then the Board of Directors of Investors, depending upon the
circumstances, may exercise Investors' rights under the provision and terminate
the Merger Agreements or, alternatively, may waive the "walk-away" provision and
proceed to consummate the Merger pursuant to the terms and conditions of the
Merger Agreements. Any decision the Board of Directors may make regarding the
"walk-away" provision may be made without the resolicitation of the Investors
stockholders or notice to such stockholders. Investors may or may not issue a
press release concerning the decision.
The Merger Agreements also gave Firstar the right to terminate the
Agreement at any time prior to September 11, 1994, if Firstar's due diligence
investigation disclosed certain adverse facts relating to Investors. Firstar did
not exercise this right.
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The Merger Agreements may be amended by the parties at any time before or
after approval of the matters presented in connection with the Merger by the
stockholders of Investors, but after any such approval, no amendment may be made
which would have an adverse effect on Investors' stockholders, change the
consideration to be provided to such stockholders pursuant to the Merger
Agreements or have a similar effect. The amendment to the Merger Agreements to
postpone the Closing Date discussed under the caption "Effective Time of the
Merger" will not be deemed to have an adverse effect on Investors stockholder.
At any time prior to the Effective Time, either party may, to the extent legally
allowed, extend the time for performance of any of the obligations of the other
party, waive any inaccuracies in the representations and warranties of the other
and waive compliance with any of the agreements or conditions to its
obligations.
MANAGEMENT AND OPERATIONS AFTER THE MERGER
In the Merger, Investors will be merged into FCM and the separate corporate
existence of Investors will cease. FCM, as the surviving corporation, will
continue to operate under the name "Firstar Corporation of Minnesota." The
officers and directors of FCM prior to the Merger will continue as officers and
directors of the surviving corporation, except that James M. Burkholder,
President and Chief Executive Officer of Investors, will be elected to the Board
of Directors of FCM. Immediately following the Merger, Investors Bank will be
merged into Firstar Bank, which will continue to operate as a national bank
under the name "Firstar Bank of Minnesota, N.A." Richard W. Schoenke, Firstar
Bank's current President and Chief Executive Officer, will continue as such
after the Bank Merger. The remainder of the management of Firstar Bank will be
drawn from the current officers of Firstar Bank and Investors Bank. Firstar
Bank's Board of Directors after the Bank Merger will be comprised of its members
prior to the Effective Time and Mr. Burkholder. Mr. Burkholder will not be
involved in the management of Firstar Bank but will assume the offices of
President and Chief Executive Officer of Firstar's mortgage banking subsidiary,
Firstar Home Mortgage Corporation. See "Interests of Certain Persons in the
Merger."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Agreements with Officers of Investors. The Merger Agreements provide that
Firstar and FCM will appoint James M. Burkholder as President and Chief
Executive Officer of Firstar Home Mortgage Corporation ("FHMC") and elect Mr.
Burkholder a director of FCM and of Firstar Bank. In addition, Investors and
Firstar have entered into amended employment agreements with Mr. Burkholder and
John G. Lohmann, Jr. and an amended severance agreement with Lynn V. Bueltel,
that amend the provisions of the existing agreements between Investors and such
officers, and have entered into a new employment agreement with Daniel Arrigoni,
each of which is effective upon consummation of the Merger. Mr. Burkholder's
amended employment agreement provides for his employment as President and Chief
Executive Officer of FHMC for a period of four years after consummation of the
Merger at an annual salary of $210,000, an annual bonus of at least $100,000,
participation in the other bonus, incentive compensation and other benefit plans
generally offered to Firstar's executives, and continuation of the disability
and life insurance benefits received as an officer of Investors. Mr. Lohmann's
amended employment agreement provides for his employment as Executive Vice
President of Firstar Bank for a period of one year after the Merger, the first
three months at full time and the last nine months at not less than 20 hours per
week, at an annual salary of $165,000 and with benefits similar to those
afforded Mr. Burkholder. Mr. Bueltel's amended severance agreement provides for
continuation of his severance agreement with Firstar on terms similar to his
severance arrangement with Investors. Mr. Arrigoni's agreement provides for his
employment as Executive Vice President of FHMC for a period of 30 months after
the Merger at an annual salary of $158,000, an annual bonus of at least
$100,000, and other benefits similar to those afforded Mr. Burkholder and Mr.
Lohmann. Each of Mr. Burkholder, Mr. Lohmann, and Mr. Arrigoni have also entered
into agreements not to compete with Firstar for periods of four years, three
years and 30 months, respectively, after the date of the Merger.
Indemnification of Officers and Directors. The Merger Agreements require
Firstar to indemnify present and former officers, directors and employees of
Investors (including its subsidiaries) against certain losses and other expenses
in connection with claims which arise out of such persons' serving in such
capacities and that
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pertain to matters or facts arising, existing or occurring before the Merger
becomes effective. The Merger Agreements also require Firstar 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 Investors, subject to a stated maximum
annual premium.
Restricted Stock. The Merger Agreements provide that shares of Investors
Common Stock subject to restrictions under agreements dated January 4, 1994
(which are outstanding to Mr. Burkholder, Mr. Lohmann, and Mr. Bueltel), will
become and represent the number of shares of Firstar Common Stock determined by
multiplying such shares by the Exchange Ratio and that such shares of Firstar
Common Stock shall remain subject to the restrictions set forth in such
agreements. Each share of restricted stock outstanding to Mr. Burkholder and Mr.
Lohmann under agreements dated December 31, 1992 will become the right to
receive the number of shares of Firstar Common Stock having a value as of the
effective time of the Merger equal to the fair value of such restricted stock,
as determined by an independent appraiser. See "Restricted Stock."
Options. The Merger Agreements provide that all outstanding options under
the Investors Restated Stock Option Plan and the Investors 1993 Stock Incentive
Plan, including options outstanding to officers and directors of Investors, will
become options to purchase the number of shares of Firstar Common Stock, subject
to the same provisions, including vesting, as would have been received had such
options been fully exercised prior to the Effective Time of the Merger. However,
pursuant to the terms of the agreements awarding options under the Investors
Stock Option Plans, outstanding Investors Stock Options (including those held by
the directors and executive officers of Investors), to the extent not already
exercisable, become immediately exercisable upon a "change in control" (which
includes a transaction such as the Merger). Therefore, the Firstar Stock Options
that will replace the Investors Stock Options upon consummation of the Merger
will be immediately exercisable. See "Options."
The foregoing interests of members of management of Investors in the Merger
may mean that such persons have personal interests in the Merger which may not
be identical to the interests of nonaffiliated stockholders.
EFFECT ON EMPLOYEE BENEFITS
The Merger Agreements provide that Firstar will provide on or before the
first calendar year that begins at least 90 days after the Effective Time of the
Merger to each employee of Investors or its subsidiaries the opportunity to
participate in Firstar's employee benefit plans on a basis comparable to that of
similarly situated employees of Firstar and its subsidiaries, with full credit
for years of employment with Investors for purposes of qualification and
vesting. These include pension, 401(k), medical, dental, dependent care, medical
expense reimbursement, group life insurance and long-term disability plans.
Firstar may meet its obligations to provide benefits to Investors' employees
through continuation of Investors' existing benefit plans until transfer of such
employees to Firstar's benefit plans.
RIGHTS PLAN
Investors has adopted a stockholder rights plan in the form of a Rights
Agreement between Investors and Norwest Bank Minnesota, N.A., as rights agent
(the "Investors Rights Agreement"). Under the Investors Rights Agreement, each
share of Investors Common Stock has an associated preferred stock purchase right
("Investors Right") that would allow the holders to purchase Investors Common
Stock at a discounted price, upon certain events. In contemplation of execution
of the Merger Agreements, Investors' Board of Directors amended the Rights
Agreement as of August 21, 1994 to provide that (i) the acquisition by Firstar
and FCM of more than 15% of the outstanding capital stock of Investors pursuant
to the Merger Agreements would not cause Firstar and FCM to be deemed "acquiring
persons" capable of triggering exercisability of the Investors Rights, (ii)
neither execution nor announcement of the Merger Agreements or the Voting
Agreements would
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trigger exercisability of the Rights, and (iii) the Investors Rights Agreement
will expire immediately prior to the Effective Time.
TERMINATION FEE
As a condition to Firstar's willingness to enter into the Merger
Agreements, Investors agreed to pay to Firstar a fee of $4,500,000 (the
"Termination Fee") within two days of any occurrence of a "Trigger Event." A
Trigger Event means the occurrence of one or more of the following events: (i) a
Transaction Proposal (as defined below); (ii) termination of the Merger
Agreements following a wilful and material breach thereof by Investors; or (iii)
any withdrawal, modification or amendment in any respect by Investors' Board of
Directors of its approval or recommendation regarding the Merger Agreements and
stockholder vote relating thereto or Investors Board of Directors adopting a
resolution relating to any such withdrawal, modification or amendment.
A "Transaction Proposal" means any of the following: (a) a bona fide tender
offer or exchange offer for at least 15% of the then outstanding shares of any
class of capital stock of Investors made by any person other than Firstar or its
affiliates, (b) a merger, consolidation or other business combination with
Investors or Investors Bank is effected by an entity or person, (c) any sale,
lease, transfer, mortgage or other disposition involving a substantial part of
Investors' or Investors Bank's consolidated assets, or any agreement to effect
such a transaction, (d) the acquisition by any person of 15% or more of the
outstanding shares of any class of capital stock of Investors or acquisition of
additional shares by any entity or person currently holding 15% or more of such
shares, except for certain acquisitions made pursuant to Investors Stock Options
or Investors Warrants, (e) any reclassification of the securities of, or
recapitalization of, Investors that has the effect of increasing the
proportionate share of any class of equity security of Investors that is owned
by a person other than Firstar or its affiliates, or any agreement to effect
such a reclassification or recapitalization, (f) any transaction having an
effect similar to those described in (a) through (e) above, or (g) a public
announcement regarding a proposal, plan or intention by Investors or another
entity or person to effect any of the foregoing transactions; provided, however,
that events described in clauses (a) and (g) of this definition and events
described in clause (f) having an effect similar to those described in clause
(a) do not constitute a "Transaction Proposal" unless either (x) the Board of
Directors of Investors takes or fails to take certain actions in connection
therewith or (y) Investors stockholders fail to approve the Merger Agreements.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Firstar and Investors have received an opinion of Foley & Lardner that the
Merger will qualify as a tax-free reorganization under Sections 368(a)(1)(A) and
368(a)(2)(D) of the Code. Accordingly, Investors, Firstar and FCM will recognize
no gain or loss for federal income tax purposes as a result of the Merger, and
no gain or loss will be recognized by any holder of Investors Common Stock upon
the receipt of Firstar Common Stock in connection with the Merger (except upon
the receipt of cash in lieu of fractional shares of Firstar Common Stock). The
Internal Revenue Service (the "Service") has not been asked to rule upon the tax
consequences of the Merger to any person and no such request will be made. The
opinion of Foley & Lardner is based upon the Code, regulations now in effect
thereunder, current administrative rulings and practice, and judicial authority,
all of which are subject to change. Unlike a ruling from the Service, an opinion
of counsel is not binding on the Service and there can be no assurance, and none
is hereby given, that the Service will not take a position contrary to one or
more positions reflected herein or that the opinion will be upheld by the courts
if challenged by the Service. EACH STOCKHOLDER OF INVESTORS IS URGED TO CONSULT
HIS OR HER OWN TAX AND FINANCIAL ADVISORS AS TO THE EFFECT OF SUCH FEDERAL
INCOME TAX CONSEQUENCES ON HIS OR HER OWN PARTICULAR FACTS AND CIRCUMSTANCES AND
ALSO AS TO ANY STATE, LOCAL, FOREIGN OR OTHER TAX CONSEQUENCES ARISING OUT OF
THE MERGER.
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Based upon the opinion of Foley & Lardner, which in turn is based upon
various representations and subject to various assumptions and qualifications,
the following federal income tax consequences to the Investors stockholders will
result from the Merger:
(i) Provided that the Merger of Investors with and into FCM qualifies
as a statutory merger under applicable law, the Merger will qualify as a
reorganization within the meaning of Sections 368(a)(1)(A) and 368(a)(2)(D)
of the Code, and Investors, Firstar and FCM will each be "a party to a
reorganization" within the meaning of Section 368(b) of the Code.
(ii) No gain or loss will be recognized by the holders of Investors
Common Stock upon the exchange of Investors Common Stock solely for Firstar
Common Stock, pursuant to the Merger.
(iii) An Investors stockholder who receives cash in lieu of a
fractional share interest in Firstar Common Stock in the Merger will be
treated as if he or she actually received such fractional share interest
which was subsequently redeemed by Firstar. Such cash will be treated as
having been received as full payment in exchange for stock redeemed as
provided in Section 302(a) of the Code. Gain or loss will be recognized
upon such exchange, and will be capital gain or loss, provided that the
Investors Common Stock was a capital asset in the hands of the holder on
the date of the Merger.
(iv) The receipt of cash by holders of Investors Preferred Stock who
own no Investors Common Stock, either directly or through application of
the constructive ownership rules of Section 318(a) of the Code (which
rules, in general terms, treat such a holder as owning stock actually owned
by certain related individuals and entities), is a distribution in
redemption of the Investors Preferred Stock. Such holders will recognize
gain or loss from the redemption in an amount equal to the difference, if
any, between the amount received for the Investors Preferred Stock,
including the amount attributable to accrued dividends, and the basis of
the holder in such stock. Such gain or loss will be capital gain or loss,
provided that the Investors Preferred Stock was a capital asset in the
hands of the holder on the date of the Merger.
(v) If a holder owns Investors Preferred Stock and actually or
constructively owns Investors Common Stock, gain will be recognized on the
exchange of Investors Preferred Stock for cash in an amount equal to the
excess, if any, of the amount received for such stock, including the amount
attributable to accrued dividends, over the basis of the holder in such
stock. Such gain will be capital gain, provided that the Investors
Preferred Stock was a capital asset in the hands of the holder on the date
of the Merger, unless the exchange has the effect of the distribution of a
dividend, determined under Section 356(a)(2) of the Code. For Investors
stockholders who hold minority interests in both the Investors Common Stock
and the Investors Preferred Stock and who do not participate in the
management of Investors, the exchange should not have the effect of the
distribution of a dividend. Nevertheless, because the determination of
whether the exchange has the effect of the distribution of a dividend under
the circumstances described in this paragraph is based on facts that may
differ with each holder, Foley & Lardner is unable to express an opinion
with respect to the conclusion described in the preceding sentence
applicable to each stockholder. No loss may be recognized by an Investors
stockholder who owns both Investors Common Stock and Investors Preferred
Stock upon the exchange of Investors Common Stock and Investors Preferred
Stock into Firstar Common Stock and cash pursuant to the Merger.
(vi) An Investors stockholder's aggregate basis in the Firstar Common
Stock received pursuant to the Merger (including any fractional share
interest to which he or she may be entitled) will be the same as the
aggregate basis of the Investors Common Stock surrendered.
(vii) The holding period of the Firstar Common Stock received by a
stockholder of Investors pursuant to the Merger (including any fractional
share interest to which he or she may be entitled) will include the period
during which the Investors Common Stock exchanged therefor was held,
provided that the Investors Common Stock surrendered was a capital asset on
the date of the Merger.
The foregoing is only a general description of certain anticipated federal
income tax consequences of the Merger for stockholders who are citizens or
residents of the United States and who hold their shares as capital
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assets, without regard to the particular facts and circumstances of the tax
situation of each stockholder of Investors. It does not discuss all of the
consequences that may be relevant to stockholders of Investors entitled to
special treatment under the Code (such as insurance companies, dealers in
securities, exempt organizations or foreign persons). The summary set forth
above does not purport to be a complete analysis of all potential tax effects of
the transactions contemplated by the Merger Agreements or the Merger itself. No
information is provided herein with respect to the tax consequences, if any, of
the Merger under state, local or foreign tax laws.
ACCOUNTING TREATMENT
Firstar's obligation to consummate the Merger is conditioned upon
qualification of the Merger as a pooling-of-interests for accounting purposes as
evidenced by the receipt by Firstar of an opinion from Firstar's and Investors'
independent public accountants to the effect that the Merger qualifies for
pooling-of-interests method of accounting. Under the pooling-of-interests
accounting treatment the historical basis of the assets and liabilities of
Firstar and Investors will be combined at the Effective Time and carried forward
at their previously recorded amounts and the stockholders' equity accounts of
Investors and Firstar will be combined on Firstar's consolidated balance sheet.
Income and other financial statements of Firstar issued after consummation of
the Merger will be restated retroactively to reflect the consolidated operations
of Firstar and Investors as if the Merger had taken place prior to the periods
covered by such financial statements.
For the Merger to qualify for pooling-of-interests accounting treatment,
substantially all (90% or more) of the outstanding Investors Common Stock must
be exchanged for Firstar Common Stock. Firstar and Investors have agreed not to
take any action which would preclude use of pooling-of-interests accounting
treatment for the Merger by Firstar. This covenant will be deemed waived by
Investors if Firstar takes such action and waives the condition that the Merger
qualify as a pooling-of-interests.
EXPENSES
If the Merger Agreements are terminated by Investors as a result of
Firstar's breach thereof, Firstar will pay Investors its out-of-pocket expenses
incurred in connection with the Merger Agreements, but not to exceed $1.0
million. If the Merger Agreements are terminated by Firstar as a result of a
breach by Investors, Investors is obligated to pay Firstar a Termination Fee.
See "Termination Fee."
Firstar and Investors have agreed to share equally in the expense of
printing this Proxy Statement-Prospectus and the expense of all SEC and
regulatory filing fees incurred in connection therewith.
Except as provided above, the Merger Agreements provide, in general, that
Firstar and Investors will each pay its own expenses in connection with the
Merger and the transactions contemplated thereby, including fees and expenses of
its own accountants and counsel. For information with respect to financial
advisory fees incurred in connection with the Merger, see "Opinion of Investment
Banker."
RESALE OF FIRSTAR COMMON STOCK
The shares of Firstar Common Stock to be issued in connection with the
Merger to stockholders of Investors have been registered under the Securities
Act of 1933, as amended (the "Securities Act"), and may be freely traded by
stockholders of Investors who, at the Effective Time, are not "affiliates" of
Investors (and are not affiliates of Firstar at the time of the proposed
resale). Each affiliate of Investors has delivered to Firstar a written
undertaking to the effect that (a) he or she will not sell or dispose of the
Firstar Common Stock acquired by him or her in connection with the Merger other
than in accordance with the Securities Act, except under (i) a separate
registration statement for distribution (which Firstar has not agreed to
provide), (ii) Rule 145 promulgated thereunder by the Commission, or (iii)
pursuant to some other exemption from registration; and (b) he or she will not
otherwise dispose of the Firstar Common Stock, or otherwise reduce his or her
risk relative to the Firstar Common Stock, prior to the publication by Firstar
of an earnings statement covering at least 30 days of combined operations after
the Effective Time.
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APPRAISAL RIGHTS
Under the provisions of Section 262 of the DGCL, a copy of which is
attached to this Proxy Statement-Prospectus as Appendix A, any holder of record
of Investors Preferred Stock has the right to object to the Merger and demand
payment of the fair value of any of his or her shares in cash. Such appraisal
rights are not available for holders of Investors Common Stock. See "COMPARATIVE
RIGHTS OF STOCKHOLDERS -- Appraisal Rights and Dissenters' Rights." Any holder
of Investors Preferred Stock electing to assert appraisal rights must file a
written demand for appraisal with Investors, at 200 East Lake Street, Wayzata,
Minnesota 55391, before the vote on the Merger at the Special Meeting. A
stockholder may demand appraisal as to less than all of the shares registered in
the stockholder's name.
If the Merger is approved by the requisite vote of holders of Investors
Common Stock, any holder of Investors Preferred Stock seeking appraisal rights
who has preserved his or her rights of appraisal by filing a demand for
appraisal, continuously holding such stock through the Closing Date and
otherwise complying with the requirements of Section 262 ("Stockholder Seeking
Appraisal Rights"), will, within ten days after the Closing Date, be notified by
the surviving corporation of the Closing Date. Within 120 days after the Closing
Date, any Stockholder Seeking Appraisal Rights may file a petition in the
Delaware Court of Chancery demanding a determination of the value of the
Investors Preferred Stock of all Stockholders Seeking Appraisal Rights.
Notwithstanding the foregoing, any such stockholder, within 60 days after the
Closing Date, has the right to withdraw his or her demand for appraisal and
accept the terms of the Merger Agreements. Within 120 days after the Closing
Date, any Stockholder Seeking Appraisal Rights, upon written request, will be
entitled to receive from the surviving corporation a statement setting forth the
aggregate numbers of Stockholders Seeking Appraisal Rights and shares they hold.
The surviving corporation will mail such a statement to the Stockholder Seeking
Appraisal Rights within ten days of the request or within ten days after the
Closing Date, whichever is later.
Upon the filing of such a petition by a Stockholder Seeking Appraisal
Rights, the Delaware Court of Chancery will determine the stockholders entitled
to appraisal and will appraise the shares of Investors Preferred Stock as to
which the stockholder has demanded appraisal rights, determining their "fair
value" exclusive of any element of value arising from the accomplishment or
expectation of the Merger, together with a "fair rate of interest," if any, to
be paid on the amount determined to be the fair value. The court may require the
Stockholders Seeking Appraisal Rights to submit their certificates of Investors
Preferred Stock as to which appraisal rights have been demanded to the Delaware
Register in Chancery for notation thereon that the appraisal proceedings are
pending.
The Delaware Court of Chancery will direct the payment of such fair value
and interest, if any, by the surviving corporation to the Stockholders Seeking
Appraisal Rights upon their surrender of the certificate or certificates
representing such shares of Investors Preferred Stock. From and after the
Effective Time of the Merger, no Stockholder Seeking Appraisal Rights will be
entitled to vote his or her shares for any purpose or to receive payment of
dividends or other distributions on such shares (except dividends and
distributions payable to stockholders of record at a date which is prior to the
Effective Time). If no petition for an appraisal is filed within the time period
specified above, or if the Stockholder Seeking Appraisal Rights delivers to the
surviving corporation a written withdrawal of his or her demand for an
appraisal, either within 60 days after the Effective Time (or thereafter with
the written approval of the surviving corporation), then the right of such
stockholder to an appraisal shall cease. No appraisal proceeding, however, may
be dismissed without the approval of the Court of Chancery, and the court may
assess the costs of the proceeding against the parties in any manner that the
court deems equitable.
In the event any holder of Investors Preferred Stock fails to perfect his
or her rights of appraisal by failing to comply strictly with the applicable
statutory requirements, the stockholder will be bound by the terms of the Merger
Agreements and will not be entitled to payment for the stockholder's shares
under Section 262. Any holder of Investors Preferred Stock who wishes to object
to the transaction and demand payment for the stockholder's shares of Investors
Preferred Stock should consider consulting his or her own legal advisor.
Any written objection or demand should be signed by or for the holder of
record of the shares to which it relates in the same manner indicated in the
stock records of Investors. Any beneficial owner of Investors
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Preferred Stock who is not also the holder of record of the shares, and who
wishes to assert statutory rights of appraisal with respect thereto, should
instruct the holder of record to act accordingly on the beneficial owner's
behalf. Investors will not accept written objections or demands for payment from
any party other than the holder of record (whose name appears in the stock
records of Investors) of the shares to which the objection or demand relates.
Holders of Investors Preferred Stock should bear in mind that the fair
value of the Investors Preferred Stock determined in an appraisal proceeding as
described above could be more than, the same as or less than the value of the
consideration they will receive in the Merger if they do not exercise such
appraisal rights. The foregoing is only a summary of the provisions of the DGCL
and is qualified in its entirety by reference to the text of Section 262, which
is set forth in Appendix A hereto.
COMPARATIVE RIGHTS OF STOCKHOLDERS
Investors is incorporated under the laws of the state of Delaware, and
Firstar is incorporated under the laws of the state of Wisconsin. Stockholders
of Investors, whose rights are governed by Investors' Certificate of
Incorporation and By-laws and by the DGCL, will, on consummation of the Merger,
become shareholders of Firstar. Their rights as Firstar shareholders will then
be governed by Firstar's Restated Articles of Incorporation and By-laws and by
the Wisconsin Business Corporation Law (the "WBCL"). The following is a summary
of the material differences between the rights of stockholders of Investors and
the rights of shareholders of Firstar.
CAPITAL STOCK
The Certificate of Incorporation of Investors authorizes the Board of
Directors of Investors to issue up to 10,000,000 shares of common stock, $.01
par value, and 1,000,000 shares of preferred stock, $0.01 par value, 500,000
shares of which have been designated Series A Junior Participating Preferred
Stock and 303,640 of which have been designated Cumulative Perpetual Preferred
Stock, Series 1991 (the "Investors Preferred Stock"). 3,508,600 shares of
Investors Common Stock were outstanding as of January 30, 1995. No shares of the
Series A Junior Participating Stock are outstanding. As of January 30, 1995,
303,640 shares of Investors Preferred Stock were issued and outstanding.
Investors common stockholders have no preemptive rights. The outstanding
shares of Investors Common Stock are fully paid and nonassessable. Each
outstanding share of Investors Common Stock includes an Investors Right. See
"PROPOSED MERGER -- Rights Plan." Investors common stockholders are entitled to
one vote for each share held on each matter submitted to a vote of the holders
of Investors Common Stock. Cumulative voting for the election of directors is
not permitted. Subject to the preferential dividend rights of any issued and
outstanding preferred stock, including the Investors Preferred Stock, Investors'
common stockholders are entitled to receive dividends as and when declared by
the Board of Directors of Investors. Under Delaware law, Investors may declare
and pay dividends out of surplus or, if there is no surplus, out of net profits
for the fiscal year in which the dividend is declared and/or the preceding year.
No dividends may be declared, however, if the capital of Investors has been
diminished by depreciation, losses or otherwise to an amount less than the
aggregate amount of capital represented by any issued and outstanding capital
stock having a preference on distribution.
If Investors were liquidated, the holders of Investors Common Stock would
be entitled to receive, pro rata, all assets available for distribution to them
after full satisfaction of Investors' liabilities and any payment applicable to
the preferred stock then outstanding.
Holders of the Investors Preferred Stock are entitled to receive cumulative
quarterly cash dividends, when and as declared by the Investors Board of
Directors, of $.6875 per share before any payment of dividends to holders of
Investors Common Stock, and are entitled to receive $25 per share in liquidation
of Investors prior to any payments on such Investors Common Stock. The Investors
Preferred Stock is redeemable at $25 per share plus accumulated and unpaid
dividends commencing October 31, 1996. The Investors Preferred Stock does not
entitle the holders thereof to vote on any matters submitted to stockholders,
except for certain
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matters affecting the terms or authorization of the Investors Preferred Stock
and except in the event of failure to pay six quarterly cash dividends.
The Restated Articles of Incorporation of Firstar authorize the Board of
Directors of Firstar to issue up to 120,000,000 shares of common stock, $1.25
par value, and 2,500,000 shares of preferred stock, $1.00 par value. The Board
of Directors may establish the relative rights and preferences of preferred
stock issued in the future without shareholder action and issue such stock in
series. Upon consummation of Firstar's acquisition of First Colonial on January
31, 1995, 38,775 shares of Firstar Series D Convertible Preferred Stock
("Firstar Preferred Stock") were issued. See "FIRSTAR CORPORATION -- Other
Acquisitions and Transactions." Each share of Firstar Preferred Stock currently
is convertible into 21.46 shares of Firstar Common Stock. Firstar has reserved
600,000 shares of Series C Preferred Stock for issuance upon exercise of the
Preferred Share Purchase Rights, as further described below.
PREFERRED SHARE PURCHASE RIGHTS
Firstar has adopted a Shareholder Rights Plan, pursuant to which each share
of Firstar Common Stock entitles its holder to one-half of a Preferred Share
Purchase Right. Under certain conditions, each Right entitles the holder to
purchase one one-hundredth of a share of Firstar's Series C Preferred Stock at a
price of $85, subject to adjustment. Recipients of Firstar Common Stock in
connection with the Merger will also receive one-half a Right per share of
Firstar Common Stock. The description of the terms of the Rights Plan is set
forth in a Rights Agreement dated as of January 19, 1989 (the "Rights
Agreement"), between Firstar and Firstar Trust Company, as Rights Agent. The
description of the Rights contained herein is qualified in its entirety by
reference to the Rights Agreement. The Rights will only be exercisable if a
person or group has acquired, or announced an intention to acquire, 20% or more
of the outstanding shares of Firstar Common Stock. Under certain circumstances,
including the existence of a 20% acquiring party, each holder of a Right, other
than the acquiring party, will be entitled to purchase at the exercise price
Firstar Common Stock having a market value of two times the exercise price. In
the event of the acquisition of Firstar by another company subsequent to a party
acquiring 20% or more of the Firstar Common Stock, each holder of a Right is
entitled to purchase the acquiring company's common shares having a market value
of two times the exercise price. The Rights may be redeemed at a price of $.01
per Right prior to the existence of a 20% acquiring party, and thereafter may be
exchanged for one share of Firstar Common Stock per Right prior to the existence
of a 50% acquiring party. The Rights will expire on January 19, 1999. The Rights
do not have voting or dividend rights, and until they become exercisable, have
no dilutive effect on the earnings of Firstar. Under the Rights Agreement, the
Board of Directors of Firstar may reduce the thresholds applicable to the Rights
from 20% to not less than 10%.
Investors has in place a stockholder rights plan that is similar to
Firstar's, except that the acquisition threshold under the Investors plan is
15%. See "PROPOSED MERGER -- Rights Plan".
APPRAISAL RIGHTS AND DISSENTERS' RIGHTS
Under the DGCL, stockholders of a corporation who dissent from a merger or
consolidation of the corporation in the manner provided by Delaware law are
entitled to receive payment of the fair value of their stock, as determined by
the Court of Chancery. However, such right is not available to stockholders (i)
whose shares are listed on a national securities exchange, quoted on the Nasdaq
National Market or held of record by more than 2,000 stockholders, or (ii) where
the vote of such stockholders of the corporation surviving or resulting from the
merger or consolidation was not required for approval thereof, unless the
stockholders are required to accept in the merger or consolidation anything
except certain types of stock (including Firstar Common Stock) or cash in lieu
of fractional shares of such stock. Investors Common Stock and Investors
Preferred Stock are quoted on the Nasdaq National Market but holders of
Investors Preferred Stock are required to accept cash pursuant to the Merger
Agreements.
Delaware law does not provide appraisal rights to stockholders who dissent
from the sale of all or substantially all of the corporation's assets unless the
corporation's certificate of incorporation provides otherwise. Investors'
Certificate of Incorporation does not provide for appraisal rights in the
context of a sale of all or substantially all of Investors' assets.
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Under the WBCL, a shareholder of a corporation is generally entitled to
receive payment of the fair value of such shareholder's stock if such
shareholder dissents from a proposed merger or share exchange or a sale or
exchange of all or substantially all of the property and assets of the
corporation. However, dissenters' rights are not available to holders of shares,
such as shares of Firstar Common Stock, which are registered on a national
securities exchange or quoted on the Nasdaq National Market on the record date
fixed to determine shareholders entitled to notice of the meeting at which
shareholders are to vote on the proposed corporation action. Firstar Common
Stock is listed on the NYSE and the Chicago Stock Exchange.
ASSESSABILITY; POTENTIAL LIABILITY FOR WAGES
Firstar Common Stock is subject to possible assessment in certain
circumstances. Section 180.0622(2)(b) of the WBCL provides that shareholders of
Wisconsin corporations are personally liable to an amount equal to the par value
of shares owned by them (and to the consideration for which shares without par
value were issued) for debts owing to employees of the corporation for services
performed for such corporation, but not exceeding six months' service in any one
case. The liability imposed by the predecessor to this statute was interpreted
in a trial court decision to extend to the original issue price for shares,
rather than the stated par value. Although affirmed by the Wisconsin Supreme
Court, the case offers no precedential value due to the fact that the decision
was affirmed by an equally divided court. Firstar Common Stock is not otherwise
subject to call or assessment.
Shares of stock of Delaware corporations are nonassessable under the DGCL.
The DGCL does not impose personal liability on holders of Investors Common Stock
for debts owing to employees or otherwise.
TAKEOVER STATUTES
Wisconsin law regulates a broad range of "business combinations" between a
Wisconsin corporation and an "interested stockholder." Wisconsin law defines a
"business combination" as including a merger or a share exchange, sale of
assets, issuance of stock or rights to purchase stock and certain related party
transactions. An "interested stockholder" is defined as a person who
beneficially owns, directly or indirectly, 10% of the outstanding voting stock
of a corporation or who is an affiliate or associate of the corporation and
beneficially owned 10% of the voting stock within the last three years. In
certain cases, Wisconsin law prohibits a corporation from engaging in a business
combination with an interested stockholder for a period of three years following
the date on which the person became an interested stockholder, unless (i) the
board of directors approved the business combination or the acquisition of the
stock prior to the acquisition date, (ii) the business combination is approved
by a majority of the outstanding voting stock not owned by the interested
stockholder, (iii) the consideration to be received by stockholders meets
certain requirements of the statute with respect to form and amount or (iv) the
business combination is of a type specifically excluded from the coverage of the
statute.
Section 180.1150 of the WBCL provides that in particular circumstances the
voting of shares of a Wisconsin "issuing public corporation" (a Wisconsin
corporation which has at least 100 Wisconsin resident stockholders, 500 or more
stockholders of record and total assets exceeding $1 million) held by any person
in excess of 20% of the voting power is limited to 10% of the full voting power
of such excess shares. Full voting power may be restored under Section 180.1150
if a majority of the voting power of shares represented at a meeting, including
those held by the party seeking restoration, are voted in favor of such
restoration.
In addition, the WBCL sets forth certain fair price provisions which govern
mergers and share exchanges with, or sales of substantially all a Wisconsin
issuing public corporation's assets to, a 10% shareholder, mandating that any
such transaction meet one of two requirements. The first requirement is that the
transaction be approved by 80% of all stockholders and two-thirds of
"disinterested" stockholders, which generally exclude the 10% shareholder. The
second requirement is the payment of a statutory fair price, which is intended
to insure that stockholders in the second step merger, share exchange or asset
sale receive at least what stockholders received in the first step.
Further, the WBCL requires shareholder approval for certain transactions in
the context of a tender offer or similar action for in excess of 50% of a
Wisconsin corporation's stock. Shareholder approval is required for
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the acquisition of more than 5% of the corporation's stock at a price above
market value, unless the corporation makes an equal offer to acquire all shares.
Shareholder approval is also required for the sale or option of assets which
amount to at least 10% of the market value of the corporation, but this
requirement does not apply if the corporation meets certain minimum outside
director standards.
DGCL Section 203 (the "Delaware Business Combination Statute") applies to
certain business combinations involving a corporation and certain of its
stockholders. The Delaware Business Combination Statute prevents an "interested
stockholder" (defined generally as a person with 15% or more of the
corporation's outstanding voting stock) from engaging in a "business
combination" (defined to include a variety of transactions, including the sale
of assets, mergers and almost any related party transaction) with a Delaware
corporation for three years following the date such person became an interested
stockholder, unless (i) before such person became an interested stockholder, the
board of directors of the corporation approved the transaction in which the
interested stockholder became an interested stockholder or approved the business
combination, (ii) upon consummation of the transaction which resulted in the
interested stockholder becoming an interested stockholder, the interested
stockholder owned at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced (excluding stock held by
directors who are also officers of the corporation and by certain employee stock
ownership plans), or (iii) following the transaction in which such person became
an interested stockholder, the business combination is approved by the board of
directors of the corporation and authorized at a meeting of stockholders by the
affirmative vote of the holders of two-thirds of the outstanding voting stock of
the corporation not owned by the interested stockholder.
A corporation may elect in its certificate of incorporation not to be
governed by Section 203, and the restrictions imposed on interested stockholders
under Section 203 do not apply under certain limited circumstances set forth
therein, including certain business combinations proposed by an interested
stockholder following the announcement or notification of certain extraordinary
transactions involving the corporation and a person who had not been an
interested stockholder during the previous three years or who became an
interested stockholder with the approval of a majority of the corporation's
directors.
Section 203 provides that, during such three-year period, the corporation
may not merge or consolidate with an interested stockholder or any affiliate or
associate thereof, and also may not engage in certain other transactions with an
interested stockholder or any affiliate or associate thereof, including, without
limitation, (i) any merger or consolidation of the corporation or a direct or
indirect majority-owned subsidiary of the corporation with (A) the interested
stockholder, or (B) with any other corporation if the merger or consolidation is
caused by the interested stockholder and as a result of such merger or
consolidation the above limitations of Section 203 are not applicable to the
surviving corporation; (ii) any sale, lease, exchange, mortgage, pledge,
transfer or other disposition (except proportionately as a stockholder of the
corporation) to or with the interested stockholder of assets having an aggregate
market value equal to 10% or more of the aggregate market value of all assets of
the corporation determined on a consolidated basis or the aggregate market value
of all the outstanding stock of a corporation; (iii) any transaction which
results in the issuance or transfer by the corporation or by any majority owned
subsidiary thereof of any stock of the corporation or such subsidiary to the
interested stockholder, except, among other things, pursuant to a transaction
which effects a pro rata distribution to all stockholders of the corporation;
(iv) any transaction involving the corporation or any majority owned subsidiary
thereof which has the effect of increasing the proportionate share of the stock
of any class or series, or securities convertible into the stock of any class or
series, of the corporation or any such subsidiary which is owned by the
interested stockholder (except, among other things, as a result of immaterial
changes due to fractional share adjustments); or (v) any receipt by the
interested stockholder of the benefit (except proportionately as a stockholder
of such corporation) of any loans, advances, guarantees, pledges or other
financial benefits provided by or through the corporation.
Investors' Certificate of Incorporation contains a "fair price" provision
which provides that, subject to certain exceptions, a "business combination"
(which is defined to include a merger, consolidation, sale or transfer of all or
substantially all of Investors' assets) involving Investors and a "related
person" (defined as a person who, together with any affiliate or associate,
beneficially owns more than 15% of the outstanding Investors Common Stock) must
be approved by holders of at least 80% of the outstanding shares entitled to
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vote thereon, excluding all shares of Investors Common Stock beneficially owned
or controlled by a related person, unless (i) a majority of the continuing
directors approves the transaction, or (ii) certain price conditions are
satisfied.
The Merger is not a "business combination" as defined in Section 203 or the
fair price provision, and therefore, neither Section 203 nor the fair price
provision is applicable to the transactions contemplated by the Merger
Agreements.
DIRECTORS
The Board of Directors of Investors is divided into three classes as nearly
equal in number as possible, with the directors in each class serving staggered
three-year terms. At each annual meeting of Investors' stockholders, the
successors to the class of directors whose term expires at the time of such
meeting are elected by a majority of the votes cast, assuming a quorum is
present. Any director may be removed either for or without cause at any time by
the affirmative vote of the holders of a majority of all the shares of stock
outstanding and entitled to vote at a special meeting of stockholders called for
that purpose.
The Board of Directors of Firstar is also divided into three classes as
nearly equal in number as possible, with the directors in each class serving
staggered three-year terms. At each annual meeting of Firstar's stockholders,
the successors to the class of directors whose term expires at the time of such
meeting are elected by a majority of the votes cast, assuming a quorum is
present. A director of Firstar may be removed, with or without cause, only by
the affirmative vote of not less than 75% of the then issued and outstanding
shares taken at a special meeting of stockholders called for that purpose.
LIABILITY OF DIRECTORS; INDEMNIFICATION
In accordance with the DGCL, Investors has provided in its Bylaws that it
will indemnify its directors and officers to the fullest extent provided for in
the DGCL against liabilities. Under the DGCL, as currently in effect, such
indemnification would apply if the indemnified individual is or was a director
or officer and the individual acted in good faith, reasonably believed his or
her conduct was in the corporation's best interests (or in certain cases at
least not opposed to the corporation's best interests) and, in the case of any
criminal proceeding, the individual had no reasonable cause to believe the
individual's conduct was unlawful. However, under the DGCL a corporation cannot
indemnify a director or officer in connection with a proceeding by or in the
right of the corporation in which the director or officer was adjudged liable to
the corporation unless a court of competent jurisdiction determines that such
person is entitled to indemnification despite the adjudication of liability.
Further, the DGCL allows a corporation, by amendment to its certificate of
incorporation, to eliminate or limit the personal liability of a director to the
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except that the provision cannot eliminate or limit the
liability of a director for a breach of the director's duty of loyalty to the
corporation or its stockholders, for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, for a
transaction from which the director derives an improper personal benefit or with
respect to liability relating to a distribution to stockholders made in
violation of law. Investors' Certificate of Incorporation includes a provision
to eliminate personal liability of a director for monetary damages for a breach
of fiduciary duty.
Under Firstar's By-laws and the WBCL, Firstar indemnifies its directors and
officers against liability incurred by the director or officer in a proceeding
to which the indemnified person was a party because he or she is a director or
officer, unless liability was incurred because a director or officer breached or
failed to perform a duty that he or she owes to the corporation and the breach
or failure constitutes a willful failure to deal fairly with the corporation or
its shareholders in connection with a matter in which the director or officer
has a material conflict of interest, a violation of criminal law (unless the
director or officer had reasonable cause to believe that his or her conduct was
lawful or no reasonable cause to believe that his or her conduct was unlawful),
a transaction from which the director or officer derived an improper personal
benefit or willful misconduct. In addition, under the WBCL, a director of
Firstar is not liable to the corporation, its shareholders or any person
asserting rights on behalf of the corporation or its shareholders for
liabilities arising
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from a breach of, or failure to perform, any duty resulting solely from his or
her status as a director, unless the person asserting liability proves that the
breach or failure to perform constitutes any of the circumstances under which
indemnification would not be provided.
ACTION WITHOUT A MEETING
Under the DGCL, any action required or permitted to be taken at a meeting
of stockholders may be taken without a meeting if a consent in writing, setting
forth the action taken, is signed by holders of not less than the minimum number
of shares necessary to authorize or approve such action. Under the WBCL, such
action without a meeting is allowed only if the consent is signed by all of the
stockholders entitled to vote with respect to the subject matter.
AMENDMENT OF CORPORATE CHARTER
Under the WBCL, the Board of Directors can establish conditions for the
amendment of the Articles of Incorporation (e.g., super-majority vote, no more
than a given percentage dissent, etc.). The WBCL provides that certain
significant amendments to articles of incorporation, but not all amendments,
must be approved by the shareholders in addition to approval by the Board of
Directors. The vote of shareholders needed to approve an amendment depends in
part on the voting groups entitled to vote separately on the amendment.
Generally, the WBCL provides that, if a quorum exists, action on a matter other
than the election of directors is approved if the votes cast within the voting
group favoring the action exceed the votes cast opposing the action, unless the
articles of incorporation or the WBCL require a greater number of affirmative
votes. Firstar's Restated Articles of Incorporation require the affirmative vote
of not less than 75% of the outstanding shares entitled to vote for directors to
amend provisions of the Restated Articles relating to the Board of Directors.
Delaware law requires the vote of a simple majority of the outstanding
voting stock of a corporation, and the vote of a simple majority of the
outstanding stock of each class entitled to vote as a class, to amend the
Certificate of Incorporation, in addition to approval by the Board of Directors.
In addition, Investors' Certificate of Incorporation requires the affirmative
vote of not less than 80 percent of the outstanding shares of voting stock of
Investors to amend or repeal certain provisions in the Certificate of
Incorporation, including the fair price provision.
SHAREHOLDER DERIVATIVE PROCEEDINGS
Under Delaware law and the WBCL, before a shareholder may bring an action
by or on behalf of the corporation (a "derivative action"), a shareholder must
make a demand on the corporation's Board of Directors to remedy the situation
about which the shareholder complains. Under Delaware law, the demand
requirement may be excused if the shareholder can show that such demand would be
futile because the alleged wrongdoers comprised or controlled a majority of the
Board of Directors. Under the WBCL, the futility exception to the demand
requirement has been eliminated. Therefore, a shareholder bringing a derivative
action on behalf of a Wisconsin corporation will be required in all instances to
make a demand on the corporation's Board of Directors.
FIRSTAR CORPORATION
GENERAL
Firstar is a registered bank holding company incorporated in Wisconsin in
1929. Firstar is the largest bank holding company headquartered in Wisconsin.
Firstar's 16 bank subsidiaries in Wisconsin had total assets of $10.1 billion at
September 30, 1994. Its eleven Iowa banks, one Illinois bank and one Minnesota
bank had total assets of approximately $2.6 billion, $988 million and $1.2
billion, respectively, as of September 30, 1994. Firstar has one bank in
Phoenix, Arizona, with total assets of $96 million.
Firstar provides banking services throughout Wisconsin and Iowa and in the
Chicago, Minneapolis-St. Paul and Phoenix metropolitan areas. At September 30,
1994, its Wisconsin bank subsidiaries operated in
45
<PAGE> 52
111 locations, with offices in eight of the ten largest metropolitan population
centers of the state, including 47 offices in the Milwaukee metropolitan area.
Its Iowa bank subsidiaries operated in 42 locations; its Illinois bank
subsidiaries in 15 locations; its Minnesota bank subsidiary in 24 locations; and
its Arizona bank in three locations; and a trust subsidiary in Florida in two
locations. Firstar's bank subsidiaries provide a broad range of financial
services for companies based in Wisconsin, Iowa, Illinois and Minnesota,
national business organizations, governmental entities and individuals. These
commercial and consumer banking activities include accepting demand, time and
savings deposits; making both secured and unsecured business and personal loans;
and issuing and servicing credit cards. The bank subsidiaries also engage in
correspondent banking and provide trust and investment services to individual
and corporate customers. Firstar Bank Milwaukee, N.A., Firstar Bank Cedar
Rapids, N.A. and Firstar Bank Madison, N.A. also conduct international banking
services consisting of foreign trade financing, issuance and confirmation of
letters of credit, funds collection and foreign exchange transactions. Nonbank
subsidiaries provide retail brokerage services, trust and investment services,
residential mortgage banking activities, title insurance, business insurance,
consumer and credit related insurance, and corporate computer and operational
services.
At September 30, 1994, Firstar and its subsidiaries employed 7,393
full-time and 2,223 part-time employees, of which approximately 956 full-time
employees are represented by a union under a collective bargaining agreement
that expires on August 31, 1996. Management considers its relations with its
employees to be good.
COMPETITION
Banking and bank-related services is a highly competitive business.
Firstar's subsidiaries compete primarily in Wisconsin and the Midwestern United
States. Firstar and its subsidiaries have numerous competitors, some of which
are larger and have greater financial resources. Firstar competes with other
commercial banks and financial intermediaries, such as savings banks, savings
and loan associations, credit unions, mortgage companies, leasing companies and
a variety of financial services and advisory companies located throughout the
country.
SUPERVISION
Firstar's business activities as a bank holding company are regulated by
the Federal Reserve Board under the BHC Act, which imposes various requirements
and restrictions on its operations. The activities of Firstar and those of its
banking and nonbanking subsidiaries are limited to the business of banking and
activities closely related or incidental to banking.
The business of banking is highly regulated, and there are various
requirements and restrictions in the laws of the United States and the states in
which the subsidiary banks operate, including the requirement to maintain
reserves against deposits and adequate capital to support their operations,
restrictions on the nature and amount of loans which may be made by the banks,
restrictions relating to investment (including loans to and investments in
affiliates), branching and other activities of the banks.
Firstar's subsidiary banks with a national charter are supervised and
examined by the OCC. The subsidiary banks with a state charter are supervised
and examined by their respective state banking agencies and either by the
Federal Reserve if a member bank of the Federal Reserve or by the FDIC if a
nonmember. All of the Firstar subsidiary banks are also subject to examination
by the Federal Deposit Insurance Corporation.
In recent years Congress has enacted significant legislation which has
substantially changed the federal deposit insurance system and the regulatory
environment in which depository institutions and their holding companies
operate. The Financial Institutions Reform, Recovery and Enforcement Act of 1989
("FIRREA"), the Comprehensive Thrift and Bank Fraud Prosecution and Taxpayer
Recovery Act of 1990 and the Federal Deposit Insurance Corporation Improvement
Act of 1991 ("FDICIA") have significantly increased the enforcement powers of
the federal regulatory agencies having supervisory authority over Firstar and
its subsidiaries. Certain parts of such legislation, most notably those which
increase deposit insurance assessments and authorize further increases to
recapitalize the bank deposit insurance fund, increase the cost
46
<PAGE> 53
of doing business for depository institutions and their holding companies.
FIRREA also provides that all commonly controlled FDIC insured depository
institutions may be held liable for any loss incurred by the FDIC resulting from
a failure of, or any assistance given by the FDIC, to any of such commonly
controlled institutions. Federal regulatory agencies have implemented provisions
of FDICIA with respect to taking prompt corrective action when a depository
institution's capital falls to certain levels. Under the new rules, five capital
categories have been established which range from "critically undercapitalized"
to "well capitalized." Failure of a depository institution to maintain a capital
level within the top two categories will result in specific actions from the
federal regulatory agencies. These actions could include the inability to pay
dividends, restricting new business activity, prohibiting bank acquisitions,
asset growth limitations and other restrictions on a case by case basis.
In addition to the impact of regulation, commercial banks are affected
significantly by the actions of the Federal Reserve Board as it attempts to
control the money supply and credit availability in order to influence the
economy. Changes to such monetary policies have had a significant effect on
operating results of financial institutions in the past and are expected to have
such an effect in the future; however, the effect of possible future changes in
such policies on the business and operations of Firstar cannot be determined.
The following table sets out the risk-based capital position of each of
Firstar's bank subsidiaries as of September 30, 1994. All of Firstar's bank
subsidiaries exceeded the risk-based capital requirements as of such date.
FIRSTAR BANK SUBSIDIARIES
RISK-BASED CAPITAL RATIOS
SEPTEMBER 30, 1994
<TABLE>
<CAPTION>
TIER 1 TOTAL
CAPITAL CAPITAL
------- -------
<S> <C> <C>
Minimum Statutory Requirement........................................... 4.00% 8.00%
Firstar Bank Milwaukee, N.A. ........................................... 9.58% 11.42%
Firstar Bank Appleton................................................... 10.25% 11.50%
Firstar Bank Eau Claire, N.A............................................ 10.59% 11.84%
Firstar Bank Fond du Lac, N.A........................................... 10.87% 12.12%
Firstar Bank Grantsburg, N.A. .......................................... 16.30% 17.56%
Firstar Bank Green Bay.................................................. 10.77% 12.02%
Firstar Bank Lake Geneva, N.A. ......................................... 14.94% 16.20%
Firstar Bank Madison, N.A. ............................................. 12.58% 13.84%
Firstar Bank Manitowoc.................................................. 11.25% 12.51%
Firstar Bank Minocqua................................................... 15.32% 16.58%
Firstar Bank Oshkosh, N.A. ............................................. 10.10% 11.35%
Firstar Bank Portage.................................................... 18.30% 19.56%
Firstar Bank Rice Lake, N.A............................................. 13.45% 14.71%
Firstar Bank Sheboygan, N.A............................................. 10.02% 11.27%
Firstar Bank Wausau, N.A................................................ 15.10% 16.39%
Firstar Bank Wisconsin Rapids, N.A...................................... 14.17% 15.42%
Firstar Bank Ames....................................................... 11.50% 12.75%
Firstar Bank Burlington, N.A............................................ 13.18% 14.44%
Firstar Bank Cedar Falls................................................ 10.16% 11.41%
Firstar Bank Cedar Rapids, N.A. ........................................ 9.88% 11.13%
Firstar Bank Council Bluffs............................................. 10.28% 11.53%
Firstar Bank Davenport, N.A............................................. 10.95% 12.20%
Firstar Bank Des Moines, N.A............................................ 10.13% 11.39%
Firstar Bank Mount Pleasant............................................. 11.64% 12.89%
</TABLE>
47
<PAGE> 54
<TABLE>
<CAPTION>
TIER 1 TOTAL
CAPITAL CAPITAL
------- -------
<S> <C> <C>
Firstar Bank Ottumwa.................................................... 12.02% 13.27%
Firstar Bank Red Oak, N.A............................................... 12.66% 13.91%
Firstar Bank Sioux City, N.A............................................ 9.60% 10.85%
Firstar Bank of Minnesota, N.A.......................................... 12.94% 14.20%
Firstar Bank DuPage..................................................... 15.75% 17.01%
Firstar Bank North Shore................................................ 17.10% 18.36%
Firstar Bank Park Forest................................................ 14.36% 15.61%
Firstar Bank West, N.A. ................................................ 11.95% 13.20%
Firstar Metropolitan Bank & Trust....................................... 22.55% 23.81%
</TABLE>
OTHER ACQUISITIONS AND TRANSACTIONS
Since the enactment of interstate banking statutes by Wisconsin, Minnesota,
Illinois and Iowa, Firstar has actively acquired banks within that four-state
area. Firstar has also acquired one bank in Arizona, primarily to offer trust
services to customers in that state.
On January 31, 1995, Firstar acquired First Colonial, a multi-bank holding
company located in Chicago, Illinois, with consolidated assets of $1.8 billion
as of September 30, 1994. Firstar issued 7,700,766 shares of Firstar Common
Stock and 38,775 shares of Firstar Preferred Stock for all the outstanding
shares of capital stock of First Colonial.
On August 26, 1994, Firstar announced that it had signed a definitive
agreement to acquire First Moline Financial Corp., parent of the $80 million
First Federal Savings Bank, of Moline, Illinois. Under the agreement, Firstar
would issue up to 314,000 shares of Firstar Common Stock in exchange for all the
common stock of First Moline Financial Corp. This acquisition is expected to
close in March 1995.
On October 18, 1994, Firstar acquired First Southeast Banking Corp., a
two-bank holding company based in Southeastern Wisconsin with consolidated
assets of $404 million as of September 30, 1994. Firstar issued 1,801,577 shares
of Firstar Common Stock for all the outstanding shares of common stock of First
Southeast Banking Corp.
Firstar anticipates that it will acquire additional banks in the Midwest
region in the future. Firstar may pay cash or issue common stock, debt
securities, preferred stock or combinations of the foregoing in connection with
any such acquisitions.
Firstar also will continue to monitor external markets and may raise
additional capital as needed and when financially attractive by issuing common
stock, debt securities, preferred stock or combinations of the foregoing.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
Additional information concerning Firstar, including certain financial
information, information regarding voting securities of Firstar and principal
holders thereof, and information concerning directors and executive officers of
Firstar, is included in the documents filed by Firstar with the Commission under
the Exchange Act.
INVESTORS BANK CORP.
GENERAL
Investors is a regional thrift holding company incorporated under Delaware
law and headquartered in Minneapolis, Minnesota. Investors' principal asset
consists of all of the capital stock of Investors Bank, a federally chartered
savings bank formed in 1984, and substantially all of its business activities
are conducted through Investors Bank. At September 30, 1994, Investors had total
assets of $1.1 billion and stockholder's equity of $54 million.
48
<PAGE> 55
Investors currently operates twelve retail banking offices and six mortgage
production offices in the Minneapolis-St. Paul area, one mortgage production
office in Duluth, Minnesota, one mortgage production office in a Milwaukee
suburb, and four mortgage production offices in the Chicago area. In addition,
Investors intends to open a thirteenth branch office in March 1995.
Investors focuses on the retail banking business of attracting deposits
from the general public within the communities it serves, and on originating and
investing in, or selling and servicing, loans secured by mortgages on
residential properties primarily in the same communities. Investors' operations,
however, are distinguishable from many other thrift and community banking
institutions by Investors' proportionately large and active mortgage banking
organization. In its primary market, the twin cities of Minneapolis and St.
Paul, Investors is one of the largest originators of residential mortgages.
Investors has also expanded its consumer lending, primarily home equity loans,
in recent years, servicing consumer loan customers through its retail branch
offices. Through a subsidiary of Investors Bank and a networking arrangement
with an independent broker/dealer, Investors also offers fixed and variable rate
annuities, certain mutual funds, and title insurance.
The principal executive office of Investors is located at 200 East Lake
Street, Wayzata, Minnesota and its telephone number is (612) 475-8700. For
further information regarding Investors, see the Investors documents
incorporated by reference herein as described under the caption "INCORPORATION
OF CERTAIN INFORMATION BY REFERENCE."
Lending
General. As a federally chartered savings bank, Investors Bank is
authorized by Federal law to invest without limitation in loans secured by
residential real property and by savings accounts, in government securities, in
Federal Home Loan Mortgage Corporation (FHLMC), Federal National Mortgage
Association (FNMA) and Government National Mortgage Association (GNMA)
securities, in deposits insured by the Federal Deposit Insurance Corporation
(FDIC), in securities of states or municipalities, and in various liquid
investments. In addition, Investors Bank may invest in loans secured by
commercial real estate to the extent of 400% of its capital; in secured and
unsecured commercial, corporate, business and agricultural loans to the extent
of 10% of its assets; in secured and unsecured consumer loans to the extent of
35% of its assets; in education loans, nonconforming loans, and unsecured
construction loans each to the extent of 5% of its assets; and in service
corporations to the extent of 2% of its assets. Investors is in compliance with
all the above requirements.
Despite this broad investment authority, Investors, through Investors Bank,
has historically conducted primarily the traditional savings and loan business
of originating, purchasing, holding and selling residential real estate loans.
During the past few years, Investors has also placed increasing emphasis on
consumer loans originated through its retail banking offices.
