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424(b)3
Registration # 33-63609
MERCANTILE BANCORPORATION INC.
PROSPECTUS
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HAWKEYE BANCORPORATION
PROXY STATEMENT
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This Prospectus of Mercantile Bancorporation Inc., a Missouri corporation
("MBI"), relates to up to 7,996,952 shares of common stock, par value $5.00 per
share, and attached preferred share purchase rights (the "Rights"), of MBI (the
Common Stock and Rights are collectively referred to herein as the "MBI Common
Stock") to be issued to the shareholders of Hawkeye Bancorporation, an Iowa
corporation ("Hawkeye"), upon consummation of the proposed merger (the "Merger")
of Hawkeye with and into Mercantile Bancorporation Inc. of Iowa, an Iowa
corporation ("Merger Sub") and a wholly owned subsidiary of MBI. The Merger will
be consummated pursuant to the Agreement and Plan of Reorganization, dated
August 4, 1995 (the "Merger Agreement"), by and between MBI and Hawkeye, upon
the terms and subject to the conditions thereof. This Prospectus also serves as
the Proxy Statement of Hawkeye for use in connection with the solicitation of
proxies by the Board of Directors of Hawkeye to be used at the Special Meeting
of Shareholders of Hawkeye (the "Special Meeting") to be held on December 21,
1995, at 10:00 A.M., Central Time, at the Des Moines Marriott, 700 Grand Avenue,
Des Moines, Iowa, to approve and adopt the Merger Agreement.
Upon consummation of the Merger, among other things, each outstanding share
of Hawkeye common stock, without par value ("Hawkeye Common Stock"), other than
shares held by Hawkeye, MBI or any of their respective wholly owned
subsidiaries, in each case other than in a fiduciary capacity or as a result of
debts previously contracted, all of which will be cancelled in the Merger, and
other than shares held by shareholders of Hawkeye who exercise their dissenters'
rights under the Iowa Business Corporation Act (the "Iowa Act"), will be
converted into the right to receive .585 of a share of MBI Common Stock, with
cash in lieu of fractional shares. See "TERMS OF THE PROPOSED MERGER" and
"DISSENTERS' RIGHTS OF SHAREHOLDERS OF HAWKEYE."
MBI Common Stock is quoted on the New York Stock Exchange (the "NYSE")
under the symbol "MTL." On November 17, 1995, the last sale price of MBI Common
Stock as reported on the NYSE Composite Tape was $45.38. Hawkeye Common Stock is
quoted on the Nasdaq National Market ("NASDAQ/NM") under the symbol "HWKB." On
November 17, 1995 the last sale price for Hawkeye Common Stock as reported on
the NASDAQ/NM was $26.00.
This Proxy Statement/Prospectus, the Letter to Hawkeye shareholders, the
Notice of Special Meeting and the form of proxy are first being mailed to the
shareholders of Hawkeye on or about November 22, 1995.
THE SECURITIES TO BE ISSUED PURSUANT TO THIS PROXY STATEMENT/PROSPECTUS HAVE
NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION
(THE "COMMISSION") OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE SHARES OF MBI COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS,
DEPOSITS OR OTHER OBLIGATIONS OF ANY BANK OR SAVINGS ASSOCIATION AND
ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION,
THE BANK INSURANCE FUND, THE SAVINGS ASSOCIATION
INSURANCE FUND OR ANY OTHER GOVERNMENTAL AGENCY.
------------------------
The date of this Proxy Statement/Prospectus is November 21, 1995.
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AVAILABLE INFORMATION
Each of MBI and Hawkeye is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, files reports, proxy statements and other information with
the Commission. Such reports, proxy statements and other information concerning
either MBI or Hawkeye can be inspected and copied at the public reference
facilities maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549 and at the Commission's Regional Offices in
New York (Suite 1300, Seven World Trade Center, New York, New York 10048) and
Chicago (Suite 1400, Citicorp Center, 500 West Madison Street, Chicago, Illinois
60661). Copies of such material can also be obtained from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. MBI Common Stock is listed on the NYSE, and such reports,
proxy statements and other information concerning MBI are available for
inspection and copying at the offices of the NYSE, 20 Broad Street, New York,
New York 10005. Hawkeye Common Stock is quoted on the NASDAQ/NM, and such
reports, proxy statements and other information concerning Hawkeye are available
for inspection and copying at the Public Reference section of the NASDAQ/NM at
1737 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 (together
with any amendments thereto, the "Registration Statement") covering the
securities offered hereby which has been filed by MBI with the Commission under
the Securities Act of 1933, as amended (the "Securities Act"). As permitted by
the rules and regulations of the Commission, this Proxy Statement/Prospectus
omits certain information contained or incorporated by reference in the
Registration Statement. Reference is hereby made to the Registration Statement
for further information with respect to MBI and the securities offered hereby.
Such additional information may be obtained from the Commission's principal
office in Washington, D.C. Statements contained in this Proxy
Statement/Prospectus or in any document incorporated by reference in this Proxy
Statement/Prospectus provide a fair summary of the contents of any contract or
other document referenced herein or therein but are not necessarily complete,
and in each instance reference is made to the copy of such contract or other
document filed as an exhibit to the Registration Statement or such other
document, each such statement being qualified in all respects by such reference.
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INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
This Proxy Statement/Prospectus incorporates documents by reference which
are not presented herein or delivered herewith. Copies of these documents
(excluding exhibits unless specifically incorporated by reference herein or in
such documents) are available, without charge, to any person to whom this Proxy
Statement/Prospectus is delivered upon written or oral request to the following:
<TABLE>
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MBI DOCUMENTS HAWKEYE DOCUMENTS
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<S> <C>
Jon W. Bilstrom R. Douglas Fisher
General Counsel and Secretary Executive Vice President and
Mercantile Bancorporation Secretary
Inc. Hawkeye Bancorporation
P.O. Box 524 222 Equitable Building
St. Louis, Missouri 604 Locust Street
63166-0524 Des Moines, Iowa 50309-3723
(314) 425-2525 (515) 284-1930
</TABLE>
In order to ensure timely delivery of such documents, a request must be received
no later than December 14, 1995.
The following documents filed with the Commission by MBI under the Exchange
Act are incorporated herein by reference:
(a) MBI's Annual Report on Form 10-K (Commission File No. 1-11792) for
the year ended December 31, 1994, as amended by Form 10K/A (Amendment No.
1) dated June 29, 1995 (as amended, the "1994 MBI Form 10-K").
(b) MBI's Quarterly Reports on Form 10-Q (Commission File No. 1-11792)
for the quarters ended March 31, June 30 and September 30, 1995.
(c) The information contained in MBI's Proxy Statement dated March 24,
1995 for its Annual Meeting of Shareholders held on April 27, 1995 that has
been incorporated by reference in the 1994 MBI Form 10-K.
(d) MBI's Current Reports on Form 8-K (Commission File No. 1-11792)
dated May 1, May 31 and August 4, 1995.
(e) The description of MBI Common Stock set forth in Item 1 of MBI's
Registration Statement on Form 8-A (Commission File No. 1-11792), dated
March 5, 1993, and any amendment or report filed for the purpose of
updating such description.
(f) The description of the Rights set forth in Item 1 of MBI's
Registration Statement on Form 8-A (Commission File No. 1-11792), dated
March 5, 1993, and any amendment or report filed for the purpose of
updating such description.
The following documents filed with the Commission by Hawkeye under the
Exchange Act are incorporated herein by reference:
(a) Hawkeye's Annual Report on Form 10-K (Commission File No. 0-4742)
for the year ended December 31, 1994 (the "1994 Hawkeye Form 10-K").
(b) Hawkeye's Quarterly Reports on Form 10-Q (Commission File No.
0-4742) for the quarters ended March 31, June 30 and September 30, 1995.
(c) The information contained in Hawkeye's Proxy Statement dated March
20, 1995 for its Annual Meeting of Shareholders held on April 18, 1995 that
has been incorporated by reference in the 1994 Hawkeye Form 10-K.
(d) Hawkeye's Current Reports on Form 8-K (Commission File No. 0-4742)
dated July 18 and August 4, 1995.
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All documents filed with the Commission by MBI or Hawkeye pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this
Proxy Statement/Prospectus and prior to the date of the Special Meeting shall be
deemed to be incorporated by reference herein and made a part hereof from the
date any such document is filed. The information relating to MBI and Hawkeye
contained in this Proxy Statement/Prospectus does not purport to be complete and
should be read together with the information in the documents incorporated by
reference herein. Any statement contained herein or in a document incorporated
or deemed to be incorporated herein by reference shall be deemed to be modified
or superseded for all purposes to the extent that a statement contained herein
or in any other subsequently filed document incorporated or deemed to be
incorporated by reference herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part hereof.
Any statements contained in this Proxy Statement/Prospectus involving
matters of opinion, whether or not expressly so stated, are intended as such and
not as representations of fact.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS OR IN THE
DOCUMENTS INCORPORATED BY REFERENCE HEREIN AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY MBI OR HAWKEYE. THIS PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY SECURITIES, OR THE
SOLICITATION OF A PROXY, IN ANY JURISDICTION IN WHICH, OR FROM ANY PERSON TO
WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER, SOLICITATION OF AN OFFER OR PROXY
SOLICITATION. NEITHER THE DELIVERY OF THIS PROXY STATEMENT/PROSPECTUS NOR ANY
DISTRIBUTION OF THE SECURITIES TO WHICH IT RELATES SHALL IMPLY OR CREATE AN
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF MBI OR HAWKEYE OR
ANY OF THEIR RESPECTIVE SUBSIDIARIES OR IN THE INFORMATION SET FORTH OR
INCORPORATED BY REFERENCE HEREIN SUBSEQUENT TO THE DATE HEREOF.
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TABLE OF CONTENTS
<TABLE>
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PAGE
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AVAILABLE INFORMATION................................................................. i
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE..................................... ii
SUMMARY INFORMATION................................................................... 1
Business of MBI..................................................................... 1
Business of Merger Sub.............................................................. 1
Business of Hawkeye................................................................. 1
Special Meeting of Hawkeye Shareholders............................................. 2
The Proposed Merger................................................................. 2
Stock Option Agreement.............................................................. 3
Support Agreements.................................................................. 3
Reasons for the Merger; Hawkeye Board Recommendation................................ 4
Opinion of Hawkeye's Financial Advisor.............................................. 4
Interests of Certain Persons in the Merger.......................................... 4
Fractional Shares................................................................... 5
Regulatory Approval................................................................. 5
Waiver and Amendment................................................................ 5
Accounting Treatment................................................................ 6
Employee Stock Options and Stock Appreciation Rights................................ 6
Federal Income Tax Consequences in General.......................................... 6
Dissenters' Rights.................................................................. 6
Market and Market Prices............................................................ 7
Comparative Unaudited Per Share Data................................................ 8
Summary Financial Data.............................................................. 9
INFORMATION REGARDING SPECIAL MEETING................................................. 12
General............................................................................. 12
Date, Time and Place................................................................ 12
Record Date; Vote Required.......................................................... 12
Voting and Revocation of Proxies.................................................... 12
Solicitation of Proxies............................................................. 13
TERMS OF THE PROPOSED MERGER.......................................................... 14
General Description of the Merger................................................... 14
Stock Option Agreement.............................................................. 15
Support Agreements.................................................................. 16
Background and Reasons for the Merger; Hawkeye Board Recommendation................. 17
Opinion of Hawkeye's Financial Advisor.............................................. 19
Interests of Certain Persons in the Merger.......................................... 24
Conditions of the Merger............................................................ 25
Termination of the Merger Agreement................................................. 26
Closing and Effective Time.......................................................... 26
Surrender of Hawkeye Stock Certificates and Receipt of MBI Capital Stock............ 26
Fractional Shares................................................................... 27
Regulatory Approval................................................................. 27
Business Pending the Merger......................................................... 28
Bank Minority Shares................................................................ 30
Waiver and Amendment................................................................ 30
Accounting Treatment................................................................ 30
Management and Operations After the Merger.......................................... 31
Employee Benefits................................................................... 31
</TABLE>
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<TABLE>
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER................................. 32
DISSENTERS' RIGHTS OF SHAREHOLDERS OF HAWKEYE......................................... 33
PRO FORMA FINANCIAL INFORMATION....................................................... 36
Comparative Unaudited Per Share Data................................................ 36
Pro Forma Combined Consolidated Financial Statements (Unaudited).................... 38
INFORMATION REGARDING MBI STOCK....................................................... 47
Description of MBI Common Stock and Attached Preferred Share Purchase Rights........ 47
Restrictions on Resale of MBI Capital Stock by Affiliates; Affiliate Agreements..... 48
Comparison of the Rights of Shareholders of MBI and Hawkeye......................... 49
SUPERVISION AND REGULATION............................................................ 51
General............................................................................. 51
Certain Transactions with Affiliates................................................ 52
Payment of Dividends................................................................ 52
Capital Adequacy.................................................................... 52
Support of Subsidiary Banks......................................................... 53
Recent Legislation.................................................................. 53
LEGAL MATTERS......................................................................... 56
EXPERTS............................................................................... 56
OTHER MATTERS......................................................................... 56
STOCKHOLDER PROPOSALS................................................................. 57
ANNEXES
Annex A -- Dissenters' Rights Provisions Under the Iowa Business Corporation Act.... A-1
Annex B -- Opinion of Donaldson, Lufkin & Jenrette Securities Corporation, dated
November 21, 1995........................................................ B-1
</TABLE>
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SUMMARY INFORMATION
The following is a summary of certain terms of the Merger and related
information discussed elsewhere in this Proxy Statement/Prospectus, is not
intended to be complete and is qualified in all respects by the more detailed
information included in this Proxy Statement/Prospectus and the documents
incorporated herein by reference. As used in this Proxy Statement/Prospectus,
the terms "MBI" and "Hawkeye" refer to such corporations, respectively, and
where the context requires, such corporations and their respective subsidiaries
on a consolidated basis. Shareholders of Hawkeye are urged to read and consider
carefully all of the information contained or incorporated by reference in this
Proxy Statement/Prospectus and the Annexes hereto. All information concerning
MBI included in this Proxy Statement/Prospectus has been furnished by MBI and
all information concerning Hawkeye included in this Proxy Statement/Prospectus
has been furnished by Hawkeye. Neither MBI nor Hawkeye warrants the accuracy or
completeness of information relating to the other.
BUSINESS OF MBI
MBI, a Missouri corporation, was organized in 1970 and is a registered bank
holding company under the federal Bank Holding Company Act of 1956, as amended
(the "BHCA"). As of September 30, 1995, MBI owned, directly or indirectly, all
of the capital stock (except for a small minority interest in one bank) of
Mercantile Bank of St. Louis National Association, 51 other commercial banks and
one federally chartered thrift that operated from 322 banking offices and 316
Fingertip Banking automated teller machines, including 37 off-premises machines,
located throughout Missouri, southern Illinois, northern Iowa, northern Arkansas
and eastern Kansas. MBI's services concentrate in three major lines of business
- -- consumer, corporate, and trust and investment advisory services. MBI also
operates non-banking subsidiaries that provide related financial services,
including investment management, brokerage services and asset-based lending. As
of September 30, 1995, MBI reported, on a consolidated basis, total assets of
$16.0 billion, total deposits of $11.8 billion, total loans of $10.6 billion and
shareholders' equity of $1.4 billion. As of September 30, 1995, MBI had
55,333,878 shares of MBI Common Stock issued and outstanding and 14,806 shares
of MBI preferred stock, without par value ("MBI Preferred Stock"), issued and
outstanding.
MBI's principal executive offices are located at One Mercantile Center, St.
Louis, Missouri 63101 and its telephone number is (314) 425-2525.
For additional information, see "TERMS OF THE PROPOSED MERGER,"
"SUPERVISION AND REGULATION," "PRO FORMA FINANCIAL INFORMATION" and
"INCORPORATION OF CERTAIN INFORMATION BY REFERENCE."
BUSINESS OF MERGER SUB
Merger Sub, an Iowa corporation, was organized in 1993 as a wholly owned
subsidiary of MBI. Merger Sub is a registered bank holding company under the
BHCA which currently owns all of the stock of one bank and one savings
association. Merger Sub will be the surviving corporation upon consummation of
the Merger.
The principal executive offices of Merger Sub are located at One Mercantile
Center, St. Louis, Missouri 63101 and its telephone number is (314) 425-2525.
BUSINESS OF HAWKEYE
Hawkeye, an Iowa corporation, was organized in 1966 and is a registered
bank holding company under the BHCA. As of September 30, 1995, Hawkeye owned
controlling interests in 23 commercial bank subsidiaries and three non-bank
subsidiaries that operated from 65 locations throughout Iowa. Hawkeye's bank
subsidiaries are located primarily in county seat or local trade center
communities where agriculture is the primary industry and provide a broad range
of commercial bank financial services to business customers and a variety of
consumer banking services to individual customers. Certain of the bank
subsidiaries also provide trust services. Hawkeye's non-bank subsidiaries
provide related financial services, including
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centralized proof and accounting services for Hawkeye bank subsidiaries,
equipment leasing and funding and servicing of government guaranteed FMHA loans.
As of September 30, 1995, Hawkeye reported, on a consolidated basis, total
assets of $2.0 billion, total deposits of $1.7 billion, total loans of $1.3
billion and shareholders' equity of $192.8 million. As of September 30, 1995,
Hawkeye had 13,461,373 shares of Hawkeye Common Stock issued and outstanding and
no shares of Hawkeye preferred stock issued and outstanding.
Hawkeye's principal executive offices are located at 222 Equitable
Building, 604 Locust Street, Des Moines, Iowa 50309 and its telephone number is
(515) 284-1930.
For additional information, see "TERMS OF THE PROPOSED MERGER,"
"SUPERVISION AND REGULATION," "PRO FORMA FINANCIAL INFORMATION" and
"INCORPORATION OF CERTAIN INFORMATION BY REFERENCE."
SPECIAL MEETING OF HAWKEYE SHAREHOLDERS
The Special Meeting will be held at the Des Moines Marriott, 700 Grand
Avenue, Des Moines, Iowa, on December 21, 1995, at 10:00 A.M., Central Time, at
which the shareholders of Hawkeye will consider and vote on a proposal to
approve and adopt the Merger Agreement and will transact such other business as
may properly come before the Special Meeting or any adjournment or postponement
thereof. Approval by the Hawkeye shareholders of the Merger Agreement requires
the affirmative vote of the holders of a majority of the outstanding shares of
Hawkeye Common Stock entitled to vote at the meeting (the "Shareholder
Approval"). Only holders of record of Hawkeye Common Stock at the close of
business on November 16, 1995 (the "Record Date"), will be entitled to notice
of, and to vote at, the Special Meeting. At such date, there were 13,481,748
shares of Hawkeye Common Stock outstanding held by approximately 3,956 holders
of record. See "INFORMATION REGARDING SPECIAL MEETING."
As of the Record Date, directors and executive officers of Hawkeye and
certain of their affiliates owned beneficially an aggregate of 1,134,466 shares
of Hawkeye Common Stock, or approximately 8.4% of the shares entitled to vote at
the Special Meeting. All of Hawkeye's directors and executive officers and
certain of their affiliates have indicated their intention to vote their shares
of Hawkeye Common Stock for the approval of the Merger Agreement. In addition,
all of the directors of Hawkeye, who as of the Record Date beneficially owned in
the aggregate approximately 8.1% of the outstanding shares of Hawkeye Common
Stock, have each agreed pursuant to a Support Agreement to vote all shares of
Hawkeye Common Stock beneficially owned by such person, or over which such
person has voting power or control, to approve the Merger Agreement. See
"INFORMATION REGARDING SPECIAL MEETING" and "TERMS OF THE PROPOSED MERGER --
Support Agreements."
Any shareholder of Hawkeye giving a proxy may revoke it at any time prior
to the vote at the Special Meeting. Shareholders of Hawkeye wishing to revoke a
proxy prior to the vote may do so by delivering to the Secretary of Hawkeye at
222 Equitable Building, 604 Locust Street, Des Moines, Iowa 50309-3723 a written
notice of revocation bearing a later date than the proxy or any later dated
proxy relating to the same shares, or by attending the Special Meeting and
voting in person. Attendance at the Special Meeting will not in itself
constitute the revocation of a proxy.
THE BOARD OF DIRECTORS OF HAWKEYE HAS DETERMINED THAT THE TERMS OF THE
MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY ARE IN THE BEST
INTERESTS OF HAWKEYE AND ITS SHAREHOLDERS. ACCORDINGLY, THE HAWKEYE BOARD OF
DIRECTORS RECOMMENDS THAT HAWKEYE SHAREHOLDERS VOTE FOR THE APPROVAL AND
ADOPTION OF THE MERGER AGREEMENT.
THE PROPOSED MERGER
Subject to the satisfaction of the terms and conditions set forth in the
Merger Agreement described below, Hawkeye will merge with and into Merger Sub.
Upon consummation of the Merger, Hawkeye's corporate existence will terminate,
with Merger Sub continuing as the surviving corporation, and each
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outstanding share of Hawkeye Common Stock, other than shares held by Hawkeye,
MBI or any of their respective wholly owned subsidiaries, in each case other
than in a fiduciary capacity or as a result of debts previously contracted, all
of which will be cancelled in the Merger, and other than shares held by
shareholders of Hawkeye who exercise their dissenters' rights under the Iowa
Act, will be converted into the right to receive .585 (the "Exchange Ratio") of
a share of MBI Common Stock, with cash in lieu of fractional shares (together,
the "Merger Consideration"). See "TERMS OF THE PROPOSED MERGER" and "DISSENTERS'
RIGHTS OF SHAREHOLDERS OF HAWKEYE."
Consummation of the Merger is subject to certain terms and conditions,
including, among other things, the approval of the Merger Agreement by the
affirmative vote of the holders of a majority of the outstanding shares of
Hawkeye Common Stock entitled to vote at the Special Meeting and receipt of all
requisite regulatory approvals. See "TERMS OF THE PROPOSED MERGER -- Conditions
of the Merger" and "-- Regulatory Approval." The Merger will be consummated and
become effective on the date and at the time (the "Effective Time") that the
articles of merger are filed with the Iowa Secretary of State.
Unless the parties otherwise agree, the closing (the "Closing") of the
Merger shall take place at 10:00 A.M., local time, on the date (the "Closing
Date") on which the Effective Time of the Merger occurs, which shall be such
date as MBI shall notify Hawkeye in writing but (i) not earlier than the
approval by Hawkeye shareholders of the Merger Agreement and the receipt of all
requisite regulatory approvals (the "Approval Date"), and (ii) not later than
the first business day of the first full calendar month commencing at least five
business days after the Approval Date. See "TERMS OF THE PROPOSED MERGER --
Closing and Effective Time."
The Merger Agreement may be terminated at any time prior to the Effective
Time by the mutual consent of the parties or by either party upon the occurrence
of certain events or if the Merger is not consummated by August 4, 1996. See
"TERMS OF THE PROPOSED MERGER -- Termination of the Merger Agreement."
STOCK OPTION AGREEMENT
In connection with the execution of the Merger Agreement, MBI and Hawkeye
entered into the Stock Option Agreement, dated August 4, 1995 (the "Stock Option
Agreement"), pursuant to which Hawkeye has issued MBI an option (the "Option")
to purchase up to 2,678,000 shares of Hawkeye Common Stock (or 19.9% of the
outstanding shares of Hawkeye Common Stock as of the Record Date, without
including any shares subject to or issued pursuant to the Option) at an exercise
price of $22 per share. The Option is exercisable upon the occurrence of certain
events and provides MBI the right, under certain circumstances, to require
Hawkeye to purchase for cash the unexercised portion of the Option and all
shares of Hawkeye Common Stock purchased by MBI pursuant thereto. The Option,
which MBI required that Hawkeye grant as a condition to MBI's entering into the
Merger Agreement, may increase the likelihood of consummation of the Merger. See
"TERMS OF THE PROPOSED MERGER -- Stock Option Agreement."
SUPPORT AGREEMENTS
Concurrently with the execution of the Merger Agreement, all of the
directors of Hawkeye, who as of the Record Date beneficially owned in the
aggregate approximately 8.1% of the outstanding shares of Hawkeye Common Stock
(each, a "Supporting Stockholder" and together, the "Supporting Stockholders"),
executed separate Support Agreements with MBI pursuant to which each Supporting
Stockholder agreed, among other things, to vote all shares of Hawkeye Common
Stock beneficially owned by the Supporting Stockholder, or over which the
Supporting Stockholder has voting power or control, directly or indirectly, to
approve the Merger Agreement. Each Supporting Stockholder also thereby agreed,
among other things, to not, and to not permit any company, trust or other entity
controlled by such Supporting Stockholder to, (i) contract to sell, sell or
otherwise transfer or dispose of any shares of Hawkeye Common Stock owned by the
Supporting Stockholder, other than pursuant to the Merger or with MBI's prior
written consent, or (ii) initiate, solicit or encourage any discussions,
inquiries or proposals with any third party relating to the disposition of any
significant portion of the business or assets of Hawkeye or the acquisition of
any capital stock or other
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securities of Hawkeye or the business combination, merger or consolidation of
Hawkeye with any person or any similar transaction (each such transaction, an
"Acquisition Transaction"), or provide any such person with information or
assistance or negotiate with any such person with respect to an Acquisition
Transaction or agree to or otherwise assist in the effectuation of any
Acquisition Transaction. Each Support Agreement may be terminated at the option
of any party thereto at any time after the earlier of (i) the termination of the
Merger Agreement and (ii) the day following the Closing Date. See "TERMS OF THE
PROPOSED MERGER -- Support Agreements."
REASONS FOR THE MERGER; HAWKEYE BOARD RECOMMENDATION
The Board of Directors of Hawkeye has determined that the terms of the
Merger Agreement and the transactions contemplated thereby are in the best
interests of Hawkeye and its shareholders. Accordingly, the Hawkeye Board of
Directors recommends that Hawkeye shareholders vote FOR the approval and
adoption of the Merger Agreement.
The recommendation of Hawkeye's Board of Directors is based upon a number
of factors, including the Exchange Ratio and other financial terms of the
Merger, information concerning the business, financial condition, results of
operations and prospects of MBI and Hawkeye, the value anticipated to be
received by Hawkeye shareholders in the Merger in relation to the historical
trading prices of Hawkeye Common Stock, similarities between the community
banking philosophies of Hawkeye and MBI, and the financial advice and opinion
rendered by Hawkeye's financial advisor, Donaldson, Lufkin & Jenrette.
See "TERMS OF THE PROPOSED MERGER -- Background and Reasons for the Merger;
Hawkeye Board Recommendation."
OPINION OF HAWKEYE'S FINANCIAL ADVISOR
Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"), Hawkeye's
financial advisor, has delivered its written opinion, dated the date of this
Proxy Statement/Prospectus, to the Board of Directors of Hawkeye stating that,
as of the date of this Proxy Statement/Prospectus and based on the matters set
forth in such opinion, the Exchange Ratio is fair, from a financial point of
view, to the holders of Hawkeye Common Stock. The full text of the written
opinion of DLJ, which sets forth the assumptions made, the procedures followed,
the matters considered and the limits on the review undertaken by DLJ, is
attached as Annex B to this Proxy Statement/Prospectus and holders of Hawkeye
Common Stock are urged to read carefully the opinion in its entirety. See "TERMS
OF THE PROPOSED MERGER -- Opinion of Hawkeye's Financial Advisor."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the Hawkeye Board with respect to the
Merger Agreement, Hawkeye shareholders should be aware that certain executive
officers and directors of Hawkeye (or their affiliates) have interests in the
Merger that are different from and in addition to the interests of Hawkeye
shareholders generally. The Board of Directors of Hawkeye was aware of these
interests and took these interests into account in adopting the Merger
Agreement.
Employment Agreement. On August 4, 1995, Robert W. Murray, President and
Chief Executive Officer of Hawkeye, entered into an employment agreement (the
"Employment Agreement") with MBI. The Employment Agreement is effective only
upon the consummation of the Merger. It provides for the employment of Mr.
Murray as Chairman of Hawkeye Bank, Des Moines, and any successor thereto
("Hawkeye Bank"), for a term of four years from the Effective Time (the
"Employment Period"). In addition, Mr. Murray will be proposed for election to
the Board of Directors of MBI for a three-year term. Hawkeye Bank will pay Mr.
Murray for each consecutive year of the Employment Period a base salary
(inclusive in each case of all fees which would otherwise be payable to him as a
director of Hawkeye Bank) of $250,000, $150,000, $100,000 and $100,000,
respectively. Mr. Murray will also be entitled during the Employment Period,
unless terminated for "cause" (as defined in the Employment Agreement), to
employee benefits and customary prerequisites equivalent to those provided by
MBI to similarly situated officers,
4
<PAGE> 11
including, pension benefits, health and welfare benefits, disability insurance
benefits, life insurance benefits, vacation benefits and other fringe benefits.
If Mr. Murray's employment is terminated by reason of death or "disability"
(as defined in the Employment Agreement) or is involuntarily terminated other
than for "cause," in each case prior to the expiration of the Employment Period,
Mr. Murray, or his estate, will be entitled to continue to be paid his salary
under the Employment Agreement to the same extent as if Mr. Murray had completed
his employment obligations thereunder.
Indemnification. In the Merger Agreement, MBI agreed that the Merger will
not affect or diminish any of Hawkeye's duties and obligations of
indemnification existing as of the Effective Time in favor of employees, agents,
directors or officers of Hawkeye or its subsidiaries arising by virtue of their
respective articles of incorporation or bylaws in the form in effect on August
4, 1995, or arising by operation of law or by virtue of any contract, resolution
or other agreement or document existing on August 4, 1995, and such duties and
obligations will continue in full force and effect for so long as they would
(but for the Merger) otherwise survive.
Other Interests. Certain executive officers, including certain directors,
of Hawkeye currently hold Hawkeye employee stock options and/or Hawkeye stock
appreciation rights which will be converted at the Effective Time into rights
with respect to MBI Common Stock. See "TERMS OF THE PROPOSED MERGER -- Employee
Benefits." In addition, Robert W. Murray, Paul D. Dunlap and R. Douglas Fisher
will be entitled to receive in connection with the Merger up to $900,000,
$300,000 and $525,000, respectively, pursuant to certain change of control
agreements between each of them and Hawkeye. In connection with the anticipated
retirement of Donald R. Runger, Hawkeye and Mr. Runger entered into a deferred
compensation agreement on July 25, 1995, pursuant to which Mr. Runger will be
paid in the aggregate $775,000. The deferred compensation agreement superseded
and replaced the change of control agreement between Hawkeye and Mr. Runger.
See "TERMS OF THE PROPOSED MERGER -- Interests of Certain Persons in the
Merger" and "-- Employee Benefits."
FRACTIONAL SHARES
No fractional shares of MBI Common Stock will be issued to Hawkeye
shareholders in connection with the Merger. Upon consummation of the Merger,
each former holder of Hawkeye Common Stock who otherwise would have been
entitled to receive a fraction of a share of MBI Common Stock shall be entitled
to receive in lieu thereof cash, without interest, in an amount equal to the
holder's fractional share interest multiplied by the closing stock price of MBI
Common Stock on the last business day preceding the Effective Time. Cash
received by Hawkeye shareholders in lieu of fractional shares may give rise to
taxable income. See "CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER."
REGULATORY APPROVAL
The Merger has been approved by the Board of Governors of the Federal
Reserve System (the "Federal Reserve Board") under the Bank Holding Company Act
of 1956, as amended (the "BHCA"). See "TERMS OF THE PROPOSED MERGER --
Regulatory Approval."
WAIVER AND AMENDMENT
Any term, condition or provision of the Merger Agreement may be waived in
writing at any time by the party which is, or whose shareholders are, entitled
to the benefits thereof. The Merger Agreement and the schedules thereto may be
amended by or on behalf of the Boards of Directors of MBI and Hawkeye at any
time before or after approval of the Merger Agreement by the shareholders of
Hawkeye, by an instrument in writing signed on behalf of each party; provided
that after any such approval by the shareholders of Hawkeye no such modification
may alter or change the amount or kind of consideration to be received by
holders of Hawkeye Common Stock in the Merger.
5
<PAGE> 12
ACCOUNTING TREATMENT
It is intended that the Merger will be accounted for under the
pooling-of-interests method of accounting. See "TERMS OF THE PROPOSED MERGER --
Accounting Treatment."
EMPLOYEE STOCK OPTIONS AND STOCK APPRECIATION RIGHTS
At the Effective Time, all rights with respect to Hawkeye Common Stock
pursuant to Hawkeye employee stock options that are outstanding at the Effective
Time, whether or not then exercisable, will be converted into and become rights
with respect to MBI Common Stock, and MBI will assume each Hawkeye employee
stock option in accordance with the terms of the stock option plan under which
it was issued and the stock option agreement by which it is evidenced. From and
after the Effective Time, (i) each Hawkeye employee stock option assumed by MBI
will be exercisable solely for shares of MBI Common Stock, (ii) the number of
shares of MBI Common Stock subject to each Hawkeye employee stock option will be
equal to the number of shares of Hawkeye Common Stock subject to such Hawkeye
employee stock option immediately prior to the Effective Time multiplied by the
Exchange Ratio and (iii) the per share exercise price under each Hawkeye
employee stock option will be adjusted by dividing the per share exercise price
under such Hawkeye employee stock option by the Exchange Ratio and rounding down
to the nearest cent; provided, however, that the terms of each Hawkeye employee
stock option will, in accordance with its terms, be subject to further
adjustment as appropriate to reflect any stock split, stock dividend,
recapitalization or other similar transaction subsequent to the Effective Time.
It is intended that the foregoing assumption will be undertaken in a manner that
will not constitute a "modification" as defined in the Internal Revenue Code of
1986, as amended (the "Internal Revenue Code"), as to any Hawkeye employee stock
option that is an "incentive stock option."
At the Effective Time, all stock appreciation rights with respect to
Hawkeye Common Stock that are outstanding at the Effective Time, whether or not
then exercisable, will be converted into and become stock appreciation rights
with respect to MBI Common Stock with the same terms and conditions as were
applicable to such Hawkeye stock appreciation rights immediately prior to the
Effective Time.
Certain executive officers, including certain executive officers who are
directors, of Hawkeye currently hold Hawkeye employee stock options and/or
Hawkeye stock appreciation rights which will be converted into rights with
respect to MBI Common Stock as described above.
FEDERAL INCOME TAX CONSEQUENCES IN GENERAL
Wachtell, Lipton, Rosen & Katz, special counsel to MBI, and Baird, Holm,
McEachen, Pedersen, Hamann & Strasheim, counsel to Hawkeye, have delivered their
opinions to the effect that, assuming the Merger occurs in accordance with the
Merger Agreement, and conditioned on the accuracy of certain representations
made by MBI and Hawkeye, no gain or loss will be recognized by Hawkeye or MBI as
a result of the Merger and Hawkeye shareholders will recognize no gain or loss
as a result of the exchange of their Hawkeye Common Stock solely for shares of
MBI Common Stock pursuant to the Merger, except with respect to cash received in
lieu of fractional shares, if any. EACH HAWKEYE SHAREHOLDER IS URGED TO CONSULT
HIS OR HER OWN TAX ADVISOR TO DETERMINE THE SPECIFIC TAX CONSEQUENCES OF THE
MERGER TO SUCH SHAREHOLDER. See "CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE
MERGER."
DISSENTERS' RIGHTS
Under the Iowa Act, a holder of shares of Hawkeye Common Stock may, in lieu
of the consideration such shareholder would otherwise receive in the Merger,
seek payment of the "fair value" of such shares and receive payment of such fair
value in cash if the Merger is consummated by following certain procedures set
forth in Division XIII of the Iowa Act, the text of which is attached hereto as
Annex A to this Proxy Statement/Prospectus.
Failure to follow such procedures may result in a loss of such
shareholder's dissenters' rights. Any Hawkeye shareholder returning a blank
executed proxy card will be deemed to have approved the Merger
6
<PAGE> 13
Agreement, thereby waiving any such dissenters' rights. See "DISSENTERS' RIGHTS
OF SHAREHOLDERS OF HAWKEYE."
MARKET AND MARKET PRICES
MBI Common Stock is currently quoted on the NYSE under the symbol "MTL."
Prior to March 25, 1993, MBI's Common Stock was quoted on the NASDAQ/NM, under
the symbol "MTRC." On August 3, 1995, the last full trading day preceding public
announcement of the Merger, the last sale price of MBI Common Stock was $43.88
per share as reported on the NYSE Composite Tape. The last sale price of MBI
Common Stock on November 17, 1995, the most recent practicable date prior to the
mailing of this Proxy Statement/Prospectus, was $45.38 per share as reported on
the NYSE Composite Tape.
Hawkeye Common Stock is currently quoted on the NASDAQ/NM, under the symbol
"HWKB." On August 3, 1995, the last sale price of Hawkeye Common Stock was
$22.75 per share as reported on the NASDAQ/NM. The value of Hawkeye Common Stock
at August 3, 1995, on an equivalent per share basis, was $25.67 (based upon the
Exchange Ratio of .585). The last sale price of Hawkeye Common Stock on November
17, 1995, was $26.00 per share as reported on the NASDAQ/NM.
Shareholders are advised to obtain current market quotations for MBI Common
Stock and Hawkeye Common Stock. There can be no assurance as to the market price
of MBI Common Stock or Hawkeye Common Stock before, at, or, in the case of MBI
Common Stock, after, the Effective Time. The following table sets forth for the
periods indicated the high and low last sale prices (as reported on the NYSE
Composite Tape and on the NASDAQ/NM, respectively) and per share cash dividend
declared with respect to MBI Common Stock and Hawkeye Common Stock.
<TABLE>
<CAPTION>
MBI HAWKEYE
COMMON STOCK CASH COMMON STOCK CASH
------------------ DIVIDEND ------------------ DIVIDEND
HIGH LOW DECLARED HIGH LOW DECLARED
------- ------- -------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
1993
First Quarter.......................... $35.625 $30.625 $ .2475 $19.375 $15.625 $.10
Second Quarter......................... 37.625 29.375 .2475 18.750 16.125 .10
Third Quarter.......................... 34.375 31.625 .2475 20.500 16.250 .11
Fourth Quarter......................... 34.625 29.125 .2475 20.375 18.625 .11
1994
First Quarter.......................... $34.125 $29.875 $ .28 $20.250 $17.875 $.12
Second Quarter......................... 38.125 31.125 .28 21.375 17.500 .12
Third Quarter.......................... 39.250 34.875 .28 21.250 19.375 .13
Fourth Quarter......................... 36.875 29.500 .28 21.125 15.500 .13
1995
First Quarter.......................... $37.250 $31.250 $ .33 $21.875 $18.625 $.15
Second Quarter......................... 44.875 36.000 .33 23.750 20.250 .15
Third Quarter.......................... 47.000 41.625 .33 26.000 20.500 .17
Fourth Quarter (through November 17,
1995)................................ 45.375 41.750 .33 26.000 24.125 .36
</TABLE>
MBI intends to apply for the listing on the NYSE of the shares of MBI
Common Stock to be issued in the Merger.
MBI's Board of Directors has heretofore declared a dividend on shares of
MBI Common Stock of $.33 per share, payable on January 2, 1996 to holders of
record on December 11, 1995. The Board of Directors of MBI intends to maintain
its present policy of paying quarterly cash dividends on the MBI Common Stock,
when justified by the financial condition of MBI and its subsidiaries. The
declaration and amount of future dividends will depend on circumstances existing
at the time, including MBI's earnings, financial condition and capital
requirements as well as regulatory limitations, note and indenture provisions
and such other factors as
7
<PAGE> 14
the Board of Directors may deem relevant. See "INFORMATION REGARDING MBI STOCK
- -- Description of MBI Common Stock and Attached Preferred Share Purchase Rights
- -- Dividends."
Pursuant to the Merger Agreement, Hawkeye has agreed that, during the
period from the date of the Merger Agreement to the Effective Time, Hawkeye will
not declare, set aside or pay any dividends or other distributions on the
Hawkeye Common Stock, except that Hawkeye may declare and pay (x) for dividends
payable in 1995, regular quarterly cash dividends of not more than $.17 per
share on the Hawkeye Common Stock, and (y) for dividends payable in 1996,
quarterly cash dividends of not more than $.19 per share; provided, that Hawkeye
may not declare or pay any dividends on Hawkeye Common Stock for any period in
which its shareholders will be entitled to receive any regular quarterly
dividend on the shares of MBI Common Stock to be issued in the Merger.
The Board of Directors of Hawkeye has heretofore declared (i) a regular
quarterly cash dividend of $.17 per share on the Hawkeye Common Stock, paid on
November 15, 1995 to holders of record on November 1, 1995 and (ii) with the
consent of MBI, a quarterly cash dividend of $.19 per share on the Hawkeye
Common Stock, payable on January 2, 1996 to holders of record on December 12,
1995.
COMPARATIVE UNAUDITED PER SHARE DATA
The following table sets forth for the periods indicated selected
historical per share data of MBI and Hawkeye and the corresponding pro forma and
pro forma equivalent per share amounts giving effect to the proposed Merger, and
the proposed acquisitions of First Sterling Bancorp, Inc. ("Sterling") and
Security Bank of Conway, FSB ("Security Bank") and the acquisition of Ameribanc,
Inc. ("ABNK"), which was completed on April 30, 1992. The pro forma and pro
forma equivalent per share amounts do not give effect to the proposed
acquisition of Metro Savings Banks, FSB ("Metro") as it is not material. The
data presented is based upon the supplemental consolidated financial statements
and related notes of MBI and the consolidated financial statements and related
notes of Hawkeye, Sterling and Security Bank included in documents incorporated
herein by reference, and the pro forma combined consolidated balance sheet and
income statements, including the notes thereto, appearing elsewhere herein. This
information should be read in conjunction with such historical and pro forma
financial statements and related notes thereto. The assumptions used in the
preparation of this table appear in the notes to the pro forma financial
information appearing elsewhere in this Proxy Statement/Prospectus. See
"INCORPORATION OF CERTAIN INFORMATION BY REFERENCE" and "PRO FORMA FINANCIAL
INFORMATION." These data are not necessarily indicative of the results of the
future operations of the combined organization or the actual results that would
8
<PAGE> 15
have occurred if the Merger, the completed merger of ABNK, or the proposed
mergers of Sterling and Security Bank had been consummated prior to the periods
indicated.
<TABLE>
<CAPTION>
MBI/
MBI/ MBI/ ALL MBI/
HAWKEYE HAWKEYE ENTITIES ALL ENTITIES
MBI HAWKEYE PRO FORMA PRO FORMA PRO FORMA PRO FORMA
REPORTED REPORTED COMBINED(1) EQUIVALENT(2) COMBINED(3) EQUIVALENT(2)
-------- ------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Book Value per Common Share:
September 30, 1995............ $25.43 $14.32 $ 25.09 $ 14.68 $ 25.15 $ 14.71
December 31, 1994............. 23.47 13.06 23.03 13.47 23.08 13.50
Cash Dividends Declared Per
Common Share:
Nine months ended September
30, 1995................... $ .99 $ .47 $ .99 $ .58 $ .99 $ .58
Year ended December 31,
1994....................... 1.12 .50 1.12 .66 1.12 .66
Year ended December 31,
1993....................... .99 .42 .99 .58 .99 .58
Year ended December 31,
1992....................... .93 .33 .93 .54 .93 .54
Earnings per Common Share Before
Change in Accounting
Principle:
Nine months ended September
30, 1995................... $ 2.95 $ 1.28 $ 2.89 $ 1.69 $ 2.89 $ 1.69
Year ended December 31,
1994....................... 3.22 1.78 3.21 1.88 3.22 1.88
Year ended December 31,
1993....................... 2.79 1.64 2.80 1.64 2.80 1.64
Year ended December 31,
1992....................... 2.42 1.38 2.42 1.42 2.43 1.42
Market Price per Common Share:
August 3, 1995(4)............. $43.88 $22.75 -- -- -- --
November 17, 1995(4).......... 45.38 26.00 -- -- -- --
</TABLE>
- -------------------------
(1) Includes the effect of pro forma adjustments for ABNK and Hawkeye as
appropriate. See "PRO FORMA FINANCIAL INFORMATION."