The following table sets forth the composition of Investors' loan portfolio
at the dates indicated by type of loan:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
-------------------------------------------------------------------------------------------- ----------------
1993 1992 1991 1990 1989 1989
---------------- ---------------- --------------- --------------- ---------------- ----------------
BALANCE % BALANCE % BALANCE % BALANCE % BALANCE % BALANCE %
-------- ----- -------- ----- -------- ----- -------- ----- -------- ----- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate
loans:
Residential... $671,659 84.6% $550,117 84.7% $398,270 85.1% $448,195 88.5% $400,110 88.0% $360,014 85.6%
Commercial.. 30,630 3.9 32,722 5.1 35,226 7.6 31,623 6.2 27,106 6.0 36,648 8.7
Construction... 1,428 .3 2,468 .5 1,510 .4
------- ----- ------- ----- ------- ---- -------- ---- -------- ----- -------- -----
Total real
estate loans.. 702,289 88.5 582,839 89.8 433,496 92.7 481,246 95.0 429,684 94.5 398,172 94.7
Consumer
loans... 91,691 11.5 66,489 10.2 34,261 7.3 25,388 5.0 25,225 5.5 22,376 5.3
-------- ---- -------- ----- -------- --- -------- ---- -------- ----- -------- -----
Total
portfolio
loans... $793,980 100.0% $649,328 100.0% $467,757 100.0% $506,634 100.0% $454,909 100.0% $420,548 100.0%
======== ===== ======== ===== ======== ===== ======== ===== ======== ===== ======== =====
</TABLE>
49
<PAGE> 56
Because virtually all of the loans retained by Investors are ARMs or other
loans that are prime related, 98.2% of Investor's loan portfolio adjusts
periodically in accordance with market interest rates. See "Management's
Discussion and Analysis -- Asset/Liability Management and Interest Rate Risk".
Nevertheless, because most of the loans originated by Investors are 15 or 30
year residential loans with principal payments that amortize over the loan
period and are relatively young, a majority of the principal payments on
Investors' loans are due (or "mature") in more than 15 years. The following
table sets forth the principal maturities of Investors' assets at December 31,
1993:
<TABLE>
<CAPTION>
1 2 3 4-5 6-10 11-15 OVER 15
YEAR YEARS YEARS YEARS YEARS YEARS YEARS TOTAL
------- ------- ------- ------- ------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Mortgage Loans:
Adjustable rate:
1-4 family residential real estate
loans................................ $10,022 $10,631 $11,281 $24,668 $76,039 $269,349 $269,344 $671,334
Fixed rate:
1-4 family residential real estate
loans................................ 22 24 26 60 193 325
Commercial real estate................... 1,770 1,538 984 9,684 16,456 198 30,630
------- ------- ------- ------- ------- -------- -------- --------
Total Mortgage Loans................... 11,814 12,193 12,291 34,412 92,688 269,547 269,344 702,289
Consumer loans............................. 5,359 2,819 2,939 15,326 45,626 16,990 2,632 91,691
------- ------- ------- ------- ------- -------- -------- --------
Total Loans.............................. $17,173 $15,012 $15,230 $49,738 $138,314 $286,537 $271,976 $793,980
======= ======= ======= ======= ======= ======== ======== ========
</TABLE>
Delinquent Loans. When a borrower fails to make a required payment on a
mortgage loan, the loan is considered delinquent and, after expiration of the
applicable cure period, the borrower is charged a late fee. Investors follows
practices customary in the savings industry in attempting to cure delinquencies
and in pursuing remedies upon default. Generally, if the borrower does not cure
the delinquency within 90 days, Investors initiates foreclosure action. During
foreclosure and the statutory redemption period, such property is carried in the
"real estate in judgment" account and included in "foreclosed real estate". If
the loan is not reinstated, paid in full or refinanced, the collateral is sold.
Investors is often the purchaser. In such instances, acquired property is
carried in Investors' "real estate owned" account, also part of "foreclosed real
estate", until the property is sold.
All residential mortgage loans delinquent for 90 days or more are
considered nonaccrual. Commercial real estate loans are considered non accrual
when collection of interest is doubtful.
Investors includes in nonperforming assets all nonaccrual loans and
foreclosed real estate, both net of specific reserves.
50
<PAGE> 57
The following table summarizes Investors' nonperforming assets at the dates
indicated:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------- JUNE 30,
1993 1992 1991 1990 1989 1989
------ ------ ------ ------ ------ --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Loans:
Residential real estate................... $1,852 $1,987 $3,509 $3,382 $1,400 $ 669
Commercial real estate.................... 1,182 205 402
Consumer.................................. 51 43 160 749 68
------ ------ ------ ------ ------ --------
1,903 2,030 4,851 4,131 1,673 1,071
------ ------ ------ ------ ------ --------
Real estate owned and in judgment, net:
Residential............................... 1,868 3,242 3,068 2,723 774 666
Commercial................................ 4,807 3,997 3,275 3,367 9,757 1,096
------ ------ ------ ------ ------ --------
6,675 7,239 6,343 6,090 10,531 1,762
------ ------ ------ ------ ------ --------
Total nonperforming assets................ $8,578 $9,269 $11,194 $10,221 $12,204 $2,833
====== ====== ======= ======= ======= ========
Nonperforming loans as a percentage of net
loans held in portfolio................... .24% .31% 1.04% .82% .37% .26%
Nonperforming assets as a percentage of
total assets.............................. .85 1.14 1.85 1.67 2.21 .56
</TABLE>
See "Management's Discussion and Analysis -- Nonperforming Assets" for
discussion on these properties and an analysis of the changes in nonperforming
assets.
Reserves for Loan and Real Estate Losses. The reserves for losses provide
for potential losses in Investors' loan and real estate portfolios. The reserves
are increased by the provision for losses and recoveries and decreased by
charge-offs. The adequacy of the reserves is judgmental and is based on
continual evaluation of the nature and volume of the loan and real estate
portfolios, overall portfolio quality, specific problems loans, collateral
values, historical experience and current economic conditions that may affect
borrowers' ability to pay. Pursuant to regulations governing the classification
of assets, insured institutions such as Investors Bank are required to classify
troubled assets as "substandard", "doubtful", and "loss". Institutions must
establish specific loss reserves for assets classified as doubtful and loss and
the OTS through their examinations may require an increase in the institution's
reserve for loan and real estate losses if the examiner concludes such reserves
are inadequate. In December 1993, the OTS completed a routine examination of
Investors Bank. No additions to loss reserves were required following this
examination. At December 31, 1993, Investors had classified $10.3 million and
$138 thousand of its assets as substandard and loss, respectively. No loans were
classified as doubtful at December 31, 1993. For information on interest income
excluded on nonaccrual loans see Note 4 of Notes to Consolidated Financial
Statements.
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<PAGE> 58
The following table sets forth information regarding Investors' reserve for
loan losses for the periods indicated:
<TABLE>
<CAPTION>
YEAR SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED ENDED
--------------------------------------- JUNE 30, DECEMBER 31,
1993 1992 1991 1990 1989 1989
------ ------ ------ ------ -------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Beginning Balance............................ $2,599 $1,982 $1,067 $ 450 $560 $ 796
Provisions for losses........................ 632 869 1,009 803 307 256
Charge-offs:
Residential real estate loans.............. (103) (199) (28) (140) (45) (100)
Commercial real estate loans............. (286) (5) (1) (435)
Consumer loans............................. (35) (151) (124) (43) (25) (67)
------ ------ ------ ------ -------- ------
Total charge-offs...................... (424) (350) (152) (188) (71) (602)
------ ------ ------ ------ -------- ------
Recoveries:
Residential real estate loans................ 111 65 47 2
Consumer loans............................... 63 33 11
------ ------ ------ ------
Total recoveries....................... 174 98 58 2
------ ------ ------ ------ -------- ------
Ending balance............................... $2,981 $2,599 $1,982 $1,067 $796 $ 450
====== ====== ====== ====== ======= ======
Ratio of net charge-offs to average loans
outstanding................................ .03% .04% .02% .04% .02% .25%
</TABLE>
As the foregoing table illustrates, Investors' reserve for loan losses has
generally increased over the periods presented as Investors' loan portfolio has
increased. The provision for loan losses over the periods presented reflects
both recent experience in charge-offs, and a reevaluation of the methods of
establishing the reserve for loan losses in 1990. In 1990, Investors established
for the first time an unallocated general reserve for unforeseen loan losses and
a general reserve for losses on performing real estate.
The following tables present the separate reserves allocated for each
category of loans and those allocated reserves as a percentage of Investors'
total loan portfolio at the dates indicated:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------- JUNE 30,
1993 1992 1991 1990 1989 1989
------ ------ ------ ------ ---- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Residential real estate.............................. $ 591 $ 507 $ 394 $ 426 $ 90 $178
Commercial real estate............................... 260 283 336 322 234 483
Consumer............................................. 568 439 381 202 126 135
------ ------ ------ ------ ---- --------
Total allocated.................................. 1,419 1,229 1,111 950 450 796
Unallocated portion.............................. 1,562 1,370 871 117
------ ------ ------ ------ ---- -------
Total reserve.................................... $2,981 $2,599 $1,982 $1,067 $450 $796
====== ====== ====== ====== ===== =======
</TABLE>
Allocation as a Percentage of Loans Outstanding
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------ JUNE 30,
1993 1992 1991 1990 1989 1989
---- ---- ---- ---- ---- --------
<S> <C> <C> <C> <C> <C> <C>
Residential real estate....................................... .08% .08% .08% .09% .02% .04%
Commercial real estate........................................ .03 .04 .07 .06 .05 .12
Consumer...................................................... .07 .07 .08 .04 .03 .03
---- ---- ---- ---- ---- ---
Total allocated........................................... .18 .19 .23 .19 .10 .19
Unallocated portion........................................... .20 .21 .19 .02 - -
---- ---- ---- ---- ---- ---
Total reserve............................................. .38% .40% .42% .21% .10% .19%
==== ==== ==== ==== ==== ===
</TABLE>
Investors' portfolio continues to consist primarily of residential real
estate loans and the reserve for losses allocated to residential real estate
loans reflects the low loss experience associated with these loans. Residential
real estate loans are well collateralized and property values have remained
stable in the markets Investors lends in. The reserve for losses allocated to
commercial real estate loans reflects the higher credit
52
<PAGE> 59
risk associated with commercial real estate lending. The reserve for losses
allocated to consumer loans has grown as outstanding loans grew. That reserve
level was higher at December 31, 1990 due to the adoption in 1990 of a detailed
method of categorizing loans and related reserve levels. The increases in 1991
through 1993 are the result of growth in the consumer loan portfolio.
The following tables present the allocation of the reserve for real estate
losses and those allocated reserves as a percentage of the foreclosed real
estate as of December 31 for the years indicated:
<TABLE>
<CAPTION>
ALLOCATION AMOUNT
------------------------------------
1993 1992 1991 1990 1989
---- ---- ---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Residential real estate..................................... $ 35 $ 82 $104 $102
Commercial real estate...................................... 100 614 418 286 $100
---- ---- ---- ---- ----
Total Reserve.......................................... $135 $696 $522 $406 $100
==== ==== ==== ==== ====
</TABLE>
<TABLE>
<CAPTION>
ALLOCATIONS AS A PERCENT OF REAL
ESTATE
------------------------------------
1993 1992 1991 1990 1989
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Residential real estate..................................... .51% 1.03% 1.51% 1.85%
Commercial real estate...................................... 1.47 7.74 6.09 4.40 .94 %
---- ---- ---- ---- ----
Total reserve.......................................... 1.98% 8.77% 7.60% 6.25% .94 %
==== ==== ==== ==== ====
</TABLE>
The higher reserve for real estate losses was largely due to the continued
decline in commercial real estate values in 1990 that affected Investors'
portfolio. The increase in the reserve for 1991 and 1992 is the result of a
higher specific reserve on a commercial retail property and the decline in 1993
was the result of a charge-off as the property was disposed of. For additional
information, see Note 8 of Notes to Consolidated Financial Statements and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Years Ended December 31, 1993, 1992 and 1991 -- Analysis of
Reserves for Loan and Real Estate Losses".
Investment Portfolio
Although Investors has authority to make investments in a number of
government, municipal and corporate debt securities, Investors does not have a
large portfolio of investment securities. The portfolio of investment securities
Investors maintains are mostly U.S. Government agency securities and investment
grade corporate debt securities. The following table sets forth the components
of Investors' investment portfolio at the dates indicated:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------- JUNE 30,
1993 1992 1991 1990 1989 1989
------- ------- ------- ------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Obligations of U.S. Government
corporations and agencies............ $11,626 $ 5,372 $ 4,371 $ 4,291 $ 3,113 $1,102
State and municipal obligations........ 210 510 430 550 250
Investment grade corporate bonds....... 15,439 11,789 12,760 12,496 7,232 6,883
Other.................................. 504 501
------- ------- ------- ------- ------- --------
$27,779 $18,172 $17,561 $17,337 $10,595 $7,985
======= ======= ======= ======= ======= ======
</TABLE>
53
<PAGE> 60
See Note 3 of Notes to Investors' Consolidated Financial Statements for
information regarding the carrying values and market values of Investors'
investment securities. The following table presents information regarding the
scheduled maturities and yields on investment securities at December 31, 1993:
<TABLE>
<CAPTION>
DUE IN ONE DUE IN ONE DUE IN FIVE
YEAR OR LESS TO FIVE YEARS TO SIX YEARS TOTAL
--------------- ---------------- --------------- ----------------
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
------ ----- ------- ----- ------ ----- ------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Obligations in U.S. Government
and agencies.................. $2,952 8.54 % $ 6,767 5.81 % $1,907 5.35 % $11,626 6.43 %
State and municipal
obligations................... 130 7.15 80 5.65 210 6.58
Investment grade corporate
bonds......................... 2,259 7.31 13,180 5.34 15,439 5.63
Other........................... 504 3.99 504 3.99
------ ----- ------- ----- ------ ----- ------- -----
$5,845 7.64 % $20,027 5.50 % $1,907 5.35 % $27,779 5.94 %
====== ==== ======= ==== ====== ==== ======= ====
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1994 COMPARED WITH NINE MONTHS ENDED SEPTEMBER
30, 1993
Results of Operations. Investors' net earnings were $2.5 million for the
three months ended September 30, 1994, compared to $2.4 million for the third
quarter of 1993. Net earnings for common shareholders were $2.3 million for the
third quarter of 1994 and $2.2 million for the 1993 third quarter. Earnings per
share were $.60 for both the 1994 and 1993 third quarter on 136 thousand fewer
average outstanding shares in the same quarter of 1993. For the first nine
months of 1994, Investors' net earnings before cumulative effect of accounting
change were $7.6 million, a 4% increase from the $7.3 million for the same
period in 1993. Earnings per share were $1.86 for both nine month periods. The
1994 third quarter and nine month net earnings were reduced by approximately
$176 thousand or $.05 per share from expenses related to negotiation of the
Merger Agreements. The nine month 1993 period included $.03 per share from
recognition of the cumulative effect of a change in accounting method to comply
with Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for
Income Taxes". Comparing the third quarters of 1994 and 1993, an increase in net
interest income in the 1994 quarter was partially offset by increases in
noninterest expenses. For the nine month periods ending September 30, 1994 and
1993, net interest income and noninterest income both increased and were
partially offset by increased noninterest expense.
Net interest income for the third quarter of 1994 was $6.7 million compared
to $6.3 million for the 1993 quarter and increased due to a 12% increase in
average interest-earning assets to $996 million from $890 million. The
additional interest income generated by the larger amount of interest-earning
assets in the 1994 quarter was offset somewhat by a decline in the interest
margin from 2.87% in the 1993 quarter to 2.72% in the 1994 quarter. For the nine
months ended September 30, 1994, net interest income was $19.8 million, up 6%
from the same period in 1993. Average interest-earning assets increased 15% to
$953 million for the first nine months of 1994 compared to $829 million for the
same period in 1993. The additional interest income generated by the increased
average interest-earning assets was more than enough to offset the decline in
interest margin from 3.01% to 2.76% between the 1993 and 1994 periods.
Growth in average interest-earning assets was due primarily to increases in
adjustable rate mortgage loans (ARMs) and consumer loans partially offset by a
reduction in mortgage loans held for sale. Investors' mortgage banking operation
originated significant amounts of ARMs in the latter months of 1993 and during
the first nine months of 1994 because of increased demand for these products.
The demand for ARM loans has remained high in 1994 as interest rates on fixed
rate long term mortgages have increased. Investors' average ARM portfolio
increased $134 million to $767 million between the third quarters of 1993 and
1994. Between the same periods, average consumer home equity loans increased $28
million through promotional efforts by Investors. Offsetting a portion of the
ARM and consumer loan growth was a drop in average mortgage loans held for sale
of $52 million. The current interest rate environment supports demand for ARM
loans and Investors expects additional growth in ARMs in the next few months as
well as continued growth in
54
<PAGE> 61
consumer loans from planned promotional efforts while the amount of mortgage
loans held for sale is expected to continue to be low.
The reduction in net interest margin between the third quarters of 1994 and
1993 was the result of the costs of interest-bearing liabilities increasing more
rapidly than yields on interest-earning assets between the periods. Asset yields
increased 29 basis points between quarters reflecting the repricing of ARM and
consumer loans indexed to market rates. However liability costs increased 46
basis points between the periods. Deposit costs increased 15 basis points, and
the cost of Federal Home Loan Bank (FHLB) borrowings, which were used to fund a
substantial portion of the loan growth, increased 122 basis points because of
annual repricings of borrowings indexed to market rates and the replacement of
matured fixed rate borrowings with higher rate borrowings.
The decrease in net interest margin in the nine months ended September 30,
1994 compared to the same 1993 period was primarily from a 29 basis point
reduction in yields on loans while the total costs of interest-bearing
liabilities were down only 1 basis point. The new ARMs originated during 1994
were generally priced below market rates for the first one or two years which is
customary for these types of loans. Also, older ARM loans which are subject to
repricing are limited by annual 2% caps on the amount their interest rates can
increase which is less than the increase in market interest rates over the last
year. Deposit costs decreased 13 basis points between the nine month periods but
FHLB borrowing costs increased 41 basis points from the same factors discussed
above. A substantial portion of the FHLB borrowings now reprices daily or will
mature within several months so Investors expects the cost of these funds to
vary with market interest rates.
The provision for loan losses was $110 thousand in the third quarter of
1994 compared to $84 thousand for the same quarter a year ago. For the nine
months ended September 30, 1994 and 1993, the provisions were $334 thousand and
$444 thousand, respectively. Based on management's review of the loan portfolio,
the 1994 provisions were required only to increase general reserves to
accommodate for Investors' loan growth.
Noninterest income for the third quarters of 1994 and 1993 were almost the
same at $4.8 million. Loan servicing fees were greater in the 1994 quarter but
were largely offset by reduced mortgage banking income and title insurance sales
commissions. For the nine months ended September 30, 1994 noninterest income was
$14.8 million, an 11% increase from $13.3 million for the first nine months of
1993. The increase for the nine month period resulted primarily from increased
loan servicing fee income.
Mortgage banking, the most significant source of noninterest income,
decreased 8% between the September quarters to $3.0 million, and was down 1% to
$9.2 million for the first nine months of 1994 compared to the same period last
year. Mortgage banking income consists primarily of gain on sale of mortgage
loans and gain on sale of loan servicing rights.
Gain on sales of mortgage loans declined substantially to $441 thousand in
the 1994 third quarter from $2.6 million in the 1993 third quarter. For the
first nine months of 1994 the gain on sales of mortgage loans was $2.8 million
compared to $6.5 million for the same 1993 period. The decreases in income
reflect the significantly reduced amounts of mortgage loans sold in the 1994
periods which in turn result from reduced mortgage originations as market
interest rates have risen since 1993. In addition, pricing gains on refinanced
loans were significantly higher for the prior year periods.
To compensate for the reduced income from gain on sales of mortgage loans,
Investors sold increased amounts of loan servicing rights. During the September
1994 quarter, $140 million of servicing rights were sold for a gain of $2.4
million compared to the same quarter in 1993 when $37 million in servicing
rights were sold for a gain of $505 thousand. For the first nine months of 1993,
Investors sold $176 million of loan servicing rights for a gain of $2.3 million.
For the same period in 1994, Investors sold $481 million of loan servicing
rights for a gain of $6.0 million. Although Investors has sold more servicing
rights in 1994, market pricing for these rights has been less favorable than in
1993. The sale in the September 1994 quarter was made to Firstar at market
terms. Under the terms of the Merger Agreements, Investors has agreed not to
sell mortgage loan servicing rights in the fourth quarter of 1994.
While Investors' strategy is to continue generating mortgage banking
income, the amounts of such income are affected by external factors such as
market pricing, general demand for mortgage products and the
55
<PAGE> 62
competitive environment in the markets in which it originates mortgages. Because
of the increase in market interest rates in 1994, mortgage refinancing activity
has declined to a very low level and has significantly reduced the amount of
loans generated by Investors' mortgage banking activity. As a result, Investors
has experienced and continues to expect reduced amounts of sales of mortgage
loans and reduced gross additions to its portfolio of loans serviced for others.
Investors' servicing fee income was $1.3 million in the September 1994
quarter compared to $802 thousand in the September 1993 quarter. The 1993
servicing fee income was adjusted by $333 thousand for higher than anticipated
prepayments. Servicing fee income for the first nine months of 1994 was $3.9
million, a 78% increase from the $2.2 million of servicing fee income in the
first nine months of 1993. The increase results both from a 16% increase in
year-to-date average loans serviced for others to $1.3 billion and elimination
of the need to adjust servicing fee income for higher than anticipated
prepayments. In the first nine months of 1993 servicing fee income was reduced
$950 thousand by such adjustments. Because of the significantly reduced mortgage
refinancing activity in 1994, Investors does not anticipate that significant
adjustments to its servicing fee income will be required during the remainder of
1994. Because of the continued sales of loan servicing rights and the reduced
level of mortgage originations, Investors' the portfolio of loans serviced for
others decreased during the September 1994 quarter to end the quarter at $1.1
billion.
In the other categories of noninterest income, commissions on title
insurance sales were down $206 thousand between the September 1994 and 1993
quarters and decreased $259 thousand between the nine month periods. Income from
commissions on title insurance sales was reduced because of Investors' reduced
mortgage originations. Commissions on annuity sales for the quarter and nine
months ended September 30, 1994 were greater by $41 thousand and $62 thousand
than the respective periods in 1993 as customer demand increased along with the
rise in market interest rates.
Noninterest expense was $7.0 million for the September 1994 quarter, a 4%
increase compared to the same quarter last year. Employee compensation and
benefits were $307 thousand less between quarters because of reductions in
compensation related to production volumes in the mortgage banking operation and
staff reductions. Occupancy and equipment increased $81 thousand from the costs
of three banking offices opened in late 1993 and a new mortgage banking office
opened in early 1994. Advertising increased $126 thousand from increased
promotion of consumer lending and retail banking products. The federal deposit
insurance premium expense was $35 thousand greater in the 1994 quarter because
of growth in deposits since the 1993 quarter. Other expenses were $358 thousand
higher from $176 thousand of expenses related to negotiating of the Merger
Agreements, increased data processing expenses and greater than normal
foreclosure expenses on commercial real estate.
Financial Condition. Total assets of Investors were $1.07 billion at
September 30, 1994, which was up $52 million from December 31, 1993. Cash and
cash equivalents declined $38 million reflecting reduced liquidity levels at
September 30, 1994. During the nine months ended September 30, 1994, $72 million
was provided by operating activities primarily by the reduction in mortgage
loans held for sale which in turn was the result of reduced mortgage banking
originations. Cash was applied in investing activities to fund a $157 million
increase in loans. Of the increase, $134 million was in ARM loans, $22 million
was in consumer home equity loans and $1 million was in commercial real estate
loans. Financing activities provided $44 million in cash. FHLB advances
increased by $40 million. Maximum FHLB borrowings were $365 million during the
period and were incurred during September 1994. Deposits increased by $8 million
primarily in certificates of deposits as customers responded to promotional
efforts. As part of its continuing effort to increase deposits, Investors has
acquired land in the St. Paul area and plans to build and open a branch in early
1995. Additional cash was used to repay $2.4 million in subordinated notes prior
to its original maturity. The current market interest rate environment has
increased demand for Investors' ARM loan products and Investors expects
increases during the next few months in its ARM portfolio. While Investors
continues to promote its deposit products and expects deposit growth from its
twelve existing offices, it plans to continue using advances from the FHLB as a
funding source when necessary.
Nonperforming assets were $3.8 million at September 30, 1994, down from
$8.6 million at December 31, 1993. Investors has disposed of approximately $4.8
million in properties including several commercial real
56
<PAGE> 63
estate properties for $2.8 million. Nonperforming residential real estate assets
were at a very low $1.8 million at September 30, 1994. Through sales anticipated
in the last quarter of 1994, Investors expects additional reduction of
nonperforming commercial real estate assets, which were $1.9 million at
September 30, 1994.
Investors intends to support Investors Bank's efforts to maintain a capital
level adequate to support its projected growth as well as maintain its "well
capitalized" status. Approximately $3.0 million in funds attained during the $23
million December 1992 subordinated debt offering remains in the parent company
and is available for future capital needs. During the September 1994 quarter,
Investors Bank paid a common stock dividend of $4 million to Investors. The
annual dividend, which was approved by Investors Bank's regulators, the OTS, is
intended to provide Investors with the cash needed for interest and dividend
payments.
At September 30, 1994, Investors Bank met each of the three regulatory
capital standards to continue to be classified as a "well capitalized"
institution. The following is a summary of Investors Bank's capital position:
<TABLE>
<S> <C>
Tier 1 leverage (core) capital standard:
Adjusted total assets.................................... $1,068,422,949
Tier 1 capital........................................... 68,461,777
Tier 1 capital ratio..................................... 6.41%
Tier 1 risk based capital standard:
Risk adjusted total assets............................... $ 641,801,083
Tier 1 capital........................................... 68,461,777
Tier 1 risk based capital ratio.......................... 10.67%
Risk based capital standard:
Risk adjusted assets..................................... $ 641,801,083
Risk based capital....................................... 71,582,183
Risk based capital ratio................................. 11.15%
</TABLE>
Management believes Bank will continue to meet all three "well capitalized"
standards in 1994.
In 1993, the OTS issued its final regulations on interest rate risk. Under
this rule, effective January 1, 1994, institutions deemed to have an "above
normal" level of interest rate risk as calculated by the OTS based on quarterly
reports submitted by Investors Bank are subject to a capital charge and must
deduct a portion of that risk from total risk based regulatory capital. At June
30, 1994, Investors Bank had, for the first time, incurred an interest rate risk
capital component of $4.0 million. Investors Bank has not yet been notified by
the OTS as to the impact of the rule on its September 30, 1994 risk based
capital. The rules require that the June 30, 1994, component would first impact
Investors Bank's risk based capital in the first quarter of 1995. At that time
Investors Bank would be required to adjust its risk based capital by the lowest
of the interest rate risk components for the preceding three quarters.
Management believes Investors Bank will continue to have some amount of interest
rate risk component during the next six months.
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
Results Of Operations
Performance Summary. Investors reported record net earnings for the third
consecutive year. Earnings were $10.0 million for 1993, compared to the previous
highs of $7.8 million for 1992 and $5.0 million for 1991. Earnings per common
share were $2.49 for 1993, compared to $1.98 for 1992 and $1.51 for 1991.
Investors' record performances are attributable to the continued strength of its
core operations of retail banking and mortgage banking. In addition to the
record earnings performance in 1993, total assets grew 24.7% during the year to
exceed $1 billion at December 31, 1993.
Return on average assets was 1.13% in 1993, compared to 1.14% in 1992 and
.84% in 1991. Return on average common equity increased to 25.6% in 1993 from
24.2% in 1992 and 22.0% in 1991.
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<PAGE> 64
Investors' interest-earning asset base continued to grow significantly in
1993 causing net interest income to increase $3.0 million or 13.3% despite a
decline in the net interest margin from 3.39% in 1992 to 2.94% in 1993. Average
interest-earning assets, primarily loans, were $855 million in 1993 compared to
$653 million in 1992. Interest-earning assets reached $982 million at December
31, 1993 and are expected to support a strong net interest income level in 1994.
This growth in interest-earning assets was made possible because of Investors'
ability to internally generate loans. Investors' residential lending activity
originated $276 million in new adjustable rate mortgage loans, increasing
mortgage loans $120 million during 1993. Through Investors' retail banking
network, consumer loans were increased $25.1 million during the year.
In order to support the rapid growth in assets, Investors implemented
strategies to generate deposit growth both in the near term and over the long
term. As a result, deposits grew $91.1 million or 17.8% during the current year
to $603 million at December 31, 1993. This growth follows a number of years of
minimum deposit growth. Beginning in late 1992 and throughout 1993, Investors
was more competitive in the pricing and promotion of special deposit accounts
designed to attract depositors. In addition, Investors has become more
aggressive in expanding its retail banking network by the opening of new
offices. One new retail banking office was opened in December 1992 and three
additional offices were opened in the fourth quarter of 1993. Investors plans on
continuing the efforts to grow deposits in order to fund its asset growth.
As a result of the increased level of mortgage banking activity in 1993,
noninterest income increased $4.4 million or 30.7% compared to 1992. In 1993,
Investors closed $838 million of loans for sale in the secondary market, also a
record performance. An additional $115 million of loans for sale were purchased
from correspondent lenders. This level of loan originations was made possible by
the strength of Investors' expanding mortgage lending capability and the
continued low interest rate environment in 1993 which kept refinancing activity
at a high level. Mortgage banking income increased $2.1 million or 19.1% in 1993
compared to 1992. In addition, the portfolio of loans serviced for others grew
$376 million during 1993 to $1.4 billion at year end. This is expected to result
in a significant increase in servicing fee income in 1994. The low interest rate
environment in 1993 not only caused a higher level of new loans to be
originated, but also resulted in significant prepayment of higher rate loans in
Investors' loan servicing portfolio. Loan servicing fees were negatively
impacted for the year because of this high prepayment experience which resulted
in adjustments being made to capitalized servicing rights. To adjust for the
high prepayment activity, Investors charged off $1.4 million in capitalized
servicing rights in 1993 compared to $1.5 million in 1992. If adjustments for
prepayments would be required in the future, Investors would expect them to be
at lower levels because of the reduced amount of higher interest rate loans
remaining in its portfolio of loans serviced for others as of December 31, 1993.
The significantly higher earnings in 1992 as compared to 1991 also resulted
from strong retail banking and mortgage banking performance. Net interest income
increased $4.0 million or 22.2% from $18.1 million in 1991 to $22.2 million in
1992, while noninterest income increased $4.5 million or 46.1% from $9.8 million
in 1991 to $14.3 million in 1992. The increased net interest income for 1992 was
due to the higher level of interest-earning assets. Average interest-earning
assets, primarily loans, were $653 million in 1992 compared to $562 million in
1991. The higher noninterest income was primarily the result of the increase in
mortgage banking income. Loans originated for sale in 1992 increased 57.9% over
originations in 1991.
Net Interest Income. A significant portion of Investors' earnings is
derived from net interest income. Net interest income is the difference between
interest earned on interest-earning assets and interest paid on interest-bearing
liabilities. net interest income, when divided by average interest-earning
assets, is referred to as the net interest margin. The net interest rate spread
is the difference between the yield on interest-earning assets and the cost of
interest-bearing liabilities.
Net interest income was $25.1 million in 1993, up $3.0 million or 13.3%
from 1992. As shown in the volume/rate analysis table, an increase in average
interest-earning assets contributed $5.5 million to increasing net interest
income during 1993. The positive contribution from the increased volume of
interest-earning assets was partially offset by a $2.5 million decrease in net
interest income due to a lower net interest rate spread in 1993 than in 1992.
Net interest income in 1992 had increased $4.0 million or 22.2% from 1991 caused
by an increase in average interest-earning assets in 1992 over 1991.
58
<PAGE> 65
During 1993, Investors' average interest-earning assets were $855 million,
a 31.0% increase over 1992. This increase was primarily in loans which averaged
$798 million in 1993 compared to $612 million in 1992. A continuation of the
strong mortgage loan market experienced in 1992, together with the addition of
mortgage production offices and consumer lending staff, enabled the company to
increase its mortgage loans held in portfolio $120 million and its consumer loan
portfolio $25.1 million during 1993. Interest-earning assets were $982 million
at the current year end compared to $780 million at the end of 1992. This growth
is expected to have a positive impact on net interest income in 1994. Average
interest-earning assets grew 16.3% in 1992 as average loans increased 16.1%. As
a result of the significant lending activity during 1992, the mortgage loans
held in portfolio increased $149 million and consumer loan portfolio increased
$32.2 million.
In 1993, Investors funded the asset growth with increases in deposits and
FHLB advances. Average interest-bearing liabilities increased 28.8% compared to
1992. Average interest-bearing deposits increased $40.1 million and average FHLB
advances increased $118 million. The increase in deposits in 1993 was due to
special deposit promotions and to the opening of new retail bank offices.
Investors intends to continue to stimulate deposit growth with deposit
promotions. Investors also expects additional deposit growth from three new
retail bank offices opened in late 1993 and the continued expansion of its
retail bank network. During 1992, average interest-bearing liabilities increased
13.4% compared to 1991. The increase occurred in FHLB advances which were used
to fund the growth in interest-earning assets. FHLB advances averaged $132
million in 1992 compared to $40.9 million in 1991. Average interest-bearing
deposits were down $13.8 million in 1992 compared to 1991.
The net interest rate spread decreased to 2.70% for 1993 from 3.19% during
1992 and 3.12% in 1991. The interest rate maturity of Investors'
interest-bearing liabilities has historically been shorter than its interest-
earning assets. The increased spread in 1992 and 1991 was due to deposits and
FHLB advances repricing at lower rates and decreasing the overall cost of funds
while asset yields decreased at a slower rate. With short term interest rates
remaining relatively flat in 1993, asset yield repricings caught up with
liability repricings by declining at a more rapid rate causing the net interest
rate spread to decline. In addition, adjustable rate mortgage loans originated
in 1993 were at lower initial rates and the more aggressive deposit pricing in
1993 combined to further reduce the net interest rate spread.
The net interest margin was 2.94% for 1993, compared to 3.39% for 1992 and
3.23% in 1991. The majority of the changes in margin were the result of the
changes in net interest rate spread previously explained. The difference between
net interest margin and net interest spread widened in 1993 and 1992 as the
ratio of average interest-earning assets to average interest-bearing liabilities
increased. The increase in this ratio was largely due to the increase in equity
and decrease in liabilities resulting from the exchange of capital notes for
preferred stock in November of 1991 and from the retention of earnings for both
years. In addition, noninterest bearing deposits have increased during 1993 and
1992.
59
<PAGE> 66
NET INTEREST INCOME VOLUME/RATE ANALYSIS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1993 YEAR ENDED DECEMBER 31, 1992
VERSUS SAME PERIOD IN 1992 VERSUS SAME PERIOD IN 1991
----------------------------- -----------------------------
INCREASE (DECREASE) DUE TO INCREASE (DECREASE) DUE TO
----------------------------- -----------------------------
VOLUME RATE TOTAL VOLUME RATE TOTAL
------- ------- ------- ------ -------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest Income on:
Loans............................... $13,474 $(8,673) $ 4,801 $7,619 $ (9,898) $(2,279)
Cash and investments................ 713 (579) 134 190 (488) (298)
Other assets........................ 361 (43) 318 400 (100) 300
Total interest income................. 14,548 (9,295) 5,253 8,209 (10,486) (2,277)
Interest expense on:
Deposits:
Interest-bearing accounts........ (170) (1,692) (1,862) (329) (4,264) (4,593)
Certificates..................... 2,351 (4,239) (1,888) (481) (3,885) (4,366)
Total deposits................. 2,181 (5,931) (3,750) (810) (8,149) (8,959)
FHLB advances....................... 4,671 (821) 3,850 5,224 (1,974) 3,250
Other borrowings.................... 2,212 (15) 2,197 (353) (238) (591)
Total interest expense................ 9,064 (6,767) 2,297 4,061 (10,361) (6,300)
Net interest income................. $ 5,484 $(2,528) $ 2,956 $4,148 $ (125) $ 4,023
</TABLE>
60
<PAGE> 67
NET INTEREST INCOME YIELD ANALYSIS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------------------------
1993 1992 1991
----------------------------- ----------------------------- -----------------------------
AVERAGE YIELD/ AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST RATE(3) BALANCE INTEREST RATE(3) BALANCE INTEREST RATE(3)
-------- -------- ------- -------- -------- ------- -------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets:
Interest-earning assets:
Loans(1)................... $797,895 $ 54,250 6.80% $611,772 $ 49,449 8.08% $526,952 $ 51,728 9.82%
Cash and investments....... 43,400 2,397 5.52 31,769 2,263 7.12 29,384 2,561 8.72
Other assets............... 14,146 1,122 7.93 9,621 804 8.36 5,202 504 9.69
-------- -------- ------- -------- -------- ------- -------- -------- -------
Total interest-earning
assets.............. 855,441 $ 57,769 6.75% 653,162 $ 52,516 8.04% 561,538 $ 54,793 9.76%
-------- ------- -------- ------- -------- -------
Other assets(2).............. 33,984 32,628 40,365
-------- -------- --------
Total assets........... $889,425 $685,790 $601,903
========= ========= =========
Liabilities and Stockholders'
Equity:
Noninterest-bearing
deposits................... $ 31,294 $ 15,686 $ 10,047
Interest-bearing deposits:
Checking, savings, money
market................... 183,973 $ 4,771 2.59% 188,939 $ 6,633 3.51% 195,482 $ 11,226 5.74%
Certificates............... 343,478 15,226 4.43 298,400 17,114 5.74 305,690 21,480 7.03
-------- -------- ------- -------- -------- ------- -------- -------- -------
Total interest-bearing
deposits............ 527,451 19,997 3.79 487,339 23,747 4.87 501,172 32,706 6.53
FHLB advances................ 249,370 9,713 3.89 131,547 5,863 4.46 40,888 2,613 6.39
Other borrowings............. 29,697 2,941 9.90 7,361 744 10.09 10,294 1,335 12.97
-------- -------- ------- -------- -------- ------- -------- -------- -------
Total interest-bearing
deposits............ 806,518 $ 32,651 4.05% 626,247 $ 30,354 4.85% 552,354 $ 36,654 6.64%
-------- ------- -------- ------- -------- -------
Other liabilities(2)......... 8,500 7,990 15,958
-------- -------- --------
Total liabilities...... 846,312 649,923 578,359
Stockholders' equity(2)...... 43,113 35,867 23,544
-------- -------- --------
Total liabilities and
stockholders'
equity.............. $889,425 $685,790 $601,903
========= ========= =========
Net interest income.......... $ 25,118 $ 22,162 $ 18,139
======== ======== ========
Net interest rate spread..... 2.70% 3.19% 3.12%
======= ======= =======
Net interest margin.......... 2.94% 3.39% 3.23%
======= ======= =======
</TABLE>
- ---------------
(1) Nonaccrual loans are included in average loan balances.
(2) Average balance is based on month-end balances for 1991.
(3) Changes attributable to the combined impact of volume and rate have been
allocated proportionately to the change due to volume and the change due to
rate.
Noninterest Income. Noninterest income is a significant source of revenue
for Investors and has a major impact on operating results. An active mortgage
banking operation is an integral part of Investors' strategy to supplement net
interest income with a significant amount of noninterest income. Mortgage
banking generates income primarily through the sale of loan servicing rights and
the sale of mortgage loans. This mortgage banking activity also adds to the
portfolio of loans serviced for others, generating continuing noninterest income
from loan servicing fees. Through mortgage banking, Investors originates
government insured loans and fixed-rate conventional loans and sells such loans
in the secondary market or pools the loans and sells the resulting
mortgage-backed securities, generating a gain on sale of mortgage loans. For
most of these sales Investors retains the servicing rights. Investors also
regularly engages in the sale of portions of servicing rights
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<PAGE> 68
it creates, generating significant gains on such sales. Historically, the amount
of loans Investors has originated for sale has been significant and Investors
intends to continue to originate loans for sale to create mortgage banking
income from gains on sale of loans and loan servicing rights.
NONINTEREST INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1993 1992 1991
------- ------- ------
(IN THOUSANDS)
<S> <C> <C> <C>
Mortgage banking.................................................. $13,313 $11,178 $6,399
Loan servicing fees............................................... 2,830 1,491 2,201
Commissions on title insurance sales.............................. 935 135
Commissions on annuity sales...................................... 561 575 511
Other............................................................. 991 876 645
------- ------- ------
$18,630 $14,255 $9,756
======= ======= ======
</TABLE>
Investors' mortgage banking income is highly dependent on the amount of
mortgage loans originated for sale. Most of its loans are originated through
loan closings by its mortgage loan offices, but loans are also purchased from
correspondents. Investors has six Twin Cities offices, a Duluth office, three
offices in the Chicago market and an office in the Milwaukee area which opened
in late 1993. During the latter part of 1991, two experienced senior level
mortgage production managers joined Investors. Their presence, along with a
staff of experienced and high performing lending officers, has been a factor in
the improved production. During 1993 and 1992 Investors benefited from the
strong mortgage demand generated by reduced market interest rates as well as the
strengthened production staff. Mortgage refinancings increased to 49.0% and
46.5% of the total loans closed during 1993 and 1992, respectively. As a result
of the increased mortgage loan originations, mortgage banking income increased
$2.1 million or 19.1% in 1993 from the prior year and $4.8 million or 74.7% in
1992 compared to 1991. The increase in 1993 was from a higher gain on sales of
mortgage loans which was partially offset by a lower gain on sales of loan
servicing rights. Most of the increase in mortgage banking income for 1992 was
from higher gains on sales of mortgage loans and loan servicing rights.
Investors closed $838 million loans for sale in 1993, 26.4% more than in 1992.
Also in 1993, loan purchases were up 25.9% to $115 million. In 1992, loans
originated for sale totaled $663 million which was a 61.8% increase from 1991
and loan purchases were up 34.2% to $91.3 million. Refinancing activity is
highly dependent on market interest rates. If rates increase, refinancing
activity could decrease substantially in 1994 and Investors would experience a
reduction in loans originated for sale. This reduction should be partially
offset by Investors' continued mortgage lending expansion, primarily in the
Chicago and Wisconsin markets.
MORTGAGE BANKING ACTIVITY
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1993 1992 1991
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Loans originated for sale:
Loans closed................................................ $838,097 $663,275 $409,852
Loans purchased............................................. 114,986 91,346 68,070
-------- -------- --------
$953,083 $754,621 $477,922
======== ======== ========
Mortgage loans sold........................................... $982,764 $799,703 $512,620
Gain on sales of mortgage loans............................... 9,391 6,329 2,447
Loan servicing rights sold.................................... 252,178 301,642 298,840
Gain on sales of loan servicing rights........................ 3,331 4,232 3,511
Other lending fees............................................ 591 617 441
</TABLE>
62
<PAGE> 69
Gain on sales of mortgage loans increased $3.1 million in 1993 and $3.9
million in 1992. The increased gain was due to 22.9% and 56.0% increases in the
amount of loans sold for 1993 and 1992, respectively, and to higher cash gains
as a result of the higher level of refinancing activity in 1993 and 1992. If the
refinancing activity decreases, the gain on sales of mortgage loans is likely to
decrease.
Gain on sales of loan servicing rights was $3.3 million in 1993, a 21.3%
decrease from the gain earned in the previous year. Because of the larger gains
realized on the sales of mortgage loans in 1993, Investors reduced the amount of
loan servicing rights sold in the current year by 16.4% to $252 million. Gain on
sales of loan servicing rights was $4.2 million for 1992, a 20.5% increase from
the gain earned in 1991. The increased gain in 1992 reflects more favorable
market pricing for loan servicing rights as the volume sold was approximately
the same as in the prior year. Loan servicing rights sales continue to generate
substantial mortgage banking income. The amount of loan servicing rights sold
annually by Investors and the resulting gain may vary because of market
fluctuations in the pricing of loan servicing rights. In addition, Investors may
reduce sales of servicing rights in periods when gains on sales of mortgage
loans are higher than normal or increase sales of servicing rights when gains on
sales of mortgage loans are reduced to more normal levels.
Loan servicing fees were $2.8 million in 1993 compared to $1.5 million in
1992 and $2.2 million in 1991. Loan servicing fees were negatively impacted in
1993 and 1992 by adjustments of $1.4 million and $1.5 million, respectively,
made to capitalized servicing rights. These adjustments were necessary to
reflect the high prepayment activity in the low interest rate environment and to
conform with accounting and regulatory guidelines adopted in 1992 which take a
more conservative approach to accounting for capitalized servicing rights.
Because of the high level of new originations in 1993 and 1992, the servicing
portfolio experienced a net growth during 1993 of $376 million and in 1992 of
$321 million to increase the portfolio to $1.4 billion at December 31, 1993. If
the above adjustments would not have been required, loan servicing fees would
have been $4.2 million in 1993 and $3.0 million in 1992 or increases of 40.4%
and 36.3%, respectively. If adjustments for prepayments would be required in the
future, Investors would expect them to be at lower levels because of the
reduction in high rate loans in its portfolio of loans serviced for others as of
the 1993 year end.
Commissions on title insurance sales were $935 thousand in 1993 compared to
$135 thousand in 1992. This activity began in late 1992 with 1993 being the
first full year of operation. During 1993 title insurance was sold on 2,894
loans compared to 476 loans in 1992.
Commissions on annuity sales were $561 thousand on sales of $11.4 million
in 1993, down 2.4% from $575 thousand on annuity sales of $11.0 million in 1992.
Investors earned $511 thousand on annuity sales of $9.4 million in 1991. In
early 1992, there were proposals in Congress that certain tax benefits enjoyed
by the insurance industry be eliminated. This had the effect of increasing sales
during 1992. During 1993, sales remained strong due to the continued strength of
Investors' sales staff. Investors has an experienced staff of licensed agents
who regularly promote these products and customer acceptance is good, but
uncertainty or change in the market interest rates or regulatory environment
could affect sales of annuities in the future.
Other income increased to $991 thousand for 1993 from $876 thousand in 1992
and $645 thousand in 1991. Investors began selling mutual funds in 1992 and
earned fees of $163 thousand in 1993 and $80 thousand in 1992. The remaining
increases in other income were caused by gains on the disposal of foreclosed
residential properties.
Noninterest Expense. Noninterest expense increased 17.6% to $26.5 million
for the year ended December 31, 1993 compared to $22.5 million for the same
period in 1992. Noninterest expense grew 22.0% in 1992 from the $18.5 million in
1991. The increase in noninterest expense over the three year period was
generally attributable to Investors' continued expansion of both its mortgage
banking and retail banking activities.
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<PAGE> 70
NONINTEREST EXPENSE
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1993 1992 1991
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Employee compensation and benefits............................... $15,430 $12,650 $ 9,612
Occupancy and equipment.......................................... 3,814 3,407 2,981
Advertising...................................................... 926 667 582
Federal deposit insurance premiums............................... 1,224 1,173 1,169
Other............................................................ 5,068 4,612 4,108
------- ------- -------
$26,462 $22,509 $18,452
======= ======= =======
</TABLE>
Employee compensation and benefits for 1993 were 22.0% more than 1992
primarily because of an 18.2% increase in staffing to support the high level of
growth. During 1993, three retail banks and two mortgage production offices were
opened. In addition, mortgage production, title insurance, consumer lending,
mortgage servicing and marketing increased staff to support the higher level of
activity. Benefits increased in step with compensation and were also affected by
higher health insurance costs. Employee compensation and benefits increased
31.6% in 1992 compared to 1991 due to increased staffing and commissions paid to
support the much higher level of mortgage loan production, increased consumer
lending activity and the establishment of builder finance and title insurance
divisions.
The new offices opened in 1993 were also largely responsible for the 11.9%
increase in occupancy and equipment expenses from 1992. Occupancy expense was up
7.9% due to rents on the new offices. Equipment expenses rose 20.2% from
increased depreciation on new office equipment and equipment purchased to create
or enhance computer networking capabilities among offices. Occupancy and
equipment expenses were 14.3% higher in 1992 than in 1991. This increase was the
result of a write-off of unamortized leasehold improvements on a retail bank
office replaced by a new facility, higher real estate taxes on Investors' new
headquarters which Investors occupied in December 1990, and greater depreciation
on equipment.
Advertising expense increased 38.8% to $926 thousand in 1993 from $667
thousand in 1992. In 1993, as part of its strategy to increase deposits and
consumer loans, Investors increased both its advertising of retail products and
targeted marketing efforts such as promotions for the new retail banks and point
of sale materials. From 1991 to 1992, advertising expense rose by 14.6% as
Investors increased expenditures for advertisement of deposit products, partly
in response to a decrease in deposits.
Federal deposit insurance premiums increased 4.3% in 1993 from 1992 along
with increased deposits. Investors Bank's insurance premium rate was .23% of the
deposit base for both 1993 and 1992 due to Investors Bank being categorized by
the FDIC as "well capitalized". The increase in insurance expense was less than
the percent of deposit increase because the premiums are based on deposit levels
of the prior six month periods. Between 1992 and 1991, there was almost no
change in deposit insurance premium expense because deposits did not increase.
Other expenses were up 9.9% in 1993 over 1992 primarily due to the record
production level and Investors' growth and new product lines. Decreases in
expenses associated with holding foreclosed real estate were offset by increases
in other categories. These included telephone expenses, which grew to support
new offices and enhanced computer network capabilities, supplies, postage, data
processing and professional fees. Other expenses increased 12.3% for the year
ended December 31, 1992 compared to 1991. Approximately $200 thousand of the
increase was due to variable costs such as supplies, postage and service fees
rising with the higher mortgage loan production. There was also $199 thousand of
additional foreclosed real estate expenses and a $49 thousand increase in
charitable contributions.
Income Taxes. Effective January 1, 1993, Investors adopted the new
accounting standard for income taxes, Statement of Financial Accounting
Standards No. 109. A $125 thousand cumulative effect of adopting the new
standard was recognized in the first quarter of 1993. Income tax expense was
$6.8 million for 1993 compared to $5.2 million for 1992 and $3.4 million for
1991. Income tax expense has been between 40.1% and 40.6% of earnings before
income tax expense for all three years. For additional information on income
taxes, refer to Note 12 of Notes to Consolidated Financial Statements.
64
<PAGE> 71
Financial Condition
Investors' assets grew 24.7% to $1 billion between December 31, 1993 and
1992. This growth was primarily the result of origination of significant amounts
of adjustable rate residential mortgage loans and, to a lesser extent, of
consumer home equity loans. This reflects Investors' strategy to grow with high
quality, interest-rate sensitive assets. Residential real estate loans continue
to make up the largest portion of Investors' permanent loan portfolio. These
loans were 84.6% of portfolio loans at December 31, 1993, nearly identical with
the composition at December 31, 1992. Investors has increased its emphasis on
supplementing its residential loan portfolio by increasing its consumer lending
capability, primarily through home equity loans. Although Investors has made
consumer loans through its private banking department since commencement of
operations, consumer lending is now an active part of retail banking operations.
Continued marketing and exposure to the loans in the retail bank offices caused
consumer loans to grow to 11.5% of the permanent loan portfolio at December 31,
1993 from 10.2% at December 31, 1992. Investors maintains a small commercial
real estate loan portfolio originated in prior years and is not actively seeking
new commercial real estate loans.
Fair Value of Financial Instruments. In the accompanying financial
statements, Investors has disclosed the estimated fair values of all on and
off-balance sheet financial instruments in accordance with Statement of
Financial Accounting Standards (SFAS) No. 107, "Disclosure About Fair Value of
Financial Instruments". See Note 17 of Notes to Consolidated Financial
Statements. At December 31, 1993 and 1992, total financial assets had estimated
fair values in excess of their carrying amounts of $51.4 million and $39.1
million, respectively. These excess amounts were primarily due to mortgage loans
and excess servicing rights. Total financial liabilities had estimated fair
values in excess of their carrying amounts of $3.5 million and $1.8 million at
December 31, 1993 and 1992, respectively. These excess amounts were primarily
due to deposits.
The estimated fair values of mortgage loans were $32.1 million and $25.8
million greater than the respective carrying amounts at December 31, 1993 and
1992. Investors' mortgage loans are predominantly ARM loans which are generally
sold in the marketplace at a premium because the currently indexed rates on the
underlying loans are higher than initial market yields. The increase in
estimated fair values in excess of the carrying amounts between years was mostly
due to the increased amounts of mortgage loans. Excess servicing rights had
estimated fair values greater than carrying amounts by $17.4 million at year end
1993 and $12.1 million at year end 1992. This increase was due to the increased
amount of mortgage loans serviced for others between years. Excess servicing
rights relate to servicing that Investors has created and retained from its own
origination activities. Carrying amounts represent only the discounted present
value of future service fee income in excess of a normal market rate servicing
fee. Estimated fair values are significantly greater than these amounts.
Deposits had estimated fair values greater than carrying amounts of $4.3
million and $1.5 million at December 31, 1993 and 1992, respectively. These
amounts result from certificates of deposit which have interest rates somewhat
higher than Investors' rates offered for deposits with maturities similar to the
remaining maturities of the existing deposits at December 31, 1993 and 1992.
Nonperforming Assets. Nonperforming assets include all nonaccrual loans and
real estate acquired through foreclosure net of specific reserves. Nonperforming
assets were $8.6 million at December 31, 1993, down 7.5% from year end 1992. The
decline is primarily the net of a $1.4 million decrease in foreclosed
residential real estate and an $810 thousand increase in foreclosed commercial
real estate. Investors believes the decline in foreclosed residential real
estate is the result of its quality underwriting standards and improving
economic conditions. Foreclosed commercial real estate had a net increase
because two properties, valued at about $2.1 million, were added while a $1.3
million property was sold during 1993. Nonperforming assets were $9.3 million at
December 31, 1992, down 17.2% from December 31, 1991. The decline resulted
primarily from a $1.5 million decrease in nonperforming residential real estate
loans. Total nonperforming commercial real estate assets declined $460 thousand
in 1992 with a $1.1 million asset moving from the nonperforming loan category to
the real estate in judgment category. Nonperforming loans as a percentage of
loans held in portfolio continued decreasing and were .24% at December 31, 1993
compared to .31% and 1.04% at December 31, 1992 and 1991, respectively.
Nonperforming assets as a percentage of total assets also continued
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<PAGE> 72
to decline and were .85% at December 31, 1993 compared to 1.14% at December 31,
1992 and 1.85% at December 31, 1991. The improvement in these ratios was both
the result of the decline in nonperforming assets along with the increase in
loans held in portfolio and total assets during 1993 and 1992.
NONPERFORMING ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1993 1992 1991
------ ------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Loans:
Residential real estate......................................... $1,852 $1,987 $3,509
Commercial real estate.......................................... 1,182
Consumer........................................................ 51 43 160
------ ------ ------
1,903 2,030 4,851
------ ------ ------
Real estate owned and in judgment, net:
Residential..................................................... 1,868 3,242 3,068
Commercial...................................................... 4,807 3,997 3,275
------ ------ ------
6,675 7,239 6,343
------ ------ ------
Total nonperforming assets................................... $8,578 $9,269 $11,194
====== ====== ======
Nonperforming loans as a percentage of net loans held in
portfolio....................................................... .24% .31% 1.04%
Nonperforming assets as a percentage of total assets.............. .85 1.14 1.85
</TABLE>
In accordance with generally accepted accounting principles, real estate
owned and in judgment is carried at the lower of cost or fair value less
estimated cost to sell. At December 31, 1993, commercial real estate owned
included $3.8 million in properties acquired through foreclosure of four loans
and commercial real estate in judgment consisted of one property for $1.0
million. In January, 1994, Investors completed foreclosure on this property, a
combination office and warehouse in a western suburb of Minneapolis. Since
October 1991, Investors has owned a 59 unit apartment complex in Brooklyn Park,
Minnesota which has a carrying value of $1.3 million. A complex sale agreement,
including a portion of public financing, has been pending during 1993. In the
event the sale is not completed, Investors will work to increase the occupancy
level and remarket the property. In April 1993, Investors received title to
seven fully leased retail and convenience store properties located in the
Minneapolis-St. Paul area which originally secured a $1.1 million loan.
Investors is actively marketing these properties. In November of 1993, Investors
acquired a $1.0 million 48 unit apartment property. This property will require
some minor repairs and, after occupancy is increased, will be listed for sale
later in 1994. No other nonperforming asset had a carrying value exceeding $500
thousand at December 31, 1993.
Analysis of Reserves for Loan and Real Estate Losses. The reserves for
losses provide for potential losses in Investors' loan and real estate
portfolios. The reserves are increased by the provision for losses and by
recoveries and are decreased by charge-offs. The adequacy of the reserves is
judgmental and based on the continued evaluation of the nature and volume of the
loan and real estate portfolios, overall portfolio quality, specific problem
loans, collateral values, historical experience and current economic conditions
that may affect the borrowers' ability to pay.
The reserve for loan losses was $3.0 million at December 31, 1993, $2.6
million at December 31, 1992, and $2.0 million at December 31, 1991. The
increases over the three year period are a result of increased provisions to
cover larger residential and consumer loan portfolios as well as a determination
by Investors to increase the size of its unallocated general reserve which was
established to cover unforeseen loan losses. The provision for loan losses was
$631 thousand in 1993, $869 thousand in 1992 and $1.0 million in 1991. Of these
provisions, $192 thousand, $499 thousand and $754 thousand, respectively, were
allocated to the unallocated general reserve. Additions to the unallocated
reserve have been reduced recently because of the continuing high quality of
Investors' assets, the favorable rate of net charge-offs and improving economic
conditions.