(2) Based upon the pro forma combined per share amounts multiplied by .585, the
Exchange Ratio applicable to one share of Hawkeye Common Stock. See "PRO
FORMA FINANCIAL INFORMATION."
(3) Includes the effect of pro forma adjustments for ABNK, Hawkeye, Security
Bank and Sterling as appropriate. See "PRO FORMA FINANCIAL INFORMATION."
(4) The market values of MBI Common Stock and Hawkeye Common Stock were
determined as of the last trading day preceding the public announcement of
the Merger and as of the most recent practicable date prior to the mailing
of this Proxy Statement/Prospectus based on the last sales price as reported
on the NYSE Composite Tape and NASDAQ/NM, respectively.
SUMMARY FINANCIAL DATA
The following tables set forth for the periods indicated certain summary
historical consolidated financial information for MBI and Hawkeye.
The historical balance sheet data and income statement data included in the
summary financial data for the periods indicated are derived from financial
statements of MBI and Hawkeye as of and for such periods. These data include all
adjustments which are, in the opinion of the respective managements of MBI and
Hawkeye, necessary to present a fair statement of the results of these periods
and all such adjustments are of a normal recurring nature. Results for interim
periods are not necessarily indicative of results for the entire year.
The following information should be read in conjunction with the
consolidated financial statements of MBI and Hawkeye, and the related notes
thereto, included in documents incorporated herein by reference and in
conjunction with the unaudited pro forma combined consolidated financial
information, including notes thereto, appearing elsewhere in this Proxy
Statement/Prospectus. See "INCORPORATION OF CERTAIN INFORMATION BY REFERENCE"
and "PRO FORMA FINANCIAL INFORMATION."
9
<PAGE> 16
MERCANTILE BANCORPORATION INC.
SUMMARY FINANCIAL DATA
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
-------------------- --------------------------------------------------------------
1995 1994 1994 1993 1992 1991 1990
-------- -------- -------- -------- ---------- ---------- ----------
(UNAUDITED) (AUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
Net income(1)............. $ 2.95 $ 2.68 $ 3.22 $ 2.79 $ 2.42 $ 2.25 $ 1.99
Dividends declared........ .99 .84 1.12 .99 .93 .93 .93
Book value at period
end..................... 25.43 23.26 23.47 21.69 19.52 19.19 17.72
Average common shares
outstanding
(thousands)............. 53,630 51,900 51,957 50,965 47,276 39,391 37,847
EARNINGS (THOUSANDS)
Interest income........... $854,404 $730,270 $994,896 $971,482 $1,011,544 $1,018,688 $1,022,441
Interest expense.......... 410,097 284,939 399,349 390,911 485,253 588,993 642,365
-------- -------- -------- -------- ---------- ---------- ----------
Net interest income....... 444,307 445,331 595,547 580,571 526,291 429,695 380,076
Provision for possible
loan losses............. 28,928 26,374 43,201 63,513 77,874 62,360 56,196
Other income.............. 181,480 159,425 209,758 219,703 201,965 170,770 150,508
Other expense............. 356,944 360,140 492,070 508,043 471,903 431,155 361,992
Income taxes.............. 81,156 78,033 101,705 85,467 61,072 24,029 31,759
-------- -------- -------- -------- ---------- ---------- ----------
Net income................ $158,759 $140,209 $168,329 $143,251 $ 117,407 $ 82,921 $ 80,637
======== ======== ======== ======== ========== ========== ==========
ENDING BALANCE SHEET
(MILLIONS)
Total assets.............. $ 16,019 $ 14,723 $ 14,806 $ 14,423 $ 14,190 $ 12,377 $ 11,674
Earning assets............ 14,773 13,571 13,671 13,259 12,989 11,331 10,447
Investment securities..... 3,847 3,956 3,844 4,180 4,106 2,949 2,286
Loans and leases, net of
unearned income......... 10,648 9,360 9,670 8,702 8,525 7,881 7,827
Deposits.................. 11,835 11,025 11,189 11,599 11,629 10,211 9,660
Long-term debt............ 304 300 299 288 310 216 247
Shareholders' equity...... 1,419 1,224 1,234 1,133 996 805 683
Reserve for possible loan
losses.................. 188 190 195 185 179 158 159
SELECTED RATIOS
Return on average
assets.................. 1.37% 1.29% 1.16% 1.00% .86% .70% .73%
Return on average
equity.................. 16.01 15.80 14.07 13.37 12.71 10.96 12.30
Net interest rate
margin.................. 4.26 4.57 4.55 4.55 4.34 4.12 3.95
Equity to assets
(average)............... 8.86 8.31 8.34 7.85 7.02 6.50 5.85
Reserve for possible loan
losses to:
Outstanding loans....... 1.76 2.03 2.01 2.12 2.10 2.00 2.04
Non-performing loans.... 352.34 469.36 579.62 278.62 147.60 105.33 108.49
</TABLE>
- -------------------------
(1) Based on weighted average common shares outstanding.
10
<PAGE> 17
HAWKEYE BANCORPORATION
SUMMARY FINANCIAL DATA
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
------------------- --------------------------------------------------------
1995 1994 1994 1993 1992 1991 1990
-------- ------- -------- -------- -------- -------- --------
(UNAUDITED) (AUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
PER COMMON SHARE DATA
Net income(1).................... $ 1.28 $ 1.31 $ 1.78 $ 1.64 $ 1.73 $ 1.63 $ 1.64
Dividends declared............... .47 .37 .50 .42 .33 .15 0
Book value at period end......... 14.32 12.88 13.06 12.15 10.84 9.38 7.87
Average common shares outstanding
(thousands).................... 13,512 13,327 13,334 12,309 13,289 13,279 13,272
EARNINGS (THOUSANDS)
Interest income.................. $105,900 $90,495 $123,173 $123,129 $128,261 $138,133 $138,114
Interest expense................. 49,337 37,414 51,601 53,662 64,389 79,585 81,314
-------- ------- -------- -------- -------- -------- --------
Net interest income.............. 56,563 53,081 71,572 69,467 63,872 58,548 56,800
Provision for possible loan
losses......................... 249 48 64 789 1,677 1,668 281
Other income..................... 20,195 20,092 26,803 25,886 22,491 18,360 16,994
Other expenses................... 50,178 47,259 63,106 62,139 57,740 53,836 49,308
Income taxes..................... 9,004 8,420 11,460 10,607 8,609 4,866 2,472
-------- ------- -------- -------- -------- -------- --------
Net income before change in
accounting principle...... $ 17,327 $17,446 $ 23,745 $ 21,818 $ 18,337 $ 16,538 $ 21,733
======== ======= ======== ======== ======== ======== ========
ENDING BALANCE SHEET (MILLIONS)
Total assets..................... $ 1,993 $ 1,891 $ 1,927 $ 1,827 $ 1,849 $ 1,674 $ 1,614
Earning assets................... 1,816 1,729 1,756 1,721 1,689 1,522 1,453
Investment securities............ 415 426 437 490 526 463 435
Loan and leases, net of unearned
income......................... 1,299 1,223 1,234 1,106 1,045 928 900
Deposits......................... 1,717 1,651 1,676 1,645 1,631 1,473 1,398
Shareholders' equity............. 193 172 174 163 147 129 119
Reserve for possible loan
losses......................... 22 22 21 21 20 18 19
SELECTED RATIOS
Return on average assets......... 1.18% 1.26% 1.27% 1.19% 1.07% 1.03% 1.40%
Return on average equity......... 12.52 13.90 14.04 14.14 13.10 13.30 20.13
Net interest rate margin......... 4.39 4.34 4.35 4.34 4.27 4.11 4.00
Equity to assets (average)....... 9.46 9.04 9.05 8.45 8.18 7.72 6.97
Reserve for possible loan losses
to:
Outstanding loans............ 1.66 1.77 1.73 1.91 1.91 1.98 2.07
Non-performing loans......... 457.70 334.37 485.64 418.60 239.83 161.74 151.63
</TABLE>
- -------------------------
(1) Based on weighted average common shares outstanding.
11
<PAGE> 18
INFORMATION REGARDING SPECIAL MEETING
GENERAL
This Proxy Statement/Prospectus is being furnished to holders of Hawkeye
Common Stock in connection with the solicitation of proxies by the Board of
Directors of Hawkeye for use at the Special Meeting and any adjournment or
postponement thereof at which the shareholders of Hawkeye will consider and vote
on a proposal to approve and adopt the Merger Agreement and will transact such
other business as may properly come before the Special Meeting or any
adjournment or postponement thereof. Each copy of this Proxy
Statement/Prospectus is accompanied by a Letter to Hawkeye shareholders, the
Notice of Special Meeting of Shareholders of Hawkeye, a proxy card and a
self-addressed return envelope to Hawkeye for the proxy card.
This Proxy Statement/Prospectus is also furnished by MBI to each holder of
Hawkeye Common Stock as a prospectus in connection with the issuance by MBI of
shares of MBI Common Stock to Hawkeye shareholders upon the consummation of the
Merger. This Proxy Statement/Prospectus, the Letter to Hawkeye shareholders, the
Notice of Special Meeting and the form of proxy are first being mailed to
shareholders of Hawkeye on or about November 22, 1995.
DATE, TIME AND PLACE
The Special Meeting will be held at the Des Moines Marriott, 700 Grand
Avenue, Des Moines, Iowa, on December 21, 1995, at 10:00 A.M., Central Time.
RECORD DATE; VOTE REQUIRED
The Board of Directors of Hawkeye has fixed November 16, 1995, as the
Record Date for determination of shareholders of Hawkeye entitled to notice of
and to vote at the Special Meeting. Accordingly, only holders of record of
Hawkeye Common Stock at the close of business on November 16, 1995 will be
entitled to notice of, and to vote at, the Special Meeting. At the Record Date,
there were 13,481,748 shares of Hawkeye Common Stock outstanding and entitled to
vote which were held by approximately 3,956 holders of record. Each such share
is entitled to one vote on each matter properly brought before the Special
Meeting. The affirmative vote of the holders of a majority of the outstanding
shares of Hawkeye Common Stock entitled to vote at the meeting is required to
approve the Merger Agreement.
As of the Record Date, directors and executive officers of Hawkeye and
certain of their affiliates owned beneficially an aggregate of 1,134,466 shares
of Hawkeye Common Stock, or approximately 8.4% of the shares entitled to vote at
the Special Meeting. All of Hawkeye's directors and executive officers and
certain of their affiliates have indicated their intention to vote their shares
of Hawkeye Common Stock for the approval of the Merger Agreement. In addition,
the Supporting Stockholders, who as of the Record Date beneficially owned in the
aggregate approximately 8.1% of the outstanding shares of Hawkeye Common Stock,
have each agreed pursuant to a Support Agreement to vote all shares of Hawkeye
Common Stock beneficially owned by such person, or over which such person has
voting power or control, to approve the Merger Agreement.
VOTING AND REVOCATION OF PROXIES
Shares of Hawkeye Common Stock entitled to vote and which are represented
at the Special Meeting by a properly executed proxy received prior to the vote
at the Special Meeting will be voted at such Special Meeting in the manner
directed on the proxy card, unless such proxy is revoked in the manner set forth
herein in advance of such vote. ANY HAWKEYE SHAREHOLDER RETURNING A BLANK
EXECUTED PROXY CARD WILL BE DEEMED TO HAVE VOTED FOR APPROVAL AND ADOPTION OF
THE MERGER AGREEMENT. Failure to return a properly executed proxy card or to
vote in person at the Special Meeting will have the practical effect of a vote
against the Merger Agreement.
Shares subject to abstentions will be treated as shares that are present at
the Special Meeting for purposes of determining the presence of a quorum and as
voted for the purposes of determining the base
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number of shares voting on the proposal. If a broker or other nominee holder
indicates on the proxy card that it does not have discretionary authority to
vote the shares it holds of record on the proposal, those shares will not be
treated as shares that are present at the Special Meeting for purposes of
determining the presence of a quorum and will not be considered as voted for
purposes of determining the approval of shareholders on the proposal. Since the
approval of the Merger Agreement requires the affirmative vote of the holders of
a majority of the outstanding shares of Hawkeye Common Stock, abstentions and
broker non-votes will have the same effect as a vote against the approval of the
Merger Agreement.
Any shareholder of Hawkeye giving a proxy may revoke it at any time prior
to the vote at the Special Meeting. Shareholders of Hawkeye wishing to revoke a
proxy prior to the vote may do so by delivering to the Secretary of Hawkeye at
222 Equitable Building, 604 Locust Street, Des Moines, Iowa 50309-3723 a written
notice of revocation bearing a later date than the proxy or any later dated
proxy relating to the same shares, or by attending the Special Meeting and
voting in person. Attendance at the Special Meeting will not in itself
constitute the revocation of a proxy.
The Board of Directors of Hawkeye is not currently aware of any business to
be brought before the Special Meeting other than that described herein. If,
however, other matters are properly brought before such Special Meeting, or any
adjournment or postponement thereof, the persons appointed as proxies will have
discretionary authority to vote the shares represented by duly executed proxies
in accordance with their discretion and judgment as to the best interest of
Hawkeye.
SOLICITATION OF PROXIES
Hawkeye will bear its own costs of soliciting proxies, except that MBI will
pay printing and mailing expenses and registration fees incurred in connection
with preparing this Proxy Statement/Prospectus. Proxies will initially be
solicited by mail, but directors, officers and selected other employees of
Hawkeye may also solicit proxies in person or by telephone, telegram or other
means of communication. Directors, officers and any other employees of Hawkeye
who solicit proxies will not be specially compensated for such services, but may
be reimbursed for reasonable out-of-pocket expenses in connection with such
solicitation. Hawkeye has retained Regan & Associates, Inc. at an estimated cost
of $4,000, plus reimbursement of expenses, to assist in its solicitation of
proxies from brokers, nominees, institutions and individuals. Brokerage houses,
nominees, fiduciaries, and other custodians will be requested to forward proxy
materials to beneficial owners and will be reimbursed for their reasonable
expenses incurred in connection therewith.
HOLDERS OF HAWKEYE COMMON STOCK ARE REQUESTED TO COMPLETE, DATE AND SIGN
THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE.
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TERMS OF THE PROPOSED MERGER
The following is a summary of the material provisions of the Merger
Agreement, a copy of which is filed as an exhibit to this Registration
Statement. See "AVAILABLE INFORMATION." This summary is qualified in its
entirety by reference to the Merger Agreement which is hereby incorporated by
reference herein.
GENERAL DESCRIPTION OF THE MERGER
The Merger Agreement provides that Hawkeye will merge at the Effective Time
with and into Merger Sub, subject to the Shareholder Approval and the
satisfaction or waiver of the other conditions to the Merger. Upon consummation
of the Merger, Hawkeye's corporate existence will terminate, with Merger Sub
continuing as the surviving corporation, and each share of Hawkeye Common Stock
will be converted into the right to receive .585 of a share of MBI Common Stock,
with cash in lieu of fractional shares. The value of MBI Common Stock to be
issued pursuant to the Merger may fluctuate prior to and following the Effective
Time. It is currently anticipated that the Effective Time will occur shortly
after the date of the Special Meeting assuming the Merger Agreement is approved
at such meeting.
The amount and nature of the Merger Consideration was established through
arm's-length negotiations between MBI and Hawkeye, and reflects the balancing of
a number of countervailing factors. The total amount of the Merger Consideration
reflects a price both parties concluded was appropriate. See "-- Background and
Reasons for the Merger; Hawkeye Board Recommendation." The fact that the
consideration is payable in shares of MBI Common Stock reflects the potential
for change in the value of the MBI Common Stock and the desire to have the
favorable tax attributes of a "reorganization" for federal income tax purposes.
See "CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER."
NO ASSURANCE CAN BE GIVEN THAT THE CURRENT FAIR MARKET VALUE OF MBI COMMON
STOCK WILL BE EQUIVALENT TO THE FAIR MARKET VALUE OF MBI COMMON STOCK ON THE
DATE SUCH STOCK IS RECEIVED BY A HAWKEYE SHAREHOLDER OR AT ANY OTHER TIME. THE
FAIR MARKET VALUE OF MBI COMMON STOCK RECEIVED BY A HAWKEYE SHAREHOLDER MAY BE
GREATER OR LESS THAN THE CURRENT FAIR MARKET VALUE OF MBI COMMON STOCK DUE TO
NUMEROUS MARKET FACTORS.
Following the Effective Time, each shareholder of Hawkeye will be required
to submit to KeyCorp Shareholder Services, Inc., which has been appointed as
exchange agent in the Merger (the "Exchange Agent"), a properly executed letter
of transmittal and surrender to the Exchange Agent the stock certificate(s)
formerly representing the shares of Hawkeye Common Stock in order to obtain
issuance of a new stock certificate evidencing the shares of MBI Common Stock to
which such shareholder is entitled. No dividends or other distributions will be
paid to a former Hawkeye shareholder with respect to shares of MBI Common Stock
until such person surrenders the certificates formerly representing shares of
Hawkeye Common Stock, or documentation acceptable to the Exchange Agent in lieu
of lost or destroyed certificates, at which time such dividends will be remitted
to such person, without interest and less any taxes that may have been imposed
thereon. See "-- Surrender of Hawkeye Stock Certificates and Receipt of MBI
Common Stock." No fractional shares of MBI Common Stock will be issued in the
Merger, but cash will be paid in lieu of such fractional shares, such cash
amount being determined by multiplying the holder's fractional share interest by
the closing stock price of MBI Common Stock on the NYSE Composite Tape as
reported in The Wall Street Journal (or in the absence thereof, by any other
authoritative source) on the last business day preceding the Effective Time. See
"-- Fractional Shares." The shares of MBI Common Stock to be issued pursuant to
the Merger will be freely transferable except by certain shareholders of Hawkeye
who are deemed to be "affiliates" (as such term is defined under the Securities
Act) of Hawkeye. The shares of MBI Common Stock issued to such affiliates will
be restricted in their transferability in accordance with the rules and
regulations promulgated by the Commission and pursuant to agreements entered
into thereby and delivered to MBI. See "INFORMATION REGARDING MBI STOCK --
Restrictions on Resale of MBI Stock by Affiliates."
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STOCK OPTION AGREEMENT
In connection with the execution of the Merger Agreement, MBI and Hawkeye
entered into the Stock Option Agreement pursuant to which Hawkeye has issued MBI
an Option to purchase up to 2,678,000 shares of Hawkeye Common Stock (or 19.9%
of the outstanding shares of Hawkeye Common Stock as of the Record Date, without
including any shares subject to or issued pursuant to the Option) at an exercise
price of $22 per share. The Option is exercisable (after receipt of the required
regulatory approvals) upon the occurrence of one of the following events: (i)
Hawkeye or any of its subsidiaries, without having received prior written
consent from MBI, shall have entered into, authorized, recommended, proposed or
publicly announced its intention to enter into, authorize, recommend, or
propose, an agreement, arrangement or understanding with any person (other than
MBI or any of its subsidiaries) to (1) effect a merger or consolidation or
similar transaction involving Hawkeye or any of its subsidiaries, (2) purchase,
lease or otherwise acquire 15% or more of the assets of Hawkeye or any of its
subsidiaries or (3) purchase or otherwise acquire (including by way of merger,
consolidation, share exchange or similar transaction) Beneficial Ownership (as
defined in Rule 13d-3 under the Exchange Act) of securities representing 10% or
more of the voting power of Hawkeye or any of its subsidiaries; (ii) any person
(other than MBI or any subsidiary of MBI, or Hawkeye or any subsidiary of
Hawkeye in a fiduciary capacity) shall have acquired Beneficial Ownership or the
right to acquire Beneficial Ownership of 10% or more of the voting power of
Hawkeye; (iii) Hawkeye's Board of Directors shall have withdrawn or modified in
a manner adverse to MBI the recommendation of Hawkeye's Board of Directors with
respect to the Merger Agreement, in each case after an Extension Event (as
defined below); or (iv) the holders of Hawkeye Common Stock shall not have
approved the Merger Agreement at the Special Meeting, or such Special Meeting
shall not have been held or shall have been cancelled prior to termination of
the Merger Agreement in accordance with its terms, in each case after an
Extension Event (each of the above-described events is referred to herein as a
"Triggering Event"). No Triggering Event has occurred as of the date of this
Proxy Statement/Prospectus.
The Option terminates (i) on the earlier of (x) the Effective Time of the
Merger and (y) the termination of the Merger Agreement (1) by mutual consent of
MBI and Hawkeye, (2) after August 4, 1996 by a party not then in material breach
of the Merger Agreement or (3) by either party if (A) the Federal Reserve Board
has denied approval of the Merger and such denial has become final and
nonappealable or (B) shareholders of Hawkeye shall not have approved the Merger
Agreement at the Special Meeting following a favorable recommendation of
Hawkeye's Board of Directors, provided that if such termination follows an
Extension Event (as defined below), the Option will not terminate until 12
months following such termination or (ii) if the Option cannot be exercised on
such day because of any injunction, order or similar restraint issued by a court
of competent jurisdiction, on the 30th business day after such injunction, order
or restraint shall have been dissolved or when such injunction, order or
restraint shall have become permanent and no longer subject to appeal, as the
case may be. An "Extension Event" is defined in the Stock Option Agreement as
any of: (i) a Triggering Event of the type specified in clauses (i) and (ii) in
the preceding paragraph; (ii) any person (other than MBI or any of its
subsidiaries) shall have "commenced" (as such term is defined in Rule 14d-2
under the Exchange Act), or shall have filed a registration statement under the
Securities Act with respect to, a tender offer or exchange offer to purchase
shares of Hawkeye Common Stock such that, upon consummation of such offer, such
person would have Beneficial Ownership or the right to acquire Beneficial
Ownership of 10% or more of the voting power of Hawkeye; or (iii) any person
(other than MBI or any subsidiary of MBI, or Hawkeye or any subsidiary of
Hawkeye in a fiduciary capacity) shall have publicly announced its willingness,
or shall have publicly announced a proposal, or publicly disclosed an intention
to make a proposal, (x) to make an offer described in clause (ii) of this
sentence or (y) to engage in a transaction described in clause (i) of this
sentence.
The Stock Option Agreement further provides that, to the extent not
terminated pursuant to its terms, from and after the date of a Triggering Event
until 13 months immediately thereafter (the "Repurchase Period"), MBI will be
entitled to require Hawkeye to repurchase for cash the Option from MBI together
with all (but not less than all) shares of Hawkeye Common Stock purchased by MBI
pursuant thereto, at a price equal to the sum of: (i) the exercise price paid by
MBI for any shares of Hawkeye Common Stock acquired pursuant to the Option; (ii)
the difference between (1) the "Market/Tender Offer Price" for shares of
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<PAGE> 22
Hawkeye Common Stock (defined as the higher of (x) the highest price per share
at which a tender or exchange offer has been made for shares of Hawkeye Common
Stock or (y) the highest closing mean of the "bid" and the "ask" price per share
of Hawkeye Common Stock reported by the NASDAQ/NM for any day within that
portion of the Repurchase Period which precedes the date MBI gives notice of the
required repurchase) and (2) the exercise price, multiplied by the number of
shares of Hawkeye Common Stock with respect to which the Option has not been
exercised, but only if the Market/Tender Offer Price is greater than such
exercise price; (iii) the difference between the Market/Tender Offer Price and
the exercise price paid by MBI for any shares of Hawkeye Common Stock purchased
pursuant to the exercise of the Option, multiplied by the number of shares so
purchased, but only if the Market/Tender Offer Price is greater than such
exercise price; and (iv) MBI's reasonable out-of-pocket expenses incurred in
connection with the transactions contemplated by the Merger Agreement,
including, without limitation, legal, accounting and investment banking fees.
The Option, which MBI required that Hawkeye grant as a condition to MBI's
entering into the Merger Agreement, may increase the likelihood of consummation
of the Merger.
The foregoing is a summary of the material provisions of the Stock Option
Agreement, a copy of which is filed as an exhibit to this Registration
Statement. See "AVAILABLE INFORMATION." This summary is qualified in its
entirety by reference to the Stock Option Agreement which is incorporated herein
by this reference.
SUPPORT AGREEMENTS
Concurrently with the execution of the Merger Agreement, the Supporting
Stockholders (as previously defined), who as of the Record Date beneficially
owned in the aggregate approximately 8.1% of the outstanding shares of Hawkeye
Common Stock, executed separate Support Agreements with MBI pursuant to which
each Supporting Stockholder agreed, among other things, that: (i) Supporting
Stockholder will not, and will not permit any company, trust or other entity
controlled by Supporting Stockholder to, contract to sell, sell or otherwise
transfer or dispose of any shares of Hawkeye Common Stock owned by the
Supporting Stockholder, other than (a) pursuant to the Merger or (b) with MBI's
prior written consent; (ii) all of the shares of Hawkeye Common Stock
beneficially owned by Supporting Stockholder, or over which Supporting
Stockholder has voting power or control, directly or indirectly, in each case at
the record date for any meeting of shareholders of Hawkeye called to consider
and vote to approve the Merger Agreement and/or the transactions contemplated
thereby will be voted by the Supporting Stockholder to approve the Merger
Agreement; (iii) Supporting Stockholder will, and will cause any company, trust
or other entity controlled by Supporting Stockholder to, cooperate with MBI in
connection with the Merger Agreement and the transactions contemplated thereby;
and (iv) Supporting Stockholder will not, and will not permit any such company,
trust or other entity, directly or indirectly (including through its officers,
directors, employees or other representatives), to initiate, solicit or
encourage any discussions, inquiries or proposals with any third party relating
to an Acquisition Transaction, or provide any such person with information or
assistance or negotiate with any such person with respect to an Acquisition
Transaction or agree to or otherwise assist in the effectuation of any
Acquisition Transaction. Each Support Agreement may be terminated at the option
of any party thereto at any time after the earlier of (i) the termination of the
Merger Agreement and (ii) the day following the Closing Date.
Each Supporting Stockholder and the number of shares of Hawkeye Common
Stock beneficially owned by him over which he has voting power or control
(excluding shares issuable upon exercise of options outstanding as of the Record
Date) are as follows: Charles A. Armstrong (2,429 shares); Michael P. Donohue
(5,000 shares); Paul D. Dunlap (301,185 shares); R. Douglas Fisher (39,619
shares); Kelly J. Housby (2,350 shares); Kyle J. Krause (6,020 shares); William
A. Krause (357,551 shares); William J. Lillis (17,015 shares); J. Bruce
Meriwether (44,861 shares); Terrence J. Montgomery (1,400 shares); Robert W.
Murray (86,779 shares); Donald R. Runger (59,643 shares); Jack Schroeder (5,508
shares); and Robert H. Wahlert (9,388 shares).
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The foregoing is a summary of the material provisions of the Support
Agreements, a form of which is filed as an exhibit to this Registration
Statement. See "AVAILABLE INFORMATION." This summary is qualified in its
entirety by reference to the Support Agreement which is incorporated herein by
this reference.
BACKGROUND AND REASONS FOR THE MERGER; HAWKEYE BOARD RECOMMENDATION
Background of the Merger. Over the past several years Hawkeye has pursued
its strategy as an independent bank holding company. From time to time during
this period, representatives of DLJ made presentations to Hawkeye's management
and the Hawkeye Board of Directors (the "Hawkeye Board") regarding banking
industry trends, market outlook, the Midwest banking environment, Hawkeye's
position and its strategic alternatives, including maintaining independence or
exploring a business combination with a larger bank holding company.
On January 24, 1995, DLJ representatives made a presentation to the Hawkeye
Board on Hawkeye's present position in the banking industry, the current merger
and acquisition environment, and an analysis of strategic alternatives available
to Hawkeye, including remaining independent or pursuing a business combination
at that time or in the future. At that meeting, the Hawkeye Board approved an
agreement between Hawkeye and DLJ, which was entered into February 1, 1995,
engaging DLJ as Hawkeye's exclusive financial advisor to pursue the process of
exploring potential strategic business combinations for Hawkeye. See "-- Opinion
of Hawkeye's Financial Advisor."
Commencing in early March 1995, DLJ delivered confidential materials
regarding Hawkeye to MBI and nine other bank holding companies identified by
Hawkeye as potential strategic merger partners. Each bank holding company was
asked to submit its indication of interest regarding a potential strategic
merger with Hawkeye by March 31, 1995. Three of these bank holding companies,
including MBI, submitted preliminary, nonbinding indications of interest to
acquire Hawkeye. A fourth bank holding company, to whom DLJ did not deliver
confidential materials, initiated contact with DLJ and indicated its interest in
acquiring Hawkeye.
At a meeting of the Hawkeye Board on April 18, 1995, DLJ reported on the
status of the indications of interest received. The Hawkeye Board discussed at
this meeting its strategy in response to the indications of interest and
authorized DLJ to proceed in an effort to increase the values of the indications
of interest. Following the board meeting, DLJ representatives pursued
discussions with three of the companies, including MBI. These discussions led to
meetings between representatives of these three companies, including MBI, and
Hawkeye senior management during the week of April 24, 1995. No firm offers
resulted from these meetings.
At the time of the late April meetings between representatives of MBI and
Hawkeye, MBI Common Stock was trading around $36.00 per share. By late June
1995, the price per share of MBI Common Stock had increased to $43.88, while the
price of Hawkeye Common Stock had not changed significantly. This development
led to a meeting in late June 1995, initiated by DLJ, between representatives of
DLJ and MBI, to discuss the feasibility of a merger at a premium to Hawkeye's
market price that would be attractive to Hawkeye and acceptable to MBI.
In mid-July 1995, representatives of Hawkeye, MBI and DLJ met to discuss
nonfinancial issues of a possible merger, which included similarities between
MBI's and Hawkeye's approaches to community banking. Ensuing negotiations of
financial terms of a merger were conducted by telephone between representatives
of MBI and, on behalf of Hawkeye, of DLJ. This was followed by the preparation
of a proposed merger agreement by MBI and its advisors.
On August 1, 1995, the Hawkeye Board met, with its financial and legal
advisors present, to consider the proposed merger agreement. All members of the
Hawkeye Board were present in person, except Robert H. Wahlert, who participated
in the meeting by telephone. Representatives of DLJ presented the background of
the proposal, reported on the history of discussions with all interested
parties, and presented a preliminary analysis of a combination of the businesses
of Hawkeye and MBI from a financial point of view and of the financial terms of
the proposed merger agreement, including the Exchange Ratio. See "-- Opinion of
Hawkeye's Financial Advisor". In addition, the Hawkeye Board reviewed and
discussed with Hawkeye's legal
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counsel the terms and conditions of the proposed merger agreement and of the
proposed stock option agreement and support agreements (the execution of each of
which MBI had indicated would be a condition to its entering into a definitive
agreement to effect a combination with Hawkeye). Members of management of
Hawkeye expressed their views supporting the proposed merger with MBI. Following
discussion, the Hawkeye Board voted unanimously to proceed with negotiation of a
definitive agreement with MBI.
During the week of July 31, 1995, officers and representatives of Hawkeye
conducted due diligence of MBI's business and operations. On August 2 and 3,
1995, officers and representatives of Hawkeye and MBI met and negotiated the
terms and conditions of the definitive Merger Agreement, the Stock Option
Agreement and the Support Agreements.
On August 4, 1995, the Hawkeye Board again met with its financial and legal
advisors. All board members except Mr. Wahlert were present in person or
participated in the meeting by telephone. Members of management of Hawkeye
reviewed with the board the results of Hawkeye's due diligence review of MBI,
and Hawkeye's legal counsel reviewed therewith the final terms of the Merger
Agreement, Stock Option Agreement and Support Agreements. DLJ reviewed with the
board the financial terms of the Merger Agreement and rendered to the Hawkeye
Board its oral opinion that, as of August 4, 1995, the Exchange Ratio is fair,
from a financial point of view, to Hawkeye shareholders. Following discussion,
the Hawkeye Board concluded that the Merger Agreement was in the best interests
of Hawkeye and its shareholders, and, by unanimous vote of the directors
participating in the meeting, the Hawkeye Board adopted the Merger Agreement and
Stock Option Agreement and directed that the Merger Agreement be submitted to a
vote of the shareholders of Hawkeye with the favorable recommendation of the
board. See "-- Opinion of Hawkeye's Financial Advisor."
On August 4, 1995, following the meeting of the Hawkeye Board, Hawkeye and
MBI executed the Merger Agreement and the Stock Option Agreement and the
Supporting Stockholders executed and delivered the Support Agreements. On August
4, 1995, the parties issued a press release announcing the Merger.
Hawkeye's Reasons for the Merger; Hawkeye Board Recommendation. In reaching
its conclusion that the Merger is in the best interests of Hawkeye and its
shareholders, the Hawkeye Board carefully considered a variety of factors. Among
the factors considered were those described above and the following:
- The Exchange Ratio and other financial terms of the Merger, including the
expectation that the Merger will be tax-free to Hawkeye shareholders, who
will receive MBI Common Stock in the Merger which is traded on the NYSE,
and accounted for under the pooling-of-interests method of accounting;
- A comparison of the terms of the Merger with comparable transactions in
Iowa and nationwide;
- Information concerning the business, financial condition, results of
operations and prospects of MBI and Hawkeye;
- The value anticipated to be received by Hawkeye shareholders in the
Merger in relation to the historical trading prices of Hawkeye Common
Stock;
- The review by the Hawkeye Board with its legal and financial advisors of
the provisions of the Merger Agreement, the Stock Option Agreement and the
Support Agreements;
- The financial advice rendered by DLJ to the Hawkeye Board and the oral
opinion rendered by DLJ that the Exchange Ratio is fair, from a financial
point of view, to Hawkeye shareholders;
- Similarities between the community banking philosophies of Hawkeye and
MBI, including MBI's policy to emphasize the local character of community
banks and to continue the involvement of members of the Hawkeye bank
boards, as well as members of management of such banks; and
- The likelihood that the proposed transaction would be consummated.
While each member of the Hawkeye Board individually considered the
foregoing and other factors, the Hawkeye Board did not collectively assign any
specific or relative weights to the factors considered and did not make any
determination with respect to any individual factor. The Hawkeye Board
collectively made its
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determination with respect to the Merger based on the conclusion reached by its
members, in light of the factors that each of them individually considered as
appropriate, that the Merger is in the best interests of Hawkeye and its
shareholders.
MBI's Reasons for the Merger. MBI has considered a number of factors,
including, among other things, the financial condition of Hawkeye, the projected
synergies between MBI and Hawkeye which are anticipated to result from the
Merger, and the opportunity for MBI to expand into a new market area with the
potential for increased revenues from marketing its existing products and
services. MBI has concluded that the Merger presents a unique opportunity for
MBI to expand its position in the banking market in the state of Iowa through
the acquisition of an established banking organization with expertise and a
major market presence in the state. MBI's decision to pursue discussions with
Hawkeye was primarily a result of MBI's assessment of the value of Hawkeye's
franchise within the targeted market, its substantial asset base within that
area and the compatibility of the businesses of the two organizations.
OPINION OF HAWKEYE'S FINANCIAL ADVISOR
In February of 1995, the Board of Directors of Hawkeye retained DLJ to act
as its exclusive financial advisor with respect to the sale, merger,
consolidation, or any other business combination involving Hawkeye. As part of
its services, DLJ analyzed Hawkeye and its operations, historical performance
and future prospects; identified and contacted a limited number of bank holding
companies acceptable to the Hawkeye Board to solicit indications of interest in
a possible business combination with Hawkeye; participated in certain
negotiations concerning the financial aspects of the Merger Agreement under the
guidance of the Hawkeye Board; and provided an opinion as to the fairness, from
a financial point of view, of the Exchange Ratio to the holders of Hawkeye
Common Stock.
At the meeting of the Hawkeye Board on August 4, 1995, at which the terms
of the proposed Merger were discussed and considered, DLJ rendered an oral
opinion to the Hawkeye Board that, as of the date of such opinion, the Exchange
Ratio was fair, from a financial point of view, to the holders of Hawkeye Common
Stock. DLJ has confirmed its August 4, 1995 opinion by delivery of a written
opinion to the Hawkeye Board dated the date of this Proxy Statement/Prospectus
stating that, as of the date of this Proxy Statement/Prospectus and based on the
matters set forth in such opinion, the Exchange Ratio is fair, from a financial
point of view, to the holders of Hawkeye Common Stock.
THE FULL TEXT OF DLJ'S OPINION DATED THE DATE OF THIS PROXY
STATEMENT/PROSPECTUS, WHICH SETS FORTH THE ASSUMPTIONS MADE, THE PROCEDURES
FOLLOWED, THE MATTERS CONSIDERED AND THE LIMITS ON THE REVIEW UNDERTAKEN BY DLJ,
IS ATTACHED AS APPENDIX B HERETO AND IS INCORPORATED HEREIN BY THIS REFERENCE.
THE DESCRIPTION OF THE DLJ OPINION SET FORTH IN THIS PROXY STATEMENT/PROSPECTUS
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH OPINION.
HAWKEYE STOCKHOLDERS ARE URGED TO READ THE DLJ OPINION IN ITS ENTIRETY.
DLJ's opinion is limited to the fairness, from a financial point of view,
of the Exchange Ratio to the holders of Hawkeye Common Stock and does not
address Hawkeye's underlying business decision to proceed with the Merger, nor
does it express an opinion as to the prices at which shares of MBI Common Stock
issued in the Merger may trade if and when they are issued or at any future
time. The opinion is directed only to the Exchange Ratio in the Merger and does
not constitute a recommendation to any holder of Hawkeye Common Stock as to how
such holder should vote with respect to the Merger Agreement at any meeting of
holders of Hawkeye Common Stock.
DLJ is a nationally recognized investment banking firm regularly engaged,
with respect to bank holding companies and other corporations, in the valuation
of businesses and their securities in connection with mergers and acquisitions,
negotiated underwritings, competitive biddings, secondary distributions of
listed and unlisted securities, private placements, and valuations for corporate
and other purposes. The Hawkeye Board selected DLJ on the basis of its
familiarity with the financial services industry, its qualifications, ability
and previous experience, and its reputation with respect to mergers and
acquisitions.
For purposes of its opinion dated the date of this Proxy
Statement/Prospectus and in connection with its review of the proposed
transaction with MBI, DLJ, among other things: (i) participated in discussions
and
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negotiations among representatives of Hawkeye and MBI and their respective legal
advisors that resulted in the Merger Agreement; (ii) reviewed the terms of the
Merger Agreement and Stock Option Agreement; (iii) reviewed this Proxy
Statement/Prospectus; (iv) reviewed certain publicly available financial
statements, both audited and unaudited, of Hawkeye and MBI, including those
included in their respective Annual Reports on Form 10-K for the five years
ended December 31, 1994 and the respective Quarterly Reports on Form 10-Q for
the periods ended March 31, 1995, June 30, 1995 and September 30, 1995; (v)
reviewed certain financial statements and other financial and operating data
concerning Hawkeye and MBI prepared by their respective managements; (vi)
reviewed certain financial forecasts of Hawkeye prepared by its management and
made inquiries of representatives of MBI management as to the expected future
financial performance of MBI on a stand-alone basis and giving effect to the
Merger; (vii) discussed certain aspects of the past and current business
operations, financial condition and future prospects of Hawkeye and MBI with
certain members of their respective managements; (viii) reviewed reported market
prices and historical trading activity of Hawkeye Common Stock and MBI Common
Stock; (ix) reviewed certain aspects of the financial performance of Hawkeye and
MBI and compared such financial performance of Hawkeye and MBI, together with
stock market data relating to Hawkeye Common Stock and MBI Common Stock, with
similar data available for certain other financial institutions and certain of
their publicly traded securities; (x) reviewed certain of the financial terms,
to the extent publicly available, of certain recent business combinations
involving other financial institutions; and (xi) conducted such other studies,
analyses, and examinations as DLJ deemed appropriate.
In conducting its review and rendering its opinion dated the date hereof,
DLJ relied upon and assumed without independent verification the accuracy and
completeness of all of the financial and other information provided to DLJ by
Hawkeye, MBI and their respective representatives and of the publicly available
information reviewed by DLJ. With Hawkeye's permission, DLJ also relied upon the
managements of both Hawkeye and MBI as to the reasonableness and achievability
of the financial and operating forecasts provided to DLJ (and the assumptions
and bases therefor). In that regard, DLJ assumed with Hawkeye's permission that
such forecasts, including without limitation projected cost savings and
operating synergies resulting from the Merger, reflect the best currently
available estimates and judgments of such managements and that such forecasts
will be realized in the amounts and in the time periods estimated by the
managements of Hawkeye and MBI. DLJ did not independently verify and relied on
and assumed that the aggregate allowances for loan losses set forth in the
balance sheets of each of Hawkeye and MBI at September 30, 1995 are adequate to
cover such losses and complied fully with applicable law, regulatory policy and
sound banking practice as of the date of such financial statements. DLJ was not
retained to and DLJ did not conduct a physical inspection of any of the
properties or facilities of Hawkeye and MBI, did not make any independent
evaluation or appraisal of the assets, liabilities or prospects of Hawkeye and
MBI, was not furnished with any such evaluation or appraisal, and did not review
any individual credit files. In rendering its opinion, DLJ was advised by
Hawkeye and MBI and assumed with Hawkeye's permission that there were no other
factors that would delay or subject to adverse conditions any necessary
regulatory or governmental approval for the Merger, and further assumed that all
conditions to the Merger will be satisfied and not waived and that the Merger
will be accounted for as a pooling of interests.
Set forth below is a brief summary of the analyses performed by DLJ in
reaching its August 4, 1995 opinion.
Stock Trading History. DLJ examined the history of trading prices and
volume for Hawkeye Common Stock and MBI Common Stock and the relationship
between the movements of such trading prices to movements of the Standard &
Poor's Regional Bank Index and of the trading prices of the common stocks of the
companies in the Hawkeye Peer Group (as defined below) and the MBI Peer Group
(consisting of AmSouth Bancorporation, Bancorp Hawaii, Inc., Bank South
Corporation, BayBanks, Inc., Central Fidelity Banks, Inc., Commerce Bancshares,
Inc., Compass Bancshares, Inc., Crestar Financial Corporation, Fifth Third
Bancorp, First American Corporation, First Citizens Bancshares, Inc., First
Commerce Corporation, First Empire State Corporation, First Hawaiian, Inc.,
First Security Corporation, First Tennessee National Corporation, First Virginia
Banks, Inc., Firstar Corporation, Fourth Financial Corporation, Hibernia
Corporation, Huntington Bancshares Incorporated, Integra Financial Corporation,
Marshall & Ilsley Corporation,
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Mercantile Bankshares Corporation, Meridian Bancorp, Inc., Midlantic
Corporation, Northern Trust Corporation, Old Kent Financial Corporation,
ONBANCorp, Inc., Regions Financial Corporation, Signet Banking Corporation,
Southern National Corporation, SouthTrust Corporation, Star Banc Corporation,
State Street Boston Corporation, Synovus Financial Corp., UJB Financial Corp.,
UMB Financial Corporation, Union Planters Corporation and West One Bancorp, all
of which are publicly-traded U.S. bank holding companies with total assets in
the approximate range of $5 billion to $25 billion).