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<PAGE> 73
Offsetting the provision were net charge-offs of $250 thousand, $252 thousand,
and $94 thousand in 1993, 1992 and 1991, respectively. For a summary of the
reserve for loan losses, see Note 4 of Notes to Consolidated Financial
Statements.
The reserve for real estate losses was $135 thousand, $696 thousand, and
$522 thousand at December 31, 1993, 1992 and 1991, respectively. The provision
for real estate losses (included in other expenses) was $120 thousand, $286
thousand and $428 thousand in 1993, 1992, and 1991, respectively. During 1993,
the reserve declined because of the charge-off of a $599 thousand loss that had
been previously reserved for on a commercial property first acquired in late
1989. The decline in commercial property values since the late 1980's has
largely abated. Accordingly, Investors' foreclosures have been at a
significantly lower level in the last three years and the property values have
generally been closer to the related loan values. As a result, less loss reserve
is required on commercial real estate. While Investors has experienced
occasional losses on foreclosed residential real estate, its experience has
generally been favorable. For a summary of the reserve for real estate losses,
see Note 8 of Notes to Consolidated Financial Statements.
Asset/Liability Management and Interest Rate Risk. Investors' continuing
objective is to minimize the sensitivity of its earnings to interest rate
fluctuations by matching the repricing characteristics of its assets and
liabilities at a profitable interest rate spread. In order to achieve such
matching, Investors has emphasized the origination and retention of ARMs and
prime-rate related consumer lending for its own loan portfolio which have
interest rates that adjust periodically in accordance with market interest
rates. At December 31, 1993, loans that adjust with market interest rates
constituted 98.2% of Investors' permanent loan portfolio. Investors sells
substantially all of the long-term fixed-rate mortgages it originates.
Investors monitors its interest rate risk primarily through analysis of the
match between the repricing characteristics of its assets and liabilities and
the potential impact on net interest income from possible interest rate
movements. Investors has not utilized hedging techniques such as financial
futures or interest rate swaps.
The accompanying table sets forth Investors' interest rate sensitive assets
and interest rate sensitive liabilities at December 31, 1993 and the related
"gap" (the difference between the interest-earning assets and the
interest-bearing liabilities that reprice during such period) for each repricing
period. Loans are shown based on the repricing date or contractual maturity
date, if applicable, and then adjusted for scheduled amortization and prepayment
assumptions based on historical experience. Mortgage loans held for sale are
shown in the "6 months or less" category. All fixed rate and noninterest-bearing
checking and savings accounts have been adjusted for an annual decay rate based
on industry experience. While management believes this assumption to be
reasonable, these balances could decrease in a period of generally rising
interest rates. Certain advances and loan payments from borrowers held under
escrow (escrow accounts) are included in transaction accounts while other escrow
accounts are included in other borrowings depending on the nature of the escrow
deposit. These escrow accounts have been adjusted for annual decay rates. Other
borrowings also include subordinated debt.
Investors' cumulative one year gap was a positive $125 million or 12.3% of
assets at December 31, 1993 versus a positive 4.4% at December 31, 1992. During
1993, assets in the "one year or less" categories increased $197 million while
liabilities in the same categories increased $108 million. The increase in
assets for such categories was due to an increase in one year ARM loans and
prime rate related consumer loans originated and to a higher cash position at
year end. The increase in liabilities for these categories was due to a $110
million increase in FHLB advances that had an initial rate maturity of one year
or less, matching up with the rate maturity of the corresponding asset growth.
The cumulative three year gap was $92.4 million or 9.1% of assets at December
31, 1993. The three year gap was slightly less positive than the 8.9% at
December 31, 1992. Although Investors had a positive one year gap at December
31, 1993, a rapid increase in market interest rates could cause a decline in net
interest rate spread because the adjustments on some ARM loans may be limited by
interest rate caps.
The recorded value of capitalized servicing rights is susceptible to
interest rate risk. At December 31, 1993, capitalized servicing rights were $4.4
million. The capitalized amounts and the amortization is based partly on
prepayment assumptions of the underlying loans. Increased levels of prepayments
generally occur in a declining interest rate environment. When a loan is
prepaid, Investors ceases to collect servicing income on
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<PAGE> 74
such loan. If actual prepayments exceed Investors' assumptions in the future,
adjustments to the carrying value of servicing rights may be required. During
1993, 1992 and 1991, adjustments of $1.4 million, $1.5 million and $158
thousand, respectively, were made to capitalized servicing rights on loans
because of the higher prepayments experienced in the related periods. For
additional information on these adjustments, see the discussion on loan
servicing fees included under "Noninterest Income".
ASSET/LIABILITY MATURITIES
<TABLE>
<CAPTION>
DECEMBER 31, 1993
---------------------------------------------------------------------
6 MONTHS
6 MONTHS TO 1 1 TO 3 3 TO 5 MORE THAN
OR LESS YEAR YEARS YEARS 5 YEARS TOTAL
-------- -------- -------- -------- --------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Assets:
Mortgage loans................ $431,121 $264,199 $ 90,689 $ 295 $ 944 $787,248
Consumer loans................ 65,939 13,419 4,451 5,869 1,446 91,124
Cash and investment
securities................. 76,626 3,091 13,119 6,908 1,907 101,651
-------- -------- -------- -------- --------- --------
Total rate sensitive assets... $573,686 $280,709 $108,259 $ 13,072 $ 4,297 $980,023
======== ======== ======== ======== ======== ========
Liabilities:
Fixed maturity deposits....... $107,315 $138,882 $100,635 $ 22,657 $369,489
Transaction accounts.......... 11,166 9,822 24,828 12,117 $ 27,208 85,141
Money market accounts......... 146,132 146,132
FHLB advances................. 210,000 102,000 13,000 325,000
Other borrowings.............. 738 3,079 2,629 1,632 26,599 34,677
-------- -------- -------- -------- --------- --------
Total rate sensitive
liabilities................ $475,351 $253,783 $141,092 $ 36,406 $ 53,807 $960,439
======== ======== ======== ======== ======== ========
Gap........................... $ 98,335 $ 26,926 $(32,833) $(23,334) $(49,510 ) $ 19,584
Cumulative gap................ $125,261 $ 92,428 $ 69,094 $ 19,584
Cumulative gap to total
assets..................... 9.7% 12.3% 9.1% 6.8% 1.9 %
</TABLE>
Liquidity. Cash and cash equivalents increased $18.1 million during 1993 to
$58.3 million at December 31, 1993. The increase resulted from $191 million in
net cash provided by financing activities less $159 million in net cash used by
investing activities and $14.4 million in net cash used by operating activities.
Because of the success in significantly increasing deposits through more
competitive pricing during 1993, Investors reduced the reliance on FHLB advances
to fund lending activities. Investors expects continued asset growth in the
future and plans to continue funding this growth with deposits and FHLB
advances. Increases in retail deposits are expected from new retail bank
locations opened in late 1993, the opening of additional retail bank locations
in 1994, and by continued competitive deposit pricing. Based on discussions with
the FHLB, Investors has additional borrowing capacity from the FHLB and will use
advances as needed or appropriate.
Cash and cash equivalents totaled $40.2 million at December 31, 1992, an
increase of $22.4 million from December 31, 1991. This increase was the result
of $12.9 million in net cash provided from operating activities and $200 million
in net cash provided by financing activities less $191 million in net cash used
by investing activities. Cash and cash equivalents increased $4.1 million during
1991. This increase resulted from $36.8 million in net cash provided by
investing activities less $24.9 million in net cash used by operating activities
and $7.7 million in net cash used by financing activities.
Net cash provided by operating activities was from a number of sources in
1993 and 1992 as detailed in the Statement of Cash Flows. Net cash used by
operating activities in 1991 was primarily due to the $26.8 million net increase
in mortgage loans held for sale.
During 1993, $148 million of the net cash used by investing activities
funded an increase in loans. Of this growth, $120 million was in mortgage loans
as customer demand continued. Consumer loans made up the remainder of the
increase. Funds were also invested in investment securities for a net increase
of $9.6 million
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<PAGE> 75
to help Investors meet its growing liquidity requirement caused by the asset
growth. Of the net cash used by investing activities in 1992, $185 million was
used to fund a net increase in loans. Approximately $149 million of this growth
was in mortgage loans with consumer loans causing the remaining increase. In
1991, $33.1 million of the net cash provided from investing activities was from
a net decrease in loans. This was the result of a decline in Investors' ARM
portfolio due to prepayments and conversions to fixed rate loans. These
converted loans were then sold in the secondary market.
During 1993, the net cash provided by financing activities was from a $91
million increase in deposits and a $100 million net increase in FHLB advances.
These funds were used to fund loan growth during the year. The net cash provided
by financing activities in 1992 was due to a net increase of $175 million in
FHLB advances used to fund loan growth and the $22.1 million of net proceeds
from the issuance of subordinated notes. Deposits increased only $3.1 million as
Investors had difficulty attracting deposits in the low interest rate
environment. The net cash used by financing activities in 1991 was the result of
a net decrease in FHLB advances of $15 million which was partially offset by a
$4.7 million increase in deposits. The increase in deposits was low due to
Investors limiting its asset growth in 1991 to increase capital ratios and to
continue to comply with regulatory capital requirements. FHLB advances provided
funding not met by other sources. FHLB borrowings were $325 million at December
31, 1993 and $225 million at December 31, 1992. The maximum FHLB borrowings were
$325 million in 1993 compared to $243 million and $75 million for 1992 and 1991,
respectively.
At December 31, 1993, Investors had aggregate loan funding commitments
(including committed lines of credit) of $94.5 million and aggregate commitments
for the sale of loans of $126 million. Investors' expected proceeds from loan
sales and its ability to obtain advances from the FHLB exceeded its funding
commitments at December 31, 1993.
Investors Bank is required by the OTS to maintain "liquidity" (cash and
eligible investments) in an amount equal to a certain percentage of its deposits
and short-term borrowings to assure its ability to meet demands for withdrawals
and repayment of short-term borrowings. The percentage, which may be changed at
any time by the OTS, is currently 5%. Management believes that the liquidity
maintained by the Bank, together with the sources of funds discussed above, is
adequate to meet contingencies.
Capital Management. Investors' stockholders' equity increased 20.7% to
$47.2 million at December 31, 1993 from $39.1 million at December 31, 1992. This
increase was primarily the result of net earnings retained of $7.8 million.
Investors began paying quarterly common dividends in the second quarter of 1992
at the annual rate of $.24 per share. For 1993, Investors increased the dividend
rate 56.3% to $.375 per share and has declared that the 1994 dividend will
increase 33.3% to an annual rate of $.50 per share. Book value per common share
was $11.90 at December 31, 1993 compared to $9.60 at December 31, 1992.
Investors further increased its capital position in 1992 by issuing $23.0
million of 10-year subordinated notes. Of the net proceeds of $22.1 million,
$12.0 million was contributed to Investors Bank's paid in capital during 1992
and an additional $5.0 million in 1993. The balance of the net proceeds remains
at Investors to support further growth of Investors Bank's operations.
As a result of the additional capital received in 1992 and 1993, Investors
Bank is categorized by regulations as a "well capitalized" institution, the
highest level obtainable. This categorization will allow Investors' Bank to have
a lower deposit insurance premium cost and to have more operational flexibility.
For additional information on capital requirements, see Note 11 of Notes to
Consolidated Financial Statements.
Accounting for Impaired Loans. In May 1993, the Financial Accounting
Standards Board (FASB) issued statement of Financial Accounting Standards (SFAS)
No. 114, "Accounting by Creditors for Impairment of a Loan". SFAS No. 114
requires that expected loss of interest income on impaired loans be taken into
account when calculating loan loss reserves. SFAS No. 114 requires that
specified impaired loans be measured based on the present value of expected
future cash flows discounted at the loan's effective interest rate or the fair
value of collateral for secured loans. SFAS No. 114 does not apply to large
groups of small balance, homogeneous loans that are collectively evaluated for
impairment. SFAS No. 114 is effective for
69
<PAGE> 76
years beginning after December 15, 1994. Management does not expect the adoption
of SFAS No. 114 to have a material effect on Investors' consolidated financial
statements.
Accounting for Investments. In May 1993, the FASB issued SFAS No. 115,
"Accounting for Certain Investments in Debt and Equity Securities". SFAS No. 115
requires debt and equity securities to be classified into one of three
categories: held to maturity, held for trading, or available for sale.
Securities held to maturity are limited to debt securities that the holder has
the positive intent and ability to hold to maturity; these securities are
reported at amortized cost. Securities held for trading are limited to debt and
equity securities that are held principally to be sold in the near term; these
securities are reported at fair value, and unrealized gains and losses are
reflected in earnings. Securities held as available for sale consist of all
other securities; these securities are reported at fair value, and unrealized
gains and losses, net of taxes, are not reflected in earnings but are reflected
as a separate component of stockholders' equity. Under SFAS No. 115, securities
that could be sold in the future because of changes in interest rates or other
factors may not be classified as held to maturity. SFAS No. 115 is effective for
years beginning after December 15, 1993. Management does not expect the adoption
of SFAS No. 115 to have a material effect on Investors' consolidated financial
statements.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
Additional information concerning Investors, including certain information
regarding voting securities of Investors and principal holders thereof, and
information concerning directors and executive officers of Investors, is
included in the documents filed by Investors with the Commission under the
Exchange Act.
OPINIONS
The validity of the securities offered hereby will be passed upon for
Firstar by Howard H. Hopwood III, Senior Vice President and General Counsel of
Firstar. Mr. Hopwood is a full-time employee of Firstar and, at December 31,
1994, directly or beneficially owned approximately 55,372 shares of Firstar
Common Stock. The opinion of counsel described under the caption "PROPOSED
MERGER -- Certain Federal Income Tax Consequences" has been rendered by Foley &
Lardner, 777 East Wisconsin Avenue, Milwaukee, Wisconsin 53202.
EXPERTS
The consolidated financial statements of Firstar Corporation and
subsidiaries as of December 31, 1993 and 1992, and for each of the years in the
three-year period ended December 31, 1993, incorporated by reference herein and
elsewhere in the registration statement, have been incorporated by reference
herein and in the registration statement in reliance upon the report of KPMG
Peat Marwick LLP, independent certified public accountants, incorporated by
reference herein, and upon the authority of said firm as experts in accounting
and auditing.
The consolidated financial statements of Investors Bank Corp. and
subsidiary as of December 31, 1993 and 1992, and for each of the years in the
three-year period ended December 31, 1993 incorporated by reference herein and
included elsewhere in the registration statement, have been incorporated by
reference and included herein in reliance upon the report of KMPG Peat Marwick
LLP, independent certified public accountants and upon the authority of said
firm as experts in accounting and auditing. The report of KPMG Peat Marwick LLP
refers to a change in the method of accounting for income taxes.
STOCKHOLDER PROPOSALS
If the Merger has not been consummated, pursuant to Rule 14a-8 under the
Exchange Act, Investors stockholders may present proper proposals for inclusion
in Investors' proxy statement for consideration at the next annual meeting of
its stockholders by submitting their proposals to Investors in a timely manner.
As noted in Investors' proxy statement relating to the 1994 annual meeting of
Investors stockholders, in order to
70
<PAGE> 77
be so included for the 1995 annual meeting stockholder proposals must have been
received by Investors no later than December 2, 1994.
Pursuant to Rule 14a-8 under the Exchange Act, Firstar stockholders may
present proper proposals for inclusion in Firstar's proxy statement for
consideration at the next annual meeting of its stockholders by submitting their
proposals to Firstar in a timely manner. As noted in Firstar's proxy statement
relating to the 1994 annual meeting of Firstar stockholders, in order to be so
included for the 1995 annual meeting shareholder proposals must have been
received by Firstar no later than November 29, 1994.
71
<PAGE> 78
PRO FORMA COMBINING FINANCIAL STATEMENTS
The following unaudited pro forma combining capitalization, balance sheet
and statements of income are based upon the historical results of Firstar and
Investors giving effect to the acquisition accounted for as a pooling of
interests. Pro forma adjustments, and the assumptions on which they are based,
are described in the accompanying footnotes to the pro forma combining financial
statements. Other pending acquisitions refers to and includes the historical
results and pro forma adjustments to effect the acquisitions of three additional
companies as described in the accompanying footnotes. These financial statements
should be read in conjunction with the historical financial statements of
Firstar incorporated by reference herein and the historical financial statements
of Investors, contained elsewhere in this Proxy Statement-Prospectus. See "INDEX
TO INVESTORS FINANCIAL STATEMENTS." The pro forma combining financial statements
are not necessarily indicative of the results that would have occurred had the
companies constituted a single entity during the respective periods, nor are
they indicative of future results of operations.
FIRSTAR CORPORATION
PRO FORMA COMBINING CAPITALIZATION
SEPTEMBER 30, 1994
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
COMBINED OTHER PENDING
FIRSTAR INVESTORS PRO FORMA FIRSTAR & ACQUISITIONS PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS INVESTORS PRO FORMA(3) COMBINED
---------- ---------- ----------- ---------- -------------- ----------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
Long-term Debt:*
10.25% notes due 5-1-98.... $ 78,405 $ $ $ 78,405 $ $ 78,405
10% notes due 6-1-96....... 43,950 43,950 43,950
11.5% notes due 1-5-96..... 2,706 2,706 2,706
14% notes due 10-17-96..... 1,500 1,500
9.25% notes due 12-15-02... 23,000 23,000 23,000
10% notes due 4-1-96....... 391 391 391
Other...................... 57 57 57
---------- ---------- ----------- ---------- -------------- ----------
Total.................. 125,118 23,391 0 148,509 1,500 150,009
Stockholders' Equity:
Preferred stock............ 3 (3)(1) 19,713 19,713
Common stock............... 81,233 35 3,766(1) 85,034 11,723 96,757
Capital surplus............ 150,729 20,722 (12,113)(1) 159,338 53,171 212,509
Retained earnings.......... 1,024,825 34,363 (1,406)(2) 1,057,782 100,942 1,158,724
Net unrealized losses on
securities available for
sale..................... (2,971) (2,971)
Treasury stock............. (15,221) (15,221) 11,811 (3,410)
Restricted stock........... (555) (1,035) (1,590) (1,590)
---------- ---------- ----------- ---------- -------------- ----------
Total stockholders'
equity................... 1,241,011 54,088 (9,756) 1,285,343 194,389 1,479,732
---------- ---------- ----------- ---------- -------------- ----------
Total capital.......... $1,366,129 $ 77,479 $ (9,756) $1,433,852 $195,889 $1,629,741
========== ========= =========== ========== ============= ==========
</TABLE>
- ---------------
* Qualifying as secondary capital.
72
<PAGE> 79
FIRSTAR CORPORATION
PRO FORMA COMBINING BALANCE SHEET
SEPTEMBER 30, 1994
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA OTHER
COMBINED PENDING
FIRSTAR INVESTORS PRO FORMA FIRSTAR & ACQUISITIONS PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS INVESTORS PRO FORMA(3) COMBINED
----------- ---------- ----------- ----------- ------------ -----------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
Assets:
Cash and due from banks..... $ 945,890 $ 20,328 $ (8,899)(1,2) $ 957,319 $ 115,837 $ 1,073,156
Short-term investments...... 362,833 0 0 362,833 13,719 376,552
Securities available for
sale...................... 5,502 0 0 5,502 279,044 284,546
Securities held to
maturity.................. 3,006,724 45,204 0 3,051,928 407,840 3,459,768
Total loans............... 9,520,174 972,388 0 10,492,562 1,358,202 11,850,764
Less reserve for loan
losses.................... (171,734) (3,349) 0 (175,083) (19,308) (194,391)
----------- ---------- ----------- ----------- ------------ -----------
Loans -- net.............. 9,348,440 969,039 0 10,317,479 1,338,894 11,656,373
Bank premises and
equipment................. 273,988 15,962 0 289,950 39,161 329,111
Other assets................ 293,842 14,914 (1,864)(2) 306,892 45,234 352,126
Deposit base intangible..... 18,092 0 0 18,092 0 18,092
Goodwill.................... 70,812 0 0 70,812 43,046 113,858
Mortgage servicing rights... 3,081 3,993 0 7,074 0 7,074
----------- ---------- ----------- ----------- ------------ -----------
Total assets............ $14,329,204 $1,069,440 $ (10,763) $15,387,881 $2,282,775 $17,670,656
============ ========== =========== ============ ============= ============
Liabilities and Equity:
Deposits.................... $10,647,946 $ 612,849 $ 0 $11,260,795 $1,974,784 $13,235,579
Short-term borrowed funds... 2,071,589 260,000 0 2,331,589 78,710 2,410,299
Long-term debt -- secured
capital................... 125,118 23,391 0 148,509 1,500 150,009
-- other..... 150 105,000 0 105,150 19,333 124,483
Other liabilities........... 240,853 14,112 (1,007)(2) 253,958 13,812 267,770
Minority interest........... 2,537 0 0 2,537 247 2,784
----------- ---------- ----------- ----------- ------------ -----------
Total liabilities....... 13,088,193 1,015,352 (1,007) 14,102,538 2,088,386 16,190,924
Preferred stock............. 3 (3)(1) 0 19,713 19,713
Common stock................ 81,233 35 3,766 (1) 85,034 11,723 96,757
Capital surplus............. 150,729 20,722 (12,113)(1) 159,338 53,171 212,509
Retained earnings........... 1,024,825 34,363 (1,406)(2) 1,057,782 100,942 1,158,724
Net unrealized losses on
securities available for
sale...................... 0 0 0 (2,971) (2,971)
Treasury stock.............. (15,221) 0 0 (15,221) 11,811 (3,410)
Restricted stock............ (555) (1,035) 0 (1,590) 0 (1,590)
----------- ---------- ----------- ----------- ------------ -----------
Total stockholders'
equity............... 1,241,011 54,088 (9,756) 1,285,343 194,389 1,479,732
----------- ---------- ----------- ----------- ------------ -----------
Total liabilities and
stockholders'
equity............. $14,329,204 $1,069,440 $ (10,763) $15,387,881 $2,282,775 $17,670,656
============ ========== =========== ============ ============= ============
</TABLE>
73
<PAGE> 80
FIRSTAR CORPORATION
PRO FORMA COMBINING STATEMENT OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, 1994
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA OTHER
COMBINED PENDING
FIRSTAR INVESTORS PRO FORMA FIRSTAR & ACQUISITIONS PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS(2) INVESTORS PRO FORMA COMBINED
---------- ---------- -------------- ---------- ------------ ----------
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE)
<S> <C> <C> <C> <C> <C> <C>
Interest revenue:
Loans........................ $ 549,760 $ 44,270 $ $ 594,030 $ 82,982 $ 677,012
Investment securities........ 121,091 1,861 122,952 23,994 146,946
Other........................ 6,969 1,026 7,995 454 8,449
---------- ---------- -------------- ---------- ------------ ----------
Total interest revenue..... 677,820 47,157 724,977 107,430 832,407
Interest Expense:
Deposits..................... 186,242 16,027 202,269 36,538 238,807
Short-term borrowed funds.... 41,832 6,478 48,310 2,328 50,638
Long-term debt............... 9,640 4,887 14,527 1,172 15,699
---------- ---------- -------------- ---------- ------------ ----------
Total interest expense..... 237,714 27,392 265,106 40,038 305,144
---------- ---------- -------------- ---------- ------------ ----------
Net interest revenue......... 440,106 19,765 459,871 67,392 527,263
Provision for loan losses.... 8,274 334 8,608 1,754 10,362
---------- ---------- -------------- ---------- ------------ ----------
Net interest revenue after
loan loss provision...... 431,832 19,431 451,263 65,638 516,901
Other Operating Revenue:
Trust and investment
management fees............ 88,928 0 88,928 2,115 91,043
Service charges on deposit
accounts................... 54,716 288 55,004 7,976 62,980
Credit card service
revenue.................... 39,622 0 39,622 0 39,622
Mortgage banking............. 12,090 9,197 (2,413) 18,874 799 19,673
Gains on the sales of
securities................. 77 0 77 1,910 1,987
Other revenue................ 54,179 5,269 59,448 7,488 66,936
---------- ---------- -------------- ---------- ------------ ----------
Total other operating
revenue.................. 249,612 14,754 (2,413) 261,953 20,288 282,241
Other Operating Expense:
Salaries and employee
benefits................... 243,726 11,624 255,350 29,961 285,311
Net occupancy and equipment
expenses................... 71,795 3,040 74,835 10,313 85,148
Other operating expense...... 139,144 6,466 145,610 22,993 168,603
---------- ---------- -------------- ---------- ------------ ----------
Total other operating
expense.................. 454,665 21,130 475,795 63,267 539,062
---------- ---------- -------------- ---------- ------------ ----------
Income before income taxes..... 226,779 13,055 (2,413) 237,421 22,659 260,080
Applicable income taxes........ 75,183 5,450 (1,007) 79,626 8,132 87,758
---------- ---------- -------------- ---------- ------------ ----------
Net income..................... $ 151,596 $ 7,605 $ (1,406) $ 157,795 $ 14,527 $ 172,322
========== ========= ============== ========== =========== ==========
Net income applicable to
common....................... $ 151,596 $ 6,979 (1,406) $ 157,169 $ 13,478 $ 170,647
Net income per common share.... $ 2.36 $ 2.34 $ 2.22
Average number of common shares
outstanding(4)............... 64,299,467 2,990,279 67,289,746 9,452,227 76,741,973
</TABLE>
74
<PAGE> 81
FIRSTAR CORPORATION
PRO FORMA COMBINING STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1993
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA OTHER
COMBINED PENDING
FIRSTAR INVESTORS FIRSTAR & ACQUISITIONS PRO FORMA
HISTORICAL HISTORICAL INVESTORS PRO FORMA COMBINED
---------- ---------- --------- ------------ ---------
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE)
<S> <C> <C> <C> <C> <C>
Interest Revenue:
Loans............................... $ 685,630 $ 54,250 $ 739,780 $106,682 $ 846,462
Securities.......................... 174,652 2,397 177,049 26,756 203,805
Other............................... 6,772 1,122 7,894 879 8,773
---------- ---------- --------- ------------ ---------
Total interest revenue........... 866,954 57,769 924,723 134,317 1,059,040
Interest Expense:
Deposits............................ 261,634 19,997 281,631 48,241 329,872
Short-term borrowed funds........... 23,811 5,062 28,873 1,392 30,265
Long-term debt...................... 13,453 7,592 21,045 2,241 23,286
---------- ---------- --------- ------------ ---------
Total interest expense........... 298,898 32,651 331,549 51,874 383,423
---------- ---------- --------- ------------ ---------
Net interest revenue.................. 568,056 25,118 593,174 82,443 675,617
Provision for loan losses............. 24,567 632 25,199 8,750 33,949
---------- ---------- --------- ------------ ---------
Net interest revenue after loan loss
provision........................ 543,489 24,486 567,975 73,693 641,668
Other Operating Revenue:
Trust and investment management
fees............................. 110,185 0 110,185 2,585 112,770
Service charges on deposit
accounts......................... 74,071 296 74,367 10,794 85,161
Credit card service revenue......... 53,316 0 53,316 0 53,316
Mortgage banking revenue............ 26,774 13,313 40,087 2,491 42,578
Gains on the sales of securities.... 182 0 182 287 469
Other revenue....................... 77,737 5,021 82,758 9,449 92,207
---------- ---------- --------- ------------ ---------
Total other operating revenue.... 342,265 18,630 360,895 25,606 386,501
Other Operating Expense:
Salaries and employee benefits...... 316,848 15,430 332,278 36,274 368,552
Net occupancy and equipment
expenses......................... 96,870 3,814 100,684 13,027 113,711
Other operating expenses............ 174,026 7,218 181,244 31,755 212,999
---------- ---------- --------- ------------ ---------
Total other operating expense.... 587,744 26,462 614,206 81,056 695,262
---------- ---------- --------- ------------ ---------
Income before income taxes............ 298,010 16,654 314,664 18,243 332,907
Applicable income taxes............... 93,716 6,629 100,345 4,984 105,329
---------- ---------- --------- ------------ ---------
Net income............................ $ 204,294 $ 10,025 $ 214,319 $ 13,259 $ 227,578
========= ======== ========= ========= =========
Net income applicable to common
stock............................... $ 201,028 $ 9,080 $ 210,108 $ 11,464 $ 221,572
Net income per common share...........
Net income per common share........... $ 3.15 $ 3.15 $ 2.92
Average number of common shares
outstanding(4)...................... 63,746,924 2,864,083 66,611,007 9,334,272 79,945,279
</TABLE>
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<PAGE> 82
FIRSTAR CORPORATION
PRO FORMA COMBINING STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1992
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA OTHER
COMBINED PENDING
FIRSTAR INVESTORS FIRSTAR & ACQUISITIONS PRO FORMA
HISTORICAL HISTORICAL INVESTORS PRO FORMA COMBINED
---------- ---------- --------- ------------- ---------
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE)
<S> <C> <C> <C> <C> <C>
Interest Revenue:
Loans.............................. $ 693,594 $ 49,449 $ 743,043 $ 114,458 $ 857,501
Securities......................... 191,736 2,263 193,999 32,009 226,008
Other.............................. 13,191 804 13,995 3,348 17,343
---------- ---------- --------- ------------- ---------
Total interest revenue........ 898,521 52,516 951,037 149,815 1,100,852
Interest Expense:
Deposits........................... 321,405 23,747 345,152 63,586 408,738
Short-term borrowed funds.......... 23,423 2,841 26,264 2,065 28,329
Long-term debt..................... 14,541 3,766 18,307 2,863 21,170
---------- ---------- --------- ------------- ---------
Total interest expense........ 359,369 30,354 389,723 68,514 458,237
---------- ---------- --------- ------------- ---------
Net interest revenue............... 539,152 22,162 561,314 81,301 642,615
Provision for loan losses.......... 44,821 869 45,690 5,777 51,467
---------- ---------- --------- ------------- ---------
Net interest revenue after loan
loss provision................ 494,331 21,293 515,624 75,524 591,148
Other Operating Revenue:
Trust and investment management
fees............................ 95,926 0 95,926 2,548 98,474
Service charges on deposit
accounts........................ 66,301 220 66,521 10,844 77,365
Credit card service revenue........ 51,867 0 51,867 0 51,867
Mortgage banking revenue........... 13,058 11,178 24,236 2,354 26,590
Gains on the sales of securities
................................ 981 0 981 3,714 4,695
Other revenue................... 72,634 2,857 75,491 9,060 84,551
---------- ---------- --------- ------------- ---------
Total other operating revenue
........................... 300,767 14,255 315,022 28,520 343,542
Other Operating Expense:
Salaries and employee benefits..... 287,607 12,651 300,258 33,495 333,753
Net occupancy and equipment
expense......................... 93,128 3,407 96,535 12,311 108,846
Other operating expenses........... 176,831 6,451 183,282 35,666 218,948
---------- ---------- --------- ------------- ---------
Total other operating expense
........................... 587,566 22,509 580,075 81,472 661,547
---------- ---------- --------- ------------- ---------
Income before income taxes........... 237,532 13,039 250,571 22,572 273,143
---------- ---------- --------- ------------- ---------
Applicable income taxes.............. 71,547 5,227 76,774 6,515 83,289
---------- ---------- --------- ------------- ---------
Net income........................... $ 165,985 $ 7,812 $ 173,797 $ 16,057 $ 189,854
========= ======== ========= ========== =========
Net income applicable to common...... $ 162,238 $ 6,844 $ 169,082 $ 14,625 $ 183,707
Net income per common share.......... $ 2.62 $ 2.61 $ 2.49
Average number of common shares
outstanding (4).................... 61,879,175 2,794,713 64,673,888 9,119,399 73,793,287
</TABLE>
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<PAGE> 83
FIRSTAR CORPORATION
PRO FORMA COMBINING STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1991
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA OTHER
COMBINED PENDING
FIRSTAR INVESTORS FIRSTAR & ACQUISITIONS PRO FORMA
HISTORICAL HISTORICAL INVESTORS PRO FORMA COMBINED
---------- ---------- --------- ------------ ---------
<S> <C> <C> <C> <C> <C>
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE)
Interest Revenue:
Loans...............................
Loans............................ $ 757,069 $ 51,728 $ 808,797 $129,930 $ 938,727
Securities..........................
Securities....................... 206,577 2,561 209,138 39,078 248,216
Other............................... 18,033 504 18,537 5,508 24,045
---------- ---------- --------- ------------ ---------
Total interest revenue........... 981,679 54,793 1,036,472 174,516 1,210,988
Interest Expense:
Deposits............................ 438,799 32,706 471,505 94,716 566,221
Short-term borrowed funds........... 45,434 3,553 48,897 3,780 52,767
Long-term debt...................... 16,850 395 17,245 3,741 20,986
---------- ---------- --------- ------------ ---------
Total interest expense........... 501,083 36,654 537,737 102,237 639,974
---------- ---------- --------- ------------ ---------
Net interest revenue.................. 480,596 18,139 498,735 72,279 571,014
Provision for loan losses............. 50,276 1,010 51,286 4,902 56,188
---------- ---------- --------- ------------ ---------
Net interest revenue after loan loss
provision........................ 430,320 17,129 447,449 67,377 514,826
Other Operating Revenue:
Trust and investment management
fees............................. 80,813 0 80,813 2,382 83,195
Service charges on deposit
accounts......................... 59,368 174 59,542 10,283 69,825
Credit card service revenue......... 54,594 0 54,594 0 54,594
Mortgage banking revenue............ 7,922 6,399 14,321 2,412 16,733
Gains on the sales of securities.... 1,619 0 1,619 1,230 2,849
Other revenue....................... 68,219 3,183 71,402 7,412 78,814
---------- ---------- --------- ------------ ---------
Total other operating revenue.... 272,535 9,756 282,291 23,719 306,010
Other Operating Expense:
Salaries and employee benefits...... 266,757 9,612 276,369 32,887 309,256
Net occupancy and equipment
expenses......................... 84,735 2,981 87,716 11,742 99,458
Other operating expenses............ 164,044 5,859 169,903 26,976 196,879
---------- ---------- --------- ------------ ---------
Total other operating expense.... 515,536 18,452 533,988 71,605 605,593
---------- ---------- --------- ------------ ---------
Income before income taxes............ 187,319 8,433 195,752 19,491 215,243
Applicable income taxes............... 52,988 3,377 56,385 4,938 61,323
---------- ---------- --------- ------------ ---------
Net income............................ $ 134,331 $ 5,036 $ 139,367 $ 14,553 $ 153,920
========= ======== ========= ========= =========
Net income applicable to common....... $ 130,277 $ 4,931 $ 135,208 $ 14,072 $ 149,280
Net income per common share........... $ 2.14 $ 2.12 $ 2.06
Average number of common shares
outstanding(4)...................... 60,997,625 2,648,605 63,646,230 8,988,346 72,634,576
</TABLE>
77
<PAGE> 84
FIRSTAR CORPORATION
NOTES TO PRO FORMA COMBINING FINANCIAL STATEMENTS
(UNAUDITED)
1) The acquisition of Investors will be accounted for as a pooling of interests.
Firstar will issue 3,040,982 shares of Firstar Common Stock in exchange for
all the outstanding shares of Investors Common Stock based on the 0.8676
Exchange Ratio. Firstar will pay $8,350,000 for the Investors Preferred Stock
at completion of the Merger, which payment is reflected in the pro forma
balance sheet.
2) Represents the elimination of the gain realized by Investors from the sale of
mortgage servicing rights to a subsidiary of Firstar. Anticipated
nonrecurring expenses associated with the transaction totaling $7.9 million,
or $4.7 million after tax, are not included in the pro forma financial
statements.
3) The acquisition of First Colonial was completed on January 31, 1995 and was
accounted for as a pooling of interests. Firstar issued 7,700,766 shares of
Firstar Common Stock in exchange for all the outstanding shares of First
Colonial common stock. Firstar also issued 38,775 shares of Series D
Convertible Preferred Stock for all the outstanding preference shares of
First Colonial.
The acquisition of First Southeast Banking Corp. was completed on October 18,
1994 and was accounted for as a pooling of interests. Firstar issued
1,801,577 shares of Firstar Common Stock for all the outstanding shares of
First Southeast Banking Corp.
The acquisition of First Moline Financial Corp. will be accounted for as a
purchase. Firstar will issue 313,712 shares of Firstar Common Stock in
exchange for all the outstanding shares of First Moline Financial Corp. for a
total purchase price of $9,780,000. Firstar will repurchase Firstar Common
Stock on the open market equal to the shares issued to acquire First Moline
Financial Corp. As of September 30, 1994, Firstar had repurchased 234,200
shares which are shown as being reissued in the pro forma financial
statements. The excess of the purchase price over the net assets acquired of
$3,940,000 is allocated to goodwill for these statements. Net income has been
reduced for the amortization of the excess purchase price over a 15 year
period and adjustments have been made to interest income on short-term
investments assumed to have been used to fund the repurchase of shares issued
in the transaction.
Anticipated nonrecurring expenses associated with these transactions totaling
$28.1 million, or $17.3 million after tax, are not included in the pro forma
financial statements.
4) Pro forma combined and average shares outstanding data reflects the Exchange
Ratio of 0.8676 shares of Firstar Common Stock for each share of Investors
Common Stock; the exchange ratio of 16.91844 shares of Firstar Common Stock
for each share of First Southeast common stock; and the exchange ratio of
0.7725 shares of Firstar Common Stock for each share of First Colonial common
stock.
78
<PAGE> 85
INDEX TO INVESTORS FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AUDITED ANNUAL FINANCIAL STATEMENTS
Consolidated Statements of Earnings for the years ended December 31, 1993, 1992
and 1991......................................................................... F-2
Consolidated Balance Sheets at December 31, 1993 and 1992......................... F-3
Consolidated Statements of Stockholders' Equity for the years ended December 31,
1993, 1992 and 1991.............................................................. F-4
Consolidated Statements of Cash Flows for the years ended December 31, 1993, 1992
and 1991......................................................................... F-5
Notes to Consolidated Financial Statements........................................ F-6
Report of KPMG Peat Marwick LLP................................................... F-29
UNAUDITED INTERIM FINANCIAL STATEMENTS
Consolidated Statements of Earnings for each of the nine month and three month
periods ended September 30, 1994 and 1993........................................ F-30
Consolidated Balance Sheets at September 30, 1994 and December 31, 1993........... F-31
Consolidated Statements of Cash Flows for the nine months ended September 30, 1994
and 1993......................................................................... F-32
Notes to Consolidated Financial Statements........................................ F-33
</TABLE>
F-1
<PAGE> 86
INVESTORS BANK CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1993 1992 1991
----------- ----------- -----------
<S> <C> <C> <C>
INTEREST INCOME:
Interest on loans................................... $54,250,037 $49,449,041 $51,727,598
Interest on cash and investments.................... 2,396,639 2,262,820 2,560,860
Interest and dividends on other assets.............. 1,122,410 803,998 504,014
----------- ----------- -----------
TOTAL INTEREST INCOME.......................... 57,769,086 52,515,859 54,792,472
----------- ----------- -----------
INTEREST EXPENSE:
Interest on deposits (Note 9)....................... 19,997,333 23,747,373 32,705,935
----------- ----------- -----------
Interest on borrowings (Note 10).................... 12,654,143 6,606,392 3,947,856
----------- ----------- -----------
TOTAL INTEREST EXPENSE.............................. 32,651,476 30,353,765 36,653,791
----------- ----------- -----------
NET INTEREST INCOME................................... 25,117,610 22,162,094 18,138,681
PROVISION FOR LOAN LOSSES (NOTE 4).................... 631,446 868,758 1,009,513
----------- ----------- -----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN
LOSSES...................................... 24,486,164 21,293,336 17,129,168
----------- ----------- -----------
NONINTEREST INCOME:
Mortgage banking (Note 5)........................... 13,313,359 11,178,090 6,399,077
Loan servicing fees (Note 6)........................ 2,829,749 1,490,797 2,201,121
Commissions on title insurance sales................ 935,681 135,081
Commissions on annuity sales........................ 560,733 575,053 510,482
Other............................................... 990,761 875,571 644,860
----------- ----------- -----------
TOTAL NONINTEREST INCOME....................... 18,630,283 14,254,592 9,755,540
----------- ----------- -----------
NONINTEREST EXPENSE:
Employee compensation and benefits.................. 15,429,639 12,650,501 9,611,891
Occupancy and equipment............................. 3,813,908 3,406,693 2,981,123
Advertising......................................... 926,178 666,779 582,329
Federal deposit insurance premiums.................. 1,224,472 1,172,908 1,168,851
Other............................................... 5,067,996 4,611,767 4,108,272
----------- ----------- -----------
TOTAL NONINTEREST EXPENSE...................... 26,462,193 22,508,648 18,452,466
----------- ----------- -----------
EARNINGS BEFORE INCOME TAX EXPENSE AND CUMULATIVE
EFFECT OF ACCOUNTING CHANGE......................... 16,654,254 13,039,280 8,432,242
INCOME TAX EXPENSE (NOTE 12).......................... 6,753,835 5,227,251 3,396,603
----------- ----------- -----------
EARNINGS BEFORE CUMULATIVE EFFECT OF ACCOUNTING
CHANGE.............................................. 9,900,419 7,812,029 5,035,639
CUMULATIVE EFFECT OF ACCOUNTING CHANGE (NOTE 2)....... 125,000
----------- ----------- -----------
NET EARNINGS.......................................... $10,025,419 $ 7,812,029 $ 5,035,639
========== ========== ==========
NET EARNINGS AVAILABLE FOR COMMON STOCKHOLDERS........ $ 9,079,707 $ 6,844,175 $ 4,930,788
========== ========== ==========
EARNINGS PER COMMON SHARE:
BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE....... $ 2.46 $ 1.98 $ 1.51
CUMULATIVE EFFECT OF ACCOUNTING CHANGE.............. .03
----------- ----------- -----------
NET EARNINGS........................................ $ 2.49 $ 1.98 $ 1.51
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE> 87
INVESTORS BANK CORP. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1993 1992
-------------- ------------
<S> <C> <C>
ASSETS
Cash and cash equivalents...................................... $ 58,314,515 $ 40,179,006
Investment securities (market value of $28,021,177 and
$18,596,590, respectively) (Note 3).......................... 27,778,989 18,171,509
Mortgage loans held for sale (Note 5).......................... 88,351,696 64,662,326
Mortgage loans (Note 4)........................................ 698,895,887 579,393,797
Consumer loans (Note 4)........................................ 91,124,400 66,049,661
Federal Home Loan Bank stock (Notes 10 and 11)................. 16,250,000 12,413,800
Capitalized servicing rights (Note 6).......................... 4,425,281 5,794,837
Office properties and equipment (Note 7)....................... 15,731,333 14,192,534
Accrued interest receivable (Notes 3, 4 and 5)................. 3,653,453 3,475,023
Foreclosed real estate (Note 8)................................ 6,674,799 7,238,396
Other assets................................................... 5,884,713 4,273,206
-------------- ------------
Total assets.............................................. $1,017,085,066 $815,844,095
============= ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits (Note 9)............................................ $ 603,412,708 $512,352,295
Notes payable (Note 10)...................................... 325,000,000 225,000,000
Advances and loan payments from borrowers held under
escrow.................................................... 8,409,797 6,163,340
Income taxes (Note 12)....................................... 549,263 1,098,207
Subordinated debt (Note 10).................................. 25,800,000 25,800,000
Other liabilities............................................ 6,760,035 6,362,069
-------------- ------------
Total liabilities......................................... 969,931,803 776,775,911
-------------- ------------
Stockholders' Equity (Note 13):
Preferred stock, par value $.01, 1,000,000 shares authorized,
303,640 shares issued and outstanding..................... 3,036 3,036
Common stock, par value $.01, 5,000,000 shares authorized,
3,325,522 and 2,458,846 shares issued and outstanding,
respectively.............................................. 33,255 24,589
Additional paid-in capital................................... 19,111,504 18,650,901
Unamortized restricted stock................................. (675,808 (449,964)
Retained earnings............................................ 28,681,276 20,839,622
-------------- ------------
Total stockholders' equity................................ 47,153,263 39,068,184
-------------- ------------
Total liabilities and stockholders' equity................ $1,017,085,066 $815,844,095
============= ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 88
INVESTORS BANK CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON ADDITIONAL UNAMORTIZED RETAINED
PREFERRED STOCK STOCK PAID-IN CAPITAL RESTRICTED STOCK EARNINGS TOTAL
--------------- ------- --------------- ---------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balances at December 31,
1990........................ $22,740 $10,098,256 $ 9,644,561 $19,765,557
Issuance of 303,640
preferred shares.......... $ 3,036 6,769,685 6,772,721
Dividends on preferred
stock..................... (104,851) (104,851)
Exercise of options......... 328 145,278 145,606
Exercise of warrants........ 1,042 858,917 859,959
Installment payments on
common stock issued to
employees................. 179,793 179,793
Net earnings................ 5,035,639 5,035,639
------- ------- --------------- ---------------- ----------- -----------
Balances at December 31,
1991........................ 3,036 24,110 18,051,929 14,575,349 32,654,424
Issuance of 45,973
restricted shares......... 345 499,615 $ (499,960)
Amortization of restricted
stock..................... 49,996 49,996
Dividends on preferred
stock..................... (967,854) (967,854)
Dividends on common stock... (579,902) (579,902)
Exercise of options......... 134 60,321 60,455
Installment payments on
common stock issued to
employees................. 39,036 39,036
Net earnings................ 7,812,029 7,812,029
------- ------- --------------- ---------------- ----------- -----------
Balances at December 31,
1992........................ 3,036 24,589 18,650,901 (449,964) 20,839,622 39,068,184
Remeasurement of restricted
stock..................... 310,320 (310,320)
Amortization of restricted
stock..................... 84,476 84,476
Dividends on preferred
stock..................... (945,712) (945,712)
Dividends on common stock... (1,238,053) (1,238,053)
Exercise of options......... 351 155,648 155,999
Exercise of warrants........ 2 2,948 2,950
Net earnings................ 10,025,419 10,025,419
Four-for-three stock
split..................... 8,313 (8,313)
------- ------ --------------- ---------------- ----------- -----------
Balances at December 31,
1993........................ $ 3,036 $33,255 $19,111,504 $ (675,808) $28,681,276 $47,153,263
============= ======= ============= ============= ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 89
INVESTORS BANK CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1993 1992 1991
------------- ------------- -------------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net earnings.............................................. $ 10,025,419 $ 7,812,029 $ 5,035,639
Adjustments to reconcile net earnings to net cash provided
(used) by operating activities:
Depreciation and amortization........................... 3,799,572 3,732,627 2,162,230
Amortization of deferred loan fees and discounts........ (1,723,350) (1,402,410) (1,543,256)
Gain on sales of mortgage loan servicing rights......... (3,330,642) (4,231,620) (3,510,828)
Proceeds from the sales of mortgage loan servicing
rights................................................ 4,676,016 6,471,360 5,250,489
Gain on sales of mortgage loans......................... (9,391,057) (6,328,687) (2,447,172)
Provision for loan and real estate losses............... 751,623 1,154,743 1,437,301
Prepaid income taxes.................................... (401,241) (863,075) (544,991)
Change in:
Capitalized servicing rights........................ (2,639,546) (3,826,393) (2,225,076)
Accrued interest receivable......................... (178,430) 254,809 398,045
Interest payable on deposit accounts................ 60,405 (1,288,251) (91,243)
Mortgage loans held for sale........................ (14,298,313) 8,407,745 (26,846,314)
Other, net.......................................... (1,769,027) 2,971,738 (1,992,472)
------------- ------------- -------------
Net cash provided (used) by operating activities.... (14,418,571) 12,864,615 (24,917,648)
------------- ------------- -------------
Cash Flows from Investing Activities:
Net decrease (increase) in loans........................ (147,846,650) (185,108,155) 33,100,744
Purchase of investment securities....................... (16,632,480) (5,560,543) (4,473,981)
Maturities of investment securities..................... 7,025,000 4,950,000 3,998,409
Sale of investment security............................. 251,750
Purchase of FHLB stock.................................. (3,321,800) (6,142,100) (303,600)
Sales of foreclosed real estate......................... 4,805,145 3,679,461 5,716,083
Increase in office properties and equipment............. (2,674,643) (2,492,026) (1,538,565)
------------- ------------- -------------
Net cash provided (used) by investing activities........ (158,645,428) (190,673,363) 36,750,840
------------- ------------- -------------
Cash Flows from Financing Activities:
Net increase in deposits................................ 91,000,008 3,091,344 4,672,336
Proceeds from FHLB advances............................. 412,000,000 420,000,000 220,000,000
Repayment of FHLB advances.............................. (312,000,000) (245,000,000) (235,000,000)
Net proceeds from issuance of subordinated debt......... 22,133,514
Net proceeds from common stock transactions............. 158,949 99,491 1,185,358
Dividends on preferred stock............................ (967,853) (911,395)
Dividends on common stock............................... (1,238,053) (579,902)
Net increase in advances and loan payments from
borrowers held under escrow........................... 2,246,457 1,329,221 1,399,579
------------- ------------- -------------
Net cash provided (used) by financing activities........ 191,199,508 200,162,273 (7,742,727)
------------- ------------- -------------
Net increase in cash and cash equivalents............... 18,135,509 22,353,525 4,090,465
Cash and cash equivalents at beginning of year.......... 40,179,006 17,825,481 13,735,016
------------- ------------- -------------
Cash and cash equivalents at end of year................ $ 58,314,515 $ 40,179,006 $ 17,825,481
============== ============== ==============
Supplemental Disclosures:
Cash paid during the year for:
Interest.............................................. $ 32,408,299 $ 31,627,990 $ 36,652,651
Income taxes.......................................... 7,190,000 5,700,000 3,710,000
Non-cash transfer of loans to foreclosed real estate.... 4,361,725 4,860,867 6,396,711
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 90
INVESTORS BANK CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
NOTE 1. DESCRIPTION OF THE BUSINESS
Investors Bank Corp., formerly Investors Savings Corp., (the Company) is a
holding company for a subsidiary engaged in the retail banking and mortgage
banking businesses.
The subsidiary, Investors Savings Bank, F.S.B. (the Bank), is a federally
chartered savings bank with deposits insured by the Federal Deposit Insurance
Corporation through the Savings Association Insurance Fund. The Bank is subject
to the regulations of certain federal agencies and undergoes periodic
examinations by those regulatory authorities.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements have been prepared in conformity with
generally accepted accounting principles. In preparing the financial statements,
management is required to make estimates and assumptions that affect the
reported amounts of assets and liabilities as of the date of the balance sheet
and revenues and expenses for the period. Actual results could differ
significantly from those estimates or assumptions.
Material estimates that are particularly susceptible to significant change
in the near term relate to the determination of the reserve for loan losses and
the valuation of real estate acquired in connection with foreclosures or in
satisfaction of loans. In connection with the determination of the reserves for
loan and real estate losses, management obtains independent appraisals for
significant properties.
Principles of Consolidation
The consolidated financial statements include the accounts of Investors
Bank Corp. and its wholly owned subsidiary, Investors Savings Bank, F.S.B. All
material intercompany balances and transactions have been eliminated in
consolidation.
Investment Securities
Investment securities, consisting primarily of investment grade corporate
bonds and U.S. Government agency obligations, are stated at cost, adjusted for
amortization of premiums and accretion of discounts on purchase, as the Company
has the intention and ability to hold the securities until maturity. Premiums
and discounts are amortized using the interest method over the term of the
securities.
Mortgage Loans
The Bank originates and purchases both adjustable rate mortgage (ARM) and
fixed interest rate mortgage loans. Substantially all conventional ARM loans are
held for portfolio investment while substantially all government insured ARM
loans and all fixed interest rate loans are sold in the secondary market.
Mortgage loans held for sale are carried at the lower of cost or market
determined on an aggregate loan basis.
Interest is accrued monthly on outstanding principal balances unless
management considers collection to be doubtful, which generally occurs when
principal or interest payments are three months or more past due. Interest is
subsequently recognized as income only to the extent cash is received.
Loan Origination Fees and Discounts
Loan origination fees and certain other fees and certain direct loan
origination costs are deferred and amortized to interest income as an adjustment
of yield using the level yield interest method, or recognized as a
F-6
<PAGE> 91
INVESTORS BANK CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
portion of gain on sales when the loans are sold. Loan discounts representing a
return of yield are deferred and amortized to income using the interest method
over the related periods required to achieve a level yield.
Mortgage Banking Income
Included in mortgage banking income are gain on sales of mortgage loans,
gain on sales of loan servicing rights, and other lending fees.
Gain on sales of mortgage loans are recognized when the loans are sold.
Gain on sales include any discounts or premiums and the excess value of
servicing rights retained. The excess value of servicing rights retained
represents the discounted present value of future service fee income in excess
of a normal market rate servicing fee.
The Company engages in the sale of loan servicing rights. Gain on sales of
servicing rights is recognized when the servicing rights are sold. Gains on sale
result from net cash proceeds less the carrying value of capitalized servicing
rights on the servicing pools sold.
Loan Servicing Fees
The Company derives loan servicing fees by collecting loan payments and
performing certain escrow services for mortgage investors. Amortization of
excess servicing rights and purchased servicing rights are recorded as a
reduction to loan servicing fees.
Capitalized Servicing Rights
Included in capitalized servicing rights is the unamortized balance of
excess servicing rights capitalized. The amounts capitalized and the
amortization thereon is based, in part, on certain prepayment assumptions of the
underlying loans. If, in the future, actual prepayments exceed the Company's
assumptions, adjustments to the carrying value of servicing rights may be
required. Excess servicing rights are being amortized over the estimated
remaining life of the related loans sold in proportion to estimated net
servicing income.
The Company has engaged in bulk purchases of loan servicing rights. The
cost of these rights is capitalized and amortized over the estimated remaining
life of the related loans in proportion to estimated net servicing income. Loan
servicing rights are also purchased from correspondents in connection with the
purchase of mortgage loans. Service release premiums are paid to acquire these
rights. These amounts are amortized over the estimated life of the related loans
or are offset against gain on sales of mortgage loans when the related loans are
sold.
Forward Contracts
The Company uses mandatory, optional and standby forward contracts as part
of its overall interest rate risk management strategy for its mortgage banking
operations. Outstanding contracts represent future commitments and are not
included in the consolidated balance sheets. Gains and losses on forward
contracts used as hedges in mortgage banking operations are deferred and
recognized when the related mortgages or commitments are sold or when a loss
adjustment is recognized on an aggregate basis to reduce the Bank's unsold loans
and loan commitments to the lower of cost or market. Forward contracts which are
no longer needed to hedge specific assets or commitments are valued at market
and the resulting gains or losses are recognized immediately.
F-7
<PAGE> 92
INVESTORS BANK CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
Loan Losses
The reserve for loan losses provides for potential losses in the loan
portfolio. The reserve is increased by the provision for loan losses and by
recoveries and is decreased by charge-offs. The adequacy of the reserve is
judgmental and is based on continual evaluation of the nature and volume of the
loan portfolio, overall portfolio quality, specific problem loans, collateral
values, historical experience and current economic conditions that may affect
the borrowers' ability to pay.
Management believes that the reserves for losses on loans are adequate.
While management uses available information to recognize losses on loans, future
additions to the reserves may be necessary based on changes in economic
conditions. In addition, various regulatory agencies, as an integral part of
their examination process, periodically review the reserves for losses on loans.
Such agencies may require additions to the reserves based on their judgments of
information available to them at the time of their examination.
Foreclosed Real Estate
Real estate in judgment and acquired through foreclosure is initially
recorded at the lower of cost or estimated fair value less selling costs.
Provisions for possible losses on real estate are charged to earnings when
necessary to reduce carrying values to estimated fair value less selling costs.
Depreciation and Amortization
Depreciation is computed on a straight-line basis over three to twelve
years for office furniture and equipment and over forty years for buildings.
Leasehold improvements are amortized using the straight-line method over the
life of the asset or the term of the lease, whichever is less.
Income Taxes
In February 1992, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes".
the Company adopted SFAS No. 109 as of January 1, 1993 and applied the
provisions prospectively as of that date. SFAS No. 109 requires a change from
the deferred method of accounting for income taxes to the asset and liability
method. Under SFAS No. 109, the effect on deferred tax assets and liabilities of
a change in tax rates is recognized in income in the period that includes the
enactment date. The cumulative effect of the application of SFAS No. 109 as of
January 1, 1993 increased net income for the year ended December 31, 1993 by
$125,000.
Earnings Per Common Share
Net earnings are adjusted for preferred stock dividends in the computation
of earnings per common share. Earnings per common share are computed on the
basis of the weighted average number of common and common equivalent shares
outstanding during the year and have been restated for the effects of the
four-for-three common stock split on December 31, 1993. See Note 13 for
additional information on the stock split. Common equivalent shares represent
the dilutive effect of outstanding stock options and warrants.
Statement of Cash Flows
For purposes of the statement of cash flows, cash equivalents include
investments in certificates of deposit with maturities of three months or less.
F-8
<PAGE> 93
INVESTORS BANK CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
Reclassifications
Certain reclassifications have been made to the financial statements of
prior periods to conform to the current presentation. The reclassifications had
no effect on net earnings or stockholders' equity as previously reported.