Comparison with Selected Companies. DLJ compared selected financial ratios
(at or for the twelve months ended June 30, 1995) and trading multiples (as of
July 28, 1995) for Hawkeye to the corresponding ratios and multiples of the
Hawkeye Peer Group (consisting of AMCORE Financial, Inc., Associated Banc-Corp,
Brenton Banks, Inc., Chemical Financial Corporation, CNB Bancshares, Inc.,
Community First Bankshares, Inc., First Commerce Bancshares, Inc., First
Financial Bancorp., First Michigan Bank Corporation, 1st Source Corporation,
Firstbank of Illinois Co., FirsTier Financial, Inc., Fort Wayne National
Corporation, Magna Group, Inc., Mark Twain Bancshares, Inc., Mid Am, Inc., Park
National Corporation and River Forest Bancorp, Inc., all of which are
publicly-traded commercial bank holding companies headquartered in the Midwest
with total assets in the approximate range of $1 billion to $5 billion). DLJ
also calculated implied values for Hawkeye Common Stock based on the mean
trading multiples for the Hawkeye Peer Group. The trading multiples used in
calculating such implied values were market price as a multiple of: (i) book
value (which was 1.52x for Hawkeye as compared to a mean of 1.77x for the
Hawkeye Peer Group); (ii) tangible book value (which was 1.72x for Hawkeye as
compared to an mean of 1.86x for the Hawkeye Peer Group); (iii) earnings per
share ("EPS") for the twelve months ended June 30, 1995 (which was 12.2x for
Hawkeye as compared to a mean of 13.5x for the Hawkeye Peer Group); (iv) 1995
estimated EPS (which was 11.9x for Hawkeye as compared to a mean of 13.2x for
the Hawkeye Peer Group); and (v) 1996 estimated EPS (which was 11.3x for Hawkeye
as compared to a mean of 11.4x for the Hawkeye Peer Group). DLJ used Hawkeye
management's projected earnings estimates for Hawkeye and earnings estimates as
published by the Institutional Brokers Estimate System ("IBES") for the
companies comprising the Hawkeye Peer Group. IBES is a data service which
monitors and publishes a compilation of earnings estimates produced by selected
research analysts on companies of interest to investors. The implied values
derived from this analysis ranged from $19.69 to $24.92 per share of Hawkeye
Common Stock.
DLJ also compared selected financial ratios (at or for the twelve months
ended June 30, 1995) and trading multiples (as of July 28, 1995) for MBI to the
corresponding ratios and multiples of the MBI Peer Group. The trading multiples
used in comparing MBI to the MBI Peer Group were market price as a multiple of:
(i) book value (which was 1.83x for MBI as compared to a mean of 1.70x for the
MBI Peer Group); (ii) EPS for the twelve months ended June 30, 1995 (which was
11.7x for MBI as compared to a mean of 11.2x for the MBI Peer Group); (iii) 1995
estimated EPS (which was 11.2x for MBI as compared to a mean of 11.5x for the
MBI Peer Group); and (iv) 1996 estimated EPS (which was 10.3x for MBI as
compared to a mean of 10.5x for the MBI Peer Group). DLJ used earnings estimates
as published by IBES for MBI and the companies comprising the MBI Peer Group.
Analysis of Selected Mergers. As part of its analyses, DLJ reviewed two
sets of mergers: (i) eleven mergers and acquisitions involving Iowa-based
depository institutions announced from January 1, 1990 to July 28, 1995 in which
the total assets of the acquired company were greater than $200 million (the
"Iowa Transactions"), and (ii) eight mergers and acquisitions involving banks
and bank holding companies headquartered anywhere in the United States announced
from August 1, 1994 to July 28, 1995 (the "National Transactions"). The Iowa
Transactions involved the following pairs of institutions (acquiror/acquiree):
Firstar Corporation/Harvest Financial Corp., First Midwest Bancorp/CF Bancorp
Inc., Mercantile Bancorporation Inc./Plains Spirit Financial Corp., Community
First Bankshares, Inc./Minowa Bancshares, Inc., FirsTier Financial
Inc./Cornerstone Bank Group, Mercantile Bancorporation Inc./Metro
Bancorporation, Inc., Iowa National Bankshares Corp./MidAmerica Financial Corp.,
Hawkeye Bancorporation/First Dubuque Corporation, Boatmen's Bancshares,
Inc./First Interstate of Iowa, Inc., Norwest Corporation/Davenport Bank and
Trust Company, and Firstar Corporation/Banks of Iowa, Inc. The National
Transactions involved the following pairs of institutions (acquiror/acquiree):
NationsBank Corporation/Intercontinental Bank, Meridian Bancorp, Inc./United
Counties Bancorp., Comerica
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Incorporated/Metrobank, Mercantile Bancorporation/TC Bankshares Inc., Synovus
Financial Corporation/NBSC Corporation, Meridian Bancorp, Inc./United Counties
Bancorp., Norwest Corporation/Independent of Arizona and Boatmen's Bancshares,
Inc./Worthen Banking Corporation. For each transaction for which data was
available, DLJ calculated the multiple of the offer value to the acquired
company's: (i) EPS for the twelve months preceding ("LTM"), fiscal year
containing ("FY Est.") and fiscal year following ("FY+1 Est.") the announcement
date of the transaction; (ii) book value per share; (iii) tangible book value
per share; and (iv) market price per share.
The calculations for the Iowa Transactions yielded a range of multiples of
offer value to LTM EPS of 10.1x to 17.3x, with a mean of 13.1x and a median of
12.4x; a range of multiples of offer value to book value of 1.12x to 2.08x, with
a mean of 1.51x and a median of 1.49x; a range of multiples of offer value to
tangible book value of 1.12x to 2.68x, with a mean of 1.64x and a median of
1.59x; a range of multiples of offer value to market price of 1.10x to 1.38x,
with a mean of 1.25x and a median of 1.24x.
The calculations for the National Transactions yielded a range of multiples
of offer value to LTM EPS of 10.3x to 21.6x, with a mean of 15.2x and a median
of 14.9x; a range of multiples of offer value to FY Est. EPS of 14.1x to 19.8x,
with a mean of 16.3x and a median of 15.0x; a range of multiples of offer value
to FY+1 Est. EPS of 12.4x to 16.4x, with a mean of 14.2x and a median of 13.8x;
a range of multiples of offer value to book value of 1.12x to 2.18x, with a mean
of 1.85x and a median of 1.94x; a range of multiples of offer value to tangible
book value of 1.27x to 2.71x, with a mean of 2.03x and a median of 2.01x.
DLJ compared these multiples with the corresponding multiples for the
Merger, valuing the Exchange Ratio at $26.325 (the "Exchange Value"). In
calculating the multiples for the Merger, DLJ used Hawkeye's EPS for the twelve
months ended June 30, 1995, estimated EPS for the year ending December 31, 1995,
estimated EPS for the year ending December 31, 1996, book value per share and
tangible book value per share as of June 30, 1995, and the closing price per
share of Hawkeye Common Stock on July 28, 1995. DLJ calculated that the Exchange
Value represented multiples of 15.0x Hawkeye's LTM EPS, 14.7x its 1995 estimated
EPS, 13.9x its 1996 estimated EPS, 1.87x its book value per share, 2.11x its
tangible book value per share and 1.23x its market price per share.
No company or transaction used in the above analyses as a comparison is
identical to Hawkeye, MBI, or the Merger. Accordingly, an analysis of the
results of the foregoing is not mathematical; rather, it involves complex
considerations and judgments concerning differences in financial and operating
characteristics of the companies and other facts that could affect the public
trading value of the companies to which they are being compared.
Discounted Cash Flow Analysis. Using discounted cash flow analysis, DLJ
estimated the future dividend streams that Hawkeye could produce over the period
from June 30, 1995 through December 31, 1999, assuming a minimum required
tangible equity level of 7.0% of tangible total assets, if Hawkeye performed in
accordance with forecasts provided by management of Hawkeye. DLJ also estimated
the terminal value of Hawkeye's common equity as of December 31, 1999 by
applying multiples of 10.0x to 12.0x to Hawkeye's projected 1999 earnings. DLJ
selected the range of terminal multiples on the basis of past and current
trading multiples for Hawkeye and other commercial banks. The dividend streams
and terminal value were discounted to present values as of June 30, 1995 using
discount rates ranging from 12.0% to 13.0%, which reflect different assumptions
regarding the required rates of return of holders and prospective buyers of
Hawkeye Common Stock. The range of present values per fully diluted share of
Hawkeye Common Stock resulting from this analysis was $18.17 to $21.29.
Pro Forma Merger Analysis. In the course of discussions preceding execution
of the Merger Agreement, management of MBI informed DLJ that, with various cost
savings and revenue enhancements that it believed could be obtained as a result
of the Merger, management of MBI expected the transaction to be slightly
dilutive to MBI's EPS in the first year following the Effective Time and
slightly accretive in the second. Management of MBI also informed DLJ that it
anticipated the transaction would initially be slightly dilutive to MBI's book
value and tangible book value per share. DLJ performed certain calculations to
confirm MBI's
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statements regarding the anticipated effect of the Merger on MBI's EPS, book
value per share and tangible book value per share.
DLJ also analyzed certain additional pro forma effects of the Merger. DLJ's
analysis showed that holders of Hawkeye Common Stock would experience an
increase in dividend income of 13.6%, based on Hawkeye's and MBI's current
dividend payments as of August 1, 1995, and that the shares of MBI Common Stock
issued in the Merger would represent 12.4% of the pro forma total number of
outstanding shares of MBI Common Stock.
In connection with its written opinion dated as of the date of this Proxy
Statement/Prospectus, DLJ performed procedures to update certain of its analyses
and reviewed the assumptions on which such analyses were based and the factors
considered in connection therewith. In updating its opinion, DLJ did not utilize
any methods of analysis in addition to those described.
The summary set forth above describes the material analyses performed by
DLJ and presented to the Hawkeye Board and does not purport to be a complete
description of such analyses. The preparation of a fairness opinion is a complex
process and is not necessarily susceptible to partial analysis or summary
description. DLJ believes that its analyses must be considered as a whole and
that selecting portions of its analyses, without considering all factors and
analyses, would create an incomplete view of the process underlying the analyses
by which DLJ reached its opinions. The ranges of valuations resulting from any
particular analysis described above should not be taken to be DLJ's view of the
actual value of Hawkeye, the combined company or the trading price for MBI
Common Stock.
In performing its analyses, DLJ made numerous assumptions with respect to
industry performance, general business and economic conditions and other
matters, many of which are beyond the control of Hawkeye and MBI. The analyses
performed by DLJ are not necessarily indicative of actual values or actual
future results, which may be significantly more or less favorable than suggested
by such analyses. Such analyses were prepared solely as part of DLJ's analysis
of the fairness of the Exchange Ratio, from a financial point of view, to the
holders of Hawkeye Common Stock. The analyses do not purport to be appraisals or
to reflect the prices at which a company or its securities may actually be
bought or sold. DLJ used in its analyses various projections prepared by
Hawkeye's management and relied on statements of MBI's management as to the
expected future financial performance of MBI. Neither Hawkeye nor MBI publicly
discloses internal management projections of the type provided to DLJ in
connection with its review. Such projections were not prepared for, or with a
view toward, public disclosure. In addition, such projections were based on
numerous variables and assumptions that are inherently uncertain, including,
without limitation, factors related to general economic and competitive
conditions, many of which are beyond the control of the managements of MBI and
Hawkeye. Accordingly, actual results could vary significantly from those set
forth in such projections.
Pursuant to the terms of a letter agreement dated February 1, 1995 (the
"Engagement Letter"), for DLJ's services in connection with the Merger,
including the rendering of its opinions, Hawkeye (i) has paid DLJ $475,000, with
an additional $75,000 payable on December 14, 1995, and (ii) has agreed to pay
DLJ an amount equal to 0.70% of the aggregate amount of consideration received
by the Company and/or its shareholders (treating any shares issuable upon
exercise of options, warrants or other rights of conversion as outstanding),
less the amount paid by the Company pursuant to clause (i) above. Because the
major portion of the aggregate consideration to be received by the holders of
Hawkeye Common Stock is to be paid in the form of securities, the Engagement
Letter provides that the value of such securities, for purposes of calculating
the fee payable to DLJ, will be determined by the last sale price for such
securities on the last trading day thereof prior to consummation of the Merger.
Such fee shall be payable in cash upon consummation of the Merger. Hawkeye has
also agreed under the Engagement Letter to reimburse DLJ for all reasonable
out-of-pocket expenses, including reasonable fees and expenses of legal counsel,
and has agreed to indemnify DLJ against certain expenses and liabilities
incurred in connection with its engagement, including liabilities under Federal
securities law.
DLJ was initially retained by Hawkeye to provide certain ongoing financial
advisory services, including the review and analysis of financial and structural
alternatives available to Hawkeye with a view to meeting its
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long term, strategic objectives. This initial engagement was governed by a
letter agreement dated June 14, 1993 pursuant to which Hawkeye paid DLJ a fee of
$75,000 for a one-year engagement. Hawkeye renewed DLJ's engagement for an
additional year in a letter agreement dated June 14, 1994, pursuant to which
Hawkeye paid DLJ a fee of $150,000. Both letter agreements also provided for the
reimbursement of DLJ's reasonable out-of-pocket expenses and the indemnification
of DLJ against certain expenses and liabilities incurred in connection with its
engagement, including liabilities under Federal securities law.
DLJ may, in the ordinary course of its business, actively trade securities
of Hawkeye and MBI for its own account or for the accounts of customers and thus
may hold long or short positions in such securities at any time.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the Hawkeye Board with respect to the
Merger Agreement, Hawkeye shareholders should be aware that certain executive
officers and directors of Hawkeye (or their affiliates) have interests in the
Merger that are different from and in addition to the interests of Hawkeye
shareholders generally. The Board of Directors of Hawkeye was aware of these
interests and took these interests into account in adopting the Merger
Agreement.
Employment Agreement. On August 4, 1995, Robert W. Murray, President and
Chief Executive Officer of Hawkeye, entered into an employment agreement (the
"Employment Agreement") with MBI. The Employment Agreement is effective only
upon the consummation of the Merger. It provides for the employment of Mr.
Murray as Chairman of Hawkeye Bank, Des Moines, and any successor thereto
("Hawkeye Bank"), for a term of four years from the Effective Time (the
"Employment Period"). In addition, Mr. Murray will be proposed for election to
the Board of Directors of MBI for a three-year term. Hawkeye Bank will pay Mr.
Murray for each consecutive year of the Employment Period a base salary
(inclusive in each case of all fees which would otherwise be payable to him as a
director of Hawkeye Bank) of $250,000, $150,000, $100,000 and $100,000,
respectively. Mr. Murray will also be entitled during the Employment Period,
unless terminated for "cause" (as defined in the Employment Agreement), to
employee benefits and customary prerequisites equivalent to those provided by
MBI to similarly situated officers, including, pension benefits, health and
welfare benefits, disability insurance benefits, life insurance benefits,
vacation benefits and other fringe benefits.
If Mr. Murray's employment is terminated by reason of death or "disability"
(as defined in the Employment Agreement) or is involuntarily terminated other
than for "cause," in each case prior to the expiration of the Employment Period,
Mr. Murray, or his estate, will be entitled to continue to be paid his salary
under the Employment Agreement to the same extent as if Mr. Murray had completed
his employment obligations thereunder.
Indemnification. In the Merger Agreement, MBI agreed that the Merger will
not affect or diminish any of Hawkeye's duties and obligations of
indemnification existing as of the Effective Time in favor of employees, agents,
directors or officers of Hawkeye or its subsidiaries arising by virtue of their
respective articles of incorporation or bylaws in the form in effect on August
4, 1995, or arising by operation of law or by virtue of any contract, resolution
or other agreement or document existing on August 4, 1995, and such duties and
obligations will continue in full force and effect for so long as they would
(but for the Merger) otherwise survive.
Other Interests. Certain executive officers, including certain directors,
of Hawkeye currently hold Hawkeye employee stock options and/or Hawkeye stock
appreciation rights which will be converted at the Effective Time into rights
with respect to MBI Common Stock. See "-- Employee Benefits." In addition,
Robert W. Murray, Paul D. Dunlap and R. Douglas Fisher will be entitled to
receive in connection with the Merger up to $900,000, $300,000 and $525,000,
respectively, pursuant to certain change of control agreements between each of
them and Hawkeye. In connection with the anticipated retirement of Donald R.
Runger, Hawkeye and Mr. Runger entered into a deferred compensation agreement on
July 25, 1995, pursuant to which Mr. Runger will be paid in the aggregate
$775,000. The deferred compensation agreement superseded and replaced the change
of control agreement between Hawkeye and Mr. Runger.
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See "-- Employee Benefits."
CONDITIONS OF THE MERGER
The respective obligations of MBI and Hawkeye to consummate the Merger are
subject to the fulfillment or waiver at or prior to the Effective Time of the
following conditions:
(i) The Merger Agreement shall have received the requisite approval of
shareholders of Hawkeye.
(ii) All requisite approvals of the Merger Agreement and the
transactions contemplated thereby shall have been received from the Federal
Reserve Board, the Superintendent of the Banking Division of the Commerce
Department of the State of Iowa (the "State Bank Regulator"), if required,
and any other necessary governmental or regulatory authority or agency (the
"Regulatory Authorities").
(iii) The Registration Statement shall have been declared effective
and shall not be subject to a stop order or any threatened stop order.
(iv) Neither MBI nor Hawkeye shall be subject to any order, decree or
injunction of a court or agency of competent jurisdiction which enjoins or
prohibits the consummation of the Merger.
(v) Each of MBI and Hawkeye shall have received, from counsel
reasonably satisfactory to it, an opinion reasonably satisfactory in form
and substance to it to the effect that the Merger will constitute a
reorganization within the meaning of Section 368 of the Internal Revenue
Code and that no gain or loss will be recognized by the shareholders of
Hawkeye to the extent they receive MBI Common Stock solely in exchange for
shares of Hawkeye Common Stock.
Hawkeye's obligation to effect the Merger is subject to the fulfillment or
waiver at or prior to the Effective Time of the following additional conditions:
(i) The representations and warranties of MBI set forth in Article III
of the Merger Agreement shall be true and correct in all material respects
as of August 4, 1995 and as of the Effective Time (as though made on and as
of the Effective Time except (A) to the extent such representations and
warranties are by their express provisions made as of a specified date or
period and (B) for the effect of transactions contemplated by the Merger
Agreement).
(ii) MBI shall have performed in all material respects all obligations
required to be performed by it under the Merger Agreement prior to the
Effective Time.
(iii) Hawkeye shall have received a certificate of the chairman or
chief financial officer of MBI as to the satisfaction of the conditions set
forth in clauses (i) and (ii).
MBI's obligation to effect the Merger is subject to the fulfillment or
waiver at or prior to the Effective Time of the following additional conditions:
(i) The representations and warranties of Hawkeye set forth in Article
II of the Merger Agreement shall be true and correct in all material
respects as of August 4, 1995 and as of the Effective Time (as though made
on and as of the Effective Time except (A) to the extent such
representations and warranties are by their express provisions made as of a
specified date or period and (B) for the effect of transactions
contemplated by the Merger Agreement).
(ii) Hawkeye shall have performed in all material respects all
obligations required to be performed by it under the Merger Agreement prior
to the Effective Time.
(iii) MBI shall have received certificates of the chairman and the
president and chief executive officer of Hawkeye as to the satisfaction of
the conditions set forth in clauses (i) and (ii).
(iv) MBI shall have received an opinion addressed to MBI from KPMG
Peat Marwick LLP, satisfactory in form and substance to MBI, stating that
the Merger will qualify for pooling-of-interests accounting treatment (the
"Pooling Letter") and such opinion shall not have been withdrawn (see "--
Accounting Treatment").
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TERMINATION OF THE MERGER AGREEMENT
The Merger Agreement may be terminated at any time prior to the Effective
Time, whether before or after any requisite shareholder approval: (i) by mutual
consent of the Executive Committee of the Board of Directors of MBI and the
Board of Directors of Hawkeye; (ii) by the Executive Committee of the Board of
Directors of MBI or the Board of Directors of Hawkeye (A) at any time after
August 4, 1996 if the Merger shall not theretofore have been consummated
(provided that the terminating party is not then in material breach of the
Merger Agreement), (B) if the Federal Reserve Board has denied approval of the
Merger and such denial has become final and nonappealable or (C) if shareholders
of Hawkeye shall not have approved the Merger Agreement at the Special Meeting
following a favorable recommendation of Hawkeye's Board of Directors; (iii) by
the Executive Committee of the Board of Directors of MBI in the event (A) of a
material breach by Hawkeye of the Merger Agreement, which breach is not cured
within 30 days after written notice thereof to Hawkeye by MBI or (B) that (x)(1)
the estimated costs of all remedial or other corrective actions or measures with
regard to certain real properties referred to in the Merger Agreement required
by applicable law exceed $5,000,000 in the aggregate or (2) such cost cannot be
reasonably estimated to be such amount or less with any reasonable degree of
certainty and (y) after providing Hawkeye with written notice of MBI's intent to
so terminate the Merger Agreement Hawkeye shall not have taken and completed,
within the six-month period from the date of such notice, to the reasonable
satisfaction of MBI, all such remedial or other corrective actions and measures
(the aggregate cost of which incurred by Hawkeye and its subsidiaries shall not
exceed $5,000,000); or (iv) by the Board of Directors of Hawkeye in the event of
a material breach by MBI of the Merger Agreement, which breach is not cured
within 30 days after written notice thereof is given to MBI by Hawkeye.
No assurance can be given that the Merger will be consummated, that MBI and
Hawkeye will not mutually agree to terminate the Merger Agreement or that MBI or
Hawkeye will not elect to terminate the Merger Agreement if the Merger has not
been consummated on or before August 4, 1996.
CLOSING AND EFFECTIVE TIME
Unless the parties otherwise agree, the Closing of the Merger will take
place at 10:00 A.M., local time, on the date on which the Effective Time occurs,
which shall be such date as MBI notifies Hawkeye in writing but not earlier than
the Approval Date, and not later than the first business day of the first full
calendar month commencing at least five business days after the Approval Date.
The Effective Time will occur upon the filing of the articles of merger with the
Iowa Secretary of State. It is currently anticipated that the Effective Time
will occur shortly after the date of the Special Meeting assuming the Merger
Agreement is approved at such meeting.