NOTE 3. INVESTMENTS
Investments consisted of the following:
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
December 31, 1993:
Obligations of U.S. Government corporations
and agencies.............................. $11,625,812 $ 174,746 $ 35,747 $11,764,811
State and municipal obligations.............. 210,000 1,150 211,150
Investment grade corporate bonds............. 15,439,296 127,314 25,275 15,541,335
Other........................................ 503,881 503,881
----------- ---------- ---------- -----------
$27,778,989 $ 303,210 $ 61,022 $28,021,177
========== ======== ======== ==========
December 31, 1992:
Obligations of U.S. Government corporations
and agencies.............................. $ 5,372,260 $ 223,802 $ 6,949 $ 5,589,113
State and municipal obligations.............. 510,000 300 509,700
Investment grade corporate bonds............. 11,788,627 222,585 14,057 11,997,155
Other........................................ 500,622 500,622
----------- ---------- ---------- -----------
$18,171,509 $ 446,387 $ 21,306 $18,596,590
========== ======== ======== ==========
</TABLE>
During 1991, a security was sold for $251,750 which resulted in a gain of
$1,750.
The amortized cost and estimated market value of investment securities at
December 31, 1993, by contractual maturity, are shown below. Expected maturities
may differ from contractual maturities because obligors may have the right to
call or prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
AMORTIZED ESTIMATED
COST MARKET VALUE
----------- ------------
<S> <C> <C>
Due in one year or less............................................ $ 5,844,920 $ 5,940,024
Due after one year through five years.............................. 20,027,078 20,192,853
Due after five years through six years............................. 1,906,991 1,888,300
----------- ------------
$27,778,989 $ 28,021,177
========== ==========
</TABLE>
Included in accrued interest receivable at December 31, 1993 and 1992 is
interest receivable on investments of $315,587 and $311,516, respectively.
F-9
<PAGE> 94
INVESTORS BANK CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
NOTE 4. LOANS HELD IN PORTFOLIO
Mortgage loans consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1993 1992
------------ ------------
<S> <C> <C>
Adjustable rate first mortgage.................... $656,402,702 $530,816,022
Adjustable rate commercial real estate............ 30,629,989 32,722,484
Adjustable rate second mortgage................... 13,567,815 16,542,276
Other mortgage.................................... 1,688,696 2,758,594
------------ ------------
702,289,202 582,839,376
Less:
Unearned discount and fees...................... 979,061 1,285,079
Reserve for losses.............................. 2,414,254 2,160,500
------------ ------------
$698,895,887 $579,393,797
=========== ===========
</TABLE>
Consumer loans consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1993 1992
----------- -----------
<S> <C> <C>
Home equity......................................... $80,025,235 $56,216,872
Other consumer...................................... 6,324,975 7,118,560
Business purpose.................................... 5,340,521 3,153,121
----------- -----------
91,690,731 66,488,553
Less reserve for losses............................. 566,331 438,892
----------- -----------
$91,124,400 $66,049,661
========== ==========
</TABLE>
The Company originates consumer and residential real estate loans in the
metropolitan area of Minneapolis/St. Paul. The Company also originates
residential real estate loans in Duluth, Minnesota and the Chicago and Milwaukee
metropolitan areas. The Company maintains a small commercial real estate loan
portfolio originated in prior years and is not actively seeking new commercial
real estate loans. The commercial real estate portfolio consists mainly of loans
secured by apartment complexes and small retail shopping malls in the
Minneapolis/St. Paul metropolitan area. Although the Company has a diversified
loan portfolio, a substantial portion of its borrowers' ability to honor their
loans is dependent on the economic strength of the metropolitan areas of
Minneapolis/St. Paul, Duluth, Chicago and Milwaukee.
F-10
<PAGE> 95
INVESTORS BANK CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
Following is a summary of the reserve for losses on loans:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1993 1992 1991
---------- ---------- ----------
<S> <C> <C> <C>
Beginning balance........................................ $2,599,392 $1,982,274 $1,066,645
Provision for losses..................................... 631,446 868,758 1,009,513
Charge-offs:
Residential real estate................................ (103,430) (199,456) (27,983)
Commercial real estate................................. (285,651)
Consumer............................................... (34,575) (150,568) (123,609)
---------- ---------- ----------
Total charge-offs................................. (423,656) (350,024) (151,592)
Recoveries............................................... 173,403 98,384 57,708
---------- ---------- ----------
Ending balance........................................... $2,980,585 $2,599,392 $1,982,274
========= ========= =========
</TABLE>
At December 31, 1993 and 1992 the Company had approximately $1,903,000 and
$2,089,000, respectively, of loans in a nonaccrual status. Had nonaccrual loans
been accruing interest in accordance with original terms, interest income would
have been increased by approximately $40,000, $54,000 and $129,000 for the years
ended December 31, 1993, 1992 and 1991, respectively. The Company's loan
portfolio as of December 31, 1993 includes no restructured loans. There are no
commitments to lend additional funds to customers whose loans were in a
nonaccrual status at December 31, 1993.
Included in accrued interest receivable at December 31, 1993 and 1992 is
interest receivable on loans of $3,237,750 and $3,079,869, respectively.
The aggregate amount of loans to executive officers and directors of the
Company and executive officers of the Bank were $243,000 and $341,000 at
December 31, 1993 and 1992, respectively. During the year ended December 31,
1993, approximately $87,000 of new loans were made and reductions totaled
$185,000. Such loans were made in the ordinary course of business at the normal
credit terms and collateralization and do not represent more than normal risk of
collection.
NOTE 5. MORTGAGE BANKING
Mortgage loans held for sale consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1993 1992
----------- -----------
<S> <C> <C>
Loans held for sale................................................ $88,636,117 $65,155,829
Less unearned discount and fees.................................... 284,421 493,503
----------- -----------
$88,351,696 $64,662,326
========== ==========
</TABLE>
Mortgage banking income consisted of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1993 1992 1991
----------- ----------- ----------
<S> <C> <C> <C>
Gain on sales of mortgage loans........................ $ 9,391,057 $ 6,328,687 $2,447,172
Gain on sales of loan servicing rights................. 3,330,642 4,231,620 3,510,828
Other lending fees..................................... 591,660 617,783 441,077
----------- ----------- ----------
$13,313,359 $11,178,090 $6,399,077
========== ========== =========
</TABLE>
F-11
<PAGE> 96
INVESTORS BANK CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
Mortgage banking activity is summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1993 1992 1991
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Loans originated for sale:
Loans closed................................................ $838,097 $663,275 $409,852
Loans purchased............................................. 114,986 91,346 68,070
-------- -------- --------
$953,083 $754,621 $477,922
======== ======== ========
Mortgage loans sold........................................... $982,764 $799,703 $512,620
Loan servicing rights sold.................................... 252,178 301,642 298,840
</TABLE>
Included in accrued interest receivable at December 31, 1993 and 1992 is
interest receivable on loans held for sale of $100,116 and $83,638,
respectively.
NOTE 6. LOAN SERVICING
Mortgage loans serviced for others are not included in the accompanying
consolidated balance sheets. The mortgage loans serviced for others consisted of
the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------
1993 1992 1991
---------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Outstanding principal balance............................... $1,357,204 $981,468 $660,051
Number of loans............................................. 16,510 12,361 8,712
</TABLE>
Included in the consolidated balance sheets are the following amounts of
capitalized servicing rights:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1993 1992
---------- ----------
<S> <C> <C>
Excess servicing rights.............................................. $2,958,834 $3,199,739
Purchased servicing rights........................................... 1,466,447 2,595,098
---------- ----------
$4,425,281 $5,794,837
========= =========
</TABLE>
During the years ended December 31, 1993, 1992 and 1991, the excess value
of servicing rights retained included in gain on sales of mortgage loans was
$2,287,592, $3,503,556 and $1,994,986, respectively. Amortization of capitalized
servicing rights recorded as a reduction to loan servicing fees was $2,663,727,
$2,733,520, and $1,296,140 during the years ended December 31, 1993, 1992 and
1991, respectively.
F-12
<PAGE> 97
INVESTORS BANK CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
NOTE 7. OFFICE PROPERTIES AND EQUIPMENT
Office properties and equipment consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1993 1992
----------- -----------
<S> <C> <C>
Land............................................................... $ 2,009,464 $ 2,009,464
Office buildings................................................... 7,919,911 7,407,569
Furniture and equipment............................................ 8,017,352 6,936,454
Leasehold improvements............................................. 2,458,410 1,700,785
----------- -----------
20,405,137 18,054,272
Less accumulated depreciation and amortization..................... 4,673,804 3,861,738
----------- -----------
$15,731,333 $14,192,534
========== ==========
</TABLE>
NOTE 8. FORECLOSED REAL ESTATE
Foreclosed real estate consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1993 1992
---------- ----------
<S> <C> <C>
Real estate in judgment, subject to redemption....................... $2,275,596 $3,244,974
Real estate acquired through foreclosure............................. 4,534,303 4,689,613
---------- ----------
6,809,899 7,934,587
Less reserve for losses.............................................. 135,100 696,191
---------- ----------
$6,674,799 $7,238,396
========= =========
</TABLE>
The following is a summary of the reserve for losses on real estate:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1993 1992 1991
--------- --------- ---------
<S> <C> <C> <C>
Beginning balance.......................................... $ 696,191 $ 521,842 $ 406,320
Provisions................................................. 120,177 285,985 427,788
Charge-offs:
Residential real estate.................................. (88,426) (32,990) (133,419)
Commercial real estate................................... (598,757) (124,804) (178,847)
--------- --------- ---------
Total charge-offs................................... (687,183) (157,794) (312,266)
Recoveries................................................. 5,915 46,158
--------- --------- ---------
Ending balance............................................. $ 135,100 $ 696,191 $ 521,842
========= ========= =========
</TABLE>
F-13
<PAGE> 98
INVESTORS BANK CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
NOTE 9. DEPOSITS
Deposits are summarized as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE RATE AT DECEMBER 31,
DECEMBER 31, ----------------------------
1993 1993 1992
--------------- ------------ ------------
<S> <C> <C> <C>
Checking and savings accounts:
Noninterest-bearing checking accounts............. $ 46,456,372 $ 17,505,571
Interest-bearing checking accounts................ 1.53% 24,941,059 21,481,490
Savings accounts.................................. 1.99 13,744,563 10,123,837
Money market savings accounts..................... 2.52 146,131,513 159,775,423
------------ ------------
1.88 231,273,507 208,886,321
------------ ------------
Certificate accounts:
1.50% to 2.00%...................................... 486,041
2.01% to 3.00%...................................... 7,947,456 3,521,123
3.01% to 4.00%...................................... 156,870,882 107,644,196
4.01% to 5.00%...................................... 162,431,985 104,594,007
5.01% to 6.00%...................................... 28,379,596 31,263,658
6.01% to 7.00%...................................... 5,493,667 29,773,156
7.01% to 8.00%...................................... 7,359,800 23,234,182
8.01% to 9.00%...................................... 519,082 845,365
------------ ------------
4.28 369,488,509 300,875,687
------------ ------------
Accrued interest payable............................ 2,650,692 2,590,287
------------ ------------
Total deposits................................. 3.35 $603,412,708 $512,352,295
=========== ===========
</TABLE>
At December 31, 1993 and 1992 the Bank had $38,675,442 and $26,195,523,
respectively, of certificate accounts with balances of $100,000 or more.
Scheduled maturities and related weighted average rates of certificate
accounts at December 31, 1993 are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
- ------------
<S> <C> <C> <C>
1994..................................................... 4.09% $246,197,072
1995..................................................... 4.31 88,951,693
1996..................................................... 5.55 11,682,721
1997..................................................... 5.85 10,838,952
1998..................................................... 5.38 11,818,071
------------
4.28 $369,488,509
===========
</TABLE>
F-14
<PAGE> 99
INVESTORS BANK CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
Interest expense on deposits for the years presented are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1993 1992 1991
----------- ----------- -----------
<S> <C> <C> <C>
Checking and savings accounts......................... $ 663,526 $ 750,100 $ 675,740
Money market savings accounts......................... 4,107,465 5,882,888 10,550,438
Certificate accounts.................................. 15,226,342 17,114,385 21,479,757
----------- ----------- -----------
$19,997,333 $23,747,373 $32,705,935
========== ========== ==========
</TABLE>
NOTE 10. BORROWINGS
Notes payable to Federal Home Loan Bank (FHLB) of Des Moines consisted of
the following:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
RATE AT DECEMBER 31,
DECEMBER 31, ----------------------------
1993 1993 1992
------------------- ------------ ------------
<S> <C> <C> <C>
Due in 1993..................................... $202,000,000
1994..................................... 3.56% $220,000,000 10,000,000
1995..................................... 6.00 6,000,000 6,000,000
1996..................................... 5.68 7,000,000 7,000,000
1997..................................... 3.50 45,000,000
1998..................................... 3.37 20,000,000
2000..................................... 3.36 27,000,000
------------ ------------
$325,000,000 $225,000,000
=========== ===========
</TABLE>
The interest rates on notes due in 1997, 1998 and 2000 are reset by the
FHLB on the anniversary dates to a rate indexed to the current rate charged by
the FHLB for one year borrowings. The Company also has the option of repaying
each such note at its anniversary date without penalty.
Notes payable to the FHLB are collateralized by FHLB stock and first
mortgage real estate loans. At December 31, 1993, the Company had a collateral
requirement on first mortgage real estate loans of $406,000,000 and had pledged
specific collateral with an aggregate carrying value of approximately
$477,000,000.
Subordinated debt is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1993 1992
----------- -----------
<S> <C> <C>
9.25% Subordinated notes due December 15, 2002..................... $23,000,000 $23,000,000
12.75% Subordinated capital notes due March 15, 1999............... 2,409,000 2,409,000
10% Subordinated debentures due April 1, 1996...................... 391,000 391,000
----------- -----------
$25,800,000 $25,800,000
========== ==========
</TABLE>
The subordinated debt is unsecured. At the option of the Company, the 9.25%
notes may be redeemed at par on or after December 15, 1995, and the 10%
debentures on or after January 1, 1995. On January 25, 1994, the Company elected
to exercise the right to redeem at par the 12.75% capital notes on April 1,
1994. During 1991, $7,591,000 of the 12.75% capital notes were exchanged by the
capital note holders for preferred stock (see Note 13).
F-15
<PAGE> 100
INVESTORS BANK CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
Covenants for the 9.25% notes provide that the Company must maintain at
least $1 million in certain investments with a maturity of one year or less, of
which no more than $500 thousand may be placed on account at the Bank.
The interest is payable monthly for the 9.25% notes, semiannually for the
12.75% capital notes and quarterly for the 10% debentures. The notes, capital
notes and debentures are subordinated in payment of principal and interest to
all customer deposits and other indebtedness of the Bank for borrowed money as
defined in the note, capital note and debenture agreements.
Unamortized debt issue costs of $852,248 and $883,219 are included in other
assets at December 31, 1993 and 1992, respectively.
Interest expense for borrowings for the periods presented are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1993 1992 1991
----------- ---------- ----------
<S> <C> <C> <C>
Notes payable to FHLB................................... $ 9,712,763 $5,863,469 $2,612,570
Subordinated debt....................................... 2,582,741 483,635 1,243,014
Other borrowings........................................ 358,639 259,288 92,272
----------- ---------- ----------
$12,654,143 $6,606,392 $3,947,856
========== ========= =========
</TABLE>
NOTE 11. FEDERAL HOME LOAN BANK STOCK, LIQUIDITY AND CAPITAL REQUIREMENTS
The Bank, as a member of the FHLB, is required to hold a specified number
of shares of capital stock, which is carried at cost, in the FHLB of Des Moines.
In addition, under regulations currently in effect, the Bank is required to
maintain cash and other liquid assets in an amount equal to 5% of its deposit
accounts and other obligations due within one year. The Bank has met these
requirements.
Effective December 19, 1992, the Bank became subject to capital standards
established by the Federal Deposit Insurance Corporation Improvement Act of 1991
which defines five capital tiers, the highest of which is "well capitalized".
Under the regulations a "well capitalized" institution must have a leverage
ratio of at least 5%, a tier 1 risk based capital ratio of at least 6% and a
total risk based capital ratio of at least 10%.
At December 31, 1993, the Bank exceeded each of these requirements and is
categorized as a "well capitalized" institution.
F-16
<PAGE> 101
INVESTORS BANK CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
The following is a summary of the Bank's capital ratios (unaudited):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------
1993 1992
-------------- ------------
<S> <C> <C>
Leverage:
Adjusted total assets...................................... $1,015,633,415 $813,920,729
Tier 1 Capital............................................. 63,839,691 50,264,185
Leverage ratio............................................. 6.29% 6.18%
Tier 1 risk based capital:
Risk weighted assets....................................... $ 591,320,941 $478,775,027
Tier 1 Capital............................................. 63,839,691 50,264,185
Tier 1 risk based capital ratio............................ 10.80% 10.50%
Total risk based capital:
Risk weighted assets....................................... $ 591,320,941 $478,775,027
Total risk based capital................................... 68,383,760 54,753,855
Total risk based capital ratio............................. 11.56% 11.44%
</TABLE>
Management believes the Bank will continue to meet the requirements to be
categorized as a "well capitalized" institution in 1994.
The Bank is also required by federal regulations to maintain minimum levels
of capital that are measured by three ratios: a tangible capital ratio of at
least 1.5% of tangible assets, a core capital ratio of at least 3%, and a risk
based capital ratio of at least 8%. The Bank exceeded all three ratios during
1993 and management believes the Bank will continue to do so in 1994. In August
1993, the Office of Thrift Supervision (OTS) issued its final regulations on
interest rate risk. Under the final rule, institutions deemed to have an "above
normal" level of interest rate risk are subject to a capital charge and must
deduct a portion of that risk from total capital for regulatory capital
purposes. Management believes that as of December 31, 1993 the Bank's required
regulatory capital will not be impacted by the interest rate risk rule.
NOTE 12. INCOME TAXES
The Company and the Bank file consolidated federal income tax returns.
Federal income taxes are allocated to the Company and the Bank based on their
contributions to consolidated taxable income.
The components of income tax expense for the years ended December 31
consist of the following:
<TABLE>
<CAPTION>
ASSET/LIABILITY
METHOD DEFERRED METHOD
--------------- --------------------------
1993 1992 1991
--------------- ---------- ----------
<S> <C> <C> <C>
Current:
Federal.......................................... $ 5,525,886 $4,700,907 $3,042,834
State............................................ 1,629,190 1,389,419 898,760
--------------- ---------- ----------
7,155,076 6,090,326 3,941,594
--------------- ---------- ----------
Deferred (prepaid):
Federal.......................................... (310,106) (666,177) (418,440)
State............................................ (91,135) (196,898) (126,551)
--------------- ---------- ----------
(401,241) (863,075) (544,991)
--------------- ---------- ----------
$ 6,753,835 $5,227,251 $3,396,603
=========== ========= =========
</TABLE>
F-17
<PAGE> 102
INVESTORS BANK CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
A reconciliation of the statutory federal income tax rate with the actual
rate provided on earnings is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Statutory federal income tax rate.................................... 35.0% 34.0% 34.0%
State income taxes, net of federal tax benefits...................... 6.0 6.0 6.0
Other................................................................ (0.4) 0.1 0.3
---- ---- ----
40.6% 40.1% 40.3%
==== ==== ====
</TABLE>
The Bank qualifies under various provisions of the Internal Revenue Code
which permit it to deduct from taxable income an allowance for bad debts which
differs from the provision for such losses charged to income for financial
statement purposes. Accordingly, retained earnings at December 31, 1993 includes
approximately $1,072,000 for which no provision for income taxes has been made.
If, in the future, this portion of retained earnings is used for any purpose
other than to absorb bad debt losses, income taxes may be imposed at the then
applicable rates. It is not contemplated that any portion of retained earnings
will be used in a manner that will result in additional taxable income.
Deferred income taxes for 1992 and 1991 related primarily to the difference
in recognition of components of gains on sales of mortgage loans and
depreciation for financial reporting and income tax purposes.
The tax effects of temporary differences that give rise to the deferred tax
assets and deferred tax liabilities at December 31, 1993 are as follows:
<TABLE>
<S> <C>
Deferred tax assets:
Reserve for loan losses....................................................... $ 700,050
Deferred loan fees............................................................ 504,428
Other......................................................................... 216,382
----------
1,420,860
----------
Deferred tax liabilities:
Federal Home Loan Bank stock.................................................. 623,474
Office properties and equipment............................................... 916,094
Other......................................................................... 116,462
----------
1,656,030
----------
Net deferred tax liability............................................... $ 235,170
=========
</TABLE>
No valuation allowance was required for deferred tax assets at January 1,
1993 or December 31, 1993.
NOTE 13. STOCKHOLDERS' EQUITY
Preferred Stock
On November 22, 1991 the Company issued 303,640 shares of preferred stock
in exchange for $7,591,000 of the Bank's 12.75% subordinated capital notes due
1999. The preferred stock was issued in units consisting of one share of
preferred stock and one warrant to purchase two-thirds share of the Company's
common stock (See "Stock Warrants"). Dividends on the preferred stock were at an
annual rate of $3.1875 per share until October 31, 1993 and are at an annual
rate of $2.75 per share thereafter. Dividends are cumulative from the date of
original issue and are payable quarterly. The preferred stock has a liquidation
preference of $25.00 per share plus accumulated and unpaid dividends. The
preferred stock is redeemable at the option of the Company, in whole or in part,
at any time on or after October 31, 1996, at $25.00 per share plus accumulated
and unpaid dividends.
F-18
<PAGE> 103
INVESTORS BANK CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
Common Stock Split
On November 4, 1993, the Board of Directors of the Company declared a
four-for-three split of its common stock payable on December 31, 1993 to all
holders of record as of December 1, 1993. The split was effected by means of a
stock dividend. No fractional shares were issued. A total of 831,294 shares of
common stock were issued in connection with the split. The par value of each
share was not changed from $.01. All information relating to number of shares,
per share amounts, stock option data, stock warrants, and restricted stock have
been restated to reflect the split.
Stockholder Rights Plan
On May 7, 1991 the Company's Board of Directors adopted a stockholder
rights plan under which each share of common stock has an associated preferred
stock purchase right. The rights are exercisable only under certain
circumstances and allow holders of such rights to purchase common stock of the
Company at a discounted price which would be the equivalent number of shares of
common stock having a fair market value equal to $80. The Company has reserved
55,000 shares of preferred stock for the stockholder rights plan.
Dividend Restrictions
The Company is limited in its ability to declare dividends by the dividend
restrictions imposed on its savings bank subsidiary. Under applicable
regulations of the OTS, the Bank could declare dividends to the Company without
regulatory approval in an amount equal to accumulated net income for the current
calendar year plus 50% of the amount by which its capital exceeded its capital
requirements at the beginning of the year. However, the Bank could not declare
dividends that would cause it to fall below its capital requirement without OTS
approval.
Stock Options
The Company has a stock option plan under which 531,415 shares of common
stock are reserved for issuance to employees and directors of the Company at
December 31, 1993.
Incentive stock options are to be granted at not less than 100% of the fair
market value of the common stock at the date of grant (110% of market value for
options granted to 10% or greater stockholders). Options which do not qualify as
incentive stock options may be granted at less than 100% of the fair market
value of the common stock at the date of grant. No option may extend more than
ten years from the date of grant (five years for 10% stockholders). At December
31, 1993, the exercise of options granted for purchase of 6,666 shares of common
stock are contingent on attainment of certain performance goals.
F-19
<PAGE> 104
INVESTORS BANK CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
The following is a summary of activity in the plan:
<TABLE>
<CAPTION>
NUMBER OF SHARES OPTION PRICE
UNDER OPTION PER SHARE
---------------- -------------
<S> <C> <C>
December 31, 1990............................................. 398,667 Average $3.74
Exercised................................................... (43,737) $2.50-4.50
Granted..................................................... 64,000 $6.00-9.38
Canceled.................................................... (21,545) $3.94-4.50
----------------
December 31, 1991............................................. 397,385 Average $4.22
Exercised................................................... (17,764) $2.50-4.50
Granted..................................................... 33,333 $9.19-9.66
Canceled.................................................... (444) $4.13
----------------
December 31, 1992............................................. 412,510 Average $4.68
Exercised................................................... (48,898) $2.50-9.66
Granted..................................................... 42,667 $10.69-15.00
Canceled.................................................... (1,779) $4.50
----------------
December 31, 1993............................................. 404,500 Average $5.52
=============
Exercisable at December 31, 1993.............................. 302,977
Available for grant at December 31, 1993...................... 126,915
</TABLE>
Stock Warrants
At December 31, 1990 the Company had outstanding common stock warrants
which entitled the holders to purchase 139,000 shares of the Company's common
stock at a price of $6.25 per share through April 1, 1991, the expiration date.
On March 19, 1991 the Board of Directors of the Company extended the expiration
date of the warrants to December 31, 1991. All of these warrants were exercised
during 1991.
In conjunction with the issuance of preferred stock on November 22, 1991
the Company issued warrants to purchase 202,427 shares of common stock at a
price of approximately $11.06 per share on or after February 11, 1992. The
warrants expire on November 13, 1996. The Company has reserved 202,160 shares of
common stock for the remaining outstanding warrants.
Restricted Stock Award Agreement
The Company entered into a Restricted Stock Award Agreement in 1992. Under
the terms of the agreement, 45,973 shares of restricted stock were granted to
two executive officers of the Company. Such shares vest over a ten-year period
at the rate of 10% per year. Compensation expense for the shares vesting in 1993
and 1992 was $84,476 and $49,996, respectively.
NOTE 14. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Company is a party to financial instruments with off-balance-sheet risk
in the normal course of business to meet the financing needs of its customers
and to reduce its own exposure to fluctuations in interest rates. These
financial instruments include commitments to extend credit, mortgage loan
purchase commitments and forward mortgage loan sales commitments. These
instruments involve, to varying degrees, elements of credit and interest rate
risk in excess of the amount recognized in the balance sheet. The contract or
notional amounts of these instruments reflect the extent of involvement the
Company has in particular classes of financial instruments.
F-20
<PAGE> 105
INVESTORS BANK CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
The Company's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit and
purchase mortgage loans is represented by the contract or notional amount of
these commitments. The Company uses the same credit policies in making
commitments as it does for on-balance-sheet instruments. For forward mortgage
loan sales commitments, the contract or notional amounts do not represent
exposure to credit loss. The Company controls the credit risk of forward
mortgage loan sales commitments through credit approvals, credit limits and
monitoring procedures.
The contract or notional amounts of these financial instruments were as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1993 1992
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Financial instruments whose contract amounts represent credit risk:
Commitments to extend credit:
Loans held for sale................................................ $ 24,507 $ 13,093
Portfolio loans.................................................... 9,261 12,345
Purchased loans held for sale...................................... 14,941 15,950
Purchased portfolio loans.......................................... 309 6,190
Available lines of credit.......................................... 45,531 37,301
Financial instruments whose notional or contract amounts do not
represent credit risk:
Forward mortgage loan sales commitments............................ $125,525 $101,525
</TABLE>
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since a portion of the commitments are
expected to expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. The Company evaluates each
customer's creditworthiness on a case-by-case basis. The amount of collateral
obtained, if deemed necessary by the Company upon extension of credit, is based
on the loan type and on management's credit evaluation of the borrower.
Collateral consists primarily of residential real estate and personal property.
Forward mortgage loan sales commitments are contracts for the delivery of
securities backed by mortgage loans in which the Company agrees to make delivery
at a specified future date of a specified instrument, at a specified price or
yield. Risks arise from the possible inability of the counterparties to meet the
terms of their contracts and from movements in mortgage loan values and interest
rates.
F-21
<PAGE> 106
INVESTORS BANK CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
NOTE 15. COMMITMENTS
The Company has several noncancelable operating lease agreements for its
office properties which have remaining lease terms of up to fifteen years. In
addition, one retail banking office is under a capital lease which has a
remaining term of seven years. Future minimum payments under these leases are as
follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31, CAPITAL OPERATING
- ------------ -------- ----------
<S> <C> <C>
1994................................................................ $ 95,000 $1,101,000
1995................................................................ 95,000 1,092,000
1996................................................................ 95,000 810,000
1997................................................................ 95,000 606,000
1998................................................................ 95,000 570,000
Thereafter.......................................................... 191,000 3,690,000
-------- ----------
Total minimum lease payments........................................ 666,000 $7,869,000
=========
Less amounts representing interest.................................. 200,000
--------
Present value of net minimum obligations............................ $466,000
========
</TABLE>
In addition, the Company has several renewal options on its retail banking
office leases and some of its mortgage office leases ranging from two- to
five-year periods. At present, the Company intends to exercise most options on
its retail banking offices when the original leases expire. If this occurs,
total future minimum payments (estimated using original lease term costs) under
these leases, as shown above, would increase by approximately $4,596,000.
The Company previously sold two retail banking office properties to third
parties under sale/leaseback arrangements. These lease agreements include
purchase options at market value at certain points during the lease terms.
Total rent expense for the years ended December 31, 1993, 1992 and 1991 was
approximately $1,509,000, $1,007,000 and $1,290,000, respectively.
NOTE 16. EMPLOYEE BENEFITS
The Company currently offers a 401(k) plan which is available to all
permanent employees who have attained age twenty-one and have met the one year
eligibility requirement, as defined. Under the 401(k) plan, an employee may
defer up to 15% of his or her compensation as defined, with discretionary
matching Company contributions. The 401(k) plan was amended effective January 1,
1991 to provide for the Company to make discretionary profit sharing
contributions to be invested in common stock of the Company. Total expense under
the plan for the years ended December 31, 1993, 1992 and 1991 was $541,579,
$403,294 and $227,362, respectively.
NOTE 17. FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107 (SFAS No. 107) requires
disclosure of estimated fair values of a company's financial instruments,
including assets, liabilities and off-balance sheet items, for which it is
practicable to estimate fair value. These fair values are estimates made as of
December 31, 1993 and 1992 based on relevant market information, if available,
and upon characteristics of the financial instruments themselves. Because no
market exists for a significant portion of the Company's financial instruments,
many of the fair value estimates are based on judgments regarding future
expected loss experience, current economic conditions, risk characteristics of
various financial instruments and other factors.
F-22
<PAGE> 107
INVESTORS BANK CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
Thus, the estimates are subjective in nature, involving uncertainties and
requiring judgment, and therefore cannot be determined with precision. Changes
in assumptions could significantly affect the estimates.
Fair value estimates are based only on existing financial instruments. The
Company has not attempted to estimate the value of anticipated future business
or assets, liabilities or activities that are not considered financial
instruments. For example, the Company has a substantial mortgage banking
operation that contributes significant amounts of noninterest income annually.
The mortgage banking operation is not a financial instrument and its value has
not been incorporated into the fair value estimates. In addition, the tax
effects of unrealized gains or losses implied in the fair value estimates have
not been considered in the estimates nor have costs necessary to consummate a
sale been considered. Accordingly, the aggregate fair value amounts do not
represent an estimate of the underlying fair value of the Company.
The estimated fair values of the Company's financial instruments are shown
below. Following the table, there is an explanation of the methods and
assumptions used to estimate the fair values of each class of financial
instrument.
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------
1993 1992
---------------------- ----------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
-------- ---------- -------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents........................ $ 58,315 $ 58,315 $ 40,179 $ 40,179
Investment securities............................ 27,779 28,021 18,172 18,597
Mortgage loans held for sale..................... 88,352 88,767 64,662 64,804
Mortgage loans................................... 698,896 731,017 579,394 605,235
Consumer loans................................... 91,124 92,335 66,050 66,628
Federal Home Loan Bank stock..................... 16,250 16,250 12,414 12,414
Excess servicing rights.......................... 2,959 20,353 3,200 15,821
Accrued interest receivable...................... 3,653 3,653 3,475 3,475
Financial liabilities:
Deposits......................................... 603,413 607,743 512,352 513,828
Notes payable.................................... 325,000 323,589 225,000 225,175
Subordinated debt................................ 25,800 26,379 25,800 25,900
</TABLE>
Cash and Cash Equivalents
The carrying amounts of cash and cash equivalents approximate their fair
values.
Investment Securities
The fair values of investment securities are based on quoted market prices.
See Note 3 for the carrying amounts and fair values of the various components of
the Company's investment portfolio.
Mortgage Loans Held for Sale
In order to manage the market exposure on its residential loans held for
sale and its commitments to extend credit for residential loans, the Company
enters into forward mandatory, optional and standby mortgage loan sales
commitments. Therefore, the estimated fair values of mortgage loans held for
sale are based on the committed sales prices.
F-23
<PAGE> 108
INVESTORS BANK CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
Mortgage Loans
The fair values of mortgage loans were estimated for groups of loans with
similar characteristics. See Note 4 for the descriptions and amounts of these
groups. Nonperforming loans were subtracted and discounted by the average
historical rate of loss that the Company has experienced on these types of
loans.
The largest group, adjustable first mortgage loans, has experienced no
significant change in credit risk. Its fair values were estimated by subtracting
nonperforming loans, classifying the loans into segments with similar
characteristics which determine saleability and obtaining market quotes for each
of the segments.
The fair values of the commercial real estate loans were estimated using
discounted cash flow analysis. The discount rates used were estimated market
rates for similar types of loans adjusted upward to reflect the decline in the
collateral market values of commercial real estate properties over the last few
years. In addition, certain loans have experienced increased credit risk since
origination. The discount rate for these loans was further adjusted upward to
compensate for this additional risk.
The credit risk of the adjustable second mortgage loans and other mortgages
has not changed appreciably. Discounted cash flow analysis of scheduled payments
applying a discount rate based on an estimated market rate appropriate for each
type of loan was used to estimate the fair values of these loans.
Consumer Loans
Consumer loans consist primarily of loans secured by residential real
estate. See Note 4 for the classifications of such loans. The Company believes
the credit risk of these loans has not changed significantly since origination.
Nonperforming loans were removed from the totals and discounted to reduce them
to estimated fair value. The remaining loans were segmented into groups with
similar characteristics and the fair values were estimated by discounting the
expected cash flows using discount rates that equaled the Company's origination
rates for similar loans as of December 31, 1993 and 1992.
Federal Home Loan Bank Stock
The carrying amount of FHLB stock approximates its fair value.
Excess Servicing Rights
Excess servicing rights are included in capitalized servicing rights on the
balance sheet. The fair values of excess servicing rights were estimated by
discounting the expected cash flows associated with the servicing of the
underlying loans. The mortgages serviced for others were sorted into groups with
characteristics similar to loan pools for which servicing is typically bought or
sold. An estimated market rate of return was assumed for each pool and these
rates were used as the discount rates in the analysis.
Accrued Interest Receivable
The carrying amount of accrued interest receivable approximates its fair
value since it is short term in nature and does not present unanticipated credit
concerns.
Deposits
Under SFAS No. 107, the fair value of deposits with no stated maturity,
such as checking, savings and money market accounts, is equal to the amounts
payable on demand as of December 31, 1993 and 1992. See Note 9 for deposit
classifications. The fair values of certificates of deposit are based on the
discounted value of contractual cash flows using as discount rates the rates
that were offered by the Company as of December 31,
F-24
<PAGE> 109
INVESTORS BANK CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
1993 and 1992 for deposits with maturities similar to the remaining maturities
of the existing certificates of deposit.
The fair value estimates for deposits do not include the benefit that
results from the low-cost funding provided by the Company's existing deposits
and long-term customer relationships compared to the cost of obtaining different
sources of funding. This benefit, generally referred to as core deposit
intangible, has not been quantified by the Company.
Notes Payable
Notes payable consist of FHLB advances. The carrying amount of notes
payable which may be repaid at any time without penalty at the Company's
discretion approximates their fair value. The fair values of the notes payable
with fixed maturities are estimated based on discounted cash flow analyses using
as discount rates interest rates charged by the FHLB at December 31, 1993 and
1992 for borrowings of similar remaining maturities.
Subordinated Debt
There are three separate subordinated debt instruments that have been
issued by the Company. See Note 10 for more information. The fair values of the
9.25% notes due 2002 were estimated based on the bid market prices as of
December 31, 1993 and 1992. The fair value at December 31, 1993 of the 12.75%
capital notes due 1999 approximates its carrying amount because the market
anticipated the Company's redemption of the capital notes at par on April 1,
1994. At December 31, 1992, the fair value of the 12.75% capital notes was
estimated based on the bid market price. The fair values of the 10% debentures
due 1996 were based upon estimated market prices taking into account the
instrument's rate, maturity and risk in relation to the other two issues.
Commitments to Extend Credit
At December 31, 1993 and 1992, the Company had commitments to extend credit
with total notional amounts of $94,549,000 and $84,879,000, respectively. See
Note 14 for the type and amounts of commitments as well as related discussion.
The fair values of commitments to extend credit are not based on the notional
amounts, but rather are estimated using the fees currently charged to enter into
similar agreements, taking into account the remaining terms of the agreements
and the present creditworthiness of the counter parties. For commitments to
extend credit for residential mortgage loans and for commercial development of
residential property, the fair values are based on the fees charged for these
commitments. Because of the short term nature of the commitments, no adjustment
was necessary for changes in creditworthiness or changes in market interest
rates for 1993 or 1992. The Company does not charge fees for commitments to
retail customers to extend credit under available lines of credit. Accordingly,
no fair values were assigned to these commitments. The estimated fair values of
commitments to extend credit at December 31, 1993 and 1992 were $73,000 and
$41,000, respectively.
F-25
<PAGE> 110
INVESTORS BANK CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
NOTE 18. PARENT COMPANY FINANCIAL INFORMATION
The Investors Bank Corp. (parent company only) condensed financial
statements are as follows:
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1993 1992
----------- -----------
<S> <C> <C>
Assets:
Cash and cash equivalents........................................ $ 5,168,198 $10,108,552
Investment securities............................................ 503,881 500,622
Investment in subsidiary......................................... 63,938,647 50,824,464
Other assets..................................................... 901,179 62,360,157
----------- -----------
Total assets................................................ $70,511,905 $62,360,157
----------- -----------
Liabilities and stockholders' equity:
Liabilities:
Subordinated debt........................................... $23,000,000 $23,000,000
Other liabilities........................................... 358,642 291,973
Total liabilities...................................... 23,358,642 23,291,973
Stockholders' equity:
Preferred stock............................................. 3,036 3,036
Common stock................................................ 33,255 24,589
Additional paid-in capital.................................. 19,111,504 18,650,901
Unamortized restricted stock................................ (675,808) (449,964)
Retained earnings........................................... 28,681,276 20,839,622
----------- -----------
Total stockholders' equity............................. 47,153,263 39,068,184
----------- -----------
Total liabilities and stockholders' equity............. $70,511,905 $62,360,157
========== ==========
</TABLE>
CONDENSED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1993 1992 1991
----------- ---------- ----------
<S> <C> <C> <C>
Interest income......................................... $ 254,165 $ 34,118 $ 17,044
Interest expense........................................ 2,221,593 124,122
Operating expenses...................................... 224,494 154,401 143,930
----------- ---------- ----------
Loss before income tax benefit and equity in earnings of
subsidiary............................................ (2,191,922) (244,405) (126,886)
Income tax benefit...................................... 753,158 82,439 43,099
----------- ---------- ----------
Loss before equity in earnings of subsidiary............ (1,438,764) (161,966) (83,787)
Equity in earnings of subsidiary........................ 11,464,183 7,973,995 5,119,426
----------- ---------- ----------
Net earnings.......................................... $10,025,419 $7,812,029 $5,035,639
========== ========= =========
</TABLE>
F-26
<PAGE> 111
INVESTORS BANK CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
1993 1992 1991
------------ ------------ -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings...................................... $ 10,025,419 $ 7,812,029 $ 5,035,639
Adjustments to reconcile net earnings to net cash
provided (used) by operating activities:
Equity in earnings of subsidiary............... (11,464,183) (7,973,995) (5,119,426)
Increase (decrease) in other assets and
liabilities, net............................. 195,367 10,016 (533,079)
------------ ------------ -----------
Net cash used by operating activities........ (1,243,397) (151,950) (616,866)
------------ ------------ -----------
Cash flows from investing activities:
Capital contributed to subsidiary................. (5,000,000) (12,000,000) (700,000)
Dividends received from subsidiary................ 3,350,000 1,491,297 400,000
Purchase of investment security................... (500,000)
------------ ------------ -----------
Net cash used by investing activities........ (1,650,000) (11,008,703) (300,000)
------------ ------------ -----------
Cash flows from financing activities:
Net proceeds from common stock transactions....... 158,949 99,491 1,185,358
Net proceeds from issuance of subordinated debt... 22,133,514
Dividends on preferred stock...................... (967,853) (911,395)
Dividends on common stock......................... (1,238,053) (579,902)
------------ ------------ -----------
Net cash provided (used) by financing
activities................................ (2,046,957) 20,741,708 1,185,358
------------ ------------ -----------
Net increase (decrease) in cash and cash
equivalents....................................... (4,940,354) 9,581,055 268,492
Cash and cash equivalents at beginning of year...... 10,108,552 527,497 259,005
------------ ------------ -----------
Cash and cash equivalents at end of year............ $ 5,168,198 $ 10,108,552 $ 527,497
=========== =========== ==========
</TABLE>
F-27
<PAGE> 112
INVESTORS BANK CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
NOTE 19. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Summarized quarterly data for 1993 and 1992 follows:
<TABLE>
<CAPTION>
1993 1992
-------------------------------------- --------------------------------------
DEC. 31 SEPT. 30 JUNE 30 MAR. 31 DEC. 31 SEPT. 30 JUNE 30 MAR. 31
------- -------- ------- ------- ------- -------- ------- -------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income................... $15,042 $ 14,677 $14,546 $13,504 $13,871 $ 13,471 $12,996 $12,178
Interest expense.................. 8,649 8,345 7,999 7,659 7,848 7,713 7,535 7,258
------- -------- ------- ------- ------- -------- ------- -------
Net interest income............. 6,393 6,332 6,547 5,845 6,023 5,758 5,461 4,920
Provision for loan losses......... 187 84 171 189 177 277 227 188
Net interest income after
provision for loan losses..... 6,206 6,248 6,376 5,656 5,846 5,481 5,234 4,732
Mortgage banking income........... 4,037 3,281 2,987 3,008 3,518 2,665 2,549 2,446
Other noninterest income.......... 1,293 1,487 1,181 1,356 152 893 1,014 1,018
Noninterest expense............... 7,364 6,748 6,470 5,880 6,107 5,703 5,597 5,102
------- -------- ------- ------- ------- -------- ------- -------
Earnings before income tax expense
and cumulative effect of
accounting change............... 4,172 4,268 4,074 4,140 3,409 3,336 3,200 3,094
Income tax expense................ 1,617 1,844 1,634 1,659 1,367 1,337 1,283 1,240
Cumulative effect of accounting
change.......................... 125
------- -------- ------- ------- ------- -------- ------- -------
Net earnings...................... $ 2,555 $ 2,424 $ 2,440 $ 2,606 $ 2,042 $ 1,999 $ 1,917 $ 1,854
======== ======== ======== ======== ======== ======== ======== ========
Net earnings available for common
stockholders.................... $ 2,336 $ 2,182 $ 2,198 $ 2,364 $ 1,800 $ 1,757 $ 1,675 $ 1,612
======== ======== ======== ======== ======== ======== ======== ========
Earnings per common share......... $ .63 $ .60 $ .61 $ .66 $ .52 $ .51 $ .49 $ .47
</TABLE>
F-28
<PAGE> 113
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Investors Bank Corp.:
Wayzata, Minnesota:
We have audited the accompanying consolidated balance sheets of Investors
Bank Corp. and subsidiary as of December 31, 1993 and 1992 and the related
consolidated statements of earnings, stockholders' equity and cash flows for
each of the years in the three-year period ended December 31, 1993. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Investors
Bank Corp. and subsidiary as of December 31, 1993 and 1992 and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 1993 in conformity with generally accepted accounting
principles.
As discussed in Note 2 to the consolidated financial statements, the
Company changed its method of accounting for income taxes in 1993 to adopt the
provisions of the Financial Accounting Standards Board's Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes".
KPMG Peat Marwick LLP
Minneapolis, Minnesota
January 27, 1994
F-29
<PAGE> 114
INVESTORS BANK CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------- --------------------------
1994 1993 1994 1993
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest on loans................................ $16,155,502 $13,755,444 $44,269,345 $40,143,704
Interest on cash and investments................. 633,461 618,441 1,861,326 1,763,677
Interest and dividends on other assets........... 357,118 302,903 1,026,111 819,901
----------- ----------- ----------- -----------
TOTAL INTEREST INCOME.......................... 17,146,081 14,676,788 47,156,782 42,727,282
============ ============ ============ ============
INTEREST EXPENSE:
Interest on deposits............................. 5,702,190 4,968,151 16,026,720 14,855,578
Interest on borrowings........................... 4,724,782 3,376,352 11,365,600 9,146,885
----------- ----------- ----------- -----------
TOTAL INTEREST EXPENSE......................... 10,426,972 8,344,503 27,392,320 24,002,463
============ ============ ============ ============
NET INTEREST INCOME................................ 6,719,109 6,332,285 19,764,462 18,724,819
PROVISION FOR LOAN LOSSES.......................... 110,000 84,156 333,800 444,481
----------- ----------- ----------- -----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN
LOSSES........................................... 6,609,109 6,248,129 19,430,662 18,280,338
NONINTEREST INCOME:
Mortgage banking................................. 3,004,068 3,280,717 9,196,772 9,276,498
Loan servicing fees.............................. 1,288,789 801,904 3,903,977 2,193,460
Commissions on title insurance sales............. 67,106 273,367 370,277 629,116
Commissions on annuity sales..................... 120,976 79,769 470,368 407,989
Other............................................ 312,149 331,825 812,437 792,916
----------- ----------- ----------- -----------
TOTAL NONINTEREST INCOME....................... 4,793,088 4,767,582 14,753,831 13,299,979
----------- ----------- ----------- -----------
NONINTEREST EXPENSE:
Employee compensation and benefits............... 3,671,678 3,978,544 11,624,058 11,065,665
Occupancy and equipment.......................... 1,044,025 962,877 3,039,584 2,754,947
Advertising...................................... 287,392 161,344 908,020 647,034
Federal deposit insurance premiums............... 353,864 318,693 1,038,866 905,778
Other............................................ 1,684,359 1,325,993 4,519,021 3,724,878
----------- ----------- ----------- -----------
TOTAL NONINTEREST EXPENSE...................... 7,041,318 6,747,451 21,129,549 19,098,302
============ ============ ============ ============
EARNINGS BEFORE INCOME TAX EXPENSE AND CUMULATIVE
EFFECT OF ACCOUNTING CHANGE...................... 4,360,879 4,268,260 13,054,944 12,482,015
INCOME TAX EXPENSE................................. 1,868,577 1,844,356 5,450,101 5,136,787
----------- ----------- ----------- -----------
EARNINGS BEFORE CUMULATIVE EFFECT OF ACCOUNTING
CHANGE........................................... 2,492,302 2,423,904 7,604,843 7,345,228
CUMULATIVE EFFECT OF ACCOUNTING CHANGE............. 125,000
----------- ----------- ----------- -----------
NET EARNINGS....................................... $ 2,492,302 $ 2,423,904 $ 7,604,843 $ 7,470,228
============ ============ ============ ============
NET EARNINGS AVAILABLE FOR COMMON STOCKHOLDERS..... $ 2,283,550 $ 2,181,941 $ 6,978,586 $ 6,744,339
============ ============ ============ ============
EARNINGS PER COMMON SHARE:
BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE.... $ 0.60 $ 0.60 $ 1.86 $ 1.83
CUMULATIVE EFFECT OF ACCOUNTING CHANGE........... 0.00 0.00 0.00 0.03
----------- ----------- ----------- -----------
NET EARNINGS..................................... $ 0.60 $ 0.60 $ 1.86 $ 1.86
============ ============ ============ ============
AVERAGE COMMON AND COMMON EQUIVALENT SHARES........ 3,779,970 3,644,177 3,748,682 3,623,773
============ ============ ============ ============
</TABLE>
See Notes to Consolidated Financial Statements.
F-30
<PAGE> 115
INVESTORS BANK CORP. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1994 1993
-------------- --------------
<S> <C> <C>
ASSETS
Cash and cash equivalents................................... $ 20,328,079 $ 58,314,515
Investment securities....................................... 26,954,348 27,778,989
Mortgage loans held for sale................................ 21,976,565 88,351,696
Mortgage loans.............................................. 833,774,781 698,895,887
Consumer loans.............................................. 113,287,541 91,124,400
Federal Home Loan Bank stock................................ 18,250,000 16,250,000
Capitalized servicing rights................................ 3,993,381 4,425,281
Office properties and equipment............................. 15,961,703 15,731,333
Accrued interest receivable................................. 4,956,436 3,653,453
Foreclosed real estate...................................... 2,390,219 6,674,799
Other assets................................................ 7,567,660 5,884,713
-------------- --------------
TOTAL ASSETS.................................................. $1,069,440,713 $1,017,085,066
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Deposits.................................................... 612,849,574 603,412,708
Notes payable............................................... 365,000,000 325,000,000
Advances and loan payments from borrowers held under
escrow................................................... 7,741,745 8,409,797
Income taxes payable........................................ 1,225,767 549,263
Subordinated debt........................................... 23,391,000 25,800,000
Other liabilities........................................... 5,144,629 6,760,035
-------------- --------------
TOTAL LIABILITIES........................................ 1,015,352,715 969,931,803
-------------- --------------
STOCKHOLDERS' EQUITY:
Preferred stock............................................. 3,036 3,036
Common stock................................................ 35,043 33,255
Additional paid-in capital.................................. 20,722,264 19,111,504
Unamortized restricted stock................................ (1,035,076) (675,808)
Retained earnings........................................... 34,362,731 28,681,276
-------------- --------------
TOTAL STOCKHOLDERS' EQUITY............................. 54,087,998 47,153,263
-------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.................... $1,069,440,713 $1,017,085,066
============= =============
</TABLE>
See Notes to Consolidated Financial Statements.
F-31
<PAGE> 116
INVESTORS BANK CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
-----------------------------
1994 1993
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings..................................................... $ 7,604,843 $ 7,470,228
Adjustments to reconcile net earnings to net cash provided (used)
by operating activities:
Depreciation and amortization.................................. 1,522,420 2,574,803
Amortization of deferred loan fees and discounts............... (1,214,915) (1,295,403)
Gain on sales of loan servicing rights......................... (5,978,140) (2,278,559)
Proceeds from sales of loan servicing rights................... 7,893,153 3,250,899
Gain on sales of mortgage loans................................ (2,754,539) (6,546,946)
Provision for loan and real estate losses...................... 402,166 562,823
Deferred (prepaid) income taxes................................ 2,417,942 (76,782)
Change in:
Capitalized servicing rights.............................. (2,058,542) (1,693,410)
Accrued interest receivable............................... (1,302,983) (442,231)
Interest payable on deposit accounts...................... 1,014,757 318,045
Mortgage loans held for sale.............................. 69,129,670 (34,058,285)
Other, net................................................ (4,835,560) (1,560,837)
------------- -------------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES.......... 71,840,272 (33,775,655)
CASH FLOWS FROM INVESTING ACTIVITIES:
Net increase in loans.......................................... (156,780,742) (114,572,103)
Purchase of investment securities.............................. (3,915,358) (8,943,484)
Maturities of investment securities............................ 4,740,000 5,825,000
Purchase of FHLB stock......................................... (2,000,000) (2,071,800)
Sale of foreclosed real estate................................. 4,836,036 4,510,799
Increase in office properties and equipment.................... (1,177,361) (1,882,755)
------------- -------------
NET CASH USED BY INVESTING ACTIVITIES..................... (154,297,425) (117,134,343)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits....................................... 8,422,109 61,257,290
Proceeds from FHLB advances.................................... 245,000,000 322,000,000
Repayment of FHLB advances..................................... (205,000,000) (252,000,000)
Redemption of subordinated capital notes....................... (2,409,000)
Net proceeds from common stock transactions.................... 1,049,048 105,863
Dividends on preferred stock................................... (626,257) (725,889)
Dividends on common stock...................................... (1,297,131) (926,791)
Net increase (decrease) in advances and loan payments from
borrowers held under escrow................................. (668,052) 10,508,839
------------- -------------
NET CASH PROVIDED BY FINANCING ACTIVITIES................. 44,470,717 140,219,312
------------- -------------
NET DECREASE IN CASH AND CASH EQUIVALENTS........................ (37,986,436) (10,690,686)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD................. 58,314,515 40,179,006
------------- -------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD....................... $ 20,328,079 $ 29,488,320
============= =============
SUPPLEMENTAL DISCLOSURES:
Cash paid during the year for:
Interest.................................................. $ 26,437,600 $ 23,580,965
Income taxes.............................................. 4,047,000 5,585,000
Noncash transfer of loans to foreclosed real estate............ 619,822 1,668,724
</TABLE>
See Notes to Consolidated Financial Statements.
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<PAGE> 117
INVESTORS BANK CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Investors
Bank Corp., a Delaware corporation (the Company) and its wholly owned subsidiary
Investors Savings Bank, F.S.B. (the Bank), a federally chartered savings bank
with deposits insured by the Federal Deposit Insurance Corporation (FDIC)
through the Savings Association Insurance Fund. The statements have been
prepared in accordance with the instructions to Form 10-Q and therefore do not
include all information and footnotes necessary for a complete presentation of
financial position, results of operations, and changes in cash flows. The data
presented herein is unaudited, but in the opinion of management of the Company,
includes all adjustments, consisting only of normal recurring adjustments
necessary for a fair presentation of the financial position of the Company and
its subsidiary and the results of their operations and cash flows. The Company
believes such presentation of the financial position is adequate to make the
information presented not misleading. Results for the interim periods are not
necessarily indicative of results for the entire year.
NOTE 2. MERGER AGREEMENT
On August 21, 1994, the Company, Firstar Corporation ("Firstar") and
Firstar Corporation of Minnesota ("Firstar Minnesota") entered into an Agreement
and Plan of Reorganization (the "Agreement"), pursuant to which the Company will
be merged (the "Merger") with and into Firstar Minnesota. Pursuant to the
Merger, each outstanding share of Common Stock of the Company would become .8676
shares of Firstar Common Stock and each outstanding share of the Company's
Cumulative Perpetual Preferred Stock, Series 1991 would become the right to
receive $27.50 (plus accumulated and unpaid dividends) in cash (subject to
dissenters' rights). The Company's outstanding warrants and options to purchase
shares of the Company Common Stock would become warrants and options to purchase
an equivalent .8676 shares of Firstar Common Stock. The Agreement also calls for
the merger of the Bank with and into Firstar Bank Minnesota, N.A., on the date
of, and immediately after the Merger becomes effective. The Merger is intended
to be accounted for as a pooling of interests.
The Merger is subject to a number of conditions including regulatory
approval. The Agreement requires the Company to use its best efforts to
repurchase shares of the Company Common Stock to be held in treasury for
issuance upon exercise of outstanding options and warrants to the extent such
repurchases do not exceed $2,000,000. Subsequent to the Agreement it was
determined such a repurchase plan would violate a covenant in the Company's
9.25% Subordinated Notes. Presently the Company is attempting to obtain consent
of the holders of at least a majority in principal amount of the outstanding
Notes to waive the covenant. The approval and announcement of the Merger is
exempt from the provisions of the Company Shareholder Rights Plan. To make this
clear, the Company has amended its Shareholder Rights Agreement.
A special meeting of the Company's stockholders will be called to vote on
the Merger. All of the executive officers and directors of the Company have
entered into agreements that require them to vote for the Merger. The Company
may terminate the Agreement if the trading price of Firstar Common Stock during
the ten trading days ending three days before the special stockholders' meeting
to approve the Merger is below $29 per share and at least 12.5% below an index
composed of certain commercial banks.
NOTE 3. INVESTMENT SECURITIES
The Company adopted the provisions of Statement of Financial Accounting
Standards (SFAS) No. 115, Accounting for Certain Investments in Debt and Equity
Securities, as of January 1, 1994. Under SFAS No. 115, the Company must classify
its debt and marketable equity securities in one of three categories: trading,
available for sale, or held to maturity. Trading securities are bought and held
principally for the purpose of selling them in the near term. Securities
available for sale include securities that management intends to use as part of
its asset/liability strategy or that may be sold in response to changes in
interest rate,
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<PAGE> 118
INVESTORS BANK CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
changes in prepayment risk, the need to increase regulatory capital, or similar
factors. The Company has the ability and intent to hold its securities to
maturity. Accordingly, there are no securities held in a trading account or
available for sale and the adoption of SFAS No. 115 had no impact on the
Company's consolidated financial statements as of January 1, 1994.
NOTE 4. IMPAIRED LOANS
The Company adopted the provisions of SFAS No. 114, "Accounting by
Creditors for Impairment of a Loan", as of January 1, 1994. SFAS No. 114
specifies how reserves for losses related to "impaired" loans should be
measured. A loan is considered impaired if it is probable that the Company will
be unable to collect all amounts due according to the contractual terms of the
loan agreement. When a loan is impaired, the Company will measure the amount of
impairment based on the present value of expected future cash flows, the loan's
observable market price or the fair value of any collateral. If foreclosure is
probable, the Company shall measure impairment based on the fair value of the
collateral. SFAS No. 114 does not apply to large groups of small balance,
homogeneous loans that are collectively evaluated for impairment. The adoption
of SFAS No. 114 had no effect on the consolidated financial statements as of
January 1, 1994.