SURRENDER OF HAWKEYE STOCK CERTIFICATES AND RECEIPT OF MBI COMMON STOCK
Except for the shares of Hawkeye Common Stock subject to the exercise of
dissenters' rights, at the Effective Time of the Merger, each outstanding share
of Hawkeye Common Stock (other than shares held by Hawkeye or MBI or any of
their respective subsidiaries, in each case other than in a fiduciary capacity
or as a result of debts previously contracted, which shall be cancelled) will be
converted into the right to receive .585 of a share of MBI Common Stock.
As soon as practicable after the Effective Time, holders of record of
certificates formerly representing shares of Hawkeye Common Stock (the
"Certificates") will be instructed to tender such Certificates to the Exchange
Agent pursuant to a letter of transmittal that MBI will deliver or cause to be
delivered to such holders. Such letters of transmittal will specify that risk of
loss and title to Certificates will pass only upon delivery of such Certificates
to the Exchange Agent.
After the Effective Time, each previous holder of a Certificate that
surrenders such Certificate to the Exchange Agent will, upon acceptance thereof
by the Exchange Agent, be entitled to a certificate or certificates representing
the number of full shares of MBI Common Stock into which the Certificate so
surrendered will have been converted pursuant to the Merger Agreement and any
dividend theretofore declared and not yet paid with respect to such shares of
MBI Common Stock, without interest. The Exchange
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Agent will accept Certificates upon compliance with such reasonable terms and
conditions as MBI or the Exchange Agent may impose to effect an orderly exchange
thereof in accordance with customary exchange practices. Certificates must be
appropriately endorsed or accompanied by such instruments of transfer as MBI or
the Exchange Agent may require.
Each outstanding Certificate will, until duly surrendered to the Exchange
Agent, be deemed to evidence ownership of the Merger Consideration into which
the stock previously represented by such Certificate will have been converted in
the Merger. After the Effective Time, holders of Certificates will cease to have
rights with respect to the stock previously represented by such Certificates,
and their sole right will be to exchange such Certificates for such Merger
Consideration. After the Effective Time, there will be no further transfer on
the records of Hawkeye of Certificates, and if such Certificates are presented
to Hawkeye for transfer, they will be cancelled against delivery of such Merger
Consideration.
MBI will not be obligated to deliver the Merger Consideration to which any
former holder of Hawkeye Common Stock is entitled as a result of the Merger
until such holder surrenders the Certificates as provided herein. No dividends
declared on MBI Common Stock will be remitted to any person entitled to receive
MBI Common Stock in the Merger until such person surrenders the Certificate
representing the right to receive such MBI Common Stock, at which time such
dividends will be remitted to such person, without interest and less any taxes
that may have been imposed thereon.
Certificates surrendered for exchange by any person constituting an
"affiliate" of Hawkeye for purposes of Rule 145 of the Securities Act will not
be exchanged for certificates representing MBI Common Stock until MBI has
received a written agreement from such person not to sell or otherwise dispose
of any shares of MBI Common Stock received by such person until financial
results covering at least 30 days of combined operations have been published and
thereafter only in compliance with Rule 145. See "INFORMATION REGARDING MBI
STOCK -- Restrictions on Resale of MBI Capital Stock by Affiliates; Affiliate
Agreements."
Neither the Exchange Agent nor Hawkeye nor MBI, nor any affiliate thereof,
will be liable to any holder of stock represented by any Certificate for any
Merger Consideration paid to a public official pursuant to applicable abandoned
property, escheat or similar laws. MBI and the Exchange Agent will be entitled
to rely upon the stock transfer books of Hawkeye to establish the identity of
those persons entitled to receive Merger Consideration, which books will be
conclusive with respect thereto. In the event of a dispute with respect to
ownership of stock represented by any Certificate, MBI and the Exchange Agent
will be entitled to deposit any Merger Consideration represented thereby in
escrow with an independent third party and thereafter be relieved with respect
to any claims thereto.
FRACTIONAL SHARES
No fractional shares of MBI Common Stock will be issued to the former
shareholders of Hawkeye in connection with the Merger. Each former holder of
Hawkeye Common Stock who otherwise would have been entitled to receive a
fraction of a share of MBI Common Stock will receive cash in lieu thereof,
without interest, in an amount equal to the holder's fractional share interest
multiplied by the closing stock price of MBI Common Stock on the NYSE Composite
Tape as reported in The Wall Street Journal (or in the absence thereof, by any
other authoritative source) on the last business day preceding the Effective
Time. No shareholder of Hawkeye entitled to receive cash in lieu of fractional
shares will be entitled to dividends, voting rights or any other rights in
respect of such fractional shares. Cash received by Hawkeye shareholders in lieu
of fractional shares may give rise to taxable income. See "CERTAIN FEDERAL
INCOME TAX CONSEQUENCES OF THE MERGER."
REGULATORY APPROVAL
The obligations of the parties to effect the Merger are subject to prior
approval of the Federal Reserve Board and the State Bank Regulator, if required,
and any other necessary regulatory authority.
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The Merger has been approved by the Federal Reserve Board under the BHCA.
Under the BHCA, the Federal Reserve Board is required, in approving transactions
such as the Merger, to take into consideration the financial and managerial
resources and future prospects of the existing and proposed institutions and the
convenience and needs of the communities to be served. In considering financial
resources and future prospects, the Federal Reserve Board evaluates the adequacy
of the capital levels of MBI and its bank subsidiaries following the Merger.
The BHCA prohibits the Federal Reserve Board from approving the Merger if
the Merger 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 their 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 result in a restraint of trade, unless the
Federal Reserve Board finds that the anticompetitive effects of the Merger are
clearly outweighed in the public interest by the probable effect of transactions
in meeting the convenience and needs of the communities to be served. In
addition, under the Community Reinvestment Act of 1977, as amended, the Federal
Reserve Board must take into account the record of performance of the existing
institutions in meeting the credit needs of the entire community, including low-
and moderate-income neighborhoods, served by such institutions.
Under the BHCA, the Merger may not be consummated until the 30th day
following the date of Federal Reserve Board approval (or, if the Department of
Justice has not submitted adverse comments with respect to competitive factors,
the 15th day), 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.
The BHCA provides for the publication of notice and public comment on the
applications and authorizes the Federal Reserve Board to permit interested
parties to intervene in the proceedings. If an interested party is permitted to
intervene, such intervention could delay the regulatory approvals required for
consummation of the Merger. Application for such Federal Reserve Board approval
has been or will be filed.
MBI and Hawkeye are not aware of any governmental approvals or actions that
may be required for consummation of the Merger other than 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
necessary regulatory approval or action will be received or taken, as to the
timing of such approval or action, that no action will be brought challenging
such approval or action, or if such a challenge is brought, the result thereof,
or that any such approval or action will not be conditioned in a manner that
would cause the parties to abandon the Merger.
See "-- Closing and Effective Time," "-- Conditions of the Merger," "--
Waiver and Amendment," "-- Termination of the Merger Agreement" and "SUPERVISION
AND REGULATION."
BUSINESS PENDING THE MERGER
From August 4, 1995 to the Effective Time, each of MBI and Hawkeye agreed
to, and agreed to cause each of their respective subsidiaries to, conduct its
business according to the ordinary and usual course consistent with past
practices, and to use its best efforts to maintain and preserve its business
organization, employees and advantageous business relationships and retain the
services of its officers and key employees.
Furthermore, from August 4, 1995 to the Effective Time, the Merger
Agreement provides that, except as provided in the Merger Agreement, Hawkeye has
agreed not to, and to cause each of its subsidiaries not to, without the prior
written consent of MBI:
(i) declare, set aside or pay any dividends or other distributions,
directly or indirectly, in respect of its capital stock (other than
dividends from a subsidiary of Hawkeye to Hawkeye or another subsidiary of
Hawkeye), except that Hawkeye may declare and pay (x) for dividends payable
in 1995, regular quarterly cash dividends of not more than $0.17 per share
on the Hawkeye Common Stock, and (y) for dividends payable in 1996,
quarterly cash dividends of not more than $0.19 per share; provided, that
Hawkeye may not declare or pay any dividends on Hawkeye Common Stock for
any period in which its
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shareholders will be entitled to receive any regular quarterly dividend on
the shares of MBI Common Stock to be issued in the Merger;
(ii) enter into or amend any employment, severance or similar
agreement or arrangement with any director or officer or employee, or
materially modify any of Hawkeye's employee benefit plans specified in the
Merger Agreement or grant any salary or wage increase or materially
increase any employee benefit (including incentive or bonus payments),
except normal individual increases in compensation to employees consistent
with past practice, or as required by law or contract;
(iii) authorize, recommend (subject to the fiduciary duties of
Hawkeye's Board of Directors, upon written advice of counsel to Hawkeye,
which counsel is reasonably acceptable to MBI), propose or announce an
intention to authorize, recommend or propose, or enter into an agreement in
principle with respect to, any merger, consolidation or business
combination (other than the Merger), any acquisition of a material amount
of assets or securities, any disposition of a material amount of assets or
securities or any release or relinquishment of any material contract
rights;
(iv) propose or adopt any amendments to its articles of incorporation,
association or other charter document or by-laws;
(v) issue, sell, grant, confer or award any of its Equity Securities
(as defined in the Merger Agreement) (except shares of Hawkeye Common Stock
issued upon exercise of Hawkeye employee stock options outstanding on
August 4, 1995) or effect any stock split or adjust, combine, reclassify or
otherwise change its capitalization as it existed on August 4, 1995;
(vi) purchase, redeem, retire, repurchase, or exchange, or otherwise
acquire or dispose of, directly or indirectly, any of its Equity
Securities, whether pursuant to the terms of such Equity Securities or
otherwise;
(vii) (A) without first consulting with MBI, enter into, renew or
increase any loan or credit commitment (including stand-by letters of
credit) to, or invest or agree to invest in any person or entity or modify
any of the material provisions or renew or otherwise extend the maturity
date of any existing loan or credit commitment (collectively, "lend to") in
an amount in excess of $1,500,000, or in an amount which, when aggregated
with any and all loans or credit commitments to such person or entity,
would be in excess of $1,500,000; (B) without first obtaining the written
consent of MBI, lend to any person or entity in an amount in excess of
$3,000,000 or in an amount which, when aggregated with any and all loans or
credit commitments to such person or entity, would be in excess of
$3,000,000; (C) Lend to any person other than in accordance with lending
policies as in effect on August 4, 1995; provided that in the case of
clauses (B) and (C) Hawkeye or any Hawkeye subsidiary may make any such
loan in the event (1) Hawkeye or any Hawkeye subsidiary has delivered to
MBI or its designated representative a notice of its intention to make such
loan and such information as MBI or its designated representative may
reasonably require in respect thereof and (2) MBI or its designated
representative shall not have reasonably objected to such loan by giving
written or facsimile notice of such objection within two business days
following the delivery to MBI of the notice of intention and information as
aforesaid; or (D) Lend to any person or entity any of the loans or other
extensions of credit to which, or investments in which, are on a "watch
list" or similar internal report of Hawkeye or any Hawkeye subsidiary
(except those denoted "pass" thereon), in an amount in excess of $500,000;
provided, however, that nothing described in this paragraph will prohibit
Hawkeye or any Hawkeye subsidiary from honoring any contractual obligation
in existence on August 4, 1995, provided further, however, that
notwithstanding clauses (A) and (B) of this paragraph, Hawkeye is
authorized without first consulting with MBI or obtaining MBI's prior
written consent, to increase the aggregate amount of any credit facilities
theretofore established in favor of any person or entity (each a
"Pre-Existing Facility"), provided that the aggregate amount of any and all
such increases with respect to any Pre-Existing Facility shall not be in
excess of the lesser of ten percent (10%) of such Pre-Existing Facility or
$250,000;
(viii) directly or indirectly (including through its officers,
directors, employees or other representatives) initiate, solicit or
encourage any discussions, inquiries or proposals with any third party
relating to
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the disposition of any significant portion of the business or assets of
Hawkeye or any Hawkeye subsidiary or the acquisition of Equity Securities
of Hawkeye or any Hawkeye subsidiary or the merger of Hawkeye or any
Hawkeye subsidiary with any person (other than MBI) or any similar
transaction, or provide any such person with information or assistance or
negotiate with any such person with respect to such transaction, and
Hawkeye shall promptly notify MBI orally of all the relevant details
relating to all inquiries, indications of interest and proposals which it
may receive with respect to any such transaction;
(ix) take any action that would (A) materially impede or delay the
consummation of the transactions contemplated by the Merger Agreement or
the ability of MBI or Hawkeye to obtain any approval of any Regulatory
Authority required for the transactions contemplated by the Merger
Agreement or to perform its covenants and agreements under the Merger
Agreement or (B) prevent the Merger from qualifying as a reorganization
within the meaning of Section 368 of the Internal Revenue Code;
(x) other than in the ordinary course of business consistent with past
practice, incur any indebtedness for borrowed money, assume, guarantee,
endorse or otherwise as an accommodation become responsible or liable for
the obligations of any other individual, corporation or other entity, or,
without prior approval of MBI, which shall not be unreasonably withheld,
pay fees and expenses to attorneys, accountants or investment bankers in
connection with the Merger in excess of the amount set forth in the Merger
Agreement;
(xi) restructure or materially change its investment securities
portfolio, through purchases, sales or otherwise, or the manner in which
the portfolio is classified or reported or execute any individual
investment transaction (A) in United States Treasury securities in excess
of $5,000,000 and (B) in any other investment securities in excess of
$1,000,000; or
(xii) agree in writing or otherwise to take any of the foregoing
actions or engage in any activity, enter into any transaction or take or
omit to take any other act which would make any of the representations and
warranties of Hawkeye in the Merger Agreement untrue or incorrect in any
material respect if made anew after engaging in such activity, entering
into such transaction, or taking or omitting such other act.
BANK MINORITY SHARES
Hawkeye has agreed to use, as soon as reasonably possible, all reasonable
efforts to cooperate with MBI in respect of each person holding capital stock of
any of the bank subsidiaries of Hawkeye (other than Hawkeye or any of its
subsidiaries), whether as qualifying shares or otherwise, with the goal of
purchasing such shares at any time and/or from time to time, at a price
reasonably acceptable to MBI.
WAIVER AND AMENDMENT
Any term, condition or provision of the Merger Agreement may be waived in
writing at any time by the party which is, or whose shareholders are, entitled
to the benefits thereof. The Merger Agreement and the schedules thereto may be
amended by or on behalf of the Boards of Directors of MBI and Hawkeye at any
time before or after approval of the Merger Agreement by the shareholders of
Hawkeye, by an instrument in writing signed on behalf of each party; provided
that after any such approval by the shareholders of Hawkeye no such modification
may alter or change the amount or kind of consideration to be received by
holders of Hawkeye Common Stock in the Merger. See "CERTAIN FEDERAL INCOME TAX
CONSEQUENCES OF THE MERGER."
ACCOUNTING TREATMENT
It is intended that the Merger be accounted for under the
pooling-of-interests method of accounting. It is a condition to the obligations
of MBI to effect the Merger that the Pooling Letter shall have been received by
MBI and shall not have been withdrawn. See "-- Conditions of the Merger." MBI
and Hawkeye have agreed to use their best efforts to cause the Merger to qualify
for pooling-of-interest accounting treatment.
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Under the pooling-of-interests method of accounting, the historical basis
of the assets and liabilities of MBI and Hawkeye will be combined at the
Effective Time and carried forward at their previously recorded amounts, and the
shareholders' equity accounts of MBI and Hawkeye will be combined on MBI's
consolidated balance sheet and no goodwill or other intangible assets will be
created. Financial statements of MBI issued after the Effective Time will be
restated retroactively to reflect the consolidated operations of MBI and Hawkeye
as if the Merger had taken place prior to the periods covered by such financial
statements. See "SUMMARY INFORMATION -- Comparative Unaudited Per Share Data,"
"SUMMARY INFORMATION -- Summary Financial Data," "-- Conditions of the Merger,"
and "PRO FORMA FINANCIAL INFORMATION."
MANAGEMENT AND OPERATIONS AFTER THE MERGER
Merger Sub, a wholly owned subsidiary of MBI, will be the surviving
corporation resulting from the Merger. Merger Sub will be governed by the laws
of the state of Iowa and will operate in accordance with the articles of
incorporation and bylaws of Merger Sub as in effect immediately prior to the
Merger, until otherwise amended or repealed after the Effective Time.
EMPLOYEE BENEFITS
Employee Benefits. The provisions of Hawkeye's stock option and incentive
plans set forth in the Merger Agreement ("Hawkeye Stock Plans") and of any other
plan, program or arrangement providing for the issuance or grant of any other
interest in respect of the capital stock of Hawkeye or any Hawkeye subsidiary
will be deleted and terminated as of the Effective Time, and Hawkeye will ensure
that following the Effective Time no holder of Hawkeye employee stock options or
any participant in any Hawkeye Stock Plan shall have any right thereunder to
acquire any securities of Hawkeye or any Hawkeye subsidiary.
Except as set forth in the Merger Agreement, the Hawkeye Employee Plans (as
defined and set forth in the Merger Agreement) will not be terminated by reason
of the Merger but will continue thereafter as plans of Merger Sub as the
surviving corporation until such time as the employees of Hawkeye and Hawkeye's
subsidiaries are integrated into MBI's employee benefit plans that are available
to other employees of MBI and MBI's subsidiaries, subject to the terms and
conditions specified in such plans and to such changes therein as may be
necessary to reflect the consummation of the Merger. MBI will take such steps as
are necessary or required to integrate the employees of Hawkeye and Hawkeye's
subsidiaries into MBI's employee benefit plans available to other employees of
MBI and MBI's subsidiaries as soon as practicable after the Effective Time, with
(i) full credit for prior service with Hawkeye or any Hawkeye subsidiary for
purposes of vesting and eligibility for participation (but not benefit accruals
under any defined benefit plan), and co-payments and deductibles, and (ii)
waiver of all waiting periods and pre-existing condition exclusions or
penalties.
Employee Stock Options and Stock Appreciation Rights. At the Effective
Time, all rights with respect to Hawkeye Common Stock pursuant to Hawkeye
employee stock options that are outstanding at the Effective Time, whether or
not then exercisable, will be converted into and become rights with respect to
MBI Common Stock, and MBI will assume each Hawkeye employee stock option in
accordance with the terms of the stock option plan under which it was issued and
the stock option agreement by which it is evidenced. From and after the
Effective Time, (i) each Hawkeye employee stock option assumed by MBI will be
exercisable solely for shares of MBI Common Stock, (ii) the number of shares of
MBI Common Stock subject to each Hawkeye employee stock option will be equal to
the number of shares of Hawkeye Common Stock subject to such Hawkeye employee
stock option immediately prior to the Effective Time multiplied by the Exchange
Ratio and (iii) the per share exercise price under each Hawkeye employee stock
option will be adjusted by dividing the per share exercise price under such
Hawkeye employee stock option by the Exchange Ratio and rounding down to the
nearest cent; provided, however, that the terms of each Hawkeye employee stock
option will, in accordance with its terms, be subject to further adjustment as
appropriate to reflect any stock split, stock dividend, recapitalization or
other similar transaction subsequent to the Effective Time. It is intended that
the foregoing assumption will be undertaken in a manner that will not constitute
a "modification" as defined in the Internal Revenue Code, as to any Hawkeye
employee stock option that is an "incentive stock option."
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At the Effective Time, all stock appreciation rights with respect to
Hawkeye Common Stock that are outstanding at the Effective Time, whether or not
then exercisable, will be converted into and become stock appreciation rights
with respect to MBI Common Stock with the same terms and conditions as were
applicable to such Hawkeye stock appreciation rights immediately prior to the
Effective Time.
Certain executive officers, including certain executive officers who are
directors, of Hawkeye currently hold Hawkeye employee stock options and/or
Hawkeye stock appreciation rights which will be converted into rights with
respect to MBI Common Stock as described above.
Indemnification. In the Merger Agreement, MBI agreed that the Merger will
not affect or diminish any of Hawkeye's duties and obligations of
indemnification existing as of the Effective Time in favor of employees, agents,
directors or officers of Hawkeye or its subsidiaries arising by virtue of their
respective articles of incorporation or bylaws in the form in effect on August
4, 1995, or arising by operation of law or by virtue of any contract, resolution
or other agreement or document existing on August 4, 1995, and such duties and
obligations will continue in full force and effect for so long as they would
(but for the Merger) otherwise survive.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following discussion summarizes the material federal income tax
consequences of the Merger. The discussion does not address all aspects of
federal taxation that may be relevant to particular Hawkeye shareholders, and it
may not be applicable to shareholders who are not citizens or residents of the
United States, or who acquired their Hawkeye Common Stock pursuant to the
exercise of employee stock options or otherwise as compensation. The discussion
does not address the effect of any applicable state, local or foreign tax laws
or any federal tax laws other than those pertaining to the income tax. EACH
HAWKEYE SHAREHOLDER SHOULD CONSULT HIS OR HER OWN TAX ADVISOR AS TO THE
PARTICULAR TAX CONSEQUENCES TO HIM OR HER OF THE MERGER.
This discussion is based on the Internal Revenue Code, regulations and
rulings now in effect or proposed thereunder, current administrative rulings and
practice, and judicial precedent, all of which are subject to change. Any such
change, which may or may not be retroactive, could alter the tax consequences to
Hawkeye shareholders discussed herein. This discussion is also based on certain
assumptions regarding the factual circumstances that will exist at the Effective
Time, including certain representations to be made by Hawkeye and MBI. This
discussion assumes that Hawkeye shareholders hold their Hawkeye Common Stock as
a capital asset within the meaning of Section 1221 of the Internal Revenue Code.
MBI has received an opinion from Wachtell, Lipton, Rosen & Katz, counsel to
MBI, and Hawkeye has received an opinion from Baird, Holm, McEachen, Pedersen,
Hamann & Strasheim, counsel to Hawkeye, that, assuming the Merger occurs in
accordance with the Merger Agreement, and conditioned on the accuracy of certain
representations made by MBI and Hawkeye, the material federal income tax
consequences expected to result from the Merger, under currently applicable law,
are as follows:
(i) The Merger will constitute a "reorganization" for federal income
tax purposes under Section 368(a) of the Internal Revenue Code.