NOTE 5. RESERVES FOR LOAN LOSSES
Included in mortgage loans are reserves for losses of $2,812,554 and
$2,414,254 at September 30, 1994 and December 31, 1993, respectively. Included
in consumer loans are reserves for losses of $536,884 and $566,332 at September
30, 1994 and December 31, 1993.
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<PAGE> 119
APPENDIX A
SECTION 262 OF THE
DELAWARE GENERAL CORPORATION LAW
SEC. 262. APPRAISAL RIGHTS. (a) Any stockholder of a corporation of this
State who holds shares of stock on the date of the making of a demand pursuant
to subsection (d) of this section with respect to such shares, who continuously
holds such shares through the effective date of the merger or consolidation, who
has otherwise complied with subsection (d) of this section and who has neither
voted in favor of the merger or consolidation nor consented thereto in writing
pursuant to sec. 228 of this title shall be entitled to an appraisal by the
Court of Chancery of the fair value of his shares of stock under the
circumstances described in subsections (b) and (c) of this section. As used in
this section, the word "stockholder" means a holder of record of stock in a
stock corporation and also a member of record of a nonstock corporation; the
words "stock" and "share" mean and include what is ordinarily meant by those
words and also membership or membership interest of a member of a nonstock
corporation.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to sec. 251, 252, 254, 257, 258, 263 or 264 of this title:
(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of stock which, at
the record date fixed to determine the stockholders entitled to receive
notice of and to vote at the meeting of stockholders to act upon the
agreement of merger or consolidation, were either (i) listed on a national
securities exchange or designated as a national market system security on
an interdealer quotation system by the National Association of Securities
Dealers, Inc. or (ii) held of record by more than 2,000 stockholders; and
further provided that no appraisal rights shall be available for any shares
of stock of the constituent corporation surviving a merger if the merger
did not require for its approval the vote of the stockholders of the
surviving corporation as provided in subsection (f) of sec. 251 of this
title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to
sec.sec. 251, 252, 254, 257, 258, 263 and 264 of this title to accept for
such stock anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation;
b. Shares of stock of any other corporation which at the effective
date of the merger or consolidation will be either listed on a national
securities exchange or designated as a national market system security
on an interdealer quotation system by the National Association of
Securities Dealers, Inc. or held of record by more than 2,000
stockholders;
c. Cash in lieu of fractional shares of the corporations described
in the foregoing subparagraphs a. and b. of this paragraph; or
d. Any combination of the shares of stock and cash in lieu of
fractional shares described in the foregoing subparagraphs a., b. and c.
of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under Section 253 of this title is not owned by
the parent corporation immediately prior to the merger, appraisal rights
shall be available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a
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provision, the procedures of this section, including those set forth in
subsections (d) and (e) of this section, shall apply as nearly as is
practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights
are provided under this section is to be submitted for approval at a
meeting of stockholders, the corporation, not less than 20 days prior to
the meeting, shall notify each of its stockholders who was such on the
record date for such meeting with respect to shares for which appraisal
rights are available pursuant to subsections (b) or (c) hereof that
appraisal rights are available for any or all of the shares of the
constituent corporations, and shall include in such notice a copy of this
section. Each stockholder electing to demand the appraisal of his shares
shall deliver to the corporation, before the taking of the vote on the
merger or consolidation, a written demand for appraisal of his shares. Such
demand will be sufficient if it reasonably informs the corporation of the
identity of the stockholder and that the stockholder intends thereby to
demand the appraisal of his shares. A proxy or vote against the merger or
consolidation shall not constitute such a demand. A stockholder electing to
take such action must do so by a separate written demand as herein
provided. Within 10 days after the effective date of such merger or
consolidation, the surviving or resulting corporation shall notify each
stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become
effective; or
(2) If the merger or consolidation was approved pursuant to Section
228 or 253 of this title, the surviving or resulting corporation, either
before the effective date of the merger or consolidation or within 10 days
thereafter, shall notify each of the stockholders entitled to appraisal
rights of the effective date of the merger or consolidation and that
appraisal rights are available for any or all of the shares of the
constituent corporation, and shall include in such notice a copy of this
section. The notice shall be sent by certified or registered mail, return
receipt requested, addressed to the stockholder at his address as it
appears on the records of the corporation. Any stockholder entitled to
appraisal rights may, within 20 days after the date of mailing of the
notice, demand in writing from the surviving or resulting corporation the
appraisal of his shares. Such demand will be sufficient if it reasonably
informs the corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of his shares.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw his demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the merger
or consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not voted
in favor of the merger or consolidation and with respect to which demands for
appraisal have been received and the aggregate number of holders of such shares.
Such written statement shall be mailed to the stockholder within 10 days after
his written request for such a statement is received by the surviving or
resulting corporation or within 10 days after expiration of the period for
delivery of demands for appraisal under subsection (d) hereof, whichever is
later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the addresses
therein stated. Such notice shall also be given by 1 or more publications at
least
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<PAGE> 121
1 week before the day of the hearing, in a newspaper of general circulation
published in the City of Wilmington, Delaware or such publication as the Court
deems advisable. The forms of the notices by mail and by publication shall be
approved by the Court, and the costs thereof shall be borne by the surviving or
resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted his
certificates of stock to the Register in Chancery, if such is required, may
participate fully in all proceedings until it is finally determined that he is
not entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and in the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection (d)
of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of his demand for
an appraisal and an acceptance of the merger or consolidation, either within 60
days after the effective date of the merger or consolidation as provided in
subsection (e) of this section or thereafter with the written approval of the
corporation, then the right of such stockholder to an appraisal shall cease.
Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery
shall be dismissed as to any stockholder without the approval of the Court, and
such approval may be conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.
A-3
<PAGE> 122
APPENDIX B
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF REORGANIZATION
AMONG
FIRSTAR CORPORATION,
FIRSTAR CORPORATION OF MINNESOTA
AND
INVESTORS BANK CORP.
- --------------------------------------------------------------------------------
<PAGE> 123
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I
THE MERGER............................................................................. B-1
1.01. The Merger........................................................... B-1
1.02. Effective Time of the Merger......................................... B-1
1.03. Closing.............................................................. B-1
1.04. Form of Transaction.................................................. B-2
1.05. Bank Merger.......................................................... B-2
ARTICLE II
EFFECT OF THE MERGER ON INVESTORS CAPITAL STOCK........................................ B-2
2.01. Effect on Capital Stock.............................................. B-2
2.02. Effect on Options to Purchase Investors Common Stock................. B-3
2.03. Effect on Warrants to Purchase Investors Common Stock................ B-3
2.04. Effect on Investors Restricted Stock................................. B-3
2.05. Adjustment to Exchange Ratio......................................... B-4
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF INVESTORS............................................ B-4
3.01. Organization, Standing and Power..................................... B-4
3.02. Investors Subsidiaries............................................... B-4
3.03. Capital Structure.................................................... B-5
3.04. Authority............................................................ B-6
3.05. Investors Financial Statements....................................... B-7
3.06. Reports.............................................................. B-8
3.07. Authorizations; Compliance with Applicable Laws...................... B-8
3.08. Litigation and Claims................................................ B-9
3.09. Taxes................................................................ B-10
3.10. Certain Agreements................................................... B-10
3.11. Benefit Plans........................................................ B-11
3.12. Insurance............................................................ B-12
3.13. Conduct of Investors to Date......................................... B-12
3.14. Properties, Leases and Other Agreements.............................. B-13
3.15. Opinion of Financial Advisor......................................... B-13
3.16. Vote Required........................................................ B-14
3.17. Accounting and Tax Matters........................................... B-14
3.18. Dissenters' Rights................................................... B-14
3.19. Affiliates........................................................... B-14
3.20. Affiliate Transactions............................................... B-14
3.21. Interest Rate Risk Management Instruments............................ B-14
3.22. Regulatory Impediments............................................... B-14
3.23. Amendments to Employment and Severance Agreements; Noncompetition
Agreements........................................................... B-15
3.24. Full Disclosure...................................................... B-15
3.25. No Discussions....................................................... B-15
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF FIRSTAR AND SUB...................................... B-15
4.01. Organization, Standing and Power..................................... B-15
</TABLE>
B-i
<PAGE> 124
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
4.02. Firstar Subsidiaries................................................. B-15
4.03. Capital Structure.................................................... B-16
4.04. Authority............................................................ B-16
4.05. Firstar Financial Statements......................................... B-17
4.06. Reports.............................................................. B-17
4.07. Authorizations; Compliance with Applicable Laws...................... B-17
4.08. Litigation........................................................... B-17
4.09. Taxes................................................................ B-18
4.10. Certain Agreements................................................... B-18
4.11. Benefit Plans........................................................ B-18
4.12. Absence of Certain Changes or Events................................. B-18
4.13. Properties, Leases and Other Agreements.............................. B-19
4.14. Accounting and Tax Matters........................................... B-19
4.15. Regulatory Impediments............................................... B-19
ARTICLE V
COVENANTS OF INVESTORS................................................................. B-19
5.01. Affirmative Covenants................................................ B-19
5.02. Negative Covenants................................................... B-20
5.03. Letter of Investors' Accountants..................................... B-22
5.04. Access and Information............................................... B-22
5.05. Update Disclosure; Breaches.......................................... B-23
5.06. Affiliates; Accounting and Tax Treatment; Stock Repurchases.......... B-23
5.07. Dissent Process...................................................... B-24
5.08. Expenses............................................................. B-24
5.09. Delivery of Stockholder List......................................... B-24
5.10. Audited Financial Statements......................................... B-24
5.11. Bank-Level Transactions.............................................. B-24
5.12. Sale of Investment Securities........................................ B-24
5.13. Accounting Matters................................................... B-24
5.14. Servicing Rights..................................................... B-25
5.15. Stockholder Meeting.................................................. B-25
5.16. Acquisitions of Real Estate.......................................... B-25
5.17. Debt Redemption...................................................... B-25
5.18. Investors Warrants Notices........................................... B-25
ARTICLE VI
COVENANTS OF FIRSTAR AND SUB........................................................... B-25
6.01. Affirmative Covenants................................................ B-25
6.02. Negative Covenants................................................... B-26
6.03. Firstar Rights Plan.................................................. B-26
6.04. Breaches............................................................. B-26
6.05. Stock Exchange Listing............................................... B-26
6.06. Firstar Bank Board................................................... B-26
6.07. Supplemental Warrant Agreement....................................... B-26
6.08. Supplemental Indenture............................................... B-26
6.09. Accounting and Tax Treatment......................................... B-26
6.10. Bank Merger Agreement................................................ B-27
6.11. Expenses............................................................. B-27
</TABLE>
B-ii
<PAGE> 125
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE VII
ADDITIONAL AGREEMENTS.................................................................. B-27
7.01. Filings and Approvals................................................ B-27
7.02. Registration Statement............................................... B-27
7.03. Indemnification and Insurance........................................ B-28
7.04. Reports.............................................................. B-29
7.05. Brokers or Finders................................................... B-30
7.06. Additional Agreements; Reasonable Efforts............................ B-30
7.07. Environmental Audits................................................. B-30
7.08. Firstar Benefit Plans................................................ B-31
ARTICLE VIII
CONDITIONS PRECEDENT................................................................... B-31
8.01. Conditions to Each Party's Obligation to Effect the Merger........... B-31
8.02. Conditions of Obligations of Firstar and Sub......................... B-32
8.03. Conditions of Obligations of Investors............................... B-34
ARTICLE IX
INDUCEMENT............................................................................. B-35
9.01. Inducement........................................................... B-35
ARTICLE X
TERMINATION AND AMENDMENT.............................................................. B-36
10.01. Termination.......................................................... B-36
10.02. Investigation and Review............................................. B-38
10.03. Effect of Termination................................................ B-39
10.04. Amendment............................................................ B-39
10.05. Extension; Waiver.................................................... B-39
ARTICLE XI
GENERAL PROVISIONS..................................................................... B-39
11.01. Nonsurvival of Representations, Warranties and Agreements............ B-39
11.02. Notices.............................................................. B-39
11.03. Interpretation....................................................... B-40
11.04. Counterparts......................................................... B-40
11.05. Entire Agreement; No Third Party Beneficiaries; Rights of
Ownership............................................................ B-40
11.06. Governing Law........................................................ B-41
11.07. Publicity............................................................ B-41
11.08. Assignment........................................................... B-41
11.09. Knowledge of the Parties............................................. B-41
EXHIBIT A Plan of Merger....................................................... B-43
EXHIBIT B Firstar Preferred Stock [not included in Appendix]
EXHIBIT 5.06 Affiliate Letter [not included in Appendix]
EXHIBIT 7.07 Certain Properties [not included in Appendix]
EXHIBIT 10.01 Index Group.......................................................... B-50
</TABLE>
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INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
SECTION
----------------
<S> <C>
Affiliates................................................................. 3.19
Agreement.................................................................. Page B-1
Articles of Merger......................................................... 1.02
Audited Properties......................................................... 7.07
Bank Merger................................................................ Page B-1
Bank Merger Agreement...................................................... Page B-1
Benefit Plans.............................................................. 3.11(a)
BHC Act.................................................................... 3.04
Certificate of Merger...................................................... 1.02
Claim...................................................................... 7.03(a)
Closing.................................................................... 1.03
Closing Date............................................................... 1.03
Code....................................................................... 3.09(a)
Competing Transaction...................................................... 5.02(f)
Comptroller................................................................ 1.03
Conversion................................................................. 1.04
DGCL....................................................................... 1.01
EDP Agreement.............................................................. 3.10
Effective Time............................................................. 1.02
Environmental Audits....................................................... 7.07
Environmental Laws......................................................... 3.07(b)
Environmental Reports...................................................... 7.07
ERISA...................................................................... 3.11(a)
Exchange Act............................................................... 3.04
Exchange Ratio............................................................. 2.01(a)
Excused Actions............................................................ 10.01(a)(ix)
Expenses................................................................... 5.08(b)
FDI Act.................................................................... 3.04
FDIC....................................................................... 3.02
Federal Reserve Board...................................................... 1.03
FHLB Borrowings............................................................ 3.13
Final Index Price.......................................................... 10.01(b)(iv)
Final Price................................................................ 10.01(b)(iii)
Firstar.................................................................... Page B-1
Firstar Average Price...................................................... 10.01(a)(vi)(1)
Firstar Bank............................................................... Page B-1
Firstar Benefit Plans...................................................... 4.11
Firstar Committee.......................................................... 10.02
Firstar Common Stock....................................................... 2.01(a)
Firstar Disclosure Letter.................................................. 4.02
Firstar Financial Statements............................................... 4.05
Firstar Material Adverse Effect............................................ 4.01
Firstar Permits............................................................ 4.07
Firstar Reports............................................................ 4.06
Firstar Restricted Stock................................................... 2.04
Firstar Right.............................................................. 2.01(a)
</TABLE>
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<TABLE>
<CAPTION>
SECTION
----------------
<S> <C>
Firstar Rights Agreement................................................... 2.01(a)
Firstar Stock Option....................................................... 2.02
Firstar Subsidiary......................................................... 4.02
Firstar Warrant............................................................ 2.03
Governmental Entity........................................................ 3.04
HOLA....................................................................... 3.04
HSR Act.................................................................... 3.04
Indemnified Liabilities.................................................... 7.03(a)
Indemnified Parties........................................................ 7.03(a)
Index Group................................................................ 10.01(b)(i)
Initial Index Price........................................................ 10.01(b)(ii)
Injunction................................................................. 8.01(d)
Investors.................................................................. Page B-1
Investors Authorized Preferred............................................. 3.03
Investors Balance Sheet.................................................... 3.05(b)
Investors Bank............................................................. Page B-1
Investors Benefit Plans.................................................... 3.11(a)
Investors Certificate...................................................... 3.01
Investors Common Stock..................................................... 2.01
Investors Disclosure Letter................................................ 3.02
Investors Environmental Permits............................................ 3.07(b)
Investors Financial Statements............................................. 3.05(a)
Investors Interested Property.............................................. 3.07(b)
Investors Material Adverse Effect.......................................... 3.01
Investors Option Plan...................................................... 3.03(b)
Investors Permits.......................................................... 3.07(a)
Investors Preferred Stock.................................................. 2.01
Investors Property......................................................... 3.07(b)
Investors Reports.......................................................... 3.06
Investors Restricted Stock................................................. 3.03(b)
Investors Restricted Stock Award Agreements................................ 3.03(b)
Investors Rights Agreement................................................. 3.03(d)
Investors Rights Amendment................................................. 3.03(g)
Investors Stock Options.................................................... 3.03(b)
Investors Stock Plans...................................................... 3.03(b)
Investors 1993 Stock Plan.................................................. 3.03(b)
Investors Subsidiary....................................................... 3.02
Investors Warrant Agreement................................................ 3.03(b)
Investors Warrants......................................................... 3.03(b)
IRS........................................................................ 3.09(a)
Latest Statement Date...................................................... 3.05(a)
Laws....................................................................... 3.07(a)
MBCA....................................................................... 1.01
Meeting.................................................................... 7.02(a)
Merger..................................................................... Page B-1
Merger Agreements.......................................................... Page B-1
NYSE....................................................................... 6.05
OTS........................................................................ 1.03
</TABLE>
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<TABLE>
<CAPTION>
SECTION
----------------
<S> <C>
Person..................................................................... 9.01(c)
Plan of Merger............................................................. Page B-1
Proceeding................................................................. 3.08
Prospectus/Proxy Statement................................................. 7.02(a)
REO........................................................................ 3.05(c)
Representatives............................................................ 5.02(f)
S-4........................................................................ 7.02(a)
SAIF....................................................................... 3.02
Securities Act............................................................. 3.04
SLHC Act................................................................... 3.01
Sub........................................................................ Page B-1
Subsidiary................................................................. 3.01
Superior Proposal.......................................................... 5.02(f)
Supplemental Warrant Agreement............................................. 6.07
Tax........................................................................ 3.09(a)
Ten-Day Calculation Period................................................. 10.01(b)(v)
Termination Fee............................................................ 9.01
Toxic Substances........................................................... 3.07(b)
Transaction Proposal....................................................... 9.01(c)
Trigger Event.............................................................. 9.01(b)
Violation.................................................................. 3.04
Voting Debt................................................................ 3.03(d)
WBCL....................................................................... 4.02
</TABLE>
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AGREEMENT AND PLAN OF REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION, dated as of August 21, 1994
("Agreement"), among FIRSTAR CORPORATION, a Wisconsin corporation ("Firstar"),
FIRSTAR CORPORATION OF MINNESOTA, a Minnesota corporation and a wholly-owned
subsidiary of Firstar ("Sub"), and INVESTORS BANK CORP., a Delaware corporation
("Investors").
WHEREAS, the respective Boards of Directors of Firstar, Sub and Investors
have approved the merger of Investors with and into Sub (the "Merger") in
accordance with the terms and conditions hereof and of the Plan of Merger in the
form attached hereto as Exhibit A executed concurrently herewith between Sub and
Investors, and joined in by Firstar for certain limited purposes (the "Plan of
Merger");
WHEREAS, Investors owns all of the issued and outstanding capital stock of
Investors Savings Bank, F.S.B. ("Investors Bank") and Sub owns all of the issued
and outstanding capital stock of Firstar Bank of Minnesota, N.A. ("Firstar
Bank"); and the parties hereto have agreed to cause Investors Bank and Firstar
Bank to execute an Agreement of Merger substantially to the effect of Exhibit B
(the "Bank Merger Agreement"), whereby Investors Bank will be merged into
Firstar Bank (the "Bank Merger") immediately after the Effective Time (as
defined in Section 1.02 hereof);
WHEREAS, the respective Boards of Directors of Firstar, Sub and Investors
believe that such proposed Merger, the exchange of shares of Firstar Common
Stock (as defined in Section 2.01(a) hereof) for shares of Investors Common
Stock (as defined in Section 2.01 hereof) and the payment of cash for shares of
Investors Preferred Stock (as defined in Section 2.01 hereof), pursuant and
subject to the terms of this Agreement and the Plan of Merger (collectively, the
"Merger Agreements"), is desirable and in the best interests of their respective
corporations and stockholders; and
WHEREAS, Firstar, Sub and Investors desire to make certain representations,
warranties and agreements in connection with the Merger and also to prescribe
various conditions to the Merger;
NOW, THEREFORE, in consideration of the premises and the representations,
warranties and agreements herein contained, the parties hereto agree as follows:
ARTICLE I
THE MERGER
1.01. The Merger. Subject to the terms and conditions of this Agreement,
Firstar, Sub and Investors agree to effect the Merger of Investors with and into
Sub in accordance with the Minnesota Business Corporation Act (the "MBCA") and
the Delaware General Corporation Law (the "DGCL").
1.02. Effective Time of the Merger. Subject to the provisions of the Merger
Agreements, (a) articles of merger (the "Articles of Merger") shall be duly
prepared and executed by Sub and Investors and thereafter delivered to the
Secretary of State of the State of Minnesota for filing, as provided in the
MBCA, on the Closing Date (as defined in Section 1.03) and (b) a certificate of
merger (the "Certificate of Merger") shall be duly prepared and executed by Sub
and Investors and thereafter delivered to the Secretary of State of the State of
Delaware for filing, as provided in the DGCL, on the Closing Date. The Merger
shall become effective upon the filing of the Articles of Merger with the
Secretary of State of the State of Minnesota and the Certificate of Merger with
the Secretary of State of the State of Delaware or at such time on the Closing
Date as is provided in the Articles of Merger and the Certificate of Merger (the
"Effective Time").
1.03. Closing. The closing of the Merger (the "Closing") will take place at
10:00 a.m. on a date (the "Closing Date") to be specified by the parties, which
shall be no later than the fifth business day after the latest to occur of (i)
receipt of all necessary regulatory approvals of the Merger, the Bank Merger
and, if desired by Firstar, the Conversion (as defined in Section 1.04) from the
Board of Governors of the Federal Reserve System (the "Federal Reserve Board"),
the Office of Thrift Supervision of the Department of the Treasury (the "OTS")
and the United States Comptroller of the Currency (the "Comptroller") and the
expiration of any waiting periods imposed by law and (ii) the date on which the
stockholders of Investors
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approve the Merger. The Closing will take place at the offices of Firstar,
unless another place is agreed to in writing by the parties hereto.
Notwithstanding the foregoing, if the Closing does not take place on the date
referred to in the first sentence of this Section because any condition to the
obligations of Firstar and Sub, on the one hand, or Investors, on the other
hand, under this Agreement is not met on that date, the other party may postpone
the Closing from time to time to any designated subsequent business day not more
than ten business days after the original or postponed date on which the Closing
was to occur by delivering notice of such postponement on the date the Closing
was to occur.
1.04. Form of Transaction. Firstar at its reasonable discretion may
restructure the Merger and/or the Bank Merger provided that, as a result of such
change, there is no (a) effect upon the consideration to be delivered pursuant
to Article II or change in the tax treatment to the recipients of Firstar Common
Stock to be delivered in the Merger, the holders of options or warrants to
purchase shares of Investors or any other holder of a security of Investors, or
change in the accounting treatment of the transactions contemplated hereby as a
pooling-of-interests, (b) increase in the obligations of Investors or any
Investors Subsidiary pursuant to this Agreement, except for the obligations set
forth in Section 7.01 and Section 7.06 of this Agreement, or (c) decrease in the
obligations of Firstar to Investors, any Investors Subsidiary or any officer,
director, employee, representative or agent of any of them set forth in this
Agreement. Such restructuring may include (i) changing the Firstar Subsidiaries
(as defined in Section 4.02) that are parties to the Merger and/or the Bank
Merger and/or the party surviving either of such transactions and/or (ii)
converting Investors Bank to a national banking association (the "Conversion")
immediately after the Effective Time and prior to merging the resulting bank
into Firstar Bank. At the request of Firstar, the parties each will take or
perform any necessary or advisable steps to restructure the transaction. In the
event the merger between Firstar Bank and Investors Bank is restructured as
provided in this Section 1.04, references in this Agreement to the Bank Merger
shall be deemed to include references to the restructured transaction and
references to the Bank Merger Agreement shall be deemed to include references to
the documents effecting the restructured transaction.
1.05. Bank Merger. Firstar and Sub agree to cause Firstar Bank and
Investors agrees to cause Investors Bank to execute the Bank Merger Agreement
within ten days from the date hereof, and Sub, as the sole shareholder of
Firstar Bank, and Investors, as the sole shareholder of Investors Bank, agree to
consent to the Bank Merger.
ARTICLE II
EFFECT OF THE MERGER ON INVESTORS CAPITAL STOCK
2.01. Effect on Capital Stock. As of the Effective Time, by virtue of the
Merger and without any action on the part of the holder of any shares of
Investors' common stock, $.01 par value ("Investors Common Stock"), or
Investors' Cumulative Perpetual Preferred Stock, Series 1991, $.01 par value
("Investors Preferred Stock"), but subject to the provisions of Section 262 of
the DGCL with respect to the rights of dissenting holders of Investors Preferred
Stock:
(a) Conversion of Investors Common Stock. Subject to adjustment pursuant to
Section 2.01(e) and Section 2.05, each then issued and outstanding share of
Investors Common Stock shall be converted into the right to receive 0.8676 (the
"Exchange Ratio") fully paid and nonassessable shares of common stock, $1.25 par
value, of Firstar ("Firstar Common Stock"), including with each such share
one-half of one Firstar Preferred Share Purchase Right ("Firstar Right") issued
pursuant to the Rights Agreement dated as of January 20, 1989, between Firstar
and Firstar Trust Company, as Rights Agent (the "Firstar Rights Agreement").
Prior to the Distribution Date (as defined in the Firstar Rights Agreement), all
references in this Agreement to the Firstar Common Stock to be received pursuant
to the Merger shall be deemed to include the Firstar Rights.
(b) Conversion of Investors Preferred Stock. Each then issued and
outstanding share of Investors Preferred Stock shall be converted into the right
to receive $27.50 plus accumulated and unpaid dividends on such shares of
Investors Preferred Stock to the Effective Time, payable in cash.
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(c) Stock Held by Investors. Each then issued and outstanding share of
Investors Common Stock or Investors Preferred Stock owned by Investors or any
direct or indirect subsidiary of Investors (other than shares held in a
fiduciary capacity) and each share of Investors Common Stock or Investors
Preferred Stock issued and held in Investors' treasury will be cancelled and
retired.
(d) Cancellation of Shares. All shares of Investors Common Stock and
Investors Preferred Stock issued and outstanding immediately prior to the
Effective Time shall no longer be outstanding and shall automatically be
cancelled and retired and shall cease to exist, and each holder of a certificate
representing any such shares shall cease to have any rights with respect
thereto, except the right to receive the shares of Firstar Common Stock or cash,
as the case may be, to be issued in consideration therefor upon the surrender of
such certificate in accordance with the Plan of Merger, without interest.
(e) Adjustment. If prior to the Effective Time Firstar shall declare a
stock dividend or distribution upon or subdivide, split up, reclassify or
combine its shares of Firstar Common Stock or declare a dividend or make a
distribution on Firstar Common Stock of any security convertible into Firstar
Common Stock or exercisable to purchase Firstar Common Stock (including, without
limitation, distribution of any Firstar Rights after a Distribution Date),
appropriate adjustment or adjustments will be made in the Exchange Ratio.
2.02. Effect on Options to Purchase Investors Common Stock. Each Investors
Stock Option (as defined in Section 3.03(b)) which is outstanding immediately
prior to the Effective Time shall, by virtue of the Merger and without any
action on the part of the holder thereof, become and represent an option (a
"Firstar Stock Option") to purchase, for the aggregate price payable by such
option holder on exercise of the Investors Stock Option, the number of shares of
Firstar Common Stock which he or she would have received pursuant to the Merger
if such option had been exercised in full immediately prior to the Effective
Time. Firstar shall pay cash to holders of Investors Stock Options in lieu of
issuing fractional shares of Firstar Common Stock upon exercise of a Firstar
Stock Option. After the Effective Time, each Firstar Stock Option shall be
exercisable on the same terms and conditions as were applicable under the
Investors Stock Option as of the Effective Time.
2.03. Effect on Warrants to Purchase Investors Common Stock. Each Investors
Warrant (as defined in Section 3.03(b)) which is outstanding immediately prior
to the Effective Time shall, by virtue of the Merger and pursuant to the
Supplemental Warrant Agreement (as defined in Section 6.07) and without any
action on the part of the holder thereof, become and represent a warrant (a
"Firstar Warrant") to acquire, on the same terms and conditions as were
applicable under such Investors Warrant, the same number of shares of Firstar
Common Stock as the holder of such Investors Warrant would have been entitled to
receive pursuant to the Merger had such holder exercised such warrant in full
immediately prior to the Effective Time, at a price per share equal to (x) the
aggregate purchase price under the Investors Warrant for the shares of Investors
Common Stock otherwise purchasable pursuant to such Investors Warrant
immediately prior to the Effective Time divided by (y) the number of full shares
of Firstar Common Stock deemed purchasable pursuant to such Warrant. Firstar
shall pay cash to holders of Investors Warrants in lieu of issuing fractional
shares of Firstar Common Stock upon exercise of a Firstar Warrant. After the
Effective Time, each Firstar Warrant shall be exercisable on the same terms and
conditions as were applicable under the Investors Warrant as of the Effective
Time.
2.04. Effect on Investors Restricted Stock. Each share of Investors
Restricted Stock (as defined in Section 3.03(b)) which is not fully vested at
the Effective Time shall, by virtue of the Merger and without any action on the
part of the holder thereof, become and represent the right to receive a number
of shares of Firstar Common Stock (not to exceed the Exchange Ratio) with a
value as of the Effective Time equal to the "fair value" of such Investors
Restricted Stock as determined by an independent third party expert selected by
Inventors taking into account the terms and conditions (other than any rights to
a tax offset bonus), including vesting schedule, as were applicable under the
Investors Restricted Stock Award Agreement (as defined in Section 3.03(b)) as of
the Effective Time, and Firstar shall, as of the Effective Time, issue the
appropriate number of shares of Firstar Common Stock (decreased to the nearest
full share) to each holder of Investors Restricted Stock. Notwithstanding the
foregoing, if treatment in accordance with this sentence does not prevent the
delivery of the opinions contemplated by Section 8.02(d), then each share of
Investors Restricted
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Stock under agreements dated January 4, 1994 which is not fully vested at the
Effective Time shall not be converted as provided in the preceding sentence, but
instead shall, by virtue of the Merger and without any action on the holder
thereof, become and represent the number of shares of Firstar Common Stock
("Firstar Restricted Stock") determined by multiplying such share of Investors
Restricted Stock by the Exchange Ratio, subject to the same terms and
conditions, including vesting schedule, as were applicable under the Investors
Restricted Award Agreement (as defined in Section 3.03(b)) as of the Effective
Time.
2.05. Adjustment to Exchange Ratio. If the Environmental Reports delivered
pursuant to Section 7.07 indicate that any cleanup, removal, remedial action or
other response is required and if the estimated costs of such remediation as set
forth in the Environmental Reports and/or actual costs of such remediation are
greater than $500,000, then, in addition to any other rights that Firstar may
have pursuant to this Agreement, Firstar shall have the right to adjust the
Exchange Ratio otherwise provided in Section 2.01(a) with the effect that the
aggregate market value of Firstar Common Stock (based upon an assumed price per
share of Firstar Common Stock of $32.125 otherwise to be delivered to the
holders of Investors Common Stock as of the Effective Time (including any
fractional shares) shall be reduced dollar-for-dollar by the total costs of
remediation.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF INVESTORS
Investors represents and warrants to Firstar and Sub as follows:
3.01. Organization, Standing and Power. Investors is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has all requisite corporate power and authority to own, lease and
operate its properties and to carry on its business as now being conducted,
except where the failure to have such power or authority would not have a
material adverse effect on the business, operations, prospects or financial
condition of Investors and its Subsidiaries (as hereinafter defined), taken as a
whole (an "Investors Material Adverse Effect"). Investors is qualified to do
business and is in good standing in each other state or foreign jurisdiction
where its ownership or leasing of property or the conduct of its business
requires it to be so qualified and where the failure to be so qualified would
have an Investors Material Adverse Effect. Investors is registered as a savings
and loan holding company with the OTS under the Savings and Loan Holding Company
Act, as amended (the "SLHC Act"). Investors has delivered to Firstar true,
accurate and complete copies of the currently effective certificate of
incorporation (the "Investors Certificate") and by-laws of Investors, including
all amendments thereto. As used in this Agreement, the word "Subsidiary" means
any corporation or other organization, whether incorporated or unincorporated
(i) of which such party or any other Subsidiary of such party is a general
partner (excluding partnerships, the general partnership interest of which held
by such party or any Subsidiary of such party does not have a majority of the
voting interest in such partnership) or (ii) at least a majority of the
securities or other interests having by their terms ordinary voting power to
elect a majority of the Board of Directors or others performing similar
functions with respect to such corporation or other organization is directly or
indirectly owned or controlled by such party or by any one or more of its
Subsidiaries, or by such party and one or more of its Subsidiaries.
3.02. Investors Subsidiaries. Except as set forth in the Investors
Disclosure Letter (which is a letter delivered by Investors to Firstar and Sub
on the date hereof, the receipt thereof having been acknowledged by Firstar and
Sub executing a copy thereof, that identifies, as to each matter disclosed
therein, the section of this Agreement to which the matter relates), Investors
beneficially owns, directly or indirectly, all of the shares of the outstanding
capital stock of each of the Subsidiaries listed on such letter (herein called
collectively the "Investors Subsidiaries" or individually an "Investors
Subsidiary"), which constitute Investors' sole Subsidiaries. No equity
securities of any of the Investors Subsidiaries are or may become required to be
issued by reason of any option, warrants, calls, rights or agreements of any
character whatsoever; there are outstanding no securities or rights convertible
into or exchangeable for shares of any capital stock of any Investors
Subsidiary; and there are no other contracts, commitments, understandings or
arrangements by which any Investors Subsidiary is bound to issue additional
shares of its capital stock or options, warrants, calls, rights or agreements to
purchase or acquire any additional shares of its capital stock. Except as
provided for under any
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applicable savings institution statute, all of the shares of capital stock of
each of the Investors Subsidiaries owned by Investors are fully paid and
nonassessable and are owned by it free and clear of any claim, lien, encumbrance
or agreement with respect thereto. Each Investors Subsidiary is a savings
institution or a corporation, in each case duly organized, validly existing and
in good standing under the laws of its jurisdiction of incorporation, and has
the corporate power and authority to own or lease its properties and assets and
to carry on its business as it is now being conducted, except in the case of
Investors Subsidiaries other than Investors Bank where the failure to have such
power or authority would not have an Investors Material Adverse Effect.
Investors Bank is a savings institution organized under the laws of the United
States, and a member in good standing of the Federal Home Loan Bank of Des
Moines. The deposits of Investors Bank are insured by the Savings Association
Insurance Fund ("SAIF") of the Federal Deposit Insurance Corporation ("FDIC") to
the extent provided by law. Investors Bank is a qualified seller and servicer
for the Federal National Mortgage Association and the Federal Home Loan Mortgage
Corporation. Investors has delivered to Firstar true, accurate and complete
copies of the currently effective charter, certificate or articles of
incorporation and by-laws of the Investors Subsidiaries, including all
amendments thereto. Except as set forth in the Investors Disclosure Letter and
except for securities held in its capacity as fiduciary, Investors does not own
beneficially, directly or indirectly, more than 5% of any class of equity
securities or similar interests of any corporation, bank, business trust,
association or similar organization. There are no obligations, contingent or
otherwise, of Investors or any Investors Subsidiary to repurchase, redeem or
otherwise acquire any shares of capital stock of any Investors Subsidiary or to
provide funds (in the form of a loan, capital contribution or otherwise) to any
Investors Subsidiary or to make an investment in any Investors Subsidiary or any
other entity, other than pursuant to commercial loan arrangements and similar
obligations arising in the ordinary course of the business of the Investors
Subsidiaries.
3.03. Capital Structure. (a) As of the date hereof, the authorized capital
stock of Investors consists of 11,000,000 shares divided into 10,000,000 shares
of Investors Common Stock and 1,000,000 shares of "Preferred Stock" (the
"Investors Authorized Preferred").
(b) As of the date hereof, (i) 3,500,604 shares of Investors Common Stock
are issued and outstanding, including 64,778 shares of restricted stock (the
"Investors Restricted Stock") issued pursuant to Restricted Stock Award
Agreements dated December 31, 1992 or January 4, 1994 between Investors and
certain of its employees (the "Investors Restricted Stock Award Agreements"),
(ii) 242,041 shares of Investors Common Stock are reserved for issuance pursuant
to Investors' Stock Option Plan (the "Investors Option Plan"), and options to
purchase 242,041 shares of Investors Common Stock are outstanding under the
Investors Option Plan, (iii) 322,000 shares of Investors Common Stock are
reserved for issuance under the Investors 1993 Incentive Stock Plan (the
"Investors 1993 Stock Plan" and, together with the Investors Option Plan, the
"Investors Stock Plans"), and options to purchase 45,330 shares of Investors
Common Stock are outstanding under the Investors 1993 Stock Plan (such options,
together with options outstanding under the Investors Stock Option Plan,
hereafter referred to as "Investors Stock Options"), (iv) 202,160 shares of
Investors Common Stock are reserved for issuance pursuant to 303,240 outstanding
warrants (the "Investors Warrants"), each of which represents the right to
purchase 2/3 share of Investors Common Stock, issued under a Warrant Agreement
dated October 15, 1991 (the "Investors Warrant Agreement"), and (v) no shares of
Investors Common Stock are held in treasury. As of the date hereof, pursuant to
the Investors Warrant Agreement, the price at which the Investors Warrants are
exercisable is $11.0625 per share of Investors Common Stock, and the Investors
Warrants expire on November 13, 1996. There is no adjustment in the Purchase
Price (as defined in the Investors Warrant Agreement) that was not required to
be made by virtue of Section 10(E) of the Investors Warrant Agreement, but which
is required to be carried forward and taken into account in any subsequent
adjustment. The Merger will have the effect on Investors Stock Options and
Investors Warrants described in Section 2.02 and Section 2.03, respectively. The
Investors Disclosure Letter sets forth the number of holders of record of
Investors Warrants as of a recent date. The Investors Disclosure Letter
identifies any rights that any holder of Investors Stock Options and/or
Investors Restricted Stock has to a tax offset bonus under Section 8(b) of the
Investors 1993 Stock Plan or otherwise.
(c) As of the date hereof, (i) 303,640 shares of Investors Preferred Stock
are issued and outstanding, (ii) a series of Investors Authorized Preferred,
consisting of 500,000 shares designated as "Series A Junior
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<PAGE> 134
Participating Preferred Stock," is authorized and reserved for issuance under
the Investors Rights Agreement, as defined in Section 3.03(d), no shares of
which have been issued, and (iii) no other shares of Investors Authorized
Preferred are authorized or issued.
(d) As of the date hereof, neither Investors nor any Subsidiary of
Investors has issued and outstanding bonds, debentures, notes or other
indebtedness having the right to vote (or convertible into securities having the
right to vote) on any matters on which stockholders may vote ("Voting Debt").
All outstanding shares of Investors capital stock are validly issued, fully paid
and nonassessable and not subject to or issued in violation of any preemptive
rights. As of the date of this Agreement, except pursuant to this Agreement, the
Investors Stock Plans, the Investors Preferred Stock, the Investors Warrants,
and the Rights Agreement dated as of May 7, 1991 between Investors and Norwest
Bank Minnesota, N.A., as Rights Agent (the "Investors Rights Agreement"), there
are no options, warrants, calls, rights, or agreements of any character
whatsoever to which Investors or any Subsidiary of Investors is a party or by
which it is bound obligating Investors or any such Subsidiary to issue, deliver
or sell, or cause to be issued, delivered or sold, additional shares of capital
stock or any Voting Debt of Investors or of any Subsidiary of Investors or
obligating Investors or any Subsidiary of Investors to grant, extend or enter
into any such option, warrant, call, right or agreement. Immediately after the
Effective Time, there will be no option, warrant, call, right or agreement
obligating Investors or any Subsidiary of Investors to issue, deliver or sell,
or cause to be issued, delivered or sold, any shares of capital stock or any
Voting Debt of Investors or any Subsidiary of Investors, or obligating Investors
or any Subsidiary of Investors to grant, extend or enter into any such option,
warrant, call, right or agreement.
(e) Investors has not purchased, redeemed, canceled or otherwise acquired
any of its capital stock or Voting Debt during the two years preceding the date
hereof. Except as provided in this Agreement, there are no obligations,
contingent or otherwise, of Investors or any Investors Subsidiary to repurchase,
redeem or otherwise acquire any shares of Investors Common Stock, Investors
Preferred Stock or Voting Debt.
(f) As a result of the execution and delivery by Investors of the
amendment, dated of even date herewith, to the Investors Rights Agreement (the
"Investors Rights Amendment"), (i) Firstar will not become an "Acquiring Person"
(as defined in the Investors Rights Amendment) by virtue of the announcement or
consummation of the Merger and (ii) the Investors Rights Agreement will expire
at the Effective Time.
3.04. Authority. Investors has all requisite corporate power and authority
to enter into this Agreement, the Plan of Merger and the Investors Rights
Amendment and to consummate the transactions contemplated hereby and thereby,
subject only to approval of this Agreement and the Plan of Merger by the
stockholders of Investors. Investors Bank has all requisite corporate power and
authority to enter into the Bank Merger Agreement and to consummate the
transactions contemplated thereby. The execution and delivery of this Agreement,
the Plan of Merger and the Investors Rights Amendment and the consummation of
the transactions contemplated hereby and thereby have been duly authorized by
all necessary corporate action on the part of Investors (including unanimous
approval by the Board of Directors of Investors), subject to such approval of
this Agreement and the Plan of Merger by the stockholders of Investors. Such
approval by the Board of Directors of Investors is all action necessary to
insure that the restrictions set forth in Section 203 of the DGCL do not or will
not apply to the transactions contemplated herein. The execution and delivery of
the Bank Merger Agreement and the consummation of the transactions contemplated
thereby have been duly authorized by all necessary corporate action on the part
of Investors Bank. This Agreement, the Plan of Merger and the Investors Rights
Amendment have been duly executed and delivered by Investors, and each
constitutes a valid and binding obligation of Investors enforceable in
accordance with its terms. Upon execution and delivery thereof by Investors Bank
and Firstar Bank, the Bank Merger Agreement will have been duly executed and
delivered by Investors Bank and will constitute a valid and binding obligation
of Investors Bank enforceable in accordance with its terms. The execution and
delivery of this Agreement, the Plan of Merger and the Investors Rights
Amendment do not, and the execution and delivery of the Bank Merger Agreement
and the consummation of the transactions contemplated hereby and thereby will
not, conflict with, or result in any violation of, or default (with or without
notice or lapse of time, or both) under, or give rise to a right of termination,
cancellation or acceleration of any material obligation or the loss of a
material benefit under, or the creation of a material lien, pledge, security
interest or other encumbrance on assets (any such conflict, violation, default,
right of termination, cancellation or acceleration loss or creation, a
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"Violation"), pursuant to any provision of (a) the Investors Certificate, the
by-laws of Investors or the charter, certificate or articles of incorporation or
by-laws of any Investors Subsidiary or (b) except (i) as set forth in the
Investors Disclosure Letter or (ii) as contemplated by the next sentence hereof,
any loan or credit agreement, note, mortgage, indenture, lease, Investors
Benefit Plan (as defined in Section 3.11) or other agreement, obligation,
instrument, permit, franchise, license, judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to Investors or any Subsidiary of
Investors or their respective properties or assets which Violation pursuant to
this clause (b) would have an Investors Material Adverse Effect. Other than in
connection or in compliance with the provisions of the DGCL or the MBCA, the
Securities Act of 1933, as amended, and the rules and regulations thereunder
(the "Securities Act"), the Securities Exchange Act of 1934, as amended, and the
rules and regulations thereunder (the "Exchange Act"), the securities or "blue
sky" laws of the various states, and consents, authorizations, approvals,
notices or exemptions required under the Bank Holding Company Act of 1956, as
amended (the "BHC Act"), the SLHC Act, the Federal Deposit Insurance Act, as
amended (the "FDI Act"), the Home Owners Loan Act, as amended (the "HOLA"), and
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), no consent, approval, order or authorization of, or registration,
declaration or filing with, any court, administrative agency or commission or
other governmental authority or instrumentality, domestic or foreign (a
"Governmental Entity"), is required on the part of Investors or any of the
Investors Subsidiaries in connection with the execution and delivery of this
Agreement, the Plan of Merger and the Bank Merger Agreement by Investors or
Investors Bank, as the case may be, or the consummation by Investors or
Investors Bank, as the case may be, of the transactions contemplated hereby and
thereby, the failure to obtain which would have an Investors Material Adverse
Effect.
3.05. Investors Financial Statements. (a) The consolidated balance sheets
of Investors as of December 31, 1993 and 1992 and the related consolidated
statements of income, consolidated statements of cash flows and consolidated
statements of changes in stockholders' equity for the three years in the period
ended December 31, 1993 (the "Latest Statement Date"), accompanied by the
unqualified opinion of KPMG Peat Marwick, copies of which have been furnished by
Investors to Firstar; the unaudited consolidated balance sheet of Investors as
of June 30, 1994 and the related consolidated statement of income, consolidated
statement of changes in stockholders' equity and consolidated statements of cash
flows for the six months then ended, in the form prepared for Investors'
internal use, copies of which have been furnished by Investors to Firstar; and
like financial information included in Forms 10-Q filed with the SEC subsequent
to the Latest Statement Date (collectively, the "Investors Financial
Statements"), have been prepared in accordance with generally accepted
accounting principles as utilized in the Investors Financial Statements applied
on a consistent basis (except as may be indicated therein or in the notes
thereto), and present fairly the consolidated financial condition of Investors
at the dates, and the consolidated results of operations, changes in
stockholders' equity and cash flows for the periods, stated therein. In the case
of interim fiscal periods, all adjustments, consisting only of normal recurring
items, which management of Investors believes necessary for a fair presentation
of such financial information, have been made, subject to year-end audit
adjustments, none of which could reasonably be expected to have a material
adverse effect on the consolidated financial position or results of operations
of Investors.
(b) Except as and to the extent set forth on the consolidated balance sheet
of Investors and its Subsidiaries as of December 31, 1993, or in the notes
thereto (the "Investors Balance Sheet"), neither Investors nor any Investors
Subsidiary has any liabilities or obligations of any nature (whether accrued,
absolute, contingent or otherwise) that would be required to be reflected on a
balance sheet, or in the notes thereto, prepared in accordance with generally
accepted accounting principles, except (i) for liabilities or obligations
incurred in the ordinary course of business since the Latest Statement Date that
would not, individually or in the aggregate, have an Investors Material Adverse
Effect or (ii) as otherwise reflected in the Investors Reports filed prior to
the date of this Agreement. Except as disclosed in the Investors Disclosure
Letter, neither Investors nor any Investors Subsidiary has any liabilities or
obligations of any nature (whether accrued, absolute, contingent or otherwise)
that are not required to be reflected on a balance sheet, or in the notes
thereto, except for liabilities or obligations that do not, individually or in
the aggregate, have an Investors Material Adverse Effect.
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(c) Without limitation to the foregoing, Investors' consolidated reserve
for losses on loans included in the Investors Financial Statements as of June
30, 1994 was $3,198,338, representing .36% of total consolidated loans held in
portfolio, and Investors' consolidated reserve for losses on real estate was
$120,043, representing 2.27% of total consolidated real estate owned as a result
of foreclosure ("REO") reflected on such statements. The aggregate amount of
such reserve for losses on loans and reserve for losses on REO was adequate to
absorb reasonably expectable losses in the loan and REO portfolios of Investors
and Investors Bank. To the knowledge of Investors, there are no facts which
would cause it to increase the level of such reserve for losses on loans and
REO. The loan portfolio and REO portfolio of Investors Bank as of June 30, 1994
in excess of such reserves is, to the best knowledge and belief of the executive
officers of Investors and Investors Bank after due inquiry as to potential
losses, and based on past loan loss experience, fully realizable on REO and
fully collectible in accordance with the terms of the documentation relating to
the loans in such portfolio. The documentation relating to loans made by
Investors Bank and relating to all security interests, mortgages and other liens
with respect to all collateral for such loans, taken as a whole, is adequate for
the enforcement of the material terms of such loans and of the related security
interests, mortgages and other liens. The terms of such loans 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). Except as set
forth in the Investors Disclosure Letter, (A) as of June 30, 1994, there are no
loans, leases, other extensions of credit or commitments to extend credit of
Investors Bank that have been or, to Investors' knowledge, should have been
classified by Investors Bank as nonaccrual, as restructured, as 90 days past
due, as still accruing and doubtful of collection or any comparable
classification and (B) no material information with respect to the loan
portfolios of Investors Bank has been withheld from Firstar. Not later than
three days after the date hereof, Investors will have provided Firstar with
access to true, correct and complete in all material respects written
information concerning the loan portfolios of Investors Bank.
3.06. Reports. Since January 1, 1991, Investors and the Investors
Subsidiaries have filed all reports, registrations and statements, together with
any amendments required to be made with respect thereto, that were and are
required to be filed with (i) the SEC, including but not limited to Forms 10-K,
Forms 10-Q, Forms 8-K and proxy statements, (ii) the OTS, (iii) the FDIC, and
(iv) any other applicable federal or state securities, or savings institution
authorities (all such reports and statements are collectively referred to herein
as the "Investors Reports"). As of their respective dates, the Investors Reports
filed prior to the date hereof complied in all material respects with all of the
statutes, rules and regulations enforced or promulgated by the regulatory
authority with which they were filed (including, to the extent applicable, Rule
10b-5 promulgated under the Exchange Act) and did not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein.
3.07. Authorizations; Compliance with Applicable Laws. (a) Investors and
its Subsidiaries hold all authorizations, permits, licenses, variances,
exemptions, orders and approvals of all Governmental Entities which are material
to the operations of the businesses of Investors and the Investors Subsidiaries
(the "Investors Permits"), including appropriate authorizations from the OTS.
Investors and the Investors Subsidiaries are in compliance with the terms of the
Investors Permits, except where the failure so to comply could not reasonably be
expected to have an Investors Material Adverse Effect. Except as disclosed in
the Investors Reports filed prior to the date of this Agreement or in the
Investors Disclosure Letter, the businesses of Investors and the Investors
Subsidiaries are not being, and have not been, conducted in violation of any
domestic (federal, state or local) or foreign law, statute, ordinance or
regulation of any Governmental Entity (collectively "Laws"), except for possible
violations which individually or in the aggregate do not and, insofar as
reasonably can be foreseen, in the future will not, have an Investors Material
Adverse Effect. Except (i) as set forth in the Investors Disclosure Letter, (ii)
for regular, periodic reviews and examinations by Governmental Entities, and
(iii) for investigations or reviews by Governmental Entities other than savings
institution regulatory authorities where the outcome thereof will not have an
Investors Material Adverse Effect, as of the date hereof, no investigation or
review by any Governmental Entity with respect to Investors, any of the
Investors Subsidiaries or any Investors' Property (as defined below) is pending
or, to the knowledge of Investors, threatened, nor has any Governmental Entity
indicated an intention to conduct the same.
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(b) The Investors Disclosure Letter identifies each parcel of real estate
currently owned, leased or otherwise possessed or controlled by Investors or any
Investors Subsidiary on the date of this Agreement, including, without
limitation, REO and properties managed or controlled by Investors Bank in
connection with its lending or fiduciary operations (collectively, the
"Investors Property"), except that the Investors Disclosure Letter need not
identify residential real estate owned as a result of foreclosures having an
appraised value of less than $500,000. Except as set forth in the Investors
Disclosure Letter, neither Investors nor any Investors Subsidiary nor any of the
Investors Property owned or leased by them for use in the operation of their
respective businesses is in violation of any applicable zoning ordinance or
other law, regulation or requirement relating to the operation of any properties
used, including, without limitation, applicable environmental protection laws,
rules and regulations (collectively, "Environmental Laws"), other than
violations that, in the aggregate with any other conditions described in this
Section 3.07(b), would not result in costs that would be material to Investors
and the Investors Subsidiaries taken as a whole; and neither Investors nor any
Investors Subsidiary has received any notice of any such violation, or the
existence of any condemnation proceeding with respect to any Investors Property.
Except as set forth in the Investors Disclosure Letter, no Toxic Substances (as
defined below) have been deposited or disposed of in, on or under any Investors
Property during the period in which Investors or any of the Investors
Subsidiaries has owned, occupied, managed, controlled or operated such
properties, except to the extent the same, in the aggregate with any other
conditions described in this Section 3.07(b), would not result in costs that
would be material to Investors and the Investors Subsidiaries taken as a whole.
Except as set forth in the Investors Disclosure Letter, Investors has no
knowledge (A) that prior owners, occupants or operators of all or any part of
the Investors Property ever used such properties as a dump or gasoline service
station, (B) that prior owners, occupants or operators of all or part of the
Investors Property ever deposited or disposed of or allowed to be deposited or
disposed of in, on or under such properties any Toxic Substances or (C) that any
past, present or known future event, condition, circumstances, plans, errors or
omissions have existed or occurred, are existing or occurring or are reasonably
expected to exist or occur on or with respect to any Investors Property, or any
other property as to which Investors or any Investors Subsidiary has held or
currently holds ownership or indicia of ownership ("Investors Interested
Property"), except as to the matters in clauses (B) and (C) to the extent the
same, in the aggregate with any other conditions described in this Section
3.07(b), would not result in costs that would be material to Investors and the
Investors Subsidiaries taken as a whole. To the best knowledge of Investors,
there are no conditions or circumstances in connection with the Investors
Property that could reasonably be anticipated to (i) cause any Investors
Property to be subject to any restrictions on ownership, occupancy, use or
transferability under any applicable Environmental Laws or (ii) materially
reduce the value of any Investors Property. To the best knowledge of Investors
and its Subsidiaries, neither Investors nor any Investors Subsidiary has been
identified as a potentially responsible party by any Governmental Entity in a
matter arising under any Environmental Laws. For purposes of this Agreement, (1)
"Toxic Substances" shall mean petroleum or petroleum-based substance or waste,
solid waste, PCBs, pesticides, herbicides, lead, radioactive materials, urea
formaldehyde foam insulation, or substances defined as "hazardous substances" or
"toxic substances" in any Environmental Laws; (2) materials will be considered
to be deposited or disposed of in, on or under any real property if such
materials have been stored, treated, recycled, used or accidentally or
intentionally spilled, released, dumped, emitted or otherwise placed, deposited
or disposed of, or used in any construction, in, on or under such property; and
(3) costs of violations or conditions shall take into account, without
limitation, liabilities, damages, penalties, injunctive relief or removal,
remediation or other costs under any applicable Environmental Law.
3.08. Litigation and Claims. Except as disclosed in the Investors Reports
filed prior to the date of this Agreement or in the Investors Disclosure Letter:
(a) none of Investors, any of the Investors Subsidiaries or any Investors'
Property is subject to any continuing order of, or written agreement or
memorandum of understanding with any federal or state savings institution or
insurance authority or other Governmental Entity, or any judgment, order, writ,
injunction, decree or award of any Governmental Entity or arbitrator, including,
without limitation, cease-and-desist or other orders of any savings institution
regulatory authority, (b) there is no action, suit, litigation, proceeding or
arbitration ("Proceeding") against or affecting Investors or any Subsidiary of
Investors or, to the knowledge of Investors, any directors, officers, employees
or agents of Investors or any Subsidiary of Investors (in their respective
capacities as directors, officers, employees or
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agents) pending or, to the knowledge of Investors, threatened, which would, if
adversely determined, have an Investors Material Adverse Effect or, to the
knowledge of Investors, any basis therefor, and (c) there are no uncured
material violations, or violations with respect to which material refunds or
restitutions may be required, cited in any compliance report to Investors or any
Investors Subsidiary as a result of the examination by any savings institution
regulatory authority.
3.09. Taxes. Investors and each Investors Subsidiary has filed all tax
returns required to be filed by them and has paid (or Investors has paid on its
behalf), or has set up an adequate reserve for the payment of, all taxes
required to be paid as shown on such returns, except to the extent such
nonpayment did not result in a liability material to Investors and its
Subsidiaries taken as a whole, and the most recent Investors financial
statements contained in the Investors Reports reflect an adequate reserve for
all taxes payable by Investors and its Subsidiaries accrued through the date of
such financial statements. The Investors Disclosure Letter sets forth, as of the
date hereof, the following information with respect to Investors and each
Subsidiary of Investors: (a) the most recent tax year for which the United
States Internal Revenue Service ("IRS") has completed its examination of such
corporation, (b) whether there is an examination pending by the IRS with respect
to such corporation and, if so, the tax years involved, (c) whether such
corporation has executed or filed with the IRS any agreement which is still in
effect extending the period for assessment and collection of any federal tax
and, if so, the tax years covered by such agreement and the expiration date of
such extension, and (d) whether there are any existing material disputes as to
foreign, state, or local taxes. There are no liens for taxes upon the assets of
Investors or of any Investors Subsidiary, except for statutory liens for taxes
not yet delinquent or the validity of which is being contested in good faith by
appropriate proceedings and, in either case, only if adequate reserves therefor
have been established on Investors' books in accordance with generally accepted
accounting principles. Except as disclosed in the Investors Disclosure Letter,
neither Investors nor any Investors Subsidiary is a party to any action or
proceeding by any governmental authority for assessment and collection of taxes,
and no claim for assessment and collection of taxes has been asserted against
any of them. For the purpose of this Agreement, the term "tax" (including, with
correlative meaning, the terms "taxes" and "taxable") shall include all federal,
state, local and foreign income, profits, franchise, gross receipts, payroll,
sales, employment, use, personal and real property, withholding, excise and
other taxes, duties or assessments of any nature whatsoever, together with all
interest, penalties and additions imposed with respect to such amounts.
Investors and each Investors Subsidiary has withheld from its employees (and
timely paid to the appropriate governmental agency) amounts which are proper and
accurate in all material respects for all periods through the date hereof in
material compliance with all tax withholding provisions of applicable federal,
state, foreign and local laws (including without limitation income, social
security and employment tax withholding for all types of compensation). Except
as disclosed in the Investors Disclosure Letter, and except that prior to March
1984 Investors was part of the affiliated group for which Interregional
Financial Group, Inc. was the parent, neither Investors nor any Investors
Subsidiary has ever been a member of an affiliated group of corporations (within
the meaning of Section 1504(a) of the Internal Revenue Code of 1986, as amended
(the "Code")) filing consolidated federal income tax returns, other than the
affiliated group of which Investors is the common parent. To the best knowledge
of Investors, neither Investors nor any Investors Subsidiary has made any
payments, or been a party to an agreement that under any circumstances could
obligate it to make payments based upon the consummation of the transactions
contemplated hereby constituting a change of the nature described in Section
280G(b)(2)(A)(i) of the Code, that are or will not be deductible because of
Section 280G of the Code.
3.10. Certain Agreements. Except as discussed in the Investors Reports
filed prior to the date of this Agreement or as disclosed in the Investors
Disclosure Letter, and except for this Agreement, as of the date hereof, neither
Investors nor any Investors Subsidiary is a party to any oral or written (i)
consulting agreement not terminable on 60 days' or less notice or employment
agreement or other agreement providing any term of employment, compensation
guarantee, or severance benefit, (ii) union, guild or collective bargaining
agreement, (iii) agreement or plan, including any stock option plan, stock
appreciation right plan, restricted stock plan or stock purchase plan, any of
the benefits of which will be increased, or the vesting of the benefits of which
will be accelerated, by the occurrence of any of the transactions contemplated
by this Agreement or the value of any of the benefits of which will be
calculated on the basis of the transactions contemplated by this Agreement, (iv)
contract, agreement or understanding to repurchase assets previously sold (or to
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indemnify or otherwise compensate the purchaser in respect of such assets), (v)
contract containing covenants which limit the ability of Investors or any
Investors Subsidiary to compete in any line of business or with any person or
which involve any restriction of the geographical area in which, or method by
which, Investors or any Investors Subsidiary may carry on its business (other
than as may be required by law or applicable regulatory authorities), (vi) any
contract, agreement or other instrument or undertaking which is not terminable
by Investors or any Investors Subsidiary without additional payment or penalty
within 60 days and obligates Investors or any Investors Subsidiary for payments
or other consideration with a value in excess of $100,000, other than loan
agreements entered into in the ordinary course of business, or (vii) other
executory material agreement as defined by the instructions to Exhibit 10 under
Item 601 of SEC Regulation S-K. Except as set forth in the Investors Disclosure
Letter, neither Investors nor any of the Investors Subsidiaries is in Violation
of any loan or credit agreement, note, mortgage, indenture or other agreement,
obligation or instrument applicable to Investors or any Investors Subsidiary or
their respective properties or assets, except for any such Violations that would
not, individually or in the aggregate, have an Investors Material Adverse
Effect. Investors has delivered a valid and effective notice of termination
pursuant to Section 3.3 of the Electronic Data Processing and Management
Information Service Agreement (the "EDP Agreement") between Investors and
Financial Information Trust (n/k/a Newtrend), dated April 30, 1990, as a result
of which the EDP Agreement will terminate without penalty in February 1996.
3.11. Benefit Plans. (a) The Investors Disclosure Letter lists (i) each
employee bonus, incentive, deferred compensation, stock purchase, stock
appreciation right, stock option and severance pay plan, (ii) each pension,
profit sharing, stock bonus, thrift, savings and employee stock ownership plan,
and (iii) every other employee benefit plan (within the meaning of Section 3(3)
of the Employee Retirement Income Security Act of 1974, as amended ("ERISA")
(collectively "Benefit Plans"), which Investors or any Investors Subsidiary
maintains or to which Investors or any Investors Subsidiary contributes on
behalf of current or former employees. Except as disclosed in the Investors
Disclosure Letter, all of the plans and programs listed in the Investors
Disclosure Letter (collectively, "Investors Benefit Plans") comply with all
applicable requirements of ERISA and all other applicable federal and state
laws, including without limitation the reporting and disclosure requirements of
Part 1 of Title I of ERISA. Each of the Investors Benefit Plans that is intended
to be a pension, profit sharing, stock bonus, thrift, savings or employee stock
ownership plan that is qualified under Section 401(a) of the Code has been
determined by the IRS to qualify under Section 401(a) of the Code, and, except
as disclosed in Investors Disclosure Letter, there exist no circumstances that
would adversely affect the qualified status of any such Investors Benefit Plan
under that section. No Investors Benefit Plan is a defined benefit pension plan
covered by Title IV of ERISA, and no such Plan is a "multi-employer plan" within
the meaning of Section 3(37) of ERISA. Except as set forth in the Investors
Disclosure Letter, there is no pending or, to the knowledge of Investors,
threatened litigation, governmental proceeding or investigation against or
relating to any Investors Benefit Plan, and to the knowledge of Investors there
is no reasonable basis for any material proceedings, claims, actions or
proceedings against any Plan. Except as set forth in the Investors Disclosure
Letter, no Investors Benefit Plan has engaged in a "prohibited transaction" (as
defined in Section 406 of ERISA and Section 4975(c) of the Code) since the date
on which said sections became applicable to such Plan, and no Investors Benefit
Plan has engaged in a transaction involving the purchase or sale of employer
securities by such Plan from or to a "disqualified person" (within the meaning
of Section 4975 of the Code). Neither Investors nor any Subsidiary of Investors
has incurred any "accumulated funding deficiency" (within the meaning of Section
412 of the Code), whether or not waived, with respect to any Investors Benefit
Plan. All Investors Benefit Plans that are group health plans, within the
meaning of Section 4980B of the Code or Section 601 of ERISA, have been operated
in material compliance with the group health plan continuation coverage
requirements of Section 4980B of the Code and Section 601 of ERISA to the extent
such requirements are applicable.
(b) Investors has delivered to Firstar copies of (i) each Investors Benefit
Plan, (ii) current summary plan descriptions of each Investors Benefit Plan for
which they are required, (iii) each trust agreement, insurance policy or other
instrument relating to the funding of any Investors Benefit Plan, (iv) the most
recent Annual Reports (Form 5500 series) and accompanying schedules filed with
the IRS or United States Department of Labor with respect to each Investors
Benefit Plan for which they are required, (v) the most recent determination
letter issued by the IRS with respect to each Investors Benefit Plan that is
intended to
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qualify under Section 401 of the Code, (vi) the most recent available financial
statements for each Investors Benefit Plan that has assets, and (vii) the most
recent audited financial statements for each Investors Benefit Plan for which
audited financial statements are required by ERISA.
(c) The Investors Disclosure Letter describes any obligation that Investors
and/or any Subsidiaries of Investors has to provide health and welfare benefits
to retirees and other former employees or their dependents (other than rights
arising solely under Section 601 of ERISA or Section 4980B of the Code or under
Minnesota statutes requiring continuation of life insurance) including
information as to the number of retirees, other former employees and dependents
entitled to such coverage and their ages.
3.12. Insurance. Investors and each Investors Subsidiary is presently
insured, and during each of the past five calendar years has been insured, for
reasonable amounts with financially sound and reputable insurance companies
against such risks as, to the best knowledge of Investors, companies engaged in
a similar business would, in accordance with good business practice, customarily
be insured. Investors has delivered to Firstar correct and complete copies of
all material policies of insurance of Investors and the Investors Subsidiaries
currently in effect. Neither Investors nor any Investors Subsidiary has any
liability for material unpaid premiums or premium adjustments not properly
reflected on the Investors Financial Statements and no notice of cancellation or
termination has been received by Investors or any Investors Subsidiary with
respect to any material insurance policy currently in effect. Within the last
three years, neither Investors nor any Subsidiary of Investors has been refused
any insurance with respect to any assets or operations, nor has any coverage
been limited in any material respect as to any assets or operations, by any
insurance carrier to which it has applied for any such insurance or with which
it has carried insurance during the last five years.
3.13. Conduct of Investors to Date. Except as disclosed in Investors
Reports filed prior to the date of this Agreement or in the Investors Disclosure
Letter, and except as contemplated by this Agreement, the Plan of Merger and the
Bank Merger Agreement, from and after January 1, 1994 through the date of this
Agreement: (a) Investors and the Investors Subsidiaries have carried on their
respective businesses in the ordinary and usual course consistent with past
practices; (b) Investors has not amended the Investors Certificate or the
Investors Rights Agreement, issued or sold any of its capital stock or made
grants of its capital stock, or issued or sold any corporate debt securities or
otherwise incurred debt which would be classified as long-term debt on the
balance sheet of Investors; (c) Investors has not granted any option for the
purchase of its capital stock, effected any stock split, or otherwise changed
its capitalization; (d) Investors has not declared, set aside, or paid any
dividend or other distribution in respect of its capital stock, except for
regular quarterly cash dividends of $.125 per share of Investors Common Stock
and regular quarterly cash dividends on shares of Investors Preferred Stock as
required by the Investors Certificate, in each case with usual record and
payment dates or, directly or indirectly, redeemed or otherwise acquired any of
its capital stock; (e) neither Investors nor any Investors Subsidiary has (1)
incurred any material obligation or liability (absolute or contingent), except
borrowings from the Federal Home Loan Bank of Des Moines in the ordinary course
of business consistent with Investors' past practices ("FHLB Borrowings") and
other obligations or liabilities incurred in the ordinary course of business, or
(2) except in connection with FHLB Borrowings, mortgaged, pledged, or subjected
to lien, claim, security interest, charge, encumbrance or restriction any of its
assets or properties; (f) neither Investors nor any Investors Subsidiary has
discharged or satisfied any material lien, mortgage, pledge, claim, security
interest, charge, encumbrance, or restriction or paid any material obligation or
liability (absolute or contingent), other than in the ordinary course of
business or in connection with FHLB Borrowings; (g) neither Investors nor any
Investors Subsidiary has sold, assigned, transferred, leased, exchanged, or
otherwise disposed of (1) any mortgage servicing rights or (2) any of its other
properties or assets, in the case of this clause (2) other than in the ordinary
course of business; (h) neither Investors nor any Investors Subsidiary has
increased the rate of compensation of, or paid any bonus to, any of its
directors or officers, except merit or promotion increases in accordance with
existing policy; entered into any new, or amended or supplemented any existing,
employment, management, consulting, deferred compensation, severance, or other
similar contract not heretofore provided to Firstar; adopted, entered into,
terminated, amended or modified any Investors Benefit Plan in respect of any of
present or former directors, officers or other employees; amended, modified or
taken any other action in respect of the terms of any Investors Stock Options;
made any adjustment pursuant to the Investors Option Plan or Section 4(a) of the
Investors 1993
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Stock Plan; or agreed to do any of the foregoing; (i) neither Investors nor any
Investors Subsidiary has suffered any material damage, destruction or loss as
the result of fire, explosion, earthquake, accident, casualty, labor trouble,
requisition or taking of property by any government or any agency of any
government, flood, windstorm, embargo, riot, act of God or the enemy, or other
similar or dissimilar casualty or event or otherwise, and whether or not covered
by insurance; (j) neither Investors nor any Investors Subsidiary has cancelled
or compromised any debt to an extent exceeding $100,000 owed to Investors or any
Investors Subsidiary or claim to an extent exceeding $100,000 asserted by
Investors or any Investors Subsidiary; (k) neither Investors nor any Investors
Subsidiary has entered, or agreed to enter, into any agreement or arrangement
granting any right of refusal or other preferential right to purchase any of its
material assets, properties or rights or requiring the consent of any party to
the transfer and assignment of any such material assets, properties or rights;
(l) there has not been any other transaction, commitment, dispute or other event
or condition of any character (whether or not in the ordinary course of
business) individually or in the aggregate having or which, insofar as
reasonably can be foreseen, in the future is reasonably likely to have, an
Investors Material Adverse Effect, other than any changes resulting primarily by
reason of changes in savings institution laws or regulations (or interpretations
thereof), changes in the general level of interest rates or changes in economic,
financial or market conditions affecting the savings institution industry
generally in the regions in which Investors and the Investors Subsidiaries
operate; and (m) there has not been any change in the method of accounting or
accounting practices of Investors or any of the Investors Subsidiaries. Except
as set forth in the Investors Disclosure Letter, none of Investors' President
and Chief Executive Officer, any Executive Vice President of Investors, the
Senior Vice President and Chief Financial Officer of Investors or the senior
personnel administrator of Investors has any knowledge of the announced or
anticipated resignation of (1) any officer or key employee of Investors or any
of the Investors Subsidiaries or (2) other employees of Investors or any
Investors Subsidiary, in the case of this clause (2) at a rate substantially
higher than the historical resignation rate for such employees of Investors or
the Investors Subsidiaries, other than, in either case, resignations that,
individually or in the aggregate, are not reasonably likely to have an Investors
Material Adverse Effect. From and after January 1, 1994 through the date of this
Agreement, no customers of Investors or any Investors Subsidiary have indicated
that they will stop or decrease the rate of business done with Investors or any
Investors Subsidiary (except for changes in the ordinary course of business)
that would, individually or in the aggregate, have an Investors Material Adverse
Effect.
3.14. Properties, Leases and Other Agreements. Except as may be reflected
in the Investors Financial Statements, for any lien for current taxes not yet
delinquent, for pledges to secure deposits and for such other liens, security
interests, claims, charges, options or other encumbrances and imperfections of
title which do not materially affect the value of personal or real property
reflected in the Investors Financial Statements or acquired since the date of
such Statements and which do not materially interfere with or impair the present
and continued use of such property, Investors and its Subsidiaries have good
title, free and clear of any liens, security interests, claims, charges, options
or other encumbrances, to all of the personal and real property reflected in the
Investors Financial Statements, and all personal and real property acquired
since the date of such Statements, except such personal and real property as has
been disposed of in the ordinary course of business. The Investors Disclosure
Letter lists all acquisitions or dispositions of capital assets planned as of
the date of this Agreement by Investors or any Investors Subsidiary, other than
individual transactions with a value not in excess of $100,000. Substantially
all Investors' and each Investors Subsidiary's buildings and equipment in
regular use (including such buildings and equipment as are leased) have been
well maintained and are in good and serviceable condition, reasonable wear and
tear excepted. The Investors Disclosure Letter contains a brief description,
including terms, of each lease for real and personal property to which Investors
or any Investors Subsidiary is a party. Investors or the applicable Investors
Subsidiary, as lessee, has a valid and existing leasehold interest under each of
such leases, true and correct copies of which Investors has delivered to
Firstar. There is not, under any of such leases relating to real property or any
other material leases, any material existing default by Investors, its
Subsidiaries or, to the knowledge of Investors, any other party thereto, or any
event with notice or lapse of time or both would constitute such a material
default.
3.15. Opinion of Financial Advisor. Investors has received the opinion of
Piper Jaffray Inc. dated the date hereof to the effect that, as of the date
hereof, the consideration to be received in the Merger by Investors'
stockholders is fair to Investors' stockholders from a financial point of view.
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3.16. Vote Required. The affirmative vote of holders of a majority of the
outstanding shares of Investors Common Stock is the only vote of the holders of
any class or series of Investors capital stock necessary to approve this
Agreement and the transactions contemplated hereby. Without limitation, the
voting requirements of Article 9 of the Investors Certificate will not apply to
any of the transactions contemplated by this Agreement.
3.17. Accounting and Tax Matters. Neither Investors nor, to the knowledge
of Investors, any of its affiliates has taken or agreed to take any action that
would prevent Firstar from accounting for the business combination to be
effected by the Merger as a pooling of interests or would prevent the Merger
from qualifying as a reorganization under Section 368(a)(1) of the Code.
3.18. Dissenters' Rights. Shares of Investors Common Stock are currently
quoted on the Nasdaq National Market of the Nasdaq Stock Market. Assuming
Firstar Common Stock is listed on the New York Stock Exchange, holders of shares
of Investors Common Stock will not be entitled to assert dissenters' rights
granted under Section 262 of the DGCL. Holders of shares of Investors Preferred
Stock will be entitled to assert dissenters' rights under such Section 262.
3.19. Affiliates. The Investors Disclosure Letter identifies persons who
are now "Affiliates" of Investors for purposes of Rule 145 under the Securities
Act ("Affiliates"). Investors has advised such persons of the restrictions
imposed by applicable securities laws upon the resale of Firstar Common Stock
delivered in connection with the Merger. Each person identified in such letter
has executed a written agreement substantially in the form attached as Exhibit
5.06 hereto.
3.20. Affiliate Transactions. Except as set forth in the Investors
Disclosure Letter, neither Investors nor any of its Subsidiaries, nor any
executive officer or director of Investors, 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 person "controls" (within the
meaning of Regulation O of the Federal Reserve Board), has any loan agreement,
note or borrowing arrangement or any other agreement with Investors or any of
its 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 Investors or any of its Subsidiaries pursuant to
which the amount outstanding thereunder exceeds $60,000.
3.21. Interest Rate Risk Management Instruments.
(a) The Investors Disclosure Letter 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 Investors or any of its
Subsidiaries is a party or by which any of their properties or assets may be
bound. Investors has delivered or made available to Firstar 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 to which
Investors is subject and other interest rate risk management arrangements to
which Investors or any of its 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 the best of Investors' knowledge, in accordance with prudent
banking practice and applicable rules, regulations and policies of the
regulators to which Investors is subject and with counterparties believed to be
financially responsible at the time, are legal, valid and binding obligations
enforceable in accordance with their terms, and are in full force and effect.
Investors and each of its 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 Investors' knowledge, there are no breaches,
violations or defaults or allegations or assertions of such by any party
thereunder.
3.22. Regulatory Impediments. As of the date hereof, Investors is not aware
of the existence of any factor that would materially delay or materially hinder
the issuance of any of the required regulatory approvals necessary to consummate
the Merger, the Bank Merger and the transactions contemplated hereby, other than
any protests by any nongovernmental parties and information contained in the
Firstar Disclosure Letter (as defined in Section 4.02).
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3.23. Amendments to Employment and Severance Agreements; Noncompetition
Agreements. The Second Amended and Restated Employment Agreement among James M.
Burkholder, Investors and Firstar, the Noncompetition Agreement between James M.
Burkholder and Firstar, the Second Amended and Restated Employment Agreement
among John G. Lohmann, Jr., Investors and Firstar, the Noncompetition Agreement
between John G. Lohmann, Jr. and Firstar, the Second Amended and Restated
Employment Agreement among Daniel A. Arrigoni, Investors and Firstar, and the
Noncompetition Agreement between Daniel A. Arrigoni and Firstar, each dated as
of August 21, 1994, and the Amendment to Severance Pay Agreement between
Investors Bank and Lynn V. Bueltel, dated as of August 1, 1994 (a true and
correct copy of which has been delivered to Firstar), have been duly executed
and delivered by the parties thereto other than Firstar. Each such agreement
constitutes a valid and binding obligation of the parties thereto other than
Firstar, enforceable in accordance with its terms.
3.24. Full Disclosure. The representations and warranties of Investors
contained in this Agreement 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 Investors which has not
been disclosed to Firstar pursuant to this Agreement, the Investors Disclosure
Letter and the Investors Reports, all taken together as a whole, which would
have or would reasonably be expected to have an Investors Material Adverse
Effect or a material adverse effect on the ability of Investors to consummate
the transactions contemplated hereby.
3.25. No Discussions. As of the date of this Agreement, neither Investors
nor any Investors Subsidiary, nor any of its or their Representatives (as
defined in Section 5.02(f)), are, directly or indirectly, soliciting, initiating
or engaged in any discussions or other negotiations with, or providing any
information to, any third party concerning any possible proposal regarding a
Competing Transaction.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF FIRSTAR AND SUB
Firstar and Sub, jointly and severally, represent and warrant to Investors
as follows:
4.01. Organization, Standing and Power. Firstar is a corporation duly
organized, validly existing and in active status under the laws of the State of
Wisconsin and has all requisite corporate power and authority to own, lease and
operate its properties and to carry on its business as now being conducted,
except where the failure to have such power or authority would not have a
material adverse effect on the business, operations, prospects or financial
condition of Firstar and its Subsidiaries taken as a whole (a "Firstar Material
Adverse Effect"). Sub is a corporation duly organized, validly existing and in
good standing under the laws of the State of Minnesota and has all requisite
corporate power and authority to own, lease and operate its properties and to
carry on its business as now being conducted, except where the failure to have
such power or authority would not have a Firstar Material Adverse Effect. Each
of Firstar and Sub is qualified to do business and is in good standing in each
other state or foreign jurisdiction where its ownership or leasing of property
or the conduct of its business requires it to be so qualified and where the
failure to be so qualified would have a Firstar Material Adverse Effect. Each of
Firstar and Sub is registered as a bank holding company with the Federal Reserve
Board under the BHC Act. Firstar has delivered to Investors true, accurate and
complete copies of the currently effective Restated Articles of Incorporation
and By-laws of Firstar, including all amendments thereto.
4.02. Firstar Subsidiaries. Except as set forth in the Firstar Disclosure
Letter (which is a letter delivered by Firstar and Sub to Investors on the date
hereof, the receipt thereof having been acknowledged by Investors executing a
copy thereof), Firstar beneficially owns, directly or indirectly, all of the
shares of the outstanding capital stock of Sub and each of the Subsidiaries
listed in the Firstar Disclosure Letter (herein, including Sub, called
collectively the "Firstar Subsidiaries" or individually a "Firstar Subsidiary"),
which constitute Firstar's principal operating subsidiaries as of the date of
this Agreement. No equity securities of any of the Firstar Subsidiaries are or
may become required to be issued by reason of any option, warrants, calls,
rights or agreements of any character whatsoever; there are outstanding no
securities or rights convertible into or exchangeable for shares of any capital
stock of any Firstar Subsidiary; and there are no other contracts,
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commitments, understandings or arrangements by which any Firstar Subsidiary is
bound to issue additional shares of its capital stock or options, warrants,
calls, rights or agreements to purchase or acquire any additional shares of its
capital stock. Except as provided for under any applicable banking statute and
except as set forth in the Firstar Disclosure Letter, all of the shares of
capital stock of each of the Firstar Subsidiaries owned by Firstar are fully
paid and nonassessable (except as provided in Section 180.0622(2)(b) of the
Wisconsin Business Corporation Law ("WBCL")) and are owned by it free and clear
of any claim, lien, encumbrance or agreement with respect thereto. Each Firstar
Subsidiary is a banking association or a corporation, in each case duly
organized, validly existing and in good standing or in active status under the
laws of its jurisdiction of incorporation, and has the corporate power and
authority to own or lease its properties and assets and to carry on its business
as it is now being conducted, except where the failure to have such power or
authority would not have a Firstar Material Adverse Effect. Each Firstar
Subsidiary that is a national bank is a member of the Federal Reserve System.
The deposits of each Firstar Subsidiary that is a banking institution and
accepts deposits are insured by the FDIC to the extent provided by law. Firstar
has delivered to Investors true, accurate and complete copies of the currently
effective Articles of Incorporation and By-laws of Sub.
4.03. Capital Structure. As of the date hereof, the authorized capital
stock of Firstar consists of 120,000,000 shares of Firstar Common Stock and
2,500,000 shares of preferred stock, par value $1.00. No shares of preferred
stock are issued and outstanding on the date hereof. Except as contemplated in
the Merger Agreements, as set forth in the Firstar Disclosure Letter or as set
forth in the most recent report of Firstar filed with the SEC on Form 10-K,
there are, as of the date of the Merger Agreements, no outstanding options,
warrants, calls, rights, commitments or agreements of any character whatsoever
to which Firstar or any Firstar Subsidiary is a party or by which it is bound
obligating Firstar or any Firstar Subsidiary to issue, deliver or sell, or cause
to be issued, delivered or sold, additional shares of capital stock or any
Voting Debt securities of Firstar or of any Firstar Subsidiary or obligating
Firstar or any Firstar Subsidiary to grant, extend or enter into any such
option, warrant, call, right, commitment or agreement. All outstanding shares of
Firstar capital stock are, and the shares of Firstar Common Stock to be issued
pursuant to or as specifically contemplated by the Merger Agreements will be,
validly issued, fully paid and nonassessable (except as provided in WBCL Section
180.0622(2)(b)) and not subject to preemptive rights. As of the date hereof, the
authorized capital stock of Sub consists of 10,000 shares of common stock, $1.00
par value, 1,000 of which are validly issued, fully paid and nonassessable; all
of the issued shares are owned by Firstar.
4.04. Authority. Firstar and Sub have all requisite corporate power and
authority to enter into this Agreement and the Plan of Merger and to consummate
the transactions contemplated hereby and thereby. The execution and delivery of
this Agreement and the Plan of Merger and the consummation of the transactions
contemplated hereby and thereby have been duly authorized by all necessary
corporate action on the part of Firstar and Sub. Approval of this Agreement and
the Plan of Merger by stockholders of Firstar is not required under the WBCL,
the rules of the New York Stock Exchange or otherwise. This Agreement and the
Plan of Merger have been duly executed and delivered by Firstar and Sub, and
each constitutes a valid and binding obligation of Firstar and Sub enforceable
in accordance with its terms. Upon execution and delivery thereof by Investors
Bank and Firstar Bank, the Bank Merger Agreement will have been duly executed
and delivered by Firstar Bank and will constitute a valid and binding obligation
of Firstar Bank enforceable in accordance with its terms. The execution and
delivery of this Agreement and the Plan of Merger do not, and the execution and
delivery of the Bank Merger Agreement and the consummation of the transactions
contemplated hereby and thereby will not, result in any Violation pursuant to
any provision of (a) the Restated Articles of Incorporation or By-laws of
Firstar or any Firstar Subsidiary or (b) except (i) as set forth in the Firstar
Disclosure Letter or (ii) as contemplated by the next sentence hereof, any loan
or credit agreement, note, mortgage, indenture, lease, Firstar Benefit Plan (as
defined in Section 4.11) or other agreement, obligation, instrument, permit,
franchise, license, judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to Firstar or any Firstar Subsidiary or their respective
properties or assets which Violation would have a Firstar Material Adverse
Effect. Other than in connection or in compliance with the provisions of the
WBCL and the MBCA, the Securities Act, the Exchange Act, the securities or blue
sky laws of the various states, and consents, authorizations, approvals, notices
or exemptions required under the BHC Act, the SLHC Act, the FDI Act, the HOLA
and the HSR Act, no consent, approval, order or authorization of, or
registration, declaration or filing with, any Governmental Entity is required on
the part of Firstar or any
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Firstar Subsidiary in connection with the execution and delivery of this
Agreement, the Plan of Merger and the Bank Merger Agreement by Firstar or
Firstar Bank, as the case may be, or the consummation by Firstar or Firstar
Bank, as the case may be, of the transactions contemplated hereby and thereby,
the failure to obtain which would have a Firstar Material Adverse Effect.
4.05. Firstar Financial Statements. The consolidated balance sheets of
Firstar as of December 31, 1993 and 1992 and the related consolidated statements
of income, consolidated statements of cash flows and consolidated statements of
shareholders' equity for the three years in the period ended December 31, 1993,
accompanied by the unqualified opinion of KPMG Peat Marwick, copies of which
have been furnished by Firstar to Investors; the unaudited consolidated balance
sheet of Firstar as of June 30, 1994 and the related consolidated statement of
income, consolidated statement of cash flows and consolidated statement of
shareholders' equity for the six months then ended, in the form prepared for
Firstar's internal use, copies of which have been furnished by Firstar to
Investors; and like financial information included in Forms 10-Q filed with the
SEC subsequent to the Latest Statement Date (collectively, the "Firstar
Financial Statements"), have been prepared in accordance with generally accepted
accounting principles as utilized in the Firstar Financial Statements applied on
a consistent basis (except as may be indicated therein or in the notes thereto),
and present fairly the consolidated financial condition of Firstar at the dates,
and the consolidated results of operations, changes in stockholders' equity and
cash flows for the periods, stated therein. In the case of interim fiscal
periods, all adjustments, consisting only of normal recurring items, which
management of Firstar believes necessary for a fair presentation of such
financial information, have been made, subject to year-end audit adjustments,
none of which could reasonably be expected to have a material adverse effect on
the consolidated financial position or results of operations of Firstar.
4.06. Reports. Since January 1, 1991, Firstar and the Firstar Subsidiaries
have filed all reports, registrations and statements, together with any
amendments required to be made with respect thereto, that were and are required
to be filed with (i) the SEC, including but not limited to Forms 10-K, Forms
10-Q, Forms 8-K and proxy statements, (ii) the Federal Reserve Board, (iii) the
Comptroller, (iv) the FDIC and (v) any applicable federal or state securities or
banking authorities (all such reports and statements are collectively referred
to herein as the "Firstar Reports"). As of their respective dates, the Firstar
Reports filed prior to the date hereof complied and will comply in all material
respects with all of the statutes, rules and regulations enforced or promulgated
by the regulatory authority with which they were filed (including, to the extent
applicable, Rule 10b-5 promulgated under the Exchange Act) and did not contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein.
4.07. Authorizations; Compliance with Applicable Laws. Firstar and the
Firstar Subsidiaries hold all authorizations, permits, licenses, variances,
exemptions, orders and approvals of all Governmental Entities which are material
to the operation of the businesses of Firstar and the Firstar Subsidiaries taken
as a whole (the "Firstar Permits"), including appropriate authorizations from
the Federal Reserve Board and Comptroller, except where the failure to hold the
same could not reasonably be expected to have a Firstar Material Adverse Effect.
Firstar and the Firstar Subsidiaries are in compliance with the terms of the
Firstar Permits, except where the failure so to comply could not reasonably be
expected to have a Firstar Material Adverse Effect. Except as disclosed in the
Firstar Reports filed prior to the date of this Agreement, the businesses of
Firstar and the Firstar Subsidiaries are not being conducted in violation of any
Law, except for possible violations which individually or in the aggregate do
not, and, insofar as reasonably can be foreseen, in the future will not, have a
Firstar Material Adverse Effect. Except as disclosed in the Firstar Reports
filed prior to the date hereof or set forth in the Firstar Disclosure Letter and
except for regular, periodic reviews and examinations by Governmental Entities,
as of the date of this Agreement, no investigation or review by any Governmental
Entity with respect to Firstar or any of the Firstar Subsidiaries is pending or,
to the knowledge of Firstar, threatened, nor has any Governmental Entity
indicated an intention to conduct the same, other than, in each case, those the
outcome of which, as far as reasonably can be foreseen, will not have a Firstar
Material Adverse Effect.
4.08. Litigation. Except as disclosed in the Firstar Reports filed prior to
the date of this Agreement or in the Firstar Disclosure Letter, there is no
Proceeding pending or, to the knowledge of Firstar, threatened against or
affecting Firstar or any Firstar Subsidiary which is reasonably likely to have a
Firstar Material
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Adverse Effect, nor is there any judgment, order, writ, injunction, decree or
award of any Governmental Entity or arbitrator outstanding against Firstar or
any Firstar Subsidiary having, or which, insofar as reasonably can be foreseen,
in the future could have, any such effect.
4.09. Taxes. Firstar and each of the Firstar Subsidiaries has filed all tax
returns required to be filed by them and has paid (or Firstar has paid on its
behalf), or has set up an adequate reserve for the payment of, all taxes
required to be paid as shown on such returns, and the most recent financial
statements contained in the Firstar Reports reflect an adequate reserve for all
taxes payable by Firstar and the Firstar Subsidiaries accrued through the date
of such financial statements; provided, however, that the foregoing
representation is made only to the best of Firstar's knowledge with respect to
each Firstar Subsidiary that has been, directly or indirectly, acquired by
Firstar subsequent to July 1, 1989. No material deficiencies for any taxes have
been proposed, asserted or assessed against Firstar or any Firstar Subsidiary.
4.10. Certain Agreements. Except as disclosed in the Firstar Reports filed
prior to the date of this Agreement, and except for this Agreement, as of the
date of this Agreement, neither Firstar nor any Firstar Subsidiary is a party to
any oral or written (i) agreement with any executive officer or other key
employee of Firstar or any Firstar Subsidiary the benefits of which are
contingent, or the terms of which are materially altered, upon the occurrence of
a transaction involving Firstar or any Firstar Subsidiary of the nature
contemplated by this Agreement, (ii) agreement or plan, including any stock
option plan, stock appreciation right plan, restricted stock plan or stock
purchase plan, any of the benefits of which will be increased, or the vesting of
the benefits of which will be accelerated, by the occurrence of any of the
transactions contemplated by this Agreement or the value of any of the benefits
of which will be calculated on the basis of any of the transactions contemplated
by this Agreement, (iii) contract containing covenants that limit the ability of
Firstar or any Firstar Subsidiary to compete in any line of business or with any
person or which involve any restriction on the geographical area in which, or
method by which, Firstar or any Firstar Subsidiary may carry on its business
(other than as required by law or applicable regulatory authority), or (iv)
other executory agreement as defined by the instructions to Exhibit 10 under
Rule 601 of the SEC. Except as set forth in the Firstar Disclosure Letter,
neither Firstar nor any Firstar Subsidiary is in Violation of any loan or credit
agreement, note, mortgage, indenture or other agreement, obligation or
instrument applicable to Firstar or any Firstar Subsidiary or their respective
properties or assets, except for any Violation that would not, individually or
in the aggregate, have a Firstar Material Adverse Effect.
4.11. Benefit Plans. (i) With respect to the Benefit Plans maintained by
Firstar and any Firstar Subsidiary or to which Firstar or any Firstar Subsidiary
contributes on behalf of current or former employees as of the date of this
Agreement (the "Firstar Benefit Plans"), individually and in the aggregate, no
event has occurred, and to the knowledge of Firstar or any of its Subsidiaries,
there exists no condition or set of circumstances in connection with which
Firstar or any of its Subsidiaries could be subject to any liability that is
reasonably likely to have a Firstar Material Adverse Effect (except liability
for benefits claims and funding obligations payable in the ordinary course)
under ERISA, the Code or any other applicable law.
(ii) Except as disclosed in the Firstar Reports filed prior to the date
hereof or as set forth in the Firstar Disclosure Letter, with respect to the
Firstar Benefit Plans, individually and in the aggregate, there are no funded
benefit obligations for which contributions have not been made or properly
accrued and there are no unfunded benefit obligations which have not been
accounted for by reserves, or otherwise properly footnoted in accordance with
generally accepted accounting principles, on the financial statements of
Firstar, which obligations are reasonably likely to have a Firstar Material
Adverse Effect.
4.12. Absence of Certain Changes or Events. Except as disclosed in the
Firstar Reports filed prior to the date of this Agreement or in the Firstar
Disclosure Letter, and except as contemplated by this Agreement, the Plan of
Merger and the Bank Merger Agreement, from and after January 1, 1994 and to the
date of this Agreement: (a) Firstar and the Firstar Subsidiaries have conducted
their respective businesses only in the ordinary and usual course consistent
with past practice, (b) Firstar has not declared, set aside or paid any dividend
or other distribution in respect to any of Firstar's capital stock, except for
regular quarterly cash dividends not exceeding $.30 per share on Firstar Common
Stock with usual record and payment dates for such dividends, (c) other than any
changes resulting primarily by reason of changes in banking laws or
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regulations (or interpretations thereof), changes in the general level of
interest rates or changes in economic, financial or market conditions affecting
the banking industry generally in the regions in which Firstar and the Firstar
Subsidiaries operate, there has not been any transaction, commitment, dispute or
other event or condition of any character (whether or not in the ordinary course
of business) individually or in the aggregate having or which, insofar as
reasonably can be foreseen, in the future is reasonably likely to have, a
Firstar Material Adverse Effect and (d) there has not been any material change
in the method of accounting or accounting practices of Firstar and the Firstar
Subsidiaries.
4.13. Properties, Leases and Other Agreements. Except as may be reflected
in the Firstar Financial Statements, for any lien for current taxes not yet
delinquent, for pledges to secure deposits and for such other liens, security
interests, claims, charges, options or other encumbrances and imperfections of
title which do not materially affect the value of personal or real property
reflected in the Firstar Financial Statements or acquired since the date of such
Statements and which do not materially interfere with or impair the present and
continued use of such property, Firstar and the Firstar Subsidiaries have good
title, free and clear of any liens, security interests, claims, charges, options
or other encumbrances to all of the personal and real property reflected in the
Firstar Financial Statements, and all personal and real property acquired since
the date of such Statements, except such personal and real property as has been
disposed of in the ordinary course of business. All leases material to Firstar
and the Firstar Subsidiaries pursuant to which Firstar or any of the Firstar
Subsidiaries, as lessee, leases real or personal property are valid and
effective in accordance with their respective terms and there is not, under any
of such leases, any material existing default by Firstar, any of the Firstar
Subsidiaries or, to the best knowledge of Firstar, any other party thereto, or
any event with notice or lapse of time or both would constitute such a material
default.
4.14. Accounting and Tax Matters. To the knowledge of Firstar, neither
Firstar nor any of its affiliates has through the date hereof taken or agreed to
take any action that would prevent Firstar from accounting for the business
combination to be effected by the Merger as a pooling of interests or would
prevent the Merger from qualifying as a reorganization under Section
368(a)(1)(A) of the Code.
4.15. Regulatory Impediments. As of the date hereof, except as set forth in
the Firstar Disclosure Letter, Firstar is not aware of the existence of any
factor that would materially delay or materially hinder issuance of any of the
required regulatory approvals necessary to consummate the Merger, the Bank
Merger and the transactions contemplated hereby, other than any protests by
nongovernmental parties.
ARTICLE V
COVENANTS OF INVESTORS
5.01. Affirmative Covenants. Investors hereby covenants and agrees with
Firstar that prior to the Effective Time or until the earlier termination or
abandonment of this Agreement is accordance with its terms, unless the prior
written consent of Firstar shall have been obtained and except as otherwise
contemplated herein, it will and it will cause its respective Subsidiaries to:
(a) operate its business only in the usual, regular and ordinary course
consistent with past practices;
(b) preserve substantially intact its business organization and assets
(except for acquisitions and dispositions of assets in the ordinary course of
business consistent with past practices, unless otherwise required by the terms
of this Agreement), and maintain its rights and franchises, and use its
reasonable best efforts to retain the services of its officers and key employees
(except that it shall have the right to terminate the employment of any officer
or key employee in accordance with established employment procedures) and
maintain its relationships with customers;
(c) maintain and keep its properties in as good repair and condition as at
present, except for depreciation due to ordinary wear and tear;
(d) keep in full force and effect, to the extent consistent with types and
amounts thereof used by companies in a similar business, insurance and bonds
comparable in amount and scope of coverage to that now maintained by it;
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(e) perform in all material respects all obligations required to be
performed by it under all material contracts, leases, and documents relating to
or affecting its assets, properties, and business;
(f) comply with and perform in all material respects all material
obligations and duties imposed upon it by all Laws; and
(g) notify Firstar immediately by telephone, and thereafter promptly
confirm in writing, if any of the matters described in Section 5.02(f) occurs,
whether as a result of action by Investors, any Investors Subsidiary or any
Representatives (as defined therein) of Investors, or if any person makes any
offer or other proposal concerning a Competing Transaction (as defined in
Section 5.02(f)); such notice shall include the name of any person other than
Investors, an Investors Subsidiary and their Representatives involved in such
matter and, after receipt of any written offer or proposal from such person, a
copy of any written offers, proposals, agreements or other documents with
respect to such offer or proposal.
5.02. Negative Covenants. Except as specifically contemplated by this
Agreement, from the date hereof until the Effective Time, Investors shall not
do, or permit any of its Subsidiaries to do, without the prior written consent
of Firstar, any of the following:
(a) incur any material liabilities or material obligations, whether
directly or by way of guaranty, including any obligation for borrowed money
whether or not evidenced by a note, bond, debenture or similar instrument,
except in the ordinary course of business consistent with past practice (which
exception shall include, without limitation, insured accounts established and
FHLB Borrowings);
(b)(i) grant any general increase in compensation to its employees as a
class, or to its officers or directors, except in accordance with past practice
or as required by law, or increases which are not material, (ii) effect any
change in retirement benefits to any class of employees or officers (unless any
such change shall be required by applicable law) which would increase its
retirement benefit liabilities, (iii) adopt, enter into, amend or modify any
Investors Benefit Plan, make any adjustments pursuant to the Investors Stock
Option Plan or Section 4C of the Investors 1993 Stock Plan or make any grants
pursuant to the Investors Stock Option Plan or the Investors 1993 Stock Plan, or
(iv) enter into or amend any employment, severance or similar agreements or
arrangements with any directors or officers or former directors or officers;
(c)(i) declare or pay any dividend on, or make any other distribution in
respect of, its outstanding shares of capital stock, except for (A) regular
quarterly cash dividends on the Investors Common Stock at a rate not in excess
of $.125 per share, and regularly quarterly cash dividends on the Investors
Preferred Stock as contemplated by the Investors Certificate, in each case with
usual record and payment dates for such dividends, and (B) dividends by a
wholly-owned Subsidiary of Investors;
(ii) except as hereinbelow provided, declare or pay any dividends or make
any distributions in any amount on Investors Common Stock in the quarter in
which the Effective Time shall occur and in which the stockholders of Investors
Common Stock are entitled to receive dividends on the shares of Firstar Common
Stock into which the shares of Investors Common Stock have been converted; it is
the intent of this clause (ii) to provide that the holders of Investors Common
Stock will receive either the payment of cash dividends on their shares of
Investors Common Stock or the payment of cash dividends as the holders of shares
of Firstar Common Stock received in exchange for the shares of Investors Common
Stock for the calendar quarter during which the Effective Time shall occur, but
will not receive and will not become entitled to receive for the same calendar
quarter both the payment of a cash dividend as holders of Investors Common Stock
and the payment of a cash dividend as holders of the shares of Firstar Common
Stock received in exchange for the shares of Investors Common Stock; and if
Investors does not declare and pay cash dividends in a particular calendar
quarter because of Investors' reasonable expectation that the Effective Time was
to have occurred in such calendar quarter wherein the holders of Investors
Common Stock would have become entitled to receive cash dividends for such
calendar quarter on the shares of Firstar Common Stock to have been exchanged
for the shares of Investors Common Stock, and the Effective Time does not in
fact occur in such calendar quarter, then, as a result thereof, Investors shall
be entitled to declare and pay a cash dividend (within the limitations of this
Section 5.02) on such shares of Investors Common Stock for such calendar quarter
by the declaration and payment of such cash dividends as soon as reasonably
practicable;
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(d)(i) except as provided in Section 5.06 and Section 5.17, redeem,
purchase or otherwise acquire any shares of its capital stock or any securities
or obligations convertible into or exchangeable for any shares of its capital
stock, or any options, warrants, conversion or other rights to acquire any
shares of its capital stock or any such securities or obligations (except
pursuant to the exercise of the Investors Options and/or Investors Warrants in
accordance with their terms); (ii) merge with or into, or permit Investors Bank
to merge with or into, any other corporation or savings institution or bank,
permit any other corporation or savings institution or bank to merge into it or
Investors Bank or consolidate with, or permit Investors Bank to consolidate
with, any other corporation or savings institution or bank, or effect any
reorganization or recapitalization; (iii) purchase or otherwise acquire any
substantial portion of the assets, or more than 5% of any class of stock, of any
corporation, bank, savings institution or other business; (iv) liquidate, sell,
dispose of, or encumber any assets or acquire any assets, except in the ordinary
course of its business consistent with past practice (which exception shall
include, without limitation, dispositions or acquisitions of "real estate owned"
properties of Investors or any Investors Subsidiary and loans (with servicing
rights retained) consistent with past practices); or (v) split, combine or
reclassify any of its capital stock or issue or authorize or propose the
issuance of any other securities in respect of, in lieu of or in substitution
for shares of its capital stock;
(e) issue, deliver, award, grant or sell, or authorize or propose the
issuance, delivery, award, grant or sale of, any shares of its capital stock of
any class (including shares held in treasury), any Voting Debt or any securities
convertible into, or any rights, warrants or options to acquire, any such
shares, Voting Debt or convertible securities, other than (i) the issuance of
Investors Common Stock pursuant to the Investors Options or the Investors
Warrants, in each case in accordance with their present terms, and (ii)
issuances by a wholly-owned Subsidiary of its capital stock to its parent;
(f) initiate, solicit or encourage (including by way of furnishing
information or assistance), or take any other action to facilitate, any
inquiries or the making of any proposal which constitutes, or may reasonably be
expected to lead to, any Competing Transaction (as such term is defined below),
or negotiate with any person in furtherance of such inquiries or to obtain a
Competing Transaction, or agree to or endorse any Competing Transaction, or
authorize or permit any of its officers, directors or employees or any
investment banker, financial advisor (including the firm named in Section 3.15),
attorney, accountant or other representative retained by it or any of the
Investors Subsidiaries ("Representatives") to take any such action; provided,
however, that nothing contained in this subsection (f) shall prohibit the Board
of Directors of Investors from (i) furnishing information to or permitting any
of its Representatives to furnish information to any party that requests
information as to Investors and its Subsidiaries if (A) the Board of Directors
of Investors, based upon the advice of counsel, determines in good faith that
such action is required for the Board of Directors of Investors to comply with
its fiduciary duties to stockholders imposed by law and (B) prior to furnishing
such information to such party, Investors receives from such party an executed
confidentiality agreement in reasonably customary form, (ii) furnishing
information to, or entering into discussions or negotiations with, any person or
entity that makes an unsolicited bona fide written proposal to acquire Investors
pursuant to a merger, consolidation, tender offer, share exchange, business
combination, stock or asset purchase or other similar transaction if (A) the
Board of Directors, after consultation with and based upon receipt of written
advice from Dorsey & Whitney (a copy of which Investors shall promptly deliver
to Firstar), or other counsel acceptable to Firstar, determines in good faith
that such action is required for the Board of Directors to comply with its
fiduciary duties to Investors' stockholders under applicable law, (B) the Board
of Directors of Investors has no reason to believe that the written proposal is
not made in good faith, and (C) prior to furnishing such information to such
person or entity, Investors receives from such person or entity an executed
confidentiality agreement in reasonably customary form, (iii) complying with
Rule 14e-2 under the Exchange Act, or (iv) making any public statement required
by law or the requirements of the Nasdaq Stock Market. For purposes of this
Agreement, "Competing Transaction" shall mean any of the following involving
Investors or any of the Investors Subsidiaries: any merger, consolidation, share
exchange or other business combination; a sale, lease, exchange, mortgage,
pledge, transfer or other disposition of a substantial portion of the
consolidated assets of Investors and its Subsidiaries; a sale of shares of
voting capital stock constituting more
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than 15% of the voting capital stock of Investors (or securities convertible or
exchangeable into or otherwise evidencing, or any agreement or instrument
evidencing, the right to acquire such voting capital stock); a tender offer or
exchange offer for at least 15% of the outstanding shares of Investors Common
Stock; a solicitation of proxies in opposition to approval of the Merger by
Investors' stockholders; or a public announcement of a bona fide proposal, plan
or intention to do any of the foregoing;
(g) propose or adopt any amendments to its corporate charter, by-laws or
the Investors Rights Agreement in any way adverse to Firstar;
(h) authorize, recommend, propose or announce an intention to authorize,
recommend or propose, or enter into an agreement in principle with respect to
any acquisition of a material amount of assets or securities or any release or
relinquishment of any material contract rights not in the ordinary course of
business;
(i) except in their fiduciary capacities, purchase any shares of Firstar
Common Stock;
(j) change any of its methods of accounting in effect at December 31, 1993,
or change any of its methods of reporting income or deductions for federal
income tax purposes from those employed in the preparation of the federal income
tax returns for the taxable year ending December 31, 1993, except as may be
required by law or generally accepted accounting principles;
(k) take action which would or is reasonably likely to (i) adversely affect
the ability of either of Firstar or Investors to obtain any necessary approvals
of governmental authorities required for the transactions contemplated hereby;
(ii) adversely affect Investors' ability to perform its covenants and agreements
under this Agreement; or (iii) result in any of the conditions to the Merger set
forth in Article VIII not being satisfied or in a violation of any provision of
the Bank Merger Agreement;
(l) change the lending, investment, liability management and other material
policies concerning the banking business of Investors and the Investors
Subsidiaries, unless required by Law or order or unless such change does not
cause a materially adverse effect on Investors or any of its Subsidiaries;
(m) make any additional borrowings from the Federal Home Loan Bank of Des
Moines or renew any current such borrowings, in each case other than in the
ordinary course of business consistent with Investors' past practices (it being
understood that Investors increases, renews, extends, borrows, pays, grants
security and other interests with respect to, and otherwise deals with, FHLB
Borrowings in the ordinary course of its business);
(n) pay any fees of any legal counsel or tax adviser retained in connection
with the Merger, including Dorsey & Whitney and KPMG Peat Marwick, calculated on
a basis other than an hourly basis at the maximum rates per hour set forth in
the Investors Disclosure Letter, with bills detailing such hours and hourly
charges to be submitted to Investors prior to the Effective Time;
(o) with respect to properties leased by Investors or any of the Investors
Subsidiaries, renew, exercise an option to extend, cancel or surrender any lease
of real property or allow any such lease to lapse, without prior consultation
with Firstar; or
(p) agree in writing or otherwise to do any of the foregoing.
5.03. Letter of Investors' Accountants. At the request of Firstar,
Investors shall use its best efforts to cause to be delivered to Firstar "cold
comfort" letters of KPMG Peat Marwick, Investors' independent public
accountants, dated the date on which the S-4 shall become effective and the
Effective Time, respectively, and addressed to Firstar, in form and substance
reasonably satisfactory to Firstar and reasonably customary in scope and
substance for letters delivered by independent public accountants in connection
with registration statements similar to the S-4 and transactions such as those
contemplated by the Merger Agreements.
5.04. Access and Information. Except where prohibited by law, upon
reasonable notice, Investors shall (and shall cause its Subsidiaries to) afford
to Firstar's officers, employees, accountants, counsel and other
representatives, access, during normal business hours during the period prior to
the Effective Time, to all books, papers and records relating to the assets,
stock, properties, operations, obligations and liabilities of Investors and the
Investors Subsidiaries, including without limitation all books of account, tax
records, minute
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books of directors' and stockholders' meetings, contracts and agreements,
filings with any regulatory authority, accountants' work papers, litigation
files (other than attorney work product or materials protected by any
attorney-client privilege), documents relating to assets and title thereto,
plans affecting employees, securities transfer records and stockholder lists,
and any books, papers and records relating to other assets, business activities
or prospects in which Firstar may have a reasonable interest, including without
limitation, its interest in planning for integration and transition with respect
to the business of Investors and the Investors Subsidiaries. During such period,
Investors will cause one or more of its representatives to confer on a regular
and frequent basis with representatives of Firstar, to report on the general
status of its ongoing operations and to consult as to the making of any
decisions or the taking of any actions in matters other than in the ordinary
course of business. During such period, Investors shall (and shall cause each of
its Subsidiaries to), except where prohibited by law, furnish promptly to
Firstar (i) a copy of each Investors Report filed or received by it during such
period pursuant to the requirements of federal securities laws, the SLHC Act and
any other federal or state banking or savings institution laws promptly after
such documents are available, (ii) the monthly financial statements of Investors
and the Investors Subsidiaries (as prepared by Investors in accordance with its
normal accounting procedures) promptly after such financial statements are
available, (iii) a summary of any action taken by the Board of Directors, or any
committee thereof, of Investors, (iv) the reports of management of Investors and
each of the Subsidiaries of Investors customarily provided to their respective
Boards of Directors, and (v) all other information concerning its business,
properties and personnel as Firstar may reasonably request. During such period,
Investors shall, and shall cause the Investors Subsidiaries to, instruct its
officers, employees, counsel and accountants to be available for, and respond to
any questions of, Firstar's officers, employees, accountants, counsel and other
representatives at reasonable hours and with reasonable notice by Firstar to
such individuals, and to cooperate fully with Firstar in planning for the
integration of the business of Investors and the Investors Subsidiaries with the
business of Firstar and its Subsidiaries.
5.05. Update Disclosure; Breaches.
(a) From and after the date hereof until the Effective Time, Investors
shall periodically, but not less frequently than monthly, update the Investors
Disclosure Letter by notice to Firstar to reflect any matters which have
occurred from and after the date hereof which, if existing on the date hereof,
would have been required to be described therein; provided, however, that no
such update shall affect the conditions to the obligation of Firstar and Sub to
consummate the transactions contemplated hereby, and any and all changes
contained in any such update shall be considered in determining whether such
conditions have been satisfied.
(b) Investors shall, in the event it becomes aware of the impending or
threatened occurrence of any event or condition which would cause or constitute
a material breach (or would have caused or constituted a breach had such event
occurred or been known prior to the date hereof) of any of its representations
or agreements contained or referred to herein or which would cause any of the
conditions to the obligations of any party set forth in Article VIII not to be
satisfied, give prompt written notice thereof to Firstar and use its best
efforts to prevent or promptly remedy the same.
5.06. Affiliates; Accounting and Tax Treatment; Stock Repurchases. (a)
Investors shall cause any person who becomes an Affiliate of Investors after the
date hereof, by virtue of becoming a director or officer of Investors or any
Investors Subsidiary, and shall use its best efforts to cause any other person
who becomes an Affiliate of Investors after the date hereof, and on or prior to
the Closing Date, to deliver to Firstar a written agreement substantially in the
form attached as Exhibit 5.06 hereto as soon as practicable after attaining such
status and advise such person of the restrictions imposed by applicable
securities laws upon the resale of Firstar Common Stock delivered in connection
with the Merger. Investors will use its best efforts to cause the Merger to
qualify (i) for pooling-of-interests accounting treatment and (ii) as a
reorganization under Section 368(a)(1) of the Code.
(b) Prior to the Closing, Investors shall use its best efforts to
repurchase Investors Common Stock in amounts sufficient to satisfy reasonably
anticipated future issuances of shares of Investors Common Stock prior to the
Effective Time upon the exercise of Investors Stock Options or pursuant to the
Investors Warrants, which repurchases will be made, and Investors will be
required to make such repurchases only to
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the extent that they are made, (i) in compliance with applicable law, (ii) in a
manner that will not adversely affect the ability of the Merger to qualify for
such accounting and tax treatment and (iii) in a manner that will not result in
Investors having "tainted" stock for purposes of pooling-of-interests accounting
treatment in connection with the Merger. As soon as practicable after the date
hereof, Investors shall use its best efforts to obtain any consents necessary to
enable it to make such repurchases of Investors Common Stock. Notwithstanding
the foregoing, Investors shall have no obligation to repurchase Investors Common
Stock from and after such time as Investors has repurchased Investors Common
Stock at an aggregate purchase price equal to or greater than $2.0 million.
5.07. Dissent Process. Investors will give to Firstar prompt notice of its
receipt of any written notice relating to the exercise of dissenters' rights
granted under Section 262 of the DGCL including the name of the dissenting
stockholder and the number of shares of Investors Preferred Stock to which the
dissent relates. Firstar will have the right to participate in all negotiations
and proceedings with Investors stockholders relating to any such notice or the
exercise of such rights, and except as required by law, Investors will not make
any payment with respect to, or settle or offer to settle, any dissent demands
without the prior written consent of Firstar.
5.08. Expenses. (a) "Expenses" as used in this Agreement shall include all
reasonable out-of-pocket expenses (including all fees and expenses of counsel,
accountants, investment bankers, experts and consultants to the party and its
affiliates) incurred by a party or on its behalf in connection with the
consummation of the transactions contemplated by this Agreement.
(b) Except as otherwise provided herein, all Expenses incurred by Firstar
(or Sub) and Investors in connection with or related to the authorization,
preparation and execution of this Agreement, the Plan of Merger, the Bank Merger
Agreement, the solicitation of stockholder approval and all other matters
related to the closing of the transactions contemplated hereby, including,
without limitation of the generality of the foregoing, all fees and expenses of
agents, representatives, counsel and accountants employed by either such party
or its affiliates, shall be borne solely and entirely by the party which has
incurred the same, except that the parties shall share equally in the expense of
printing the S-4 and Prospectus/Proxy Statement and the expense of all SEC and
other regulatory filing fees incurred in connection herewith.
5.09. Delivery of Stockholder List. Investors shall arrange to have its
transfer agent deliver to Firstar or its designee, from time to time prior to
the Closing Date, a true and complete list setting forth the names and addresses
of all holders of record of Investors Common Stock and Investors Preferred
Stock, their holdings of such stock as of the latest practicable date, and such
other stockholder information as is reasonably available to Investors that
Firstar may reasonably request.
5.10. Audited Financial Statements. Investors shall use its best efforts to
cause its independent public accountants to deliver to Firstar, by February 15,
1995, an audited consolidated financial report of Investors as of and for the
period ended December 31, 1994, and to make available to Firstar and its
independent public accountants for their review the working papers of Investors'
independent public accountants prepared in connection with such audit prior to
and after January 31, 1995.