(ii) No gain or loss will be recognized by Hawkeye or MBI as a result
of the Merger.
(iii) Hawkeye shareholders will recognize no gain or loss as a result
of the exchange of their Hawkeye Common Stock solely for shares of MBI
Common Stock pursuant to the Merger, except with respect to cash received
in lieu of fractional shares, if any, as discussed below.
(iv) A holder of shares of Hawkeye Common Stock who receives cash in
the Merger in lieu of a fractional share interest of MBI Common Stock will
be treated as if the fractional shares were received in the exchange and
then redeemed by MBI. A holder of shares of Hawkeye Common Stock will be
treated as if the shareholder sold his or her fractional share of MBI
Common Stock for the amount of cash received and will therefore recognize
gain (or loss) to the extent that the amount of cash received exceeds (or
is less than) the tax basis of the fractional share. Such gain or loss will
be capital gain or loss
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if the shares of Hawkeye Common Stock were held as capital assets and will
be long-term capital gain or loss if the holding period of the shares of
Hawkeye Common Stock so exchanged was more than one year.
(v) The aggregate adjusted tax basis of the MBI Common Stock received
by a shareholder of Hawkeye in the Merger, including for the purpose of
(iv) above the tax basis of any fractional share interest, will be equal to
the aggregate adjusted tax basis of the respective shares of Hawkeye Common
Stock surrendered.
(vi) The holding period of the shares of MBI Common Stock received by
a shareholder of Hawkeye in the Merger, including for purposes of (iv)
above the holding period of any fractional share interest, will include the
holding period of the respective shares of Hawkeye Common Stock exchanged
therefor, provided the shares of Hawkeye Common Stock were held as capital
assets.
(vii) A Hawkeye shareholder who receives only cash as a result of the
exercise of dissenters' rights, will realize gain or loss for federal
income tax purposes (determined separately as to each block of Hawkeye
Common Stock exchanged) in an amount equal to the difference between (x)
the amount of cash received by such shareholder, and (y) such shareholder's
tax basis for the shares of Hawkeye Common Stock surrendered in exchange
therefor, provided that the cash payment does not have the effect of the
distribution of a dividend. Any such gain or loss will be recognized for
federal income tax purposes and will be treated as capital gain or loss,
provided the shares of Hawkeye Common Stock were held as capital assets.
However, if the cash payment does have the effect of the distribution of a
dividend, the amount of taxable income recognized generally will equal the
amount of cash received; such income generally will be taxable as a
dividend; and no loss (or other recovery of such shareholder's tax basis
for the shares of Hawkeye Common Stock surrendered in the exchange)
generally will be recognized by such shareholder. The determination of
whether a cash payment has the effect of the distribution of a dividend
will be made pursuant to the provisions and limitations of Section 302 of
the Internal Revenue Code, taking into account the constructive stock
ownership rules of Section 318 of the Internal Revenue Code.
An opinion of counsel, unlike a private letter ruling from the Internal Revenue
Service (the "Service"), has no binding effect on the Service. The Service could
take a position contrary to counsel's opinion and, if the matter is litigated, a
court may reach a decision contrary to the opinion. The Service is not expected
to issue a ruling on the tax effects of the Merger, and no such ruling has been
requested.
THE FOREGOING IS A GENERAL DISCUSSION OF THE MATERIAL FEDERAL INCOME TAX
CONSEQUENCES OF THE MERGER AND IS INCLUDED FOR GENERAL INFORMATION ONLY. THE
FOREGOING DISCUSSION DOES NOT TAKE INTO ACCOUNT THE PARTICULAR FACTS AND
CIRCUMSTANCES OF EACH SHAREHOLDER'S TAX STATUS AND ATTRIBUTES. AS A RESULT, THE
FEDERAL INCOME TAX CONSEQUENCES ADDRESSED IN THE FOREGOING DISCUSSION MAY NOT
APPLY TO EACH SHAREHOLDER. IN VIEW OF THE INDIVIDUAL NATURE OF INCOME TAX
CONSEQUENCES, EACH SHAREHOLDER IS URGED TO CONSULT HIS OR HER OWN TAX ADVISOR TO
DETERMINE THE SPECIFIC TAX CONSEQUENCES OF THE MERGER TO SUCH SHAREHOLDER,
INCLUDING THE APPLICATION AND EFFECT OF FEDERAL, STATE, LOCAL AND OTHER TAX LAWS
AND THE POSSIBLE EFFECTS OF CHANGES IN FEDERAL AND OTHER TAX LAWS.
DISSENTERS' RIGHTS OF SHAREHOLDERS OF HAWKEYE
Each shareholder of Hawkeye has the right to demand to be paid the fair
value of his or her shares of Hawkeye Common Stock in cash upon consummation of
the Merger if the shareholder follows the dissenters' rights procedures set
forth in Division XIII of the Iowa Act. "Fair value" is defined in the Iowa Act
as the value of the subject shares immediately prior to the consummation of the
Merger, excluding any appreciation or depreciation in anticipation of the Merger
unless such an exclusion would be inequitable.
Under the Iowa Act, a shareholder of Hawkeye may dissent from the Merger
and obtain the fair value of the shares owned by such shareholder with such fair
value to be paid in cash if the Merger is consummated. Any shareholder of
Hawkeye who wishes to assert his or her dissenters' rights must do each of the
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following: (i) deliver to Hawkeye before the vote on the Merger Agreement is
taken a written notice of such shareholder's intent to demand payment of the
fair value of his or her shares if the Merger is effectuated, and (ii) not vote
such shares in favor of the approval of the Merger Agreement at the Special
Meeting. A VOTE AGAINST THE APPROVAL OF THE MERGER AGREEMENT WILL NOT, BY
ITSELF, BE REGARDED AS A WRITTEN NOTICE OF A SHAREHOLDER'S INTENT TO ASSERT
DISSENTERS' RIGHTS.
If the Merger Agreement is approved at the Special Meeting, Hawkeye shall
deliver a written notice to each person who asserted dissenters' rights and who
did not vote in favor of the approval of the Merger Agreement as described
above. The notice must be sent by Hawkeye no later than 10 days after the
Special Meeting and must contain the following information: (i) a statement as
to where a demand for payment must be sent by the dissenting shareholder and
where and when the certificates evidencing shares of Hawkeye Common Stock owned
by such shareholders must be deposited, (ii) a statement to holders of
uncertificated shares stating to what extent transfer of the shares will be
restricted after the payment is received, (iii) a form with which dissenting
shareholders may make their demands for payment, which form will include the
date of the first public announcement of the proposed Merger and a requirement
that all dissenting shareholders certify as to whether or not he or she had
acquired beneficial ownership of the shares subject to the dissenters' rights
demand prior to the date of the first public announcement of the proposed
Merger, (iv) a statement as to the date by which Hawkeye must receive the demand
for payment from the dissenting shareholder, such date to be not fewer than 30
nor more than 60 days after the date of Hawkeye's notice to dissenting
shareholders, and (v) a copy of Division XIII of the Iowa Act.
A dissenting shareholder must demand payment for his or her shares, certify
as to whether the acquisition dates of such shares were prior to or after the
public announcement of the proposed Merger and deposit the certificates
evidencing such shares prior to the date set in and in accordance with the
notice sent by Hawkeye to the dissenting shareholders. A shareholder who does
not demand payment or deposit certificates for shares by the date or in the
manner set forth in the notice to dissenting shareholders sent by Hawkeye will
be deemed to have waived his or her dissenters' rights and will not be entitled
to payment of the fair value of his or her shares under Division XIII of the
Iowa Act.
Hawkeye (or Merger Sub, as the surviving corporation in the Merger) must
make a cash payment to each dissenting shareholder who files a demand for
payment as described above equal to Hawkeye's (or Merger Sub's) estimate of the
fair value of the shares of Hawkeye Common Stock owned by such shareholders,
plus accrued interest on such payment from the Closing Date. Such payment must
be made upon the later of: (i) the time the Merger is consummated or (ii) the
receipt of the demand for payment from the dissenting shareholder. If the Merger
is not consummated within 60 days of the date set by Hawkeye for receipt of the
dissenting shareholders' demands for payment and deposits of stock certificates,
Hawkeye must return the deposited certificates and release the transfer
restrictions on uncertificated shares and send a new notice to dissenting
shareholders when the Merger is actually consummated and repeat the payment
demand procedure. The payment must be accompanied by the following: (i)
Hawkeye's balance sheet as of the end of its most recently completed fiscal
year, an income statement and a statement of changes in shareholders' equity as
of the most recently completed fiscal year and interim financial statements of
Hawkeye as of and for the most recent date or period available, (ii) a statement
of Hawkeye's (or Merger Sub's) estimate of the fair value of the Hawkeye shares,
(iii) an explanation as to how the interest payment was calculated, (iv) a
statement of the dissenting shareholder's right to demand a greater payment than
Hawkeye's estimate as described below, and (v) a copy of Division XIII of the
Iowa Act.
Hawkeye may elect to withhold payment from those dissenting shareholders
who do not certify in their demand for payment that they owned the shares
subject to the dissenters' rights demand prior to the public announcement of the
proposed Merger. To the extent that Hawkeye elects to withhold payment from such
dissenting shareholders, Hawkeye shall estimate the fair value of the shares
owned by such holders and accrued interest thereon and offer to pay the same to
each such dissenting shareholder who agrees to accept it in full satisfaction of
his or her demand. The offer to such shareholders must be accompanied by: (i) a
statement of Hawkeye's estimate of fair value, (ii) an explanation as to how the
interest payment was
34
<PAGE> 41
calculated and (iii) a statement of the dissenting shareholder's right to demand
a greater payment than Hawkeye's estimate as described below.
After receipt of Hawkeye's (or Merger Sub's) estimate of fair value in
either of the above cases, the dissenting shareholder may deliver notice to
Hawkeye (or Merger Sub) of his or her own estimate of fair value for the shares
and the amount of interest due and demand payment of the difference in amount,
if any, previously paid by Hawkeye (or Merger Sub) to such shareholder and the
amount of the shareholder's estimate. In order to make such a demand: (i) the
dissenting shareholder must believe that the amount paid or offered by Hawkeye
(or Merger Sub) is less than the fair value of the shares or the interest is
incorrectly calculated, or (ii) Hawkeye (or Merger Sub) has not made payment for
the shares within 60 days after the date set by Hawkeye (or Merger Sub) as the
last day that Hawkeye (or Merger Sub) set for accepting demands for payment, or
(iii) the Merger has not been consummated within the 60-day period after the
last date that Hawkeye (or Merger Sub) set for accepting demands for payment and
Hawkeye has not returned the stock certificates deposited by the dissenting
shareholder or released the transfer restrictions imposed on uncertificated
shares. A dissenting shareholder will waive his or her right to seek a greater
payment than Hawkeye's estimate of fair value and accrued interest unless such
shareholder notifies Hawkeye (or Merger Sub) in writing of the same within 30
days of the receipt of Hawkeye's (or Merger Sub's) payment or offer of payment
for the shares.
If, within 60 days of receiving the dissenting shareholder's notice of a
demand for increased payment, the demand remains unsettled, Hawkeye (or Merger
Sub) must commence proceedings in the district court of the county where its
principal office is located, petitioning the court to determine the fair value
and accrued interest of such shares. If Hawkeye (or Merger Sub) fails to start
such proceedings within the 60-day period, Hawkeye (or Merger Sub) must pay each
dissenting shareholder whose demand remains unsettled the amount that such
shareholder has demanded. All dissenting shareholders with claims remaining
unsettled will be made parties to the proceedings and the court may appoint one
or more appraisers to receive evidence and recommend the fair value of the
shares. The court will find either (i) that the fair value and accrued interest
already paid by Hawkeye (or Merger Sub) equals or exceeds the amount determined
by the court, in which case the shareholder will be entitled to no additional
payment from Hawkeye (or Merger Sub), or (ii) Hawkeye (or Merger Sub) must pay
an additional amount equal to the difference between the court's determination
of fair value and accrued interest and the amount already paid by Hawkeye (or
Merger Sub) to the shareholder.
The court shall also determine all costs of the proceedings, including the
reasonable compensation and expenses of the appraisers and shall assess such
costs against Hawkeye (or Merger Sub) unless the court finds that such an
assessment would be inequitable because the dissenting shareholders had acted
arbitrarily, vexatiously or not in good faith, in which case the court may
assess costs against all or some of the dissenters. Fees and expenses of legal
counsel and experts will generally be borne by each of the parties except that
the experts' and attorneys' fees and expenses of the dissenting shareholders
will be assessed against Hawkeye (or Merger Sub) to the extent that the court
finds Hawkeye did not substantially comply with the procedures set forth in
Division XIII of the Iowa Act or to either party in favor of the other party to
the extent that the court finds that the assessed party acted arbitrarily,
vexatiously or not in good faith. To the extent that counsel for one dissenting
shareholder is found by the court to have provided a substantial benefit to
other dissenting shareholders, the court may order that the fees of such counsel
be paid out of the amounts awarded to the dissenting shareholders who have been
benefited.
THE PRECEDING DISCUSSION IS A SUMMARY OF THE PROVISIONS REGARDING
DISSENTERS' RIGHTS UNDER THE IOWA ACT AND IS QUALIFIED IN ITS ENTIRETY BY THE
TEXT OF DIVISION XIII OF THE IOWA ACT WHICH IS ATTACHED AS ANNEX A TO THIS PROXY
STATEMENT/PROSPECTUS. HAWKEYE SHAREHOLDERS WHO ARE INTERESTED IN ASSERTING
DISSENTERS' RIGHTS PURSUANT TO THE IOWA ACT IN CONNECTION WITH THE MERGER MAY
WISH TO CONSULT WITH THEIR COUNSEL FOR ADVICE AS TO THE PROCEDURES REQUIRED TO
BE FOLLOWED.
35
<PAGE> 42
PRO FORMA FINANCIAL INFORMATION
COMPARATIVE UNAUDITED PER SHARE DATA
The following table sets forth for the periods indicated selected
historical per share data of MBI and Hawkeye and the corresponding pro forma and
pro forma equivalent per share amounts giving effect to the proposed Merger, the
proposed acquisitions of Sterling and Security Bank and the acquisition of ABNK
by merger with and into a wholly owned subsidiary of MBI, which was completed on
April 30, 1992 (ABNK is the surviving entity from that merger). The pro forma
and pro forma equivalent per share amounts do not give effect to the proposed
acquisition of Metro as it is not material. The data presented is based upon the
supplemental consolidated financial statements and related notes of MBI and the
consolidated financial statements and related notes of Hawkeye, Sterling and
Security Bank included in documents incorporated herein by reference, and the
pro forma combined consolidated balance sheet and income statements, including
the notes thereto, appearing elsewhere herein. This information should be read
in conjunction with such historical and pro forma financial statements and
related notes thereto. The assumptions used in the preparation of this table
appear in the notes to the pro forma financial information appearing elsewhere
in the Proxy Statement/Prospectus. See "INCORPORATION OF CERTAIN INFORMATION BY
REFERENCE" and "-- Pro Forma Combined Consolidated Financial Statements
(Unaudited)." This data is not necessarily indicative of the results of the
future operations of the combined organization or the actual results that would
have occurred if the Merger, the completed merger of ABNK, or the proposed
mergers of Sterling and Security Bank had been consummated prior to the periods
indicated.
36
<PAGE> 43
<TABLE>
<CAPTION>
MBI/HAWKEYE MBI/HAWKEYE MBI/ALL ENTITIES MBI/ALL ENTITIES
MBI HAWKEYE PRO FORMA PRO FORMA PRO FORMA PRO FORMA
REPORTED REPORTED COMBINED(1) EQUIVALENT(2) COMBINED(3) EQUIVALENT(2)
-------- ------- ----------- ----------- ----------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Book Value per Common Share:
September 30, 1995..................... $25.43 $14.32 $ 25.09 $ 14.68 $ 25.15 $ 14.71
December 31, 1994...................... 23.47 13.06 23.03 13.47 23.08 13.50
Cash Dividends Declared Per Common Share:
Nine months ended September 30, 1995... $ .99 $ .47 $ .99 $ .58 $ .99 $ .58
Year ended December 31, 1994........... 1.12 .50 1.12 .66 1.12 .66
Year ended December 31, 1993........... .99 .42 .99 .58 .99 .58
Year ended December 31, 1992........... .93 .33 .93 .54 .93 .54
Earnings per Common Share Before Change
in Accounting Principle:
Nine months ended September 30, 1995... $ 2.95 $1.28 $ 2.89 $ 1.69 $ 2.89 $ 1.69
Year ended December 31, 1994........... 3.22 1.78 3.21 1.88 3.22 1.88
Year ended December 31, 1993........... 2.79 1.64 2.80 1.64 2.80 1.64
Year ended December 31, 1992........... 2.42 1.38 2.42 1.42 2.43 1.42
Market Price per Common Share:
August 3, 1995(4)...................... $43.88 $22.75 -- -- -- --
November 17, 1995(4)................... 45.38 26.00 -- -- -- --
</TABLE>
- -------------------------
(1) Includes the effect of pro forma adjustments for ABNK and Hawkeye as
appropriate. See "PRO FORMA FINANCIAL INFORMATION."
(2) Based upon the pro forma combined per share amounts multiplied by .585, the
Exchange Ratio applicable to one share of Hawkeye Common Stock. See "PRO
FORMA FINANCIAL INFORMATION."
(3) Includes the effect of pro forma adjustments for ABNK, Hawkeye, Security
Bank and Sterling as appropriate. See "PRO FORMA FINANCIAL INFORMATION."
(4) The market values of MBI Common Stock and Hawkeye Common Stock were
determined as of the last trading day preceding the public announcement of
the Merger and as of the most recent practicable date prior to the mailing
of this Proxy Statement/Prospectus based on the last sales price as reported
on the NYSE Composite Tape and NASDAQ/NM, respectively.
37
<PAGE> 44
PRO FORMA COMBINED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The following unaudited pro forma combined consolidated balance sheet gives
effect to the Merger and the proposed acquisitions of Sterling and Security Bank
as if each of the mergers were consummated on December 31, 1994.
MBI acquired ABNK on April 30, 1992, which acquisition was accounted for
under the purchase method of accounting. Accordingly, the historical results of
operations of MBI include the results of operations of ABNK from May 1, 1992
forward. The following pro forma combined consolidated income statements include
the results of operations of ABNK from January 1, 1992 through the date of
acquisition.
The following pro forma combined consolidated income statements for the
nine months ended September 30, 1995 and 1994 and for the years ended December
31, 1994, 1993, and 1992 set forth the results of operations of MBI combined
with the results of operations of Hawkeye, Sterling and Security Bank as if the
Merger, and the proposed acquisitions of Sterling and Security Bank had occurred
as of the first day of the period presented. As stated above, the pro forma
combined consolidated income statements for the year ended December 31, 1992
include the results of operations of ABNK from January 1, 1992 through the date
of acquisition.
The unaudited pro forma combined consolidated balance sheet and the pro
forma combined consolidated income statements do not reflect the proposed
acquisition of Metro as it is not material. The unaudited pro forma combined
consolidated financial statements should be read in conjunction with the
accompanying Notes to Pro Forma Combined Consolidated Financial Statements and
with the historical financial statements of MBI, Hawkeye, Sterling, Security
Bank and ABNK. The historical interim financial information for the nine months
ended September 30, 1995 and 1994, used as a basis for the pro forma combined
consolidated financial statements, include all necessary adjustments, which, in
management's opinion, are necessary to present the data fairly. These pro forma
combined consolidated financial statements may not be indicative of the results
of operations that actually would have occurred if the completed and proposed
mergers had been consummated on the dates assumed above or the results of
operations that may be achieved in the future.
38
<PAGE> 45
MERCANTILE BANCORPORATION INC.
PRO FORMA COMBINED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1995
(THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
MBI, HAWKEYE
PRO FORMA
HAWKEYE COMBINED
MBI(1) HAWKEYE ADJUSTMENTS(2) CONSOLIDATED STERLING
<S> <C> <C> <C> <C> <C>
ASSETS:
Cash and due from banks........................ $ 822,849 $ 96,917 $ (33,961)(3) $ 885,805 $ 7,167
Due from banks -- interest bearing............. 97,473 200 97,673
Federal funds sold and repurchase agreements... 179,778 102,004 281,782 827
Investments in debt and equity securities:
Trading...................................... 4,696 0 4,696 0
Available-for-sale........................... 768,422 287,270 1,055,692 46,239
Held-to-Maturity............................. 3,074,207 127,896 3,202,103 26,675
----------- ---------- ------------ ------------ --------
Total...................................... 3,847,325 415,166 0 4,262,491 72,914
Loans and Leases............................... 10,648,008 1,298,589 11,946,597 85,681
Reserve for possible loan losses............... (187,872) (21,553) (209,425) (1,380)
----------- ---------- ------------ ------------ --------
Net Loans and Leases......................... 10,460,136 1,277,036 0 11,737,172 84,301
Other assets................................... 611,092 101,242 712,334 4,793
192,819 (8)
(192,819)(9)
----------- ---------- ------------- ------------ --------
Total Assets............................... $16,018,653 $1,992,565 $ (33,961) $ 17,977,257 $170,002
========== ========= ============ ========== ========
<CAPTION>
ALL ENTITIES
STERLING PRO FORMA
SECURITY SECURITY BANK COMBINED
BANK ADJUSTMENTS(2) CONSOLIDATED
-------- -------------- ------------
<S> <C> <C> <C>
Cash and due from banks........................ $ 15,043 $ (2,373)(3) $ 904,222
(1,420)(3)
Due from banks -- interest bearing............. 99 97,772
Federal funds sold and repurchase agreements... 125 282,734
Investments in debt and equity securities:
Trading...................................... 0 4,696
Available-for-sale........................... 577 1,102,508
Held-to-Maturity............................. 4,353 3,233,131
-------- ----------- ------------
Total...................................... 4,930 0 4,340,335
Loans and Leases............................... 75,792 12,108,070
Reserve for possible loan losses............... (287) (211,092)
-------- ----------- ------------
Net Loans and Leases......................... 75,505 0 11,896,978
Other assets................................... 4,620 18,269 (6) 721,747
(18,269)(7)
8,598 (4)
(8,598)(5)
-------- ------------ ------------
Total Assets............................... $100,322 $ (3,793) $ 18,243,788
======== ============ ============
</TABLE>
See notes to pro forma combined consolidated financial statements.