5.11. Bank-Level Transactions. Investors will, and will cause Investors
Subsidiaries to, cooperate with Firstar and Sub in the preparation by Firstar or
Sub of applications to the Federal Reserve Board, the Comptroller, the OTS and
other appropriate regulatory authorities to effect, contingent on and
immediately after consummation of the Merger, the Bank Merger and such other
transactions as are contemplated by Section 1.04, including the Conversion.
5.12. Sale of Investment Securities. After the receipt of all necessary
regulatory approvals of the Merger and the Bank Merger and prior to the
Effective Time, Investors shall cause its Subsidiaries to sell such financial
instruments in its investment securities portfolio as Firstar may identify from
time to time.
5.13. Accounting Matters. Immediately prior to and on the Closing Date,
after all anticipated loan losses have been charged off, Investors shall
increase its consolidated reserve for losses on loans to no less than an amount
requested by Firstar.
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5.14. Servicing Rights. Prior to the Effective Time, Investors will not
sell any mortgage loan servicing rights, except for a sale of servicing rights
relating to loans having a value up to $150.0 million to be consummated by
September 30, 1994.
5.15. Stockholder Meeting. (a) Investors shall call a meeting of its
stockholders for the purpose of voting upon the Merger Agreements and related
matters and deliver notice of such meeting, as part of the Prospectus/Proxy
Statement (as defined in Section 7.02(a)), to Investors stockholders in
accordance with applicable law and the Investors Certificate. Investors shall
coordinate and cooperate with Firstar with respect to the timing of such meeting
and shall use its best efforts to hold such meeting as soon as practicable after
the date hereof, but in no event later than the later of (i) December 31, 1994
and (ii) thirty-five days after the S-4 becomes effective under the Securities
Act. Unless otherwise required by law, Investors shall not, at such
stockholders' meeting, submit any other matter for approval of its stockholders
(except with the prior written consent of Firstar).
(b) Investors will, through its Board of Directors, (i) unanimously
recommend to its stockholders approval of such matters, (ii) not withdraw,
modify or amend such recommendations, and (iii) use its best efforts to obtain
such stockholder approval; provided, however, that nothing contained in this
sentence shall prohibit the Board of Directors of Investors from failing to
recommend such approval or withdrawing, modifying or amending its recommendation
as a result of the receipt of an unsolicited bona fide written proposal to
acquire Investors pursuant to a merger, consolidation, tender offer, share
exchange, business combination, stock or asset purchase or other similar
transaction if (A) the Board of Directors, after consultation with and based
upon receipt of written advice from Dorsey & Whitney (a copy of which Investors
shall promptly deliver to Firstar), or other counsel acceptable to Firstar,
determines in good faith that such action is required for the Board of Directors
to comply with its fiduciary duties to Investors' stockholders under applicable
law and (B) the Board of Directors of Investors has no reason to believe that
the written proposal is not made in good faith. Notwithstanding the foregoing,
to the extent permitted by applicable law, the Board of Directors of Investors
must take such action as is necessary to allow the stockholders of Investors to
vote upon the Merger Agreements in accordance with the DGCL.
5.16. Acquisitions of Real Estate. During the period prior to the Effective
Time, Investors shall cause each Investors Subsidiary that proposes to acquire
ownership or possession of any real property (other than single family
residential real property), through foreclosure or repossession or otherwise, to
conduct an environmental assessment of such property meeting the requirements
described in Section 7.07 and any further environmental investigation, sampling
or analysis reasonably required to ensure that such Investors Subsidiary shall
not acquire ownership or possession of any real property that is reasonably
likely to cause the Investors Subsidiary to be subject to or incur any
liabilities, damages, penalties or removal, remediation or other costs as a
result of its ownership or control of the property that will exceed the value of
the property.
5.17. Debt Redemption. As soon as practicable on or after January 1, 1995,
and in any event prior to the Effective Time, Investors will redeem in full its
10% Subordinated Debentures due April 1, 1996 without premium in accordance with
the terms of such debentures.
5.18. Investors Warrants Notices. Prior to the Effective Time, Investors
shall deliver to holders of Investors Warrants any and all notices required
under the Investors Warrant Agreement.
ARTICLE VI
COVENANTS OF FIRSTAR AND SUB
6.01. Affirmative Covenants. Firstar hereby covenants and agrees with
Investors that prior to the Effective Time, unless the prior written consent of
Investors shall have been obtained (which consent shall not be unreasonably
withheld) and except as otherwise contemplated herein, it will:
(a) maintain its corporate existence in good standing and maintain all
books and records in accordance with accounting principles and practices as
utilized in the Firstar Financial Statements applied on a consistent basis,
except as may be required to implement changes in generally accepted accounting
principles; and
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(b) conduct its business in a manner that does not violate any Law, except
for possible violations which individually or in the aggregate do not, and,
insofar as reasonably can be foreseen, in the future will not, have a Firstar
Material Adverse Effect.
6.02. Negative Covenants. Except as specifically contemplated by this
Agreement, from the date hereof until the Effective Time, Firstar shall not do,
or agree or commit to do, or permit any of its Subsidiaries to do, without the
prior written consent of Investors (which shall not be unreasonably withheld)
any of the following:
(a) propose or adopt any amendments to its corporate charter or by-laws in
any way adverse to Investors; provided, however, that any amendment to the
bylaws of Firstar to increase the size of its Board of Directors shall not be
deemed adverse to Investors and any amendment to the Restated Articles of
Incorporation of Firstar effected solely by action of the Board of Directors of
Firstar shall not be deemed adverse to Investors;
(b) take action which would or is reasonably likely to (i) adversely affect
the ability of either of Firstar or Investors to obtain any necessary approvals
of governmental authorities required for the transactions contemplated hereby;
(ii) adversely affect Firstar's ability to perform its covenants and agreements
under this Agreement; or (iii) result in any of the conditions to the Merger set
forth in Article VIII not being satisfied; or
(c) agree in writing or otherwise to do any of the foregoing.
6.03. Firstar Rights Plan. Nothing herein shall be deemed to prohibit
Firstar from (a) redeeming the Firstar Rights or (b) if the Firstar Rights are
so redeemed, entering into a new rights agreement similar to the Firstar Rights
Agreement; provided that, as to this clause (b), holders of Investors Common
Stock become entitled to any benefits thereof by virtue of the Merger or the
Exchange Ratio is appropriately adjusted.
6.04. Breaches. Firstar shall, in the event it becomes aware of the
impending or threatened occurrence of any event or condition which would cause
or constitute a material breach (or would have caused or constituted a breach
had such event occurred or been known prior to the date hereof) of any of its
representations or agreements contained or referred to herein or which would
cause any of the conditions to the obligations of any party set forth in Article
VIII not to be satisfied, give prompt written notice thereof to Investors and
use its best efforts to prevent or promptly remedy the same.
6.05. Stock Exchange Listing. Firstar shall use its best efforts to cause
the shares of Firstar Common Stock to be issued in the Merger to be approved for
listing on the New York Stock Exchange ("NYSE"), subject to official notice of
issuance, prior to the Closing Date.
6.06. Firstar Bank Board. Promptly after the Effective Time, Firstar and
Sub shall cause Sub and Firstar Bank to increase the number of directors on each
of its Boards of Directors by one and the vacancy thus created to be filled by
the election of James M. Burkholder.
6.07. Supplemental Warrant Agreement. Effective as of the Effective Time,
Firstar shall execute a supplemental warrant agreement to the Investors Warrant
Agreement as provided in Section 10(H) of the Investors Warrant Agreement (the
"Supplemental Warrant Agreement").
6.08 Supplemental Indenture; Registration Relating to Options and
Warrants. Effective as of the Effective Time, Sub will execute a Supplemental
Indenture pursuant to Section 801 of the Indenture between Investors and Norwest
Bank Minnesota, N.A., as trustee governing Investors' 9.25% Subordinated Notes
due 2002. Firstar shall take all corporate action necessary to reserve for
issuance a sufficient number of shares of Firstar Common Stock for delivery upon
exercise of the Firstar Warrants and the Firstar Stock Options. Firstar shall
use its best efforts to register the Firstar Common Stock underlying the Firstar
Warrants and the Firstar Common Stock issuable upon exercise of the Firstar
Stock Options under the Securities Act of 1933 as of the Effective Time 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 Firstar Warrants and Firstar Stock
Options remain outstanding.
6.09. Accounting and Tax Treatment. Firstar will use its best efforts to
cause the Merger to qualify (i) for pooling-of-interests accounting treatment
and (ii) as a reorganization under Section 368(a)(1) of the Code.
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6.10. Bank Merger Agreement. Within ten days after the date hereof, Firstar
and Sub shall cause the Board of Directors of Firstar Bank to duly authorize the
execution and delivery of the Bank Merger Agreement and the consummation of the
transactions contemplated thereby.
6.11. Expenses. Firstar agrees that if this Agreement or the transactions
contemplated hereby are terminated by Investors pursuant to Section
10.01(a)(ii), Firstar shall promptly (and in any event within two days after
such termination) pay Investors all Expenses of Investors, but not to exceed
$1.0 million.
ARTICLE VII
ADDITIONAL AGREEMENTS
7.01. Filings and Approvals.
(a) Each party will use all reasonable efforts and will cooperate with the
other in the preparation and filing, as soon as practicable, of all applications
or other documents required to obtain regulatory approvals and consents required
from the Federal Reserve Board, the OTS and the Comptroller and from any other
applicable regulatory authorities and provide copies of nonconfidential portions
of such applications, filings and related correspondence to the other parties.
Prior to filing each application, registration statement or other documents 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 of Firstar
and Investors shall ensure that none of the information supplied or to be
supplied by it for inclusion or incorporation by reference in any documents to
be filed with the Federal Reserve Board, the OTS, the Comptroller or any other
regulatory agency in connection with the transactions contemplated hereby will,
at the time of filing, contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein. 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 cause the conditions set forth in
Article VIII to be satisfied and to consummate and make effective as promptly as
practicable the transactions contemplated by this Agreement. Notwithstanding the
foregoing, in the event the Federal Reserve Board, OTS, Comptroller or other
regulatory agency requests information pertaining to Investors or Investors
Bank, to the extent permitted by the agency, Investors shall have the right to
submit such information directly to the regulatory agency making such request,
and Investors shall provide copies of such information to Firstar. Firstar shall
keep Investors advised of all material regulatory developments in a timely
manner.
(b) In the event of a restraining order or injunction which prevents the
Closing by reason of the operation of Section 8.01(d), Investors, Firstar and
Sub shall use their respective best efforts to cause such order or injunction to
be lifted and the Closing consummated as soon as reasonably practicable.
7.02. Registration Statement.
(a) For the purposes (i) of holding a meeting of the stockholders of
Investors to approve this Agreement and the Merger (the "Meeting") and (ii) of
registering the Firstar Common Stock to be issued to holders of Investors Common
Stock 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 "S-4"), which shall include a prospectus/proxy statement satisfying all
applicable requirements of the Securities Act, the Exchange Act, applicable
state securities laws and the rules and regulations thereunder (such
prospectus/proxy statement, together with any and all amendments or supplements
thereto, being herein referred to as the "Prospectus/Proxy Statement").
(b) Firstar shall furnish such information concerning Firstar as is
necessary in order to cause the Prospectus/Proxy Statement, insofar as it
relates to Firstar, to be prepared in accordance with Section 7.02(a). Firstar
agrees promptly to advise Investors if any time prior to the Meeting any
information provided by
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Firstar 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. At the time the S-4 becomes effective and at the time
the Prospectus/Proxy Statement is mailed to the stockholders of Investors and at
all times subsequent to such mailing up to and including the time of the
Meeting, the S-4 and such Prospectus/Proxy Statement (including any amendments
or supplements thereto), with respect to all information set forth therein
relating to Firstar (including the Firstar Subsidiaries) and the Firstar Common
Stock, this Agreement, the Merger and all other transactions contemplated
hereby, will (a) comply in all material respects with applicable provisions of
the Securities Act and the Exchange 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.
(c) Investors shall furnish Firstar with such information concerning
Investors and the Investors Subsidiaries as is necessary in order to cause the
Prospectus/Proxy Statement, insofar as it relates to Investors and the Investors
Subsidiaries, to be prepared in accordance with Section 7.02(a). Investors
agrees promptly to advise Firstar if at any time prior to the Meeting any
information provided by Investors in the Prospectus/Proxy Statement becomes
incorrect or incomplete in any material respect, and to provide Firstar with the
information needed to correct such inaccuracy or omission. At the time the S-4
becomes effective and at the time the Prospectus/Proxy Statement is mailed to
the stockholders of Investors and at all times subsequent to such mailing up to
and including the time of the Meeting, the S-4 and such Prospectus/Proxy
Statement (including any supplements thereto), with respect to all information
set forth therein relating to Investors (including the Investors Subsidiaries)
and its stockholders, Investors Common Stock, this Agreement, the Merger and all
other transactions contemplated hereby will (a) comply in all material respects
with applicable provisions of the Securities Act and the Exchange 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.
(d) Firstar shall promptly file the S-4 with the SEC and applicable state
securities agencies. Firstar shall use reasonable efforts to cause the S-4 to
become effective under the Securities Act and applicable state securities laws
at the earliest practicable date. Investors authorizes Firstar to utilize in the
S-4 the information concerning Investors and its Subsidiaries provided to
Firstar for the purpose of inclusion in the Prospectus/Proxy Statement.
Investors shall have the right to review and comment on the form of proxy
statement included in the S-4. Firstar shall advise Investors promptly when the
S-4 has become effective and of any supplements or amendments thereto, and
Firstar shall furnish Investors with copies of all such documents. Prior to the
Effective Time 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 Securities Act.
7.03. Indemnification and Insurance.
(a) From and after the Effective Time, Firstar shall indemnify, defend and
hold harmless each person who is now, or has been at any time to the date hereof
or who becomes prior to the Effective Time, an officer or director of Investors
or any of the Investors Subsidiaries (the "Indemnified Parties") against all
losses, claims, damages, costs, expenses (including reasonable attorneys' fees),
liabilities or judgments or amounts that are paid in settlement (which
settlement shall require the prior written consent of Firstar, 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 or officer of Investors or any of its Subsidiaries if such Claim
pertains to any matter or fact arising, existing or occurring prior to the
Effective Time (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 Time (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 Time and under the Investors
Certificate and Investors' bylaws as in effect on the date hereof (and Firstar
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 the Investors Certificate or such bylaws, upon receipt of any undertaking
contemplated by Section 8.05(a)
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of the Bylaws of Firstar). Any Indemnified Party wishing to claim
indemnification under this Section 7.03(a), upon learning of any Claim, shall
notify Firstar (but the failure to so notify Firstar shall not relieve Firstar
from any liability which Firstar may have under this Section 7.03(a) except to
the extent Firstar is prejudiced thereby) and shall deliver to Firstar any
undertaking contemplated by Section 8.05(a) of the bylaws of Firstar.
Notwithstanding the foregoing, the Indemnified Parties as a group may retain
only one law firm to represent them with respect to each matter under this
Section 7.03(a) unless there is, under applicable standards of professional
conduct, a conflict on any one significant issue between the positions of any
two or more Indemnified Parties. Firstar 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 Investors
Certificate and Investors' bylaws, as in effect as of the date hereof, with
respect to claims or liabilities arising from facts or events existing or
occurring prior to the Effective Time (including, without limitation, the
transactions contemplated by this Agreement), shall survive the Merger. The
obligations of Firstar described in this Section 7.03(a) shall continue in full
force and effect, without any amendment thereto, for a period of not less than
five years from the Effective Time; 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. Nothing in this
Section 7.03(a) shall affect the obligations to be assumed in the Merger by
Firstar to indemnify former directors and officers of Investors or Investors
Bank pursuant to the terms of the indemnification agreements in effect as of the
date hereof and as disclosed to Firstar in the Investors Disclosure Letter.
(b) From and after the Effective Time, the directors, officers, and
employees of Investors and the Investors Subsidiaries who become directors,
officers or employees of Firstar or any of its Subsidiaries, except for the
indemnification rights set forth in Section 7.03(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
Firstar are entitled under the provisions of the Restated Articles of
Incorporation of Firstar or similar governing documents of Firstar and its
Subsidiaries, as in effect from time to time after the Effective Time, as
applicable, and provisions of applicable law as in effect from time to time
after the Effective Date.
(c) The obligations of Firstar provided under Sections 7.03(a) are intended
to benefit, and be enforceable against Firstar directly by, the Indemnified
Parties, and shall be binding on all respective successors of Firstar.
(d) For three years from and after the Effective Time, Firstar will
maintain or cause Sub to maintain Investors' current insurance policy for
directors' and officers' liabilities or an equivalent policy having terms and
conditions no less favorable to all present and former directors and officers of
Investors and the Investors Subsidiaries who are covered by such current
insurance policy than those in effect for such persons on the date of this
Agreement; provided, however, that (i) Firstar's obligation under this
subsection (d) shall be satisfied as to any year at such time as Firstar and/or
Sub shall have incurred annual costs to maintain insurance in accordance with
this subsection equal to 150% of the annual premium charge heretofore paid by
Investors and (ii) such directors and officers may be required to make
application and provide customary representations and warranties to Firstar's
insurance carrier for the purpose of obtaining such coverage.
7.04. Reports.
(a) Prior to the Effective Time, (i) Investors shall prepare and file as
and when required all Investors Reports and (ii) Firstar shall prepare and file
as and when required all Firstar Reports.
(b) Investors and Firstar shall prepare such Investors Reports and Firstar
Reports, respectively, such that (i) they comply in all material respects with
all of the statutes, rules and regulations enforced or promulgated by the
regulatory authority with which they are filed and do not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading, and (ii) with
respect to any Investors Reports or Firstar Reports containing financial
information of the type included in the Investors Financial Statements or the
Firstar Financial Statements, respectively, the financial information (A) is
prepared in accordance with generally accepted accounting principles as utilized
in the Investors Financial Statements or the Firstar Financial Statements, as
the case may be, applied on a consistent basis
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(except as stated therein or in the notes thereto), (B) presents fairly the
consolidated financial condition of Investors or Firstar, as the case may be, at
the dates, and the consolidated results of operations and cash flows for the
periods, stated therein and (C) in the case of interim fiscal periods, reflects
all adjustments, consisting only of normal recurring items, subject to year-end
audit adjustments.
7.05. Brokers or Finders. Each of Firstar and Investors represents, as to
itself, its Subsidiaries and its affiliates, that no agent, broker, investment
banker, financial advisor or other firm or person is or will be entitled to any
broker's or finder's fee or any other commission or similar fee in connection
with any of the transactions contemplated by this Agreement, except Piper
Jaffray Inc., whose fees and expenses will be paid by Investors in accordance
with Investors' agreement with such firm (a copy of which has been delivered by
Investors to Firstar prior to the date of this Agreement), and each of Firstar
and Investors respectively agree to indemnify and hold the other harmless from
and against any and all claims, liabilities or obligations with respect to any
other fees, commissions or expenses asserted by any person on the basis of any
act or statement alleged to have been made by such party or its affiliate.
Investors represents that neither it nor its Subsidiaries has paid or agreed to
pay any fee to its legal counsel, Dorsey & Whitney, or its certified public
accountants, KPMG Peat Marwick, other than on the basis set forth in Section
5.03(n) in connection with the transactions contemplated by this Agreement.
7.06. Additional Agreements; Reasonable Efforts. Subject to the terms and
conditions of this Agreement, each of the parties hereto agrees to use all
reasonable efforts to take, or cause to be taken, all action and to do, or cause
to be done, all things necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the transactions contemplated by
this Agreement and the Bank Merger Agreement, subject to the appropriate vote of
stockholders of Investors described in Section 8.01(a), including cooperating
fully with the other party. In case at any time after the Effective Time any
further action is reasonably necessary or desirable to carry out the purposes of
this Agreement or to vest Sub with full title to all properties, assets, rights,
approvals, immunities and franchises of either of Sub or Investors, the proper
officers and directors of each party to this Agreement shall take all such
necessary action.
7.07. Environmental Audits. Firstar shall engage, at Investors' expense, an
environmental consulting engineering firm, reasonably acceptable to Investors,
to perform environmental site assessments of parcels of the Investors Property
comprising all operating facilities of Investors and the Investors Subsidiaries
(whether owned or leased) or otherwise carried on the books of Investors or any
Investors Subsidiary (other than single family residential real property)
including, but not limited to, "real estate owned" properties of Investors or
any Investors Subsidiary (collectively, the "Audited Properties") which shall
satisfy the American Society of Testing and Materials "Standard Practice for
Environmental Site Assessments: Phase I Environmental Site Assessment Process"
(ASTM Designation: E-1527-93) (the "Environmental Audits") and render reports of
the Environmental Audits (the "Environmental Reports") to determine, to
Firstar's satisfaction, whether there are any indications or evidence that (i)
any Toxic Substance has been stored, deposited, treated, recycled, used or
accidentally or intentionally disposed of, discharged, spilled, released,
dumped, emitted or otherwise placed on, under or at, or used in any construction
on, any such Audited Property, (ii) any such Audited Property is contaminated by
or contains any Toxic Substance or (iii) any violations of Environmental Laws
have occurred or are likely to occur on any Audited Property. The scope of the
Environmental Audits shall include any testing or sampling of materials to
determine, to Firstar's satisfaction, whether any cleanup, removal, remedial
action or other response is required to bring the Audited Properties into
material compliance with Environmental Laws or to eliminate any condition that
could result in a material liability as a result of the ownership, lease,
operation or use of any Audited Property and the estimated cost of such cleanup,
removal, remedial action or other response. Firstar will use reasonable efforts
to engage an environmental consulting engineering firm within 10 days of the
date hereof and Firstar and Investors will use reasonable efforts to cause the
Environmental Audits to be completed within 45 days of the date hereof. Nothing
contained in the Environmental Reports shall diminish or expand Investors'
obligations with respect to the representations and warranties in Section 3.07
or affect the consequences of any such representation or warranty proving to
have been untrue, incomplete or misleading in any respect. Notwithstanding the
foregoing, (i) if this Agreement and the transactions contemplated hereby are
terminated, then Firstar shall reimburse
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Investors for expenses incurred pursuant to this Section 7.07 and (ii) this
Section 7.07 shall not apply to the Investor Properties identified on Exhibit
7.07.
7.08. Firstar Benefit Plans. On or before the first January 1 that is at
least 90 days after the Effective Time, Firstar shall provide to retained
employees of Investors or of any Investors Subsidiary all corporate-wide
employee retirement, health, dental, life and long-term disability benefits that
Firstar and its subsidiaries provide to their similarly situated employees,
subject to the age and eligibility requirements for such benefits. Each such
employee's last continuous period of service prior to the Effective Time with
Investors or any Investors Subsidiary shall count for purposes of determining
eligibility and vesting (but not benefit amounts) for all such benefits. If such
coverage under the Firstar benefits is not provided immediately after the
Effective Time, Firstar shall continue the Investors' plans until the comparable
coverage is effective under Firstar's plans so that no lapse in benefit occurs.
Without limiting the generality of the foregoing, no preexisting condition
limits shall be applied to participants in Investors Benefit Plans upon their
eligibility for such Firstar benefits (except for continuation of any such
limits that were in effect under the respective Investors Benefit Plans).
ARTICLE VIII
CONDITIONS PRECEDENT
8.01. Conditions to Each Party's Obligation to Effect the Merger. The
respective obligations of each party to effect the Merger shall be subject to
the satisfaction prior to the Closing Date of the following conditions:
(a) Corporate Approval. The Merger Agreements shall have been approved and
adopted by the requisite vote of the holders of the outstanding shares of
Investors Common Stock.
(b) Regulatory Approvals. The Merger Agreements and the transactions
contemplated hereby and either the Bank Merger Agreement and the transactions
contemplated thereby or the acquisition of all of Investors Bank's assets by two
de novo national banking associations to be chartered by Sub shall have been
approved by the Federal Reserve Board, the Comptroller and the OTS without any
condition not reasonably satisfactory to Firstar, all conditions required to be
satisfied prior to the Effective Time imposed by the terms of such approvals
shall have been satisfied and all waiting periods relating to such approvals
shall have expired.
(c) S-4; Securities Laws. The S-4 shall have become effective under the
Securities Act and shall not be the subject of any stop order or proceedings
seeking a stop order. Firstar shall have received all state securities or "blue
sky" permits, exemptions or permits under applicable takeover laws and other
authorizations necessary to issue the Firstar Common Stock in exchange for the
Investors Common Stock and to consummate the Merger.
(d) No Injunctions or Restraints. No temporary restraining order,
preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition (an "Injunction")
preventing the consummation of the Merger shall be in effect.
(e) Listing of Firstar Common Stock. The Firstar Common Stock issuable in
the Merger shall have been authorized for listing on the New York Stock
Exchange, upon official notice of issuance.
(f) Tax Opinion. An opinion of Foley & Lardner, to the effect that the
Merger will be treated for federal income tax purposes as a reorganization
within the meaning of Section 368(a) of the Code, and that Firstar, Sub and
Investors will each be a party to that reorganization within the meaning of
Section 368(b) of the Code, dated on or about the date that is two business days
prior to the date the Prospectus/Proxy Statement is first mailed to stockholders
of Investors, shall have been delivered to Investors and to Firstar and shall
not have been withdrawn or modified in any material respect.
(g) Fairness Opinion. Investors shall have received, in form reasonably
satisfactory to Investors, an opinion of Piper Jaffray, Inc., dated as of the
date of the Prospectus/Proxy Statement, substantially to the effect that the
consideration to be received in the Merger by Investors' stockholders is fair to
such stockholders
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from a financial point of view, which opinion may be included in the
Prospectus/Proxy Statement. Notwithstanding the foregoing, this condition shall
be deemed waived if the Prospectus/Proxy Statement is mailed to Investors'
stockholders without such opinion.
8.02. Conditions of Obligations of Firstar and Sub. The obligations of
Firstar and Sub to effect the Merger are subject to the satisfaction of the
following conditions unless waived in writing by Firstar and Sub:
(a) Representations and Warranties. (i) Each of the representations and
warranties of Investors set forth in this Agreement, without giving effect to
any update to the Investors Disclosure Letter or notice to Firstar under Section
5.05, shall be true and correct in all material respects as of the date of this
Agreement, (ii) in the aggregate, such representations and warranties, without
giving effect to any update to the Investors Disclosure Letter or notice to
Firstar under Section 5.05, shall be true and correct in all material respects
as of the Closing Date as though made on and as of the Closing Date (except to
the extent such representations and warranties speak as of an earlier date),
except for changes expressly contemplated by this Agreement, and (iii) Firstar
and Sub shall have received a certificate signed on behalf of Investors by the
chief executive officer and by the chief financial officer of Investors to such
effect.
(b) Performance of Obligations of Investors. Investors shall have performed
in all material respects each of the obligations required to be performed by it
under this Agreement, the Plan of Merger and the Bank Merger Agreement at or
prior to the Closing Date, and Firstar and Sub shall have received a certificate
signed on behalf of Investors by the chief executive officer and by the chief
financial officer of Investors to such effect.
(c) Consents Under Agreements. Investors shall have obtained the consent or
approval of each person whose consent or approval shall be required in order to
permit the succession by Sub pursuant to the Merger to any obligation, right or
interest of Investors or any Investors Subsidiary under any loan or credit
agreement, note, mortgage, indenture, lease or other agreement or instrument,
except those for which failure to obtain such consents and approvals would not,
individually or in the aggregate, have an Investors Material Adverse Effect,
whether prior to or following the consummation of the transactions contemplated
hereby.
(d) Pooling Opinions. Firstar shall have received an opinion from KPMG Peat
Marwick, as independent public accountants of Firstar, and an opinion from KPMG
Peat Marwick, as independent public accountants of Investors, to the effect that
the Merger qualifies for pooling-of-interests accounting treatment if
consummated in accordance with the Merger Agreements.
(e) No Amendments to Resolutions. Neither the Board of Directors of
Investors nor any committee thereof shall have (i) amended, modified, rescinded
or repealed the resolutions adopted by the Board of Directors of Investors at a
meeting duly called and held on August 21, 1994 (accurate and complete copies of
which have been provided to Firstar) in any manner that adversely affects
Firstar or (ii) adopted any other resolutions in connection with this Agreement
and the transactions contemplated hereby inconsistent with such resolutions in
any manner that adversely affects Firstar.
(f) No Material Adverse Change. There shall have been no material adverse
change since the date of this Agreement in the business, operations, prospects
or financial condition of Investors and the Investors Subsidiaries taken as a
whole, other than any changes resulting primarily by reason of changes in
savings institution laws or regulations (or interpretations thereof), changes in
the general level of interest rates or changes in economic, financial or market
conditions affecting the savings institution industry generally in the regions
in which Investors and the Investors Subsidiaries operate, and Firstar and Sub
shall have received a certificate signed on behalf of Investors by the chief
executive officer and by the chief financial officer of Investors to such
effect.
(g) No Proceeding or Litigation. No material action, suit or proceeding
before any court or any governmental or regulatory authority shall be pending
against Firstar, Investors or any affiliate, associate, officer or director of
either of them (other than litigation commenced by Firstar or any of its
affiliates so long as no order or injunction of a court of competent
jurisdiction is in effect in such litigation on the Closing Date that does
restrain, enjoin or prevent the Closing), seeking to restrain, enjoin, prevent,
change or rescind the transactions contemplated hereby or questioning the
validity or legality of any such transactions.
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(i) Accountant's Review Letters. Firstar shall have received the letters
described in Section 5.03 regarding the financial statements of Investors.
(j) Opinion of Counsel. Investors shall have delivered to Firstar an
opinion of its counsel, Dorsey & Whitney, dated as of the Closing Date and in
form and substance satisfactory to the counsel of Firstar, to the effect that:
(i) Investors is a corporation validly existing and in good standing under the
laws of its jurisdiction of incorporation with full corporate power and
authority to enter into this Agreement and the Plan of Merger and to consummate
the transactions contemplated thereby; (ii) Investors is registered as a savings
and loan holding company under the SLHC Act; (iii) Investors Bank is a federally
chartered savings bank duly organized, validly existing and in good standing
under the laws of the United States; (iv) Investors has the corporate power to
consummate the transactions on its part contemplated by this Agreement; (v)
Investors Bank has the corporate power to consummate the transactions on its
part contemplated by the Bank Merger Agreement; (vi) this Agreement and the Plan
of Merger have been duly and validly authorized, executed and delivered on
behalf of Investors and constitute (subject to standard exceptions to
enforceability arising from the bankruptcy laws and rules of equity and to
claims relating to conformance with fiduciary obligations) valid and binding
agreements of Investors; (vii) the Bank Merger Agreement has been duly and
validly authorized, executed and delivered on behalf of Investors Bank and
constitutes (subject to standard exceptions to enforceability arising from the
bankruptcy laws and rules of equity) a valid and binding agreement of Investors
Bank; (viii) the execution of the Articles of Merger and Certificate of Merger
by Investors has been duly and validly authorized; (ix) neither the execution
and delivery of this Agreement and the Plan of Merger by Investors and the
consummation of the transactions contemplated hereby, nor the execution and
delivery of the Bank Merger Agreement by Investors Bank and the consummation of
the transactions contemplated thereby, result in a Violation pursuant to any
provision of the Investors Certificate, the by-laws of Investors, the charter,
certificate or articles of incorporation or by-laws of any Investors Subsidiary,
the DGCL, to the knowledge of such counsel, any agreement included in a
certificate delivered to such counsel and Firstar by the chief executive officer
and the chief financial officer of Investors setting forth all agreements to
which Investors or any Investors Subsidiary is a party that are material to
Investors and its Subsidiaries taken as a whole; and (x) in the course of the
preparation of the S-4 and the Prospectus/Proxy Statement such counsel has
considered the information set forth therein relating to Investors in light of
the matters required to be set forth therein, and has participated in
conferences with officers and representatives of Investors and Firstar,
including their respective counsel and independent public accountants, during
the course of which the contents of the S-4 and the Prospectus/Proxy Statement
and related matters relating to Investors were discussed. Such counsel has not
independently checked the accuracy or completeness of, or otherwise verified,
and accordingly is not passing upon, and does not assume responsibility for, the
accuracy, completeness or fairness of the statements contained in the S-4 or the
Prospectus/Proxy Statement; and such counsel has relied as to materiality, to a
large extent, upon the judgment of officers and representative of Investors and
Firstar. However, as a result of such consideration and participation, nothing
has come to such counsel's attention which causes such counsel to believe that
the S-4 (other than the financial statements, financial data, statistical data
and supporting schedules included therein, and information relating to or
supplied by Firstar as to which such counsel expresses no belief), at the time
it became effective, contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements therein not misleading or that the Prospectus/Proxy
Statement (other than the financial statements, financial data, statistical data
and supporting schedules included therein, and information relating to or
supplied by Firstar, as to which such counsel expresses no belief), at the time
the S-4 became effective, included any untrue statement of a material fact or
omitted to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.
(l) Reserve for Losses on Loans. As of and on the Closing Date, Investors'
consolidated reserve for losses on loans after all anticipated loan losses have
been charged off shall not be less an amount requested by Firstar.
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8.03. Conditions of Obligations of Investors. The obligation of Investors
to effect the Merger is subject to the satisfaction of the following conditions
unless waived by Investors:
(a) Representations and Warranties. (i) Each of the representations and
warranties of Firstar and Sub set forth in this Agreement, without giving effect
to any notice to Investors pursuant to Section 6.04, shall be true and correct
in all material respects as of the date of this Agreement, (ii) in the
aggregate, such representations and warranties, without giving effect to any
update to the Firstar Disclosure Letter or notice to Investors under Section
6.04, shall be true and correct in all material respects as of the Closing Date
as though made on and as of the Closing Date (except to the extent such
representations speak as of an earlier date) except for changes expressly
contemplated by this Agreement, and (iii) Investors shall have received a
certificate signed on behalf of Firstar by the Chief Executive Officer and by
the chief financial officer of Firstar to such effect.
(b) Performance of Obligations of Firstar and Sub. Firstar and Sub shall
have performed in all material respects each of the obligations required to be
performed by them under this Agreement and the Plan of Merger at or prior to the
Closing Date, and Investors shall have received a certificate signed on behalf
of Firstar by the Chief Executive Officer and by the chief financial officer of
Firstar to such effect.
(c) Consents Under Agreements. Firstar shall have obtained the consent or
approval of each person (other than the Federal Reserve Board) whose consent or
approval shall be required in connection with the transactions contemplated
hereby under any loan or credit agreement, note, mortgage, indenture, lease or
other agreement or instrument, except those for which failure to obtain such
consents and approvals would not, in the reasonable opinion of Investors,
individually or in the aggregate, have a Firstar Material Adverse Effect or upon
the consummation of the transactions contemplated hereby.
(d) No Amendments to Resolutions. Neither the Board of Directors of Firstar
nor any committee thereof shall have amended, modified, rescinded or repealed
the resolutions adopted by the Board of Directors of Firstar at a meeting duly
called and held on July 21, 1994 and shall not have adopted any other
resolutions in connection with this Agreement and the transactions contemplated
hereby inconsistent with such resolutions.
(e) Opinion of Counsel. Firstar shall have delivered to Investors an
opinion of Howard H. Hopwood III, Senior Vice President and General Counsel of
Firstar, dated as of the Closing Date and in form and substance reasonably
satisfactory to the counsel of Investors, to the effect that: (i) each of
Firstar and Sub is a corporation validly existing under the laws of its
jurisdiction of incorporation with full corporate power and authority to enter
into this Agreement and the Plan of Merger and to consummate the transactions
contemplated thereby; (ii) all corporate proceedings on the part of Firstar and
Sub necessary to be taken in connection with the Merger and (except for the
filing of the Articles of Merger and Certificate of Merger) necessary to make
same effective have been duly and validly taken; (iii) this Agreement has been
duly and validly authorized, executed and delivered on behalf of Firstar and
constitutes (subject to standard exceptions to enforceability arising from the
bankruptcy laws and rules of equity) a valid and binding agreement of Firstar;
(iv) the execution of the Articles of Merger and Certificate of Merger by
Firstar and Sub has been duly and validly authorized; (v) the shares of Firstar
Common Stock to be issued in the Merger will, when issued, be duly authorized,
validly issued, fully paid and non-assessable (except as provided in Section
180.0622(2)(b) of the WBCL); and (vi) in the course of the preparation of the
S-4 and the Prospectus/Proxy Statement such counsel has considered the
information set forth therein relating to Firstar in light of the matters
required to be set forth therein, and has participated in conferences with
officers and representatives of Investors and Firstar, including their
respective counsel and independent public accountants, during the course of
which the contents of the S-4 and the Prospectus/Proxy Statement and related
matters relating to Firstar were discussed. Such counsel has not independently
checked the accuracy or completeness of, or otherwise verified, and accordingly
is not passing upon, and does not assume responsibility for, the accuracy,
completeness or fairness of the statements contained in the S-4 or the
Prospectus/Proxy Statement; and such counsel has relied as to materiality, to a
large extent, upon the judgment of officers and representative of Investors and
Firstar. However, as a result of such consideration and participation, nothing
has come to such counsel's attention which causes such counsel to believe that
the S-4 (other than the
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financial statements, financial data, statistical data and supporting schedules
included therein, and information relating to or supplied by Investors as to
which such counsel expresses no belief), at the time it became effective,
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading or that the Prospectus/Proxy Statement (other than the financial
statements, financial data, statistical data and supporting schedules included
therein, and information relating to or supplied by Investors, as to which such
counsel expresses no belief), at the time the S-4 became effective, included any
untrue statement of a material fact or omitted to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(f) No Material Adverse Change. There shall have been no material adverse
change since the date of this Agreement in the business, operations, prospects
or financial condition of Firstar and the Firstar Subsidiaries taken as a whole,
other than any changes resulting primarily by reason of changes in banking laws
or regulations (or interpretations thereof), changes in the general level of
interest rates or changes in economic, financial or market conditions affecting
the banking industry generally in the regions in which Firstar and the Firstar
Subsidiaries operate, and Investors shall have received a certificate signed on
behalf of Firstar by the Chief Executive Officer and by the chief financial
officer of Firstar to such effect.
(g) No Proceeding or Litigation. No material action, suit or proceeding
before any court or any governmental or regulatory authority shall be pending
against any officer or director of Investors (other than litigation commenced by
Investors or any of its affiliates so long as no order or injunction of a court
of competent jurisdiction is in effect in such litigation on the Closing Date
that does restrain, enjoin or prevent the Closing), seeking to restrain, enjoin,
prevent, change or rescind the transactions contemplated hereby or questioning
the validity or legality of any such transactions, where such action, suit or
proceeding is reasonably likely to result in material personal liability to such
officer(s) or director(s) (other than liability reasonably likely to be covered
by indemnification and/or insurance).
ARTICLE IX
INDUCEMENT
9.01. Inducement. (a) Subject to subsection (d), as a condition and
inducement to Firstar's willingness to enter into and perform this Agreement, in
the event that a Trigger Event (as hereinafter defined) has occurred, then
Investors shall pay to Firstar a fee of $4,500,000 (the "Termination Fee"). Such
fee shall be payable in immediately available funds within two days following
the occurrence of a Trigger Event.
(b) As used herein, "Trigger Event" shall mean the occurrence of one or
more of the following events:
(i) A Transaction Proposal (as defined below) shall have occurred;
(ii) Termination of this Agreement following a wilful and material
breach thereof by Investors;
(iii) (A) The Board of Directors of Investors (1) shall have
withdrawn, modified or amended in any respect its approval or
recommendation of this Agreement or the transactions contemplated thereby,
or (2) shall not at the appropriate time have recommended or shall have
withdrawn, modified or amended in any respect its recommendation that its
stockholders vote in favor of this Agreement, or (3) shall not have
included such recommendation in the Prospectus/Proxy Statement, or (B) the
Board of Directors of Investors shall have resolved to do any of the
foregoing; or
(iv) The condition described in Section 8.01(g) shall not have been
satisfied and Investors' stockholders shall have failed to approve this
Agreement at a meeting duly called and held.
(c) As used in this Agreement, "Person" shall mean any individual, firm,
corporation, or other entity and shall include any syndicate or group of persons
deemed to be a "person" by Section 13(d)(3)(e) of the Exchange Act. As used in
this Agreement, "Transaction Proposal" shall mean (A) a bona fide tender offer
or exchange offer for at least 15% of the then outstanding shares of any class
of voting capital stock of Investors shall have been made by any Person
(excluding Firstar or any of its Subsidiaries or Affiliates), (B) a merger,
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consolidation or other business combination with Investors or with Investors
Bank shall have been effected by any Person, or an agreement relating to any
such transaction shall have been entered into, (C) any sale, lease, exchange,
mortgage, pledge, transfer or other disposition (whether in one transaction or a
series of related transactions) involving a substantial part of Investors'
consolidated assets (including stock of Investors Bank), or all or a substantial
part of the assets of Investors Bank, to any Person shall have been effected, or
any agreement relating to such transaction shall have been entered into, (D) the
acquisition by any Person, other than (1) Firstar or any Subsidiary or Affiliate
of Firstar (other than in a fiduciary capacity) or (2) any of Investors'
Subsidiaries in a fiduciary capacity for third parties, of beneficial ownership
(within the meaning of Rule 13d-3 under the Exchange Act, which will be deemed
for purposes hereof to provide that such Person beneficially owns any shares of
the capital stock of Investors that may be acquired by such person pursuant to
any right, option, warrant or other agreement, regardless of when such
acquisition would be permitted by the terms thereof) of 15% or more of the
outstanding shares of any class of the voting capital stock of Investors
(including capital stock currently beneficially owned by such Person) or, if
such Person currently beneficially owns 15% or more of the outstanding shares of
any class of voting capital stock of Investors, of any additional shares of the
voting capital stock of Investors (other than pursuant to such Person's rights
and obligations as of the date hereof under Investors Options and/or Investors
Warrants), (E) any reclassification of securities or recapitalization of
Investors or other transaction that has the effect, directly or indirectly, of
increasing the proportionate share of any class of equity security (including
securities convertible into equity securities) of Investors which is owned by
any Person (excluding Firstar or any of its Subsidiaries or Affiliates) shall
have been effected, or any agreement relating to such transaction shall have
been entered into or plan with respect thereto adopted, (F) any transaction
having an effect similar to those described in (A) through (E) above, or (G) a
public announcement with respect to a proposal, plan or intention by Investors
or another Person (excluding Firstar or any of its Subsidiaries or Affiliates)
to effect any of the foregoing transactions (which may include publication of
notice of the filing of an application under the BHC Act, the HOLA, the SLHC
Act, the FDI Act or the Change in Bank Control Act, as amended); provided,
however, that in the case of the events described in clauses (A) and (G) in this
definition, and events described in clause (F) having an effect similar to those
described in clause (A) (the "Events"), such Events shall not constitute a
"Transaction Proposal" hereunder unless after the occurrence of any such Event,
either (x) the Board of Directors of Investors (1) recommends such Event to its
stockholders for acceptance or (2) fails to undertake such acts as Firstar
reasonably requests to oppose such Event (provided that Investors not incur
significant legal expense); or (y) Investors' stockholders shall have failed to
approve this Agreement at a meeting duly called for such purpose.
(d) The rights of Firstar under this Section 9.01 shall terminate upon the
earliest to occur of (1) the Effective Time, (2) the termination of this
Agreement by Investors pursuant to Section 10.01(a)(ii), (3) the termination of
this Agreement by mutual agreement of the parties, (4) the expiration of six
months after the termination of this Agreement pursuant to Section 10.01(a)(iv),
(5) the termination of this Agreement pursuant to Section 10.01(a)(iii), Section
10.01(a)(v) or Section 10.01(a)(vii), (6) the expiration of six months after the
termination of this Agreement pursuant to Section 10.01(a)(vi) other than such a
termination where nonapproval by stockholders of Investors was preceded by a
Transaction Proposal, (7) the expiration of one year after the termination of
this Agreement (other than terminations described in clauses (2) - (6)), or (8)
the irrevocable payment of a Termination Fee to Firstar.
ARTICLE X
TERMINATION AND AMENDMENT
10.01. Termination. (a) This Agreement and the Plan of Merger may be
terminated at any time prior to the Effective Time, whether before or after
approval of the matters presented in connection with the Merger by the
stockholders of Investors:
(i) by mutual consent of the Board of Directors of Firstar and the
Board of Directors of Investors;
(ii) by either Firstar or Investors (A) if there has been a breach in
any material respect of any representation, warranty, covenant or agreement
on the part of Investors, on the one hand, or Firstar and
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Sub, on the other hand, respectively, set forth in this Agreement, or (B)
if the representations and warranties of Investors, on the one hand, or
Firstar and Sub, on the other hand, respectively, shall be discovered to
have become materially untrue in the aggregate, in either case which breach
or other condition has not been cured within 10 business days following
receipt by the nonterminating party of notice of such breach or other
condition;
(iii) by either Firstar or Investors if any permanent Injunction
preventing the consummation of the Merger shall have become final and
nonappealable;
(iv) by either the Board of Directors of Firstar or the Board of
Directors of Investors if the Merger shall not have been consummated before
August 15, 1995, for a reason other than the failure of the terminating
party to comply with its obligations under this Agreement;
(v) by the Board of Directors of either of Firstar or Investors if the
Federal Reserve Board, the Comptroller or the OTS has denied approval of
the Merger or the Bank Merger and neither Firstar nor Investors has, within
30 days after the entry of the order denying such approval, filed a
petition seeking review of such order as provided by applicable law;
(vi) by either Investors or Firstar, if this Agreement and the Merger
are not duly approved by the stockholders of Investors after a vote thereon
at a meeting of stockholders (or any adjournment thereof) duly called and
held for such purpose;
(vii) by Investors, on either of the two trading days immediately
after the Ten-Day Calculation Period, as defined below, if both of the
following conditions are satisfied:
(1) the average of the daily closing prices of a share of Firstar
Common Stock as reported on the consolidated tape of the NYSE during the
Ten-Day Calculation Period (the "Firstar Average Price") is less than
$29.00; and
(2) the number obtained by dividing the Firstar Average Price by
the closing price of Firstar Common Stock as reported on the
consolidated tape of the NYSE on the trading day immediately preceding
the public announcement of this Agreement is less than the number
obtaining by dividing the Final Index Price (as defined in subsection
(b) below) by the Initial Index Price (as defined in subsection (b)
below) and subtracting .125 from such quotient;
(viii) by Investors, if (1) any Person (other than Firstar or any
affiliate of Firstar) shall have commenced (as such term is used in Rule
14d-2(b) under the Exchange Act) a bona fide tender offer for all
outstanding shares of Investors Common Stock or any Person shall have made
a bona fide written offer involving a merger or consolidation of Investors
or the acquisition of all or substantially all of its assets, (2)
Investors' Board of Directors shall determine, based on advice of
Investors' independent financial advisors, that such offer is a material
economic improvement to Investors' stockholders when compared to the
Merger, (3) Investors' Board of Directors, after consultation with and
based upon receipt of written advice from Dorsey & Whitney (a copy of which
Investors shall promptly deliver to Firstar), or other counsel acceptable
to Firstar, determines in good faith that recommending such tender offer or
accepting such written offer is required for the Board of Directors to
comply with its fiduciary duties to Investors' stockholders under
applicable law, and (4) Investors or the Person commencing such tender
offer or submitting such written offer shall have irrevocably paid the
Termination Fee to Firstar; provided, however, that Investors may not
terminate the Agreement pursuant to this Section 10.01(a)(viii) until the
expiration of five business days after written notice of any such offer
referenced in this Section 10.01(a)(viii) has been delivered to Firstar,
together with a summary of the terms of any such offer;
(ix) without further action of either party hereto, upon the
irrevocable payment to Firstar of the Termination Fee following the
occurrence of a Trigger Event, unless (A) prior to the Trigger Event there
has been a wilful and material breach of this Agreement by Investors other
than a breach resulting from an Excused Action (as defined below), or (B)
such Trigger Event is the occurrence of a Transaction Proposal caused by an
action or inaction by Investors that is a wilful breach of any covenant in
this Agreement, except an Excused Action, or (C) such Trigger Event is an
action or inaction by Investors
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described in Section 9.01(b)(iii) or (iv) that is not the result of an
action that the Board of Directors of Investors, after consultation with
counsel, determines in good faith is required to comply with its fiduciary
duties to stockholders under applicable law. For purposes of this Section
10.01(a)(ix), "Excused Action" shall mean any action, or the failure to
act, by Investors where the Board of Directors of Investors, after
consultation with and based on the written advice of counsel (a copy of
which is furnished to Firstar), determines in good faith that such actions
or inactions are required by the Board of Directors of Investors to comply
with its fiduciary duties to Investors' stockholders under applicable law
to facilitate a Transaction Proposal or a Competing Transaction with a
party other than Investors or any of its Representatives; or
(x) by Firstar, if, after the date hereof, any Person shall have
commenced (as such term is used in Rule 14d-2(b) under the Exchange Act) a
bona fide tender offer or exchange offer to acquire at least 20% of the
then outstanding shares of Investors Common Stock, or if the Board of
Directors of Investors shall have withdrawn, modified or changed its
recommendation of this Agreement or the Merger.
(b) For purposes of this Section 10.01:
(i) The "Index Group" shall mean all of those companies listed on
Exhibit 10.01 the common stock of which is publicly traded and as to which
there is no pending publicly announced proposal at any time during the
Ten-Day Calculation Period for such company to acquire another company or
companies in transactions with a value exceeding 10% of the acquiror's
market capitalization or for such company to be acquired. In the event that
any such company or companies are so removed from the Index Group, the
weights attributed to the remaining companies shall be adjusted
proportionately.
(ii) The "Initial Index Price" shall mean the weighted average
(weighted in accordance with the factors listed on Exhibit 10.01) of the
per share closing prices of the common stock of the companies comprising
the Index Group, as reported on the consolidated transactions reporting
system for the market or exchange on which such common stock is principally
traded, on the trading day immediately preceding the public announcement of
this Agreement.
(iii) The "Final Price" of any company belonging to the Index Group
shall mean the average of the daily closing sale prices of a share of
common stock of such company, as reported in the consolidated transaction
reporting system for the market or exchange on which such common stock is
principally traded, during the Ten-Day Calculation Period.
(iv) The "Final Index Price" shall mean the weighted average (weighted
in accordance with the factors listed on Exhibit 10.01) of the Final Prices
for all of the companies comprising the Index Group.
(v) The "Ten-Day Calculation Period" shall mean the ten (10)
consecutive trading days ending at the end of the third business day
preceding the date of the Meeting specified in the Prospectus/Proxy
Statement.
If Firstar or any company belonging to the Index Group declares a stock dividend
or effects a reclassification, recapitalization, split-up, combination, exchange
of shares or similar transaction between the date of this Agreement and the
Meeting Date, the closing prices for the common stock of such company shall be
appropriately adjusted for the purposes of the definitions above so as to be
comparable to the price on the date of this Agreement.
10.02. Investigation and Review. Subject to the next following sentence, at
any time prior to the 21st day following the date of this Agreement, Firstar
may, by action of the Interstate Banking and Acquisitions Committee of the Board
of Directors of Firstar (the "Firstar Committee"), elect to terminate this
Agreement on behalf of Firstar and Sub as a result of any information obtained
in the course of its investigation and review of (i) Investors' portfolios of
consumer loans, commercial real estate loans, second mortgage loans and other
mortgage loans, (ii) all non-accrual and restructured loans, (iii) all REO or
real estate in judgment and (iv) the underwriting of fixed rate and adjustable
rate first mortgage loans, which, in the good faith opinion of the Firstar
Committee, indicates circumstances or events that (a) have, or are reasonably
likely to have, an Investors Material Adverse Effect or (b) materially detract
from the value of Investors and its Subsidiaries to
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Firstar. Notwithstanding the foregoing, Firstar may pursuant to a written
instrument signed by it (which shall not be deemed to be an amendment or
modification to this Agreement) terminate its rights to terminate this Agreement
pursuant to this Section as of any date prior to such 21st day which is
specified in such written instrument. Nothing in this Section shall be construed
(i) to limit the period of time during which Firstar may conduct its
investigation and review of Investors, (ii) to limit any duty of Investors
otherwise to cooperate with the investigation and review by Firstar subsequent
to the period established pursuant to the first sentence of this section, or
(iii) to limit or qualify in any respect the representations and warranties of
Investors to Firstar set forth in this Agreement as a result of any such
investigation and review.
10.03. Effect of Termination. In the event of termination of this Agreement
by either Investors or Firstar as provided in Section 10.01 or Section 10.02,
this Agreement and the Plan of Merger shall forthwith become void and there
shall be no liability or obligation on the part of Firstar or Investors or their
respective officers or directors except (a) with respect to Sections 5.08, 6.11,
7.05, 7.07, and 9.01, and (b) to the extent that such termination (other than a
termination in accordance with Section 10.01(a)(ix)) results from the willful
breach by a party hereto of any of its representations, warranties, covenants or
agreements set forth in this Agreement; provided, however, that actions by
Investors that are reasonably required to facilitate a transaction that entitles
Investors to terminate this Agreement pursuant to Section 10.01(a)(viii) and for
the Board of Directors of Investors to comply with its fiduciary duties to
Investors' stockholders under applicable law (as such duties are determined in
accordance with Section 10.01(a)(viii)(3)) shall not constitute a willful breach
by Investors of any of its representations, warranties, covenants or agreements
set forth in this Agreement for purposes of this clause (b).
10.04. Amendment. Subject to the next following sentence, this Agreement
and the Plan of Merger may be amended by the parties hereto by action taken or
authorized by their respective Boards of Directors (or, in the case of Firstar,
the Firstar Committee) at any time before or after approval of the matters
presented in connection with the Merger by the stockholders of Investors, but
after any such approval by the stockholders of Investors, no amendment shall be
made which has any of the effects described in Section 251(d) of the DGCL. This
Agreement may not be amended except by an instrument in writing signed on behalf
of each of the parties hereto.
10.05. Extension; Waiver. At any time prior to the Effective Time, Firstar
and Sub, on the one hand, and Investors, on the other hand, by action taken or
authorized by their respective Boards of Directors (or, in the case of Firstar,
the Firstar Committee), may, to the extent legally allowed, (i) extend the time
for the performance of any of the obligations or other acts of the other party
hereto, (ii) waive any inaccuracies in the representations and warranties of the
other contained herein or in any document delivered by the other pursuant
hereto, and (iii) waive compliance by the other with any of the agreements or
conditions contained herein. Any agreement on the part of a party hereto to any
such extension or waiver shall be valid only if set forth in a written
instrument signed on behalf of such party.
ARTICLE XI
GENERAL PROVISIONS
11.01. Nonsurvival of Representations, Warranties and Agreements. None of
the representations, warranties and agreements in this Agreement or in any
instrument delivered pursuant to this Agreement shall survive the Effective
Time, except for the agreements contained in Sections 2.01, 2.02, 2.03, 2.04,
6.05, 6.06, 6.07, 6.08, 7.03 and 7.06, the last sentence of Section 10.04 and
Article XI, and the agreements delivered pursuant to Section 3.20, Section 5.06,
Section 6.07 and Section 6.08.
11.02. Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally, telecopied (with
receipt confirmed) or mailed by registered or certified mail
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(return receipt requested) to the parties at the following addresses (or at such
other address for a party as shall be specified by like notice):
(a) if to Firstar and/or Sub, to
Firstar Corporation
Attention: Jon H. Stowe,
Executive Vice President
777 East Wisconsin Avenue
Milwaukee, WI 53202
Telecopy: (414) 765-4349
with a copy to:
Firstar Corporation
Attention: Howard H. Hopwood III,
Senior Vice President and General Counsel
777 East Wisconsin Avenue
Milwaukee, WI 53202
Telecopy: (414) 765-6111
(b) if to Investors, to
Investors Bank Corp.
Attention: James M. Burkholder
President and Chief Executive Officer
200 East Lake Street
Wayzata, Minnesota 55391
Telecopy: (612) 475-8727
with a copy to:
Dorsey & Whitney
Attention: Thomas O. Martin, Esq.
220 South 6th Street
Minneapolis, Minnesota 55402-1498
Telecopy: (612) 340-8738
11.03. Interpretation. When a reference is made in this Agreement to
Sections, such reference shall be to a Section of this Agreement unless
otherwise indicated. The table of contents and headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. Whenever the words "include,"
"includes" or "including" are used in this Agreement, they shall be deemed to be
followed by the words "without limitation." The phrase "made available" in this
Agreement shall mean that the information referred to has been made available if
requested by the party to whom such information is to be made available.
11.04. Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when two or more counterparts have been signed by each of
the parties and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
11.05. Entire Agreement; No Third Party Beneficiaries; Rights of
Ownership. This Agreement (including the documents and the instruments referred
to herein, including the Bank Merger Agreement and the Plan of Merger) (a)
constitutes the entire agreement and supersedes all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereof, except for the rights and obligations of Firstar and
Investors under the confidentiality letter agreement, dated March 10, 1994, and
(b) is not intended to confer upon any person other than the parties hereto any
rights or remedies hereunder.
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The parties hereby acknowledge that no party shall have the right to acquire or
shall be deemed to have acquired shares of common stock of the other party
pursuant to the Merger until consummation thereof.
11.06. Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of Wisconsin, except as the MBCA and the
DGCL are expressly applicable to the Merger.
11.07. Publicity. The parties hereto agree that they will consult with each
other concerning any proposed press release or public announcement pertaining to
the Merger and use their best efforts to agree upon the text of such press
release or public announcement prior to the publication of such press release or
the making of such public announcement.
11.08. Assignment. Neither this Agreement nor any of the rights, interests
or obligations hereunder shall be assigned by any of the parties hereto (whether
by operation of law or otherwise) without the prior written consent of the other
parties. Subject to the preceding sentence, this Agreement will be binding upon,
inure to the benefit of and be enforceable by the parties and their respective
successors and assigns.
11.09. Knowledge of the Parties. Wherever in this Agreement any
representation or warranty is made upon the knowledge of a party hereto that is
not an individual, such knowledge shall include the actual knowledge, after due
inquiry, of any executive officer of such party or an executive officer of any
Subsidiary thereof.
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IN WITNESS WHEREOF, Firstar, Sub and Investors have caused this Agreement
to be signed by their respective officers thereunto duly authorized, all as of
the date first written above.
FIRSTAR CORPORATION
By: /s/ JOHN A. KIELICH
------------------------------------
Its: First Vice President
Attest:
/s/ WILLIAM J. SCHULTZ
- ------------------------------------
Its: First Vice President and
Secretary
FIRSTAR CORPORATION OF MINNESOTA
By: /s/ JOHN A. KIELICH
------------------------------------
Its: Vice President
Attest:
/s/ JOAN M. FAGAN
- ------------------------------------
Its: Assistant Secretary
INVESTORS BANK CORP.
By: /s/ JOHN G. LOHMANN, JR.
------------------------------------
Its: Executive Vice President
Attest:
/s/ DANIEL A. ARRIGONI
- ------------------------------------
Its: Executive Vice President
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EXHIBIT A
PLAN OF MERGER
PLAN OF MERGER, dated as of August 21, 1994 ("Plan of Merger"), by and
between Firstar Corporation of Minnesota, a Minnesota corporation ("Sub"), and
Investors Bank Corp., a Delaware corporation ("Investors"), and joined in by
Firstar Corporation, a Wisconsin corporation ("Firstar"), for certain limited
purposes.
WHEREAS, Investors is a corporation with authorized capital stock
consisting of (i) 5,000,000 shares of common stock, $.01 par value ("Investors
Common Stock"), of which 3,500,604 shares are validly issued and outstanding on
the date hereof; and (ii) 1,000,000 shares of preferred stock, $.01 par value,
of which 400,000 shares have been designated "Cumulative Perpetual Preferred
Stock, Series 1991" ("Investors Preferred Stock"), in respect of which there are
issued and outstanding 303,640 shares;
WHEREAS, Sub is a corporation with authorized capital stock of 10,000
shares of common stock, $1.00 par value ("Sub Common Stock"), 1,000 of which are
validly issued and outstanding and are owned by Firstar;
WHEREAS, Firstar is a corporation duly organized and existing under the
laws of Wisconsin;
WHEREAS, concurrently with the execution and delivery of this Plan of
Merger, Firstar, Sub and Investors have entered into an Agreement and Plan of
Reorganization (the "Agreement" and, together with this Plan of Merger, the
"Merger Agreements") that contemplates the merger of Investors with and into Sub
(the "Merger") upon the terms and conditions provided in this Plan of Merger and
the Agreement and pursuant to the Minnesota Business Corporation Act (the
"MBCA") and the Delaware General Corporation Law (the "DGCL");
WHEREAS, the Boards of Directors of Sub and Investors deem it fair and
equitable to, and in the best short-term and long-term interests of, their
respective corporations and stockholders that Investors be merged with and into
Sub with Sub being the surviving corporation, and each such Board of Directors
has approved this Plan of Merger, has authorized its execution and delivery and
has directed that this Plan of Merger and the Merger be submitted to its
respective stockholders for approval; and
WHEREAS, the Board of Directors of Firstar has authorized the execution and
delivery of this Plan of Merger and the issuance of Firstar Common Stock (as
defined in Section 2.01(a)) and the payment of cash pursuant hereto.
NOW, THEREFORE, in consideration of the premises and the agreements herein
contained, the parties hereto adopt and agree to the following agreements, terms
and conditions relating to the Merger and the mode of carrying the same into
effect:
ARTICLE I
THE MERGER
1.01. The Merger. Subject to the terms and conditions of the Merger
Agreements, Investors will be merged with and into Sub, which will be the
surviving corporation, in accordance with and with the effect provided in the
MBCA and the DGCL.
1.02. Effective Time of the Merger. Subject to the provisions of the Merger
Agreements, (a) articles of merger (the "Articles of Merger") shall be duly
prepared and executed by Sub and Investors and thereafter delivered to the
Secretary of State of the State of Minnesota for filing, as provided in the
MBCA, as soon as practicable on or after the Closing Date (as defined in the
Agreement) and (b) a certificate of merger (the "Certificate of Merger") shall
be duly prepared and executed by Sub and Investors and thereafter delivered to
the Secretary of State of the State of Delaware for filing, as provided in the
DGCL, as soon as practicable on or after the Closing Date. The Merger shall
become effective upon the filing of the Articles of Merger with the
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Secretary of State of the State of Minnesota and the Certificate of Merger with
the Secretary of State of the State of Delaware or at such time within two
business days thereafter as is provided in the Articles of Merger and the
Certificate of Merger (the "Effective Time").
1.03. Effects of the Merger. (a) At the Effective Time, (i) the separate
existence of Investors shall cease and Investors shall be merged with and into
Sub as provided in Section 302A.651 of the MBCA and Sections 251 and 252 of the
DGCL (Sub and Investors are sometimes referred to herein as the "Constituent
Corporations" and Sub is sometimes referred to herein as the "Surviving
Corporation"), (ii) the Articles of Incorporation of Sub in effect as of the
Effective Time (the "Articles") shall be the Articles of Incorporation of the
Surviving Corporation, (iii) the By-laws of Sub in effect as of the Effective
Time (the "By-laws") shall be the By-laws of the Surviving Corporation and (iv)
the members of the Board of Directors and committees thereof and the officers of
Sub immediately prior to the Effective Time shall be the members of the Board of
Directors and committees thereof and the officers of the Surviving Corporation,
respectively.
(b) At and after the Effective Time, the Surviving Corporation shall
possess all the rights, privileges, powers and franchises of a public as well as
of a private nature, and be subject to all the restrictions, disabilities and
duties of each of the Constituent Corporations; and all and singular rights,
privileges, powers and franchises of each of the Constituent Corporations, and
all property, real, personal and mixed and all debts due to either of the
Constituent Corporations on whatever account, as well as for stock subscriptions
and all other things in action or belonging to each of the Constituent
Corporations, shall be vested in the Surviving Corporation; and all property,
rights, privileges, powers and franchises, and all and every other interest
shall be thereafter as effectually the property of the Surviving Corporation as
they were of the Constituent Corporations, and the title to any real estate
vested by deed or otherwise, in either of the Constituent Corporations, shall
not revert or be in any way impaired; but all rights of creditors and all liens
upon any property of either of the Constituent Corporations shall be preserved
unimpaired, and all debts, liabilities and duties of the Constituent
Corporations shall thenceforth attach to the Surviving Corporation, and may be
enforced against it to the same extent as if said debts and liabilities had been
incurred by it. Any action or proceeding, whether civil, criminal or
administrative, pending by or against either Constituent Corporation shall be
prosecuted as if the Merger had not taken place, and the Surviving Corporation
may be substituted as a party in such action or proceeding in place of any
Constituent Corporation.
ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL STOCK
OF THE CONSTITUENT CORPORATIONS;
EXCHANGE OF CERTIFICATES
2.01. Effect on Capital Stock. As of the Effective Time, by virtue of the
Merger and without any action on the part of the holder of any shares of
Investors Common Stock or Investors Preferred Stock, but subject to the
provisions of Section 262 of the DGCL with respect to the rights of dissenting
holders of Investors Preferred Stock:
(a) Conversion of Investors Common Stock. Subject to adjustment pursuant to
Section 2.01(e) hereof and Section 2.05 of the Agreement, each then issued and
outstanding share of Investors Common Stock shall be converted into the right to
receive 0.8676 fully paid and nonassessable shares of common stock, $1.25 par
value, of Firstar ("Firstar Common Stock"), including with each such share
one-half of one Firstar Preferred Share Purchase Right ("Right") issued pursuant
to the Rights Agreement dated as of January 20, 1989, between Firstar and
Firstar Trust Company, as Rights Agent (the "Rights Agreement"). Prior to the
Distribution Date (as defined in the Rights Agreement), all references in this
Plan of Merger to the Firstar Common Stock to be received pursuant to the Merger
shall be deemed to include the Rights.
(b) Conversion of Investors Preferred Stock. Each then issued and
outstanding share of Investors Preferred Stock shall be converted into the right
to receive $27.50 plus accumulated and unpaid dividends on such shares of
Investors Preferred Stock to the Effective Time, payable in cash.
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(c) Stock Held by Investors. Each then issued and outstanding share of
Investors Common Stock or Investors Preferred Stock owned by Investors or any
direct or indirect subsidiary of Investors (other than shares held in a
fiduciary capacity) and each share of Investors Common Stock or Investors
Preferred Stock issued and held in Investors' treasury will be cancelled and
retired.
(d) Cancellation of Shares. All shares of Investors Common Stock and
Investors Preferred Stock issued and outstanding immediately prior to the
Effective Time shall no longer be outstanding and shall automatically be
cancelled and retired and shall cease to exist, and each holder of a certificate
representing any such shares shall cease to have any rights with respect
thereto, except the right to receive the shares of Firstar Common Stock or cash,
as the case may be, to be issued or paid in consideration therefor upon the
surrender of such certificate in accordance with the Plan of Merger, without
interest.
(e) If prior to the Effective Time Firstar shall declare a stock dividend
or distribution upon or subdivide, split up, reclassify or combine its shares of
Firstar Common Stock or declare a dividend or make a distribution on Firstar
Common Stock of any security convertible into Firstar Common Stock or
exercisable to purchase Firstar Common Stock (including, without limitation,
distribution of any Firstar Rights after a Distribution Date), appropriate
adjustment or adjustments will be made in the conversion rate set forth in
subsection (a).
(f) Each outstanding share of Investors Preferred Stock as to which
dissenters' rights have been asserted in accordance with the procedures of the
DGCL and not withdrawn shall be accorded the rights provided by the DGCL and
shall not be converted into or represent rights to receive the cash hereunder
unless and until the holder shall have failed to perfect or effectively
withdrawn or lost such dissenters' rights.
2.02. Exchange of Certificates. (a) Exchange Agent. As of the Effective
Time, Firstar shall deposit with Firstar Trust Company or such other bank or
trust company designated by Firstar (and reasonably acceptable to Investors)
(the "Exchange Agent") for the benefit of the holders of shares of Investors
Common Stock and Investors Preferred Stock, for exchange in accordance with this
Article II through the Exchange Agent, certificates representing the shares of
Firstar Common Stock and cash (such shares of Firstar Common Stock, together
with any dividends or distributions with respect thereto, and such cash being
hereinafter referred to as the "Exchange Fund") issuable pursuant to Section
2.01 in exchange for shares of Investors Common Stock and Investors Preferred
Stock outstanding immediately prior to the Effective Time. The Exchange Agent
may invest the cash deposited with it in such manner as Firstar directs. Any net
profit resulting from, or interest or income produced by, such investment shall
be payable to the Surviving Corporation. Firstar shall replace any monies lost
through any investment made at its direction pursuant to this Section 2.02(a).
To the extent Firstar owns shares of Firstar Common Stock as treasury stock,
such shares may be deposited into the Exchange Fund.
(b) Exchange Procedures. As soon as reasonably practicable after the
Effective Time, the Exchange Agent shall mail to each holder of record of a
certificate or certificates which immediately prior to the Effective Time
represented outstanding shares of Investors Common Stock and Investors Preferred
Stock (the "Certificates") whose shares were converted into the right to receive
shares of Firstar Common Stock or cash pursuant to Section 2.01 (i) a letter of
transmittal (which shall specify that delivery shall be effected, and risk of
loss and title to the Certificates shall pass, only upon delivery of the
Certificates to the Exchange Agent and shall be in such form and have such other
provisions as Firstar and Investors may reasonably specify) and (ii)
instructions for use in effecting the surrender of the Certificates in exchange
for certificates representing shares of Firstar Common Stock or cash, as the
case may be. Upon surrender of a Certificate for cancellation to the Exchange
Agent or to such other agent or agents as may be appointed by Firstar, together
with such letter of transmittal, duly executed, the holder of such Certificate
shall be entitled to receive in exchange therefor a certificate representing
that number of whole shares of Firstar Common Stock, or the amount of cash, as
the case may be, which such holder has the right to receive pursuant to the
provisions of this Article II, and the Certificate so surrendered shall
forthwith be cancelled. Notwithstanding the foregoing, certificates surrendered
for exchange by any person deemed an "affiliate" of Investors (as defined in
Section 3.22 of the Agreement) shall not be exchanged for the consideration
deliverable pursuant to the provisions of this Article II until Firstar has
received a written agreement from such person as provided in Section 5.06 of the
Agreement. In the event of a transfer of ownership of Investors Common Stock or
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Investors Preferred Stock which is not registered in the transfer records of
Investors, a certificate representing the proper number of shares of Firstar
Common Stock may be issued or the proper amount of cash may be paid to a
transferee if the Certificate representing such Investors Common Stock or
Investors Preferred Stock is presented to the Exchange Agent, accompanied by all
documents required to evidence and effect such transfer and by evidence that any
applicable stock transfer taxes have been paid. Until surrendered as
contemplated by this Section 2.02, each Certificate shall be deemed at any time
after the Effective Time to represent only the right to receive upon such
surrender the certificate representing shares of Firstar Common Stock and cash
in lieu of any fractional shares of Firstar Common Stock, or cash, as the case
may be, as contemplated by this Section 2.02.
(c) Distributions with Respect to Unexchanged Shares. No dividends or other
distributions declared or made after the Effective Time with respect to Firstar
Common Stock with a record date after the Effective Time shall be paid to the
holder of any unsurrendered Certificate with respect to the shares of Firstar
Common Stock represented thereby, and no cash payment in lieu of fractional
shares of Firstar Common Stock shall be paid to any such holder pursuant to
Section 2.02(e), until the holder of record of such Certificate shall surrender
such Certificate. Subject to the effect of applicable laws, following surrender
of any such Certificate, there shall be paid to the record holder of the
certificates representing whole shares of Firstar Common Stock issued in
exchange therefor, without interest, (i) at the time of such surrender, (A) the
amount of any cash payable in lieu of a fractional share of Firstar Common Stock
to which such holder is entitled pursuant to Section 2.02(e) and (B) the amount
of dividends or other distributions with a record date after the Effective Time
theretofore paid with respect to such whole shares of Firstar Common Stock, and
(ii) at the appropriate payment date, the amount of dividends or other
distributions with a record date after the Effective Time but prior to surrender
and a payment date subsequent to surrender payable with respect to such whole
shares of Firstar Common Stock.
(d) No Further Ownership Rights in Investors Stock. All shares of Firstar
Common Stock and all cash issued or paid upon the surrender for exchange or
payment of shares of Investors Common Stock or Investors Preferred Stock in
accordance with the terms hereof (including any cash paid pursuant to Section
2.02(c) or 2.02(e)) shall be deemed to have been issued in full satisfaction of
all rights pertaining to such shares of Investors Common Stock or Investors
Preferred Stock, subject, however, to the Surviving Corporation's obligation to
pay any dividends or make any other distributions with a record date prior to
the Effective Time which may have been declared or made by Investors on such
shares of Investors Common Stock or Investors Preferred Stock in accordance with
the terms of the Agreement or prior to the date hereof and which remain unpaid
at the Effective Time, and there shall be no further registration of transfers
on the stock transfer books of the Surviving Corporation of the shares of
Investors Common Stock or Investors Preferred Stock which were outstanding
immediately prior to the Effective Time. If, after the Effective Time,
Certificates are presented to the Surviving Corporation or Firstar for any
reason, they shall be cancelled and exchanged as provided in this Plan of
Merger.
(e) No Fractional Shares. Notwithstanding any other provision of this Plan
of Merger to the contrary, neither certificates nor scrip representing
fractional shares of Firstar Common Stock shall be issued upon the surrender for
exchange of Certificates, and such fractional share interests will not entitle
the owner thereof to vote or to any rights of a stockholder of Firstar. Each
holder of shares of Investors Common Stock who would otherwise have been
entitled to a fraction of a share of Firstar Common Stock shall receive in lieu
thereof cash (without interest) in an amount determined by multiplying the
fractional share interest to which such holder would otherwise be entitled by
the closing price per share of Firstar Common Stock at the Effective Time on the
New York Stock Exchange Composite Transaction Tape. From time to time at the
request of the Exchange Agent after the determination of amounts of cash to be
paid to holders of Investors Common Stock in lieu of any fractional share
interests, Firstar shall make available such amounts to the Exchange Agent.
(f) Termination of Exchange Fund. Any portion of the Exchange Fund which
remains undistributed to the stockholders of Investors for six months after the
Effective Time shall be delivered to Firstar, upon demand, and any stockholders
of Investors who have not theretofore complied with this Section 2.02 shall
thereafter look only to Firstar for payment of their claim for Firstar Common
Stock or cash, including cash in
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lieu of fractional shares of Firstar Common Stock and any dividends or
distributions with respect to Firstar Common Stock.
(g) No Liability. None of Firstar, Sub and Investors shall be liable to any
holder of shares of Investors Common Stock or Investors Preferred Stock or
Firstar Common Stock, as the case may be, for such shares (or dividends or
distributions with respect thereto) or cash from the Exchange Fund delivered to
a public official pursuant to any applicable abandoned property, escheat or
similar law.
(h) Withholding Rights. Firstar and Sub shall be entitled to deduct and
withhold from the consideration otherwise payable pursuant to the Agreements to
any former holder of shares of Investors Common Stock or Investors Preferred
Stock such amounts as Firstar or Sub is required to deduct and withhold with
respect to the making of such payment under the Internal Revenue Code of 1986,
as amended, or any provision of state, local or foreign tax law. To the extent
that amounts are so withheld by Firstar or Sub, such withheld amounts shall be
treated for all purposes of this Agreement as having been paid to the former
holder of the shares of Investors Common Stock or Investors Preferred Stock in
respect of which such deduction and withholding was made by Firstar or Sub.
2.03. Effect on Common Stock of Sub. At the Effective Time, the shares of
Sub Common Stock validly issued and outstanding immediately prior to the
Effective Time will continue to evidence 1,000 shares of common stock, $1.00 par
value, of the Surviving Corporation so that all shares of capital stock of the
Surviving Corporation will continue to be owned by Firstar. The outstanding
certificates representing shares of Sub Common Stock will, after the Effective
Time, continue to represent the same number of shares of the Surviving
Corporation.
ARTICLE III
CONDITIONS; TERMINATION; AMENDMENT
3.01. Conditions to the Merger. Consummation of the Merger is conditional
upon the fulfillment or waiver of the conditions precedent set forth in Article
VIII of the Agreement.
3.02. Termination. This Plan of Merger may be terminated and the Merger
abandoned by mutual consent of the respective Boards of Directors of Investors
and Sub at any time prior to the Effective Time. If the Agreement is terminated
in accordance with Article X thereof, then this Plan of Merger will terminate
simultaneously and the Merger will be abandoned without further action by
Investors or Sub.
3.03. Amendment. Subject to the next following sentence, this Plan of
Merger may be amended by the parties hereto by action taken or authorized by
their respective Boards of Directors (or, in the case of Firstar, the Interstate
Banking and Acquisitions Committee of its Board of Directors) at any time before
or after approval of the matters presented in connection with the Merger by the
stockholders of Investors or of Sub, but after any such approval by the
stockholders of Investors, no amendment shall be made which has any of the
effects described in Section 251(d) of the DGCL. This Plan of Merger may not be
amended except by an instrument in writing signed on behalf of each of the
parties hereto.
3.04. Extension; Waiver. At any time prior to the Effective Time, Firstar
and Sub, on the one hand, and Investors, on the other hand, by action taken or
authorized by their respective Board of Directors (or, in the case of Firstar,
the Interstate Banking and Acquisitions Committee of its Board of Directors),
may, to the extent legally allowed, (i) extend the time for the performance of
any of the obligations or other acts of the other party hereto and (ii) waive
compliance by the other with any of the agreements or conditions contained
herein. Any agreement on the part of a party hereto to any such extension or
waiver shall be valid only if set forth in a written instrument on behalf of
such party.
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ARTICLE IV
GENERAL PROVISIONS
4.01. Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally, telecopied (with
receipt confirmed) or mailed by registered or certified mail (return receipt
requested) to the parties at the following addresses (or at such other address
for a party as shall be specified by like notice):
(a) if to Firstar and/or Sub, to
Firstar Corporation
Attention: Jon H. Stowe,
Executive Vice President
777 East Wisconsin Avenue
Milwaukee, WI 53202
Telecopy: (414) 765-4349
with a copy to:
Firstar Corporation
Attention: Howard H. Hopwood III,
Senior Vice President and General Counsel
777 East Wisconsin Avenue
Milwaukee, WI 53202
Telecopy: (414) 765-6111
(b) if to Investors, to
Investors Bank Corp.
Attention: James M. Burkholder
President and Chief Executive Officer
200 East Lake Street
Wayzata, Minnesota 55391
Telecopy: (612) 475-8727
with a copy to:
Dorsey & Whitney
Attention: Thomas O. Martin, Esq.
220 South 6th Street
Minneapolis, Minnesota 55402-1498
Telecopy: (612) 340-2860
4.02. Interpretation. When a reference is made in this Plan of Merger to
Sections, such reference shall be to a Section of this Plan of Merger unless
otherwise indicated. The headings contained in this Plan of Merger are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Plan of Merger.
4.03. Counterparts. This Plan of Merger may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when two or more counterparts have been signed by each of
the parties and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
4.04. Governing Law. This Plan of Merger shall be governed and construed in
accordance with the laws of the State of Wisconsin, except as the MBCA and DGCL
are expressly applicable to the Merger.
IN WITNESS WHEREOF, Sub, Investors and Firstar have caused this Plan of
Merger to be signed by their respective officers thereunto duly authorized, all
as of the date first written above.
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FIRSTAR CORPORATION
By: /s/ JOHN A. KIELICH
------------------------------------
Its: First Vice President
Attest:
/s/ WILLIAM J. SCHULZ
- ------------------------------------
Its: First Vice President and
Secretary
FIRSTAR CORPORATION OF MINNESOTA
By: /s/ JOHN A. KIELICH
------------------------------------
Its: Vice President
Attest:
/s/ JOAN M. FAGAN
- ------------------------------------
Its: Assistant Secretary
INVESTORS BANK CORP.
By: /s/ JOHN G. LOHMAN, JR.
------------------------------------
Its: Executive Vice President
Attest:
/s/ DANIEL A. ARRIGONI
- ------------------------------------
Its: Executive Vice President
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EXHIBIT 10.01
<TABLE>
<CAPTION>
INDEX
INSTITUTION WEIGHTING
----------- ---------
<S> <C>
Banc One Corporation..................................... 12.59815%
Norwest Corporation...................................... 10.38056%
KeyCorp.................................................. 8.03616%
NBD Bancorp, Inc. ....................................... 5.22383%
National City Corporation................................ 4.93813%
Huntington Bancshares Inc. .............................. 4.26593%
Comerica Incorporated.................................... 3.89681%
First Bank System, Inc. ................................. 3.75595%
Boatmen's Bancshares, Inc................................ 3.44556%
U.S. Bancorp............................................. 3.28950%
Marshall & Ilsley Corporation............................ 3.13368%
First Chicago Corporation................................ 2.85252%
SouthTrust Corporation................................... 2.63009%
State Street Boston Corp. ............................... 2.51473%
Fifth Third Bancorp...................................... 2.03344%
First of America Bank Corp. ............................. 1.94685%
AmSouth Bancorporation................................... 1.93871%
Meridian Bancorp, Inc. .................................. 1.90182%
Signet Banking Corporation............................... 1.87102%
Northern Trust Corporation............................... 1.77871%
Midlantic Corporation.................................... 1.72427%
UJB Financial Corp. ..................................... 1.71271%
First Security Corporation............................... 1.61802%
Mercantile Bancorporation Inc. .......................... 1.41962%
Bancorp Hawaii, Inc. .................................... 1.39491%
Regions Financial Corp. ................................. 1.37926%
Old Kent Financial Corporation........................... 1.33621%
Crestar Financial Corporation............................ 1.24096%
Union Bank............................................... 1.16680%
Integra Financial Corp. ................................. 1.10311%
BanPonce Corporation..................................... 1.07868%
First Tennessee National Corp. .......................... 1.04879%
BayBanks, Inc. .......................................... 0.61971%
Michigan National Corporation............................ 0.50318%
First Empire State Corporation........................... 0.22159%
</TABLE>
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APPENDIX C
[PIPER JAFFRAY LETTERHEAD]
FEBRUARY 3, 1995
The Board of Directors
Investors Bank Corp.
200 E. Lake Street
Wayzata, Minnesota 55391
Members of the Board:
In connection with the proposed merger transaction (the "Merger") pursuant
to an Agreement and Plan of Reorganization dated August 21, 1994 (the
"Agreement"), whereby Investors Bank Corp. ("Investors") shall be merged with
and into Firstar Corporation of Minnesota ("Firstar Minnesota"), a wholly-owned
subsidiary of Firstar Corporation ("Firstar"), you have requested our opinion as
to the fairness, from a financial point of view, to the holders (the
"Shareholders") of Investors' common stock of the consideration to be received
in the Merger. Pursuant to the Agreement, the consideration to be received by
the Shareholders will consist of Firstar common stock to be issued in a
transaction which we have been advised by management of the parties will be
accounted for as a pooling of interests transaction.
Piper Jaffray Inc. ("Piper Jaffray"), as a customary part of its investment
banking business, is engaged in the valuation of businesses and their securities
in connection with mergers and acquisitions, underwriting and secondary
distributions of securities, private placements and valuations for estate,
corporate and other purposes. We make a market in Investors common stock,
preferred stock, notes and warrants and provide research coverage on Investors.
We acted as manager of a public offering of Investors subordinated capital notes
in 1989 and a public exchange offering of Investors preferred stock in 1991 and
as a co-manager of a public offering of Investors subordinated notes in 1992.
For our services in rendering this opinion, Investors will pay Piper Jaffray a
fee which is not contingent upon the consummation of the Merger. Investors will
also indemnify Piper Jaffray against certain liabilities in connection with its
engagement.
In arriving at our opinion, we have undertaken such reviews, analyses and
inquiries as we deemed necessary and appropriate under the circumstances. Among
other things, we have reviewed the Agreement, audited consolidated financial
statements for Investors for the five years ended December 31, 1993, unaudited
consolidated financial statements for Investors for the three, six and nine
month periods ended March 31, June 30 and September 30, 1994, respectively,
audited consolidated financial statements for Firstar for the five years ended
December 31, 1993, unaudited consolidated financial statements for Firstar for
the three, six and nine month periods ended March 31, June 30 and September 30,
1994, respectively, certain internal financial planning information of Investors
prepared by its management, certain publicly available information relative to
Investors and Firstar, certain other financial and securities data of Investors
and Firstar, certain financial and securities data of companies deemed similar
to Investors and Firstar or representative of the business sectors in which they
operate, and the financial terms, to the extent publicly available, of certain
merger
[Piper -- LH]
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transactions. We have had discussions regarding the financial condition, current
operating results, business outlook and prospects for Investors and Firstar with
members of their respective managements.
We have relied upon and assumed the accuracy, completeness and fairness of
the financial statements and other information provided by Investors and Firstar
or otherwise made available to us and have not attempted independently to verify
such information. We have further relied upon the assurances of Investors and
Firstar management that the information provided has been prepared on a
reasonable basis and, with respect to financial planning data, reflects the best
currently available estimates, and that Investors and Firstar management are not
aware of any information or facts that would make the information provided to us
incomplete or misleading.
In arriving at our opinion, we have not performed any appraisals or
valuations of specific assets of Investors and Firstar, and we express no
opinion regarding the liquidation value of any entity. We have not been
authorized by the Board of Directors of Investors to solicit, and did not
solicit, other entities for purposes of a business combination with Investors.
This opinion is based upon the information available to us and facts and
circumstances as they exist and are subject to evaluation on the date hereof. We
are not expressing any opinion herein as to the prices at which shares of
Investors common stock or Firstar common stock have traded or at which such
shares might trade at any future time.
This opinion is for the benefit of the Board of Directors of Investors and
shall not be relied upon by others, and shall not be published or otherwise
used, nor shall any public references to us be made, without our written
consent. However, notwithstanding the foregoing, Piper Jaffray does consent to
inclusion of the opinion in the proxy statement/prospectus to be issued in
connection with the Special Meeting of Shareholders of Investors. This opinion
is not intended to be and does not constitute a recommendation to any
Shareholder as to how such Shareholder should vote with respect to the Merger.
Based upon and subject to the foregoing and based upon such other factors
as we consider relevant, it is our opinion that the consideration to be received
by the Shareholders pursuant to the Agreement is fair, from a financial point of
view, to the Shareholders as of the date hereof.
Sincerely,
PIPER JAFFRAY INC.
[Piper -- LH]
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Pursuant to the provisions of Wisconsin Business Corporation Law, Sections
180.0850 through 180.0859, inclusive, directors and officers of Firstar are
entitled to mandatory indemnification from Firstar against certain liabilities
and expenses (i) to the extent such officers or directors are successful in the
defense of a proceeding; and (ii) in proceedings in which the director or
officer is not successful in defense thereof, unless it is determined that the
director or officer breached or failed to perform his or her duties to Firstar
and such breach or failure constituted: (a) a willful failure to deal fairly
with Firstar or its stockholders in connection with a matter in which the
director or officer had a material conflict of interest; (b) a violation of the
criminal law unless the director or officer had reasonable cause to believe his
or her conduct was lawful or had no reasonable cause to believe his or her
conduct was unlawful; (c) a transaction from which the director or officer
derived an improper personal profit; or (d) willful misconduct. Additionally,
under Section 180.0828 of the Wisconsin Business Corporation Law, directors of
Firstar are not subject to personal liability to Firstar, its stockholders or
any person asserting rights on behalf thereof for certain breaches or failures
to perform any duty resulting solely from their status as directors, except in
circumstances paralleling those outlined above.
Firstar's Bylaws contain similar indemnification provisions as to directors
and officers of Firstar. In addition, Firstar has entered into individual
indemnity agreements with all of its current directors. The indemnity agreements
are virtually identical in all substantive respects to Firstar's Bylaws.
Expenses for the defense of any action for which indemnification may be
available may be advanced by Firstar under certain circumstances.
Firstar maintains a liability insurance policy for officers and directors
which extends to, among other things, liability arising under the Securities Act
of 1933, as amended.
In addition, Firstar's Pension Plan and Thrift and Sharing Plan provide for
indemnification of members of the plan committees and directors of Firstar as
follows:
The Company shall indemnify each member of the Plan Committee and the Board
and hold each of them harmless from the consequences of his acts or conduct
in his official capacity, if he acted in good faith and in a manner he
reasonably believed to be solely in the best interests of the Participants
and their Beneficiaries, and with respect to any criminal action or
proceeding had no reasonable cause to believe his conduct was unlawful.
Such indemnification shall cover any and all attorneys' fees and expenses,
judgments, fines and amounts paid in settlement, but only to the extent
such amounts are not paid to such person(s) under the Company's fiduciary
insurance policy and to the extent that such amounts are actually and
reasonably incurred by such person(s).
II-1
<PAGE> 182
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) The following exhibits have been filed (except where otherwise
indicated) as part of this Registration Statement:
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
----------- ------------------------------------------------------------------------------
<S> <C>
2(a) Agreement and Plan of Reorganization dated as of August 21, 1994, among
Firstar Corporation, Firstar Corporation of Minnesota and Investors Bank Corp.
(included as Appendix B of the Proxy Statement-Prospectus; Registrant agrees
to furnish supplementally a copy of any omitted schedule to the Commission
upon request)
2(b) Plan of Merger dated as of August 21, 1994, between Investors Bank Corp. and
Firstar Corporation of Minnesota and joined in by Firstar Corporation for
certain limited purposes (included as Exhibit A to Appendix B of the Proxy
Statement-Prospectus)
2(c) Merger Agreement dated as of August 21, 1994, between Firstar Bank of
Minnesota, N.A. and Investors Savings Bank, F.S.B.*
2(d) Form of Voting Agreement between Firstar Corporation and directors and
executive officers of Investors Bank Corp., dated as of August 21, 1994*
4(a) Indenture dated as of June 1, 1986, between Firstar Corporation and Chemical
Bank, as Trustee, relating to Firstar Corporation's 10% Notes due 1996
(Exhibit 4(b) to Amendment No. 1 to Registration No. 33-5932; incorporated
herein by reference)
4(b) Indenture dated as of May 1, 1988, between Firstar Corporation and Chemical
Bank, as Trustee, relating to Firstar Corporation's 10 1/4% Notes due 1998
(Exhibit 4(a) to Amendment No. 1 to Registration No. 33-21527; incorporated
herein by reference)
4(c) Shareholder Rights Plan of Firstar Corporation (Exhibit 4 of Form 8-K dated
January 19, 1989; incorporated herein by reference)
4(d) Warrant Agreement dated October 15, 1991 between Investors Bank Corp. and
Norwest Bank Minnesota, National Association (Exhibit 4.7 to Registration No.
33-42684; incorporated herein by reference)
4(e) Form of Supplemental Warrant Agreement between Firstar Corporation and Norwest
Bank Minnesota, National Association
4(f) Restated Articles of Incorporation, as amended, of Firstar (Exhibit 4(d) to
Amendment No. 1 to Registration Statement No. 33-57225; incorporated herein by
reference)
4(g) Articles of Amendment to Firstar's Restated Articles of Incorporation creating
Series D Convertible Preferred Stock (Exhibit 4(e) to Amendment No. 1 to
Registration Statement No. 33-57225; incorporated herein by reference)
5 Opinion of Howard H. Hopwood III, Esq.*
8 Tax Opinion of Foley & Lardner
23(a) Consent of KPMG Peat Marwick LLP addressed to Board of Directors of Investors
Bank Corp.
23(b) Consent of KPMG Peat Marwick LLP addressed to Board of Directors of Firstar
Corporation
23(c) Consent of Howard H. Hopwood III, Esq. (included in Exhibit 5)
23(d) Consent of Foley & Lardner (included in Exhibit 8)
23(e) Consent of Piper Jaffray Inc.
24 Powers of Attorney*
99 Proxy for the Investors Special Meeting of Stockholders and Voting Instruction
Card for participants in Investors Savings 401(k) Plan
</TABLE>
- ---------------
* Previously filed
(b) No financial statement schedules are required to be filed with regard
to Firstar or Investors.
(c) The opinion of Piper Jaffray Inc. is furnished as part of the Proxy
Statement-Prospectus.
II-2
<PAGE> 183
ITEM 22. UNDERTAKINGS.
(1) Firstar hereby undertakes that, for purposes of determining any
liability under the Securities Act of 1933, as amended, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934, as amended, 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.
(2) Firstar 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.
(3) Firstar undertakes that every Prospectus (i) that is filed pursuant to
paragraph (2) 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, as amended, 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.
(4) Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended, may be permitted to directors, officers and controlling
persons of Firstar pursuant to the foregoing provisions, or otherwise, Firstar
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 Firstar of expenses incurred or paid
by a director, officer or controlling person or Firstar 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,
Firstar 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 is against public policy as expressed in
the Act and will be governed by the final adjudication of such issue.
(5) Firstar 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.
(6) Firstar 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.
(7) Firstar hereby undertakes 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.
II-3
<PAGE> 184
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment to the Registration Statement to be signed on its
behalf by the undersigned thereunto duly authorized in the City of Milwaukee and
State of Wisconsin on February 6, 1995.
FIRSTAR CORPORATION
By: /s/ ROGER L. FITZSIMONDS
--------------------------------------
Roger L. Fitzsimonds
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ ROGER L. FITZSIMONDS Chairman of the Board, Chief February 6, 1995
- ------------------------------------- Executive Officer and Director
Roger L. Fitzsimonds
/s/ JOHN A. BECKER* President, Chief Operating Officer February 6, 1995
- ------------------------------------- and Director
John A. Becker
/s/ WILLIAM H. RISCH* Senior Vice President-Finance February 6, 1995
- ------------------------------------- and Treasurer
William H. Risch
/s/ MICHAEL E. BATTEN* Director February 6, 1995
- -------------------------------------
Michael E. Batten
Director
- -------------------------------------
Robert C. Buchanan
/s/ GEORGE M. CHESTER, JR.* Director February 6, 1995
- -------------------------------------
George M. Chester, Jr.
/s/ ROGER H. DERUSHA* Director February 6, 1995
- -------------------------------------
Roger H. Derusha
/s/ JAMES L. FORBES* Director February 6, 1995
- -------------------------------------
James L. Forbes
/s/ HOLMES FOSTER* Director February 6, 1995
- -------------------------------------
Holmes Foster
</TABLE>
II-4
<PAGE> 185
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------- ------------------------------------- -----------------
<S> <C> <C>
/s/ JOSEPH F. HEIL, JR.* Director February 6, 1995
- -------------------------------------
Joseph F. Heil, Jr.
/s/ JOHN H. HENDEE, JR.* Director February 6, 1995
- -------------------------------------
John H. Hendee, Jr.
/s/ JERRY M. HIEGEL* Director February 6, 1995
- -------------------------------------
Jerry M. Hiegel
/s/ JOSEPH F. HLADKY, III* Director February 6, 1995
- -------------------------------------
Joseph F. Hladky, III
/s/ JAMES H. KEYES* Director February 6, 1995
- -------------------------------------
James H. Keyes
/s/ SHELDON B. LUBAR* Director February 6, 1995
- -------------------------------------
Sheldon B. Lubar
/s/ DANIEL F. MCKEITHAN, JR.* Director February 6, 1995
- -------------------------------------
Daniel F. McKeithan, Jr.
/s/ GEORGE W. MEAD, II* Director February 6, 1995
- -------------------------------------
George W. Mead, II
/s/ GUY A. OSBORN* Director February 6, 1995
- -------------------------------------
Guy A. Osborn
Director
- -------------------------------------
Judith D. Pyle
/s/ CLIFFORD V. SMITH, JR.* Director February 6, 1995
- -------------------------------------
Clifford V. Smith, Jr.
/s/ WILLIAM W. WIRTZ* Director February 6, 1995
- -------------------------------------
William W. Wirtz
</TABLE>
By: /s/ HOWARD H. HOPWOOD, III
------------------------------
Howard H. Hopwood, III
Attorney-in-Fact
* Pursuant to authority granted by powers of attorney filed with
the Registration Statement.
II-5
<PAGE> 186
EXHIBIT INDEX
<TABLE>
<CAPTION>
Sequential
Exhibit No. Exhibit Page Number
- ----------- ------- -----------
<S> <C> <C>
2(a) Agreement and Plan of Reorganization dated as of August 21,
1994, among Firstar Corporation, Firstar Corporation of Minnesota
and Investors Bank Corp. (included as Appendix B of the Proxy
Statement-Prospectus; Registrant agrees to furnish supplementally
a copy of any omitted schedule to the Commission upon request)
2(b) Plan of Merger dated as of August 21, 1994, between Investors
Bank Corp. and Firstar Corporation of Minnesota and joined in by
Firstar Corporation for certain limited purposes (included as
Exhibit A to Appendix B of the Proxy Statement-Prospectus)
2(c) Merger Agreement dated as of August 21, 1994, between Firstar
Bank of Minnesota, N.A. and Investors Savings Bank, F.S.B.*
2(d) Form of Voting Agreement between Firstar Corporation and
directors and executive officers of Investors Bank Corp., dated
as of August 21, 1994*
4(a) Indenture dated as of June 1, 1986, between Firstar Corporation
and Chemical Bank, as Trustee, relating to Firstar Corporation's
10% Notes due 1996 (Exhibit 4(b) to Amendment No. 1 to
Registration No. 33-5932; incorporated herein by reference)
4(b) Indenture dated as of May 1, 1988, between Firstar Corporation
and Chemical Bank, as Trustee, relating to Firstar Corporation's
10-1/4% Notes due 1998 (Exhibit 4(a) to Amendment No. 1 to
Registration No. 33-21527; incorporated herein by reference)
4(c) Shareholder Rights Plan of Firstar Corporation (Exhibit 4 of Form
8-K dated January 19, 1989; incorporated herein by reference)
4(d) Warrant Agreement dated October 15, 1991 between Investors Bank
Corp. and Norwest Bank Minnesota, National Association (Exhibit
4.7 to Registration No. 33-42684; incorporated herein by
reference)
4(e) Form of Supplemental Warrant Agreement between Firstar
Corporation and Norwest Bank Minnesota, National Association
</TABLE>
<PAGE> 187
<TABLE>
<CAPTION>
Sequential
Exhibit No. Exhibit Page Number
- ----------- ------- -----------
<S> <C> <C>
4(f) Restated Articles of Incorporation, as amended, of Firstar
(Exhibit 4(d) to Amendment No. 1 to Registration Statement No.
33-57225; incorporated herein by reference)
4(g) Articles of Amendment to Firstar's Restated Articles of
Incorporation creating Series D Convertible Preferred Stock
(Exhibit 4(e) to Amendment No. 1 to Registration Statement No.
33-57225; incorporated herein by reference)
5 Opinion of Howard H. Hopwood III, Esq.*
8 Tax Opinion of Foley & Lardner
23(a) Consent of KPMG Peat Marwick LLP addressed to Board of Directors
of Investors Bank Corp.
23(b) Consent of KPMG Peat Marwick LLP addressed to Board of Directors
of Firstar Corporation
23(c) Consent of Howard H. Hopwood III, Esq. (included in Exhibit 5)
23(d) Consent of Foley & Lardner (included in Exhibit 8)
23(e) Consent of Piper Jaffray Inc.
24 Powers of Attorney*
99 Proxy for the Investors Special Meeting of Stockholders and
Voting Instruction Card for participants in Investors Savings
401(k) Plan
</TABLE>
_____________
* Previously filed.
<PAGE> 1
EXHIBIT 4(E)
FORM OF
SUPPLEMENTAL WARRANT AGREEMENT
SUPPLEMENTAL WARRANT AGREEMENT, dated as of _________ __, 1995,
among FIRSTAR CORPORATION, a Wisconsin corporation ("Firstar"), FIRSTAR
CORPORATION OF MINNESOTA, a Minnesota corporation and a wholly-owned subsidiary
of Firstar ("FCM"), and NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION (said
national association, and any successor which shall become such in the manner
prescribed in the Warrant Agreement (as defined below), being hereinafter
called the "Warrant Agent").
WHEREAS, Firstar and FCM entered into an Agreement and Plan of
Reorganization ("Merger Agreement") with Investors Bank Corp., a Delaware
corporation ("Investors"), pursuant to which as of the date hereof Investors
merged with and into FCM and the resulting entity became a wholly-owned
subsidiary of Firstar (the "Merger");
WHEREAS, pursuant to the Merger Agreement, each outstanding share of
Investors Common Stock, $0.01 par value ("Investors Common Stock"), was
converted into the right to receive 0.8676 of a share of Firstar Common Stock,
$1.25 par value ("Firstar Common Stock");
WHEREAS, Investors issued warrants to purchase one-half share of
Investors Common Stock (the "Investors Warrants") pursuant to the Warrant
Agreement, dated as of October 15, 1991, between Investors and the Warrant
Agent (the "Warrant Agreement") (capitalized terms used herein and not
otherwise defined have the meanings given such terms in the Warrant Agreement);
and
WHEREAS, the Merger Agreement requires Firstar, and the Warrant
Agreement requires FCM, to enter into this Supplemental Warrant Agreement
whereby each holder of an Investors Warrant shall hereafter have the right to
receive, upon exercise of such warrant and upon the same terms and conditions
applicable to an Investors Warrant under the Warrant Agreement, the same number
of shares of Firstar Common Stock as the holder of such warrant would have been
entitled to receive pursuant to the Merger had such holder exercised such
warrant in full immediately prior to the consummation of the Merger.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein set forth, the parties hereto agree as follows:
SECTION 1. EFFECT OF CONVERSION OF INVESTORS COMMON STOCK.
Each Investors Warrant that was outstanding immediately prior to the
consummation of the Merger shall, by virtue of the Merger and pursuant to this
Supplemental Warrant Agreement and in accordance with Section 10(H) of the
Warrant Agreement, without any action on the part of the holder thereof,
hereafter represent a warrant to acquire, on the same terms and conditions as
were applicable under such Investors Warrant, the same number of shares of
Firstar Common Stock as the holder of such Investors Warrant would have been
entitled to receive pursuant to the Merger had such holder exercised such
warrant in full immediately prior to the consummation of the Merger.
<PAGE> 2
SECTION 2. PURCHASE PRICE PER SHARE. The purchase price per
share for Firstar Common Stock purchasable pursuant to the exercise of
Investors Warrants shall initially be equal to (x) the aggregate Purchase Price
payable under the Investors Warrants for the shares of Investors Common Stock
otherwise purchasable pursuant to such Investors Warrant immediately prior to
the consummation of the Merger divided by (y) the number of full shares of
Firstar Common Stock deemed purchasable pursuant to Firstar Warrants (as
computed in accordance with Section 1).
SECTION 3. NOTICES. Any notice or demand pursuant to this
Supplemental Warrant Agreement or the Warrant Agreement to be given to or made
on Firstar by the Warrant Agent or by the registered holder of any Warrant
Certificate shall be sufficiently given or made if sent by first-class or
registered mail, postage prepaid, addressed (until another address is filed in
writing by Firstar with the Warrant Agent) as follows:
Firstar Corporation
777 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
Attention: __________________
SECTION 4. OTHER TERMS. All terms and conditions of the
Investors Warrants, as provided for in the Warrant Agreement, not specifically
altered by this Supplemental Warrant Agreement shall continue to apply until
amended in accordance with the terms of the Warrant Agreement. Firstar shall
hereafter be deemed the "Company" and Firstar Common Stock shall hereafter be
deemed the "Common Stock" wherever such terms are used in the Warrant
Agreement. All references to the "Agreement" in the Warrant Agreement shall
hereafter be deemed references to the Warrant Agreement as amended by this
Supplemental Warrant Agreement.
SECTION 5. MODIFICATION OF SUPPLEMENTAL WARRANT AGREEMENT. The
Warrant Agent may, without the consent or concurrence of the holders of the
Warrant Certificates, by supplemental agreement or otherwise, concur with
Firstar in making any changes or corrections in this Supplemental Warrant
Agreement that the Warrant Agent shall have been advised by counsel (who may be
counsel for Firstar) are necessary or desirable to cure any ambiguity or to
correct any defective or inconsistent provision or clerical omission or mistake
or manifest error herein contained, or to make any other provisions in regard
to matters or questions arising hereunder and which shall not be inconsistent
with the provisions of the Warrant Certificates and which shall not adversely
affect the interests of the holders of Warrant Certificates; but this
Supplemental Warrant Agreement shall not otherwise be modified, supplemented or
altered in any respect except with the consent in writing of the holders of the
Warrant Certificates representing not less than a majority of the Warrants
outstanding; provided, however, that no decrease in the number or nature of the
securities purchasable upon the exercise of a Warrant, no increase in the
Purchase Price therefor, and no shortening of the period prior to the
Expiration Date of the Warrant shall be made without the consent in writing of
the registered
-2-
<PAGE> 3
holder of the Warrant Certificate, other than as are specifically prescribed by
or contemplated in the Warrant Agreement as originally executed.
SECTION 6. SUCCESSORS. All the covenants and provisions of
this Supplemental Warrant Agreement by or for the benefit of Firstar or the
Warrant Agent shall bind and inure to the benefit of their respective
successors and assigns hereunder.
SECTION 7. MINNESOTA CONTRACT. This Supplemental Warrant
Agreement shall be deemed to be a contract made under the laws of the State of
Minnesota and for all purposes shall be construed in accordance with the laws
of said State.
SECTION 8. DESCRIPTIVE HEADINGS. The descriptive headings of
the several Sections of this Supplemental Warrant Agreement are inserted for
convenience only and shall not control or affect the meaning or construction of
any of the provisions hereof.
SECTION 9. COUNTERPARTS. This Supplemental Warrant Agreement
may be executed in any number of counterparts, each of which shall be an
original, but such counterparts shall together constitute one and the same
instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental
Warrant Agreement to be duly executed and their respective seals to be hereunto
affixed as of the day and year first above written.
FIRSTAR CORPORATION
By ________________________________
[CORPORATE SEAL] Name:___________________________
Title:__________________________
FIRSTAR CORPORATION
OF MINNESOTA
By ________________________________
[CORPORATE SEAL] Name:___________________________
Title:__________________________
-3-
<PAGE> 4
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION
[CORPORATE SEAL] By ________________________________
Its:____________________________
and
By ________________________________
Its:____________________________
-4-
<PAGE> 1
EXHIBIT 8
FOLEY & LARDNER
A T T O R N E Y S A T L A W
FIRSTAR CENTER A MEMBER OF GLOBALEX
777 EAST WISCONSIN AVENUE WITH MEMBER OFFICES IN
MILWAUKEE, WISCONSIN 53202-5367
MADISON BERLIN
CHICAGO TELEPHONE (414) 271-2400 BRUSSELS
WASHINGTON, D.C. DRESDEN
JACKSONVILLE TELEX 26-819 FRANKFURT
ORLANDO LONDON
TALLAHASSEE (FOLEY LARD MIL) PARIS
TAMPA SINGAPORE
WEST PALM BEACH FACSIMILE (414) 297-4900 STUTTGART
TAIPEI
WRITER'S DIRECT LINE
(414) 297-5641
February 6, 1995
Firstar Corporation Investors Bank Corp.
777 East Wisconsin Avenue 200 East Lake Street
Milwaukee, Wisconsin 53202 Wayzata, Minnesota 55391
Ladies and Gentlemen:
We have acted as counsel to Firstar Corporation ("Firstar") in
connection with the proposed merger (the "Merger") of Investors Bank Corp.
("Investors") into Firstar Corporation of Minnesota, a wholly-owned subsidiary
of Firstar ("FCM"), to be effected in accordance with the terms and conditions
of the Agreement and Plan of Reorganization (the "Agreement") dated as of
August 21, 1994, by and among Firstar, Investors and FCM (the Agreement,
together with the Plan of Merger attached thereto, the "Merger Agreements").
Section 8.01(f) of the Agreement provides that the respective obligations of
each party to effect the Merger shall be subject to the receipt by each of
Firstar and Investors of this opinion.
In so acting, we have participated in the preparation of the Merger
Agreements and the combined proxy statement and prospectus (the "Proxy
Statement-Prospectus") for the special meeting of the stockholders of
Investors. We have relied upon the facts set forth in the Proxy
Statement-Prospectus and the representations, warranties and statements as to
factual matters contained in and made pursuant to the Merger Agreements and
Certificates addressed to us from each of Firstar and Investors, as well as the
covenants contained in the Merger Agreements. We have considered such matters
of law and made such investigations as in our judgment are necessary or
appropriate to enable us to render the opinion expressed below.
We are of the opinion that the portions of the Proxy
Statement-Prospectus containing statements, summaries and discussions of the
tax law under the caption "PROPOSED MERGER--Certain Federal Income Tax
Consequences" accurately set forth the material federal income tax consequences
under current law that the Merger will have to Firstar, FCM, Investors and the
holders of common and preferred stock of Investors.
We consent to the filing of this opinion with the Securities and
Exchange Commission as an exhibit to the Registration Statement filed by
Firstar on Form S-4 in
<PAGE> 2
Firstar Corporation
Investors Bank Corp.
February 6, 1995
Page 2
connection with the Merger Agreements, and to the statements regarding us and
to the use of our name in the Proxy Statement-Prospectus. In giving our
consent, we do not admit that we are "experts" within the meaning of Section 11
of the Securities Act of 1933, or within the category of persons whose consent
is required by Section 7 of the Act.
Very truly yours,
/s/ Foley & Lardner
FOLEY & LARDNER
<PAGE> 1
EXHIBIT 23(A)
CONSENT OF KPMG PEAT MARWICK LLP
The Board of Directors
Investors Bank Corp.:
We consent to incorporation by reference and the inclusion in the Registration
Statement on Form S-4 of Firstar Corporation of our report dated January 27,
1994, relating to the consolidated balance sheets of Investors Bank Corp. and
subsidiary as of December 31, 1993 and 1992, and the related consolidated
statements of earnings, stockholders' equity, and cash flows for each of the
years in the three-year period ended December 31, 1993, which report appears in
the December 31, 1993 annual report on Form 10-K of Investors Bank Corp. and to
the reference to our firm under the heading "Experts" in the Proxy
Statement-Prospectus. Our report refers to a change in the method of
accounting for income taxes.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Minneapolis, Minnesota
February 3, 1995
<PAGE> 1
EXHIBIT 23(B)
CONSENT OF KPMG PEAT MARWICK LLP
The Board of Directors
Firstar Corporation:
We consent to incorporation by reference in the Registration Statement on Form
S-4 of Firstar Corporation of our report dated January 20, 1994, relating to
the consolidated balance sheets of Firstar Corporation and subsidiaries as of
December 31, 1993 and 1992, and the related consolidated statements of income,
stockholders' equity, and cash flows for each of the years in the three-year
period ended December 31, 1993, which report appears in the December 31, 1993
annual report on Form 10-K of Firstar Corporation and to the reference to our
firm under the heading "Experts" in the Proxy Statement-Prospectus.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Milwaukee, Wisconsin
February 3, 1995
<PAGE> 1
EXHIBIT 23(E)
CONSENT OF PIPER JAFFRAY INC.
We hereby consent to the use of our name in the Proxy Statement-Prospectus
of Firstar Corporation and Investors Bank Corp. forming part of the
Registration Statement on Form S-4 of Firstar Corporation and to the inclusion
of our opinion as Appendix C to such Joint Proxy Statement-Prospectus.
In giving the foregoing consent, we do not admit that we are within the
category of persons whose consent is required under Section 7 of the Securities
Act of 1933, as amended, or the rules or regulations of the Securities and
Exchange Commission thereunder.
PIPER JAFFRAY INC.
Minneapolis, Minnesota
February 6, 1995
<PAGE> 1
EXHIBIT 99
- --------------------------------------------------------------------------------
INVESTORS BANK CORP.
PROXY FOR SPECIAL MEETING OF SHAREHOLDERS
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints James M. Burkholder and John G.
Lohmann, Jr., and each of them, with full power to appoint a
substitute, to vote all shares the undersigned is entitled to vote at
the Special Meeting of Shareholders of Investors Bank Corp. to be held
on March 15, 1995, and at all adjournments thereof, as specified below
on the matter referred to, and, in their discretion, upon any other
matters which may be brought before the meeting:
<TABLE>
<S> <C>
1. Proposal to approve and adopt an Agreement and Plan of Reorganization and a Plan of Merger, each dated as
of August 21, 1994, that provide for, among other things, the merger of Investors Bank Corp. with and
into Firstar Corporation of Minnesota, a wholly owned subsidiary of Firstar Corporation.
/ / FOR / / AGAINST / / ABSTAIN
2. In their discretion to vote upon such other business as may properly come before the meeting.
</TABLE>
This Proxy, when properly executed, will be voted in the manner
directed herein by the undersigned shareholder. IF NO DIRECTION IS
MADE, THIS PROXY WILL BE VOTED FOR PROPOSAL #1.
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When shares are held by joint tenants, both should sign. When
signing as attorney, executor, administrator, trustee or guardian,
please give full title as such. If a corporation, please sign in full
corporate name by President or other authorized officer. If a
partnership, please sign in partnership name by authorized person.
Dated: , 1995
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Signature
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Signature if held jointly
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY PROMPTLY.
<PAGE> 2
EXHIBIT 99
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INVESTORS BANK CORP.
SPECIAL MEETING OF SHAREHOLDERS
INVESTORS SAVINGS 401(K) PLAN CONFIDENTIAL VOTING INSTRUCTIONS TO
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION, TRUSTEE
I hereby direct that the voting rights pertaining to the stock of
Investors Bank Corp. held by the Trust and allocable to
my accounts under the above Plan as of December 31, 1994 shall be
exercised at the Special Meeting of
Shareholders of Investors Bank Corp. to be held on March 15, 1995, and
at all adjournments thereof, as specified
below on the matters referred to, and in their discretion, upon any
other matters which may be brought before the
meeting:
<TABLE>
<S> <C>
1. Proposal to approve and adopt an Agreement and Plan of Reorganization and a Plan of Merger, each dated as
of August 21, 1994, that provide for, among other things, the merger of Investors Bank Corp. with and
into Firstar Corporation of Minnesota, a wholly owned subsidiary of Firstar Corporation.
/ / FOR / / AGAINST / / ABSTAIN
2. To vote upon such other business as may properly come before the meeting.
</TABLE>
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This instruction card must be returned to Norwest Bank Minnesota,
National Association, Trustee by Wednesday, March 8, 1995, if your
instructions are to be honored. The Trustee will tabulate the
instructions from all Participants received by the deadline and will
determine the ratio of votes for and against each proposition. The
Trustee will then vote all shares held in the Trust according to the
ratios so determined.
Dated: , 1995
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Signature of Participant
PLEASE MARK, SIGN, DATE AND RETURN THIS CARD PROMPTLY.