39
<PAGE> 46
MERCANTILE BANCORPORATION INC.
PRO FORMA COMBINED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1995
(THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
MBI,
HAWKEYE
PRO FORMA
HAWKEYE COMBINED
MBI(1) HAWKEYE ADJUSTMENTS(2) CONSOLIDATED STERLING
----------- ---------- -------------- ----------- --------
<S> <C> <C> <C> <C> <C>
LIABILITIES:
Deposits:
Non-interest bearing............................ $ 1,798,605 $ 204,619 $ 2,003,224 $ 20,613
Interest bearing................................ 9,875,943 1,512,456 11,388,399 111,900
Foreign......................................... 160,736 0 160,736 0
----------- ---------- ----------- ----------- --------
Total Deposits................................ 11,835,284 1,717,075 0 13,552,359 132,513
Federal funds purchased and repurchase
agreements...................................... 1,611,392 15,003 1,626,395 17,917
Other borrowings.................................. 949,186 46,241 995,427 0
Other liabilities................................. 203,624 21,427 225,051 1,303
----------- ---------- ----------- ----------- --------
Total Liabilities............................. 14,599,486 1,799,746 0 16,399,232 151,733
SHAREHOLDERS' EQUITY:
Preferred stock................................... 12,153 12,153
Common stock...................................... 279,658 135 319,033 3,685
39,375 (8)
(135)(9)
Capital surplus................................... 216,757 105,129 282,646 799
65,889 (8)
(105,129)(9)
Retained earnings................................. 936,311 87,555 1,023,866 13,785
87,555 (8)
(87,555)(9)
Treasury stock.................................... (25,712) (33,961)(3) (59,673)
----------- ---------- -------------- ----------- --------
Total Shareholders' Equity.................... 1,419,167 192,819 (33,961) 1,578,025 18,269
----------- ---------- -------------- ----------- --------
Total Liabilities and Shareholders' Equity.... $16,018,653 $1,992,565 $(33,961) $17,977,257 $170,002
========== ========= ============ =========== ========
<CAPTION>
ALL ENTITIES
STERLING PRO FORMA
SECURITY SECURITY BANK COMBINED
BANK ADJUSTMENTS(2) CONSOLIDATED
-------- -------------- ------------
<S> <C> <C> <C>
LIABILITIES:
Deposits:
Non-interest bearing............................ $ 1,191 $ 0 $ 2,025,028
Interest bearing................................ 86,725 11,587,024
Foreign......................................... 0 160,736
-------- ------- ------------
Total Deposits................................ 87,916 0 13,772,788
Federal funds purchased and repurchase
agreements...................................... 0 1,644,312
Other borrowings.................................. 3,248 998,675
Other liabilities................................. 560 226,914
-------- ------- ------------
Total Liabilities............................. 91,724 0 16,642,689
SHAREHOLDERS' EQUITY:
Preferred stock................................... 12,153
Common stock...................................... 1,032 2,607 (6) 323,250
(3,685)(7)
1,610 (4)
(1,032)(5)
Capital surplus................................... 4 1,877 (6) 283,949
(799)(7)
(574)(4)
(4)(5)
Retained earnings................................. 7,562 13,785 (6) 1,045,213
(13,785)(7)
7,562 (4)
(7,562)(5)
Treasury stock.................................... (2,373)(3) (63,466)
(1,420)(3)
-------- ------- ------------
Total Shareholders' Equity.................... 8,598 (3,793) 1,601,099
-------- ------- ------------
Total Liabilities and Shareholders' Equity.... $100,322 $ (3,793) $ 18,243,788
======== ========= ============
</TABLE>
See notes to pro forma combined consolidated financial statements.
40
<PAGE> 47
MERCANTILE BANCORPORATION INC.
PRO FORMA COMBINED CONSOLIDATED INCOME STATEMENT
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995
(THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
MBI, HAWKEYE ALL ENTITIES
PRO FORMA PRO FORMA
COMBINED SECURITY COMBINED
MBI(1) HAWKEYE CONSOLIDATED STERLING BANK CONSOLIDATED(10)
---------- -------- ------------- -------- -------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Interest Income............................ $ 854,404 $105,900 $ 960,304 $9,069 $5,704 $ 975,077
Interest Expense........................... 410,097 49,337 459,434 4,247 3,291 466,972
---------- -------- ------------- -------- -------- ----------------
Net Interest Income...................... 444,307 56,563 500,870 4,822 2,413 508,105
Provision for Possible Loan Losses......... 28,928 249 29,177 162 45 29,384
---------- -------- ------------- -------- -------- ----------------
Net Interest Income after Provision for
Possible Loan Losses................... 415,379 56,314 471,693 4,660 2,368 478,721
Other Income:
Trust.................................... 48,252 3,888 52,140 129 0 52,269
Service charges.......................... 50,062 6,267 56,329 242 138 56,709
Credit card fees......................... 14,169 1,451 15,620 0 0 15,620
Securities gains (losses)................ 3,672 104 3,776 (1) 0 3,775
Other.................................... 65,325 8,485 73,810 286 169 74,265
---------- -------- ------------- -------- -------- ----------------
Total Other Income..................... 181,480 20,195 201,675 656 307 202,638
Other Expense:
Salaries and employee benefits........... 195,825 23,528 219,353 1,735 682 221,770
Net occupancy and equipment.............. 53,547 6,825 60,372 475 243 61,090
Other.................................... 107,572 19,825 127,397 1,411 520 129,328
---------- -------- ------------- -------- -------- ----------------
Total Other Expense.................... 356,944 50,178 407,122 3,621 1,445 412,188
---------- -------- ------------- -------- -------- ----------------
Income Before Income Taxes........... 239,915 26,331 266,246 1,695 1,230 269,171
Income Taxes............................... 81,156 9,004 90,160 386 382 90,928
---------- -------- ------------- -------- -------- ----------------
Net Income Before Change in
Accounting Principle.............. $ 158,759 $ 17,327 $ 176,086 $1,309 $ 848 $ 178,243
========== ========= ============== ======= ======= ===============
Per Share Data:
Average Common Shares Outstanding...... 53,629,980 60,717,393 61,476,817
Net Income Before Change in Accounting
Principle............................ $2.95 $2.89 $2.89
</TABLE>
See notes to pro forma combined consolidated financial statements.
41
<PAGE> 48
MERCANTILE BANCORPORATION INC.
PRO FORMA COMBINED CONSOLIDATED INCOME STATEMENT
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1994
(THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
MBI, HAWKEYE ALL ENTITIES
PRO FORMA PRO FORMA
COMBINED SECURITY COMBINED
MBI(1) HAWKEYE CONSOLIDATED STERLING BANK CONSOLIDATED
---------- ------- ------------- -------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
Interest Income................................. $ 730,270 $90,495 $ 820,765 $8,289 $4,765 $ 833,819
Interest Expense................................ 284,939 37,414 322,353 3,257 2,564 328,174
---------- ------- ------- ------- ------- ------------
Net Interest Income........................... 445,331 53,081 498,412 5,032 2,201 505,645
Provision for Possible Loan Losses.............. 26,374 48 26,422 66 45 26,533
---------- ------- -------- ------- -------- ------------
Net Interest Income after Provision for
Possible Loan Losses........................ 418,957 53,033 471,990 4,966 2,156 479,112
Other Income:
Trust......................................... 46,560 3,804 50,364 124 0 50,488
Service charges............................... 52,089 5,918 58,007 289 89 58,385
Credit card fees.............................. 18,087 1,272 19,359 0 0 19,359
Securities gains.............................. 1,718 396 2,114 (44) 0 2,070
Other......................................... 40,971 8,702 49,673 300 301 50,274
---------- ------- -------- ------- -------- ------------
Total Other Income.......................... 159,425 20,092 179,517 669 390 180,576
Other Expense:
Salaries and employee benefits................ 190,801 22,878 213,679 1,766 585 216,030
Net occupancy and equipment................... 51,837 6,032 57,869 491 191 58,551
Other......................................... 117,502 18,349 135,851 1,650 689 138,190
---------- ------- -------- ------- -------- ------------
Total Other Expense......................... 360,140 47,259 407,399 3,907 1,465 412,771
---------- ------- -------- ------- -------- ------------
Income Before Income Taxes.................. 218,242 25,866 244,108 1,728 1,081 246,917
Income Taxes.................................... 78,033 8,420 86,453 441 397 87,291
---------- ------- -------- ------- -------- ------------
Net Income Before Change in Accounting
Principle................................. $ 140,209 $17,446 $ 157,655 $1,287 $ 684 $ 159,626
========== ======== =========== ====== ======= ===========
Per Share Data:
Average Common Shares Outstanding........... 51,900,015 58,987,428 59,746,852
Net Income Before Change in Accounting
Principle................................. $2.68 $2.64 $2.64
</TABLE>
See notes to pro forma combined consolidated financial statements.
42
<PAGE> 49
MERCANTILE BANCORPORATION INC.
PRO FORMA COMBINED CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1994
(THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
MBI, HAWKEYE ALL ENTITIES
PRO FORMA PRO FORMA
COMBINED SECURITY COMBINED
MBI(1) HAWKEYE CONSOLIDATED STERLING BANK CONSOLIDATED
---------- -------- ------------- -------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
Interest Income................................ $ 994,896 $123,173 $ 1,118,069 $ 11,165 $6,257 $1,135,491
Interest Expense............................... 399,349 51,601 450,950 4,453 3,487 458,890
---------- -------- ------------- -------- -------- ------------
Net Interest Income.......................... 595,547 71,572 667,119 6,712 2,770 676,601
Provision for Possible Loan Losses............. 43,201 64 43,265 66 60 43,391
---------- -------- ------------- -------- -------- ------------
Net Interest Income after Provision for
Possible Loan Losses....................... 552,346 71,508 623,854 6,646 2,710 633,210
Other Income:
Trust........................................ 60,769 5,119 65,888 168 0 66,056
Service charges.............................. 68,783 8,024 76,807 385 195 77,387
Credit card fees............................. 24,895 1,693 26,588 0 0 26,588
Securities gains............................. 2,177 402 2,579 (43) 0 2,536
Other........................................ 53,134 11,565 64,699 406 211 65,316
---------- -------- ------------- -------- -------- ------------
Total Other Income......................... 209,758 26,803 236,561 916 406 237,883
Other Expense:
Salaries and employee benefits............... 258,546 30,229 288,775 2,388 727 291,890
Net occupancy and equipment.................. 69,784 8,101 77,885 652 236 78,773
Other........................................ 163,740 24,776 188,516 2,076 750 191,342
---------- -------- ------------- -------- -------- ------------
Total Other Expense........................ 492,070 63,106 555,176 5,116 1,713 562,005
---------- -------- ------------- -------- -------- ------------
Income Before Income Taxes................. 270,034 35,205 305,239 2,446 1,403 309,088
Income Taxes................................... 101,705 11,460 113,165 592 551 114,308
---------- -------- ------------- -------- -------- ------------
Net Income Before Change in Accounting
Principle............................. $ 168,329 $ 23,745 $ 192,074 $ 1,854 $ 852 $ 194,780
========== ========= ============= ======== ======= ===========
Per Share Data:
Average Common Shares Outstanding.......... 51,957,002 59,044,415 59,803,839
Net Income Before Change in Accounting
Principle................................ $3.22 $3.21 $3.22
</TABLE>
See notes to pro forma combined consolidated financial statements.
43
<PAGE> 50
MERCANTILE BANCORPORATION INC.
PRO FORMA COMBINED CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1993
(THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
MBI, HAWKEYE ALL ENTITIES
PRO FORMA PRO FORMA
COMBINED SECURITY COMBINED
MBI(1) HAWKEYE CONSOLIDATED STERLING BANK CONSOLIDATED
---------- -------- ------------- -------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
Interest Income................................ $ 971,482 $123,129 $ 1,094,611 $ 11,219 $5,849 $1,111,679
Interest Expense............................... 390,911 53,662 444,573 4,538 3,309 452,420
---------- -------- ----------- -------- ------ -----------
Net Interest Income.......................... 580,571 69,467 650,038 6,681 2,540 659,259
Provision for Possible Loan Losses............. 63,513 789 64,302 258 60 64,620
---------- -------- ----------- -------- ------ -----------
Net Interest Income after Provision for
Possible Loan Losses....................... 517,058 68,678 585,736 6,423 2,480 594,639
Other Income:
Trust........................................ 61,996 4,786 66,782 147 0 66,929
Service charges.............................. 67,144 7,317 74,461 351 112 74,924
Credit card fees............................. 24,312 1,377 25,689 0 0 25,689
Securities gains............................. 5,121 179 5,300 11 0 5,311
Other........................................ 61,130 12,227 73,357 338 173 73,868
---------- -------- ----------- -------- ------ -----------
Total Other Income......................... 219,703 25,886 245,589 847 285 246,721
Other Expense:
Salaries and employee benefits............. 245,469 30,080 275,549 2,654 559 278,762
Net occupancy and equipment................ 70,911 7,763 78,674 695 186 79,555
Other...................................... 191,663 24,296 215,959 2,278 614 218,851
---------- -------- ----------- -------- ------ -----------
Total Other Expense...................... 508,043 62,139 570,182 5,627 1,359 577,168
---------- -------- ----------- -------- ------ -----------
Income Before Income Taxes............... 228,718 32,425 261,143 1,643 1,406 264,192
Income Taxes................................... 85,467 10,607 96,074 366 517 96,957
---------- -------- ----------- -------- ------ -----------
Net Income Before Change in Accounting
Principle............................. $ 143,251 $ 21,818 $ 165,069 $ 1,277 $ 889 $ 167,235
========== ========= =========== ======== ====== ==========
Per Share Data:
Average Common Shares Outstanding.......... 50,965,103 58,052,516 58,811,940
Net Income Before Change in Accounting
Principle................................ $2.79 $2.80 $2.80
</TABLE>
See notes to pro forma combined consolidated financial statements.
44
<PAGE> 51
MERCANTILE BANCORPORATION INC.
PRO FORMA COMBINED CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1992
(THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
MBI, HAWKEYE ALL ENTITIES
PRO FORMA PRO FORMA
COMBINED SECURITY COMBINED
MBI/ABNK(1) HAWKEYE CONSOLIDATED STERLING BANK CONSOLIDATED
----------- -------- ------------- -------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
Interest Income............................... $1,040,492 $128,261 $ 1,168,753 $ 12,453 $6,142 $1,187,348
Interest Expense.............................. 501,802 64,389 566,191 6,025 3,874 576,090
----------- -------- ------------- -------- -------- ------------
Net Interest Income......................... 538,690 63,872 602,562 6,428 2,268 611,258
Provision for Possible Loan Losses............ 79,787 1,677 81,464 375 60 81,899
----------- -------- ------------- -------- -------- ------------
Net Interest Income after Provision for
Possible Loan Losses...................... 458,903 62,195 521,098 6,053 2,208 529,359
Other Income:
Trust....................................... 58,835 4,174 63,009 129 0 63,138
Service charges............................. 64,813 6,482 71,295 462 97 71,854
Credit card fees............................ 21,745 547 22,292 0 0 22,292
Securities gains............................ 5,590 617 6,207 22 4 6,233
Other....................................... 55,091 10,671 65,762 347 72 66,181
----------- -------- ------------- -------- -------- ------------
Total Other Income........................ 206,074 22,491 228,565 960 173 229,698
Other Expense:
Salaries and employee benefits.............. 224,948 27,887 252,835 2,400 438 255,673
Net occupancy and equipment................. 64,466 6,893... 71,359 637 103 72,099
Other....................................... 196,930 22,960 219,890 1,968 525 222,383
----------- -------- ------------- -------- -------- ------------
Total Other Expense....................... 486,344 57,740 544,084 5,005 1,066 550,155
----------- -------- ------------- -------- -------- ------------
Income Before Income Taxes................ 178,633 26,946 205,579 2,008 1,315 208,902
Income Taxes.................................. 60,990 8,609 69,599 457 459 70,515
----------- -------- ------------- -------- -------- ------------
Net Income Before Change in Accounting
Principle............................... $ 117,643 $ 18,337 $ 135,980 $ 1,551 $ 856 $ 138,387
============== ========= ============== ======== ======= ===========
Per Share Data:
Average Common Shares Outstanding......... 47,972,446 55,059,859 55,819,283
Net Income Before Change in Accounting
Principle............................... $2.43 $2.42 $2.43
</TABLE>
See notes to pro forma combined consolidated financial statements.
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<PAGE> 52
MERCANTILE BANCORPORATION INC.
NOTES TO PRO FORMA COMBINED
CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) Represents MBI restated historical consolidated financial statements
reflecting the acquisition of UNSL Financial Corp. effective January 3,
1995 and the acquisitions of Central Mortgage Bancshares, Inc. and
TCBankshares, Inc. effective May 1, 1995, each of which was accounted for
as a pooling-of-interest.
(2) The acquisitions of Security Bank, Sterling and Hawkeye will be accounted
for as of pooling-of-interests.
(3) In conjunction with all of the proposed acquisitions, MBI may repurchase up
to 871,490 shares of its own common stock in the open market.
(4) Acquisition of Security Bank with 322,000 shares of MBI Common Stock.
(5) Elimination of MBI's investment in Security Bank.
(6) Acquisition of Sterling with 521,424 shares of MBI Common Stock.
(7) Elimination of MBI's investment in Sterling.
(8) Acquisition of Hawkeye with 7,874,903 shares of MBI Common Stock, based on
the exchange ratio of .585 shares of MBI Common Stock per share of Hawkeye
Common Stock.
(9) Elimination of MBI's investment in Hawkeye.
(10) Upon consummation of the Merger, MBI expects to record certain adjustments
related to the proposed Merger and to conform Hawkeye's accounting and
credit policies regarding loan and other asset valuations to those of MBI.
The pre-tax adjustments are expected to total $30-35 million and would
include an increase in the provision for loan losses to conform Hawkeye's
credit evaluation policies to those of Mercantile and an increase in other
expense to largely accrue for the change of control agreements, contract
cancellation penalties and professional fees.
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<PAGE> 53
INFORMATION REGARDING MBI STOCK
DESCRIPTION OF MBI COMMON STOCK AND ATTACHED PREFERRED SHARE PURCHASE RIGHTS
General. MBI has authorized 5,000,000 shares of Preferred Stock, and
100,000,000 shares of MBI Common Stock. As of September 30, 1995, MBI had 5,306
shares of Series B-1 Preferred Stock and 9,500 shares of Series B-2 Preferred
Stock issued and outstanding and 55,333,878 shares of MBI Common Stock issued
and outstanding. Under Missouri law, MBI's Board of Directors may generally
approve the issuance of authorized shares of Preferred Stock and MBI Common
Stock without stockholder approval.
MBI's Board of Directors is also authorized to fix the number of shares and
determine the designation of any series of Preferred Stock and to determine or
alter the rights, preferences, privileges and restrictions granted to or imposed
upon any series of Preferred Stock. MBI's Board of Directors has designated and
reserved Series A Junior Participating Preferred Stock pursuant to MBI's
Preferred Share Purchase Rights Plan described below.
The existence of a substantial number of unissued and unreserved shares of
MBI Common Stock and undesignated shares of Preferred Stock may enable the MBI
Board of Directors to issue shares to such persons and in such manner as may be
deemed to have an antitakeover effect.
Dividends. The holders of the MBI Common Stock are entitled to share
ratably in dividends when, as and if declared by the MBI Board of Directors from
funds legally available therefor, after full cumulative dividends have been paid
or declared, and funds sufficient for the payment thereof set apart, on all
series of Preferred Stock ranking superior as to dividends to the MBI Common
Stock.
The Board of Directors of MBI intends to maintain its present policy of
paying quarterly cash dividends on the MBI Common Stock, when justified by the
financial condition of MBI and its subsidiaries. The declaration and amount of
future dividends will depend on circumstances existing at the time, including
MBI's earnings, financial condition and capital requirements as well as
regulatory limitations, note and indenture provisions and such other factors as
the Board of Directors may deem relevant. The payment of dividends to MBI by
subsidiary banks is subject to extensive regulation by various state and federal
regulatory agencies. See "SUPERVISION AND REGULATION."
Voting Rights. Each holder of MBI Common Stock has one vote for each share
held on matters presented for consideration by the stockholders, except that, in
the election of directors, such stockholders presently have cumulative voting
rights which entitle each such stockholder to the number of votes which equals
the number of shares held by the stockholder multiplied by the number of
directors to be elected. All such cumulative votes may be cast for one candidate
for election as a director or may be distributed among two or more candidates.
Preemptive Rights. The holders of MBI Common Stock have no preemptive right
to acquire any additional unissued shares or treasury shares of MBI.
Liquidation Rights. In the event of liquidation, dissolution or winding-up
of MBI, whether voluntary or involuntary, the holders of MBI Common Stock will
be entitled to share ratably in any of its assets or funds that are available
for distribution to its stockholders after the satisfaction of its liabilities
(or after adequate provision is made therefor) and after preferences on any
outstanding Preferred Stock.
Assessment and Redemption. Shares of MBI Common Stock issuable in the
Merger will be, when issued, fully paid and nonassessable. Such shares do not
have any redemption provisions.
Preferred Share Purchase Rights Plan. One Right is attached to each share
of MBI Common Stock. The Rights trade automatically with shares of MBI Common
Stock, and become exercisable and will trade separately from the MBI Common
Stock on the 10th day after public announcement, or notice to MBI, that a person
or group has acquired, or has the right to acquire, beneficial ownership of 20%
or more of the outstanding shares of MBI Common Stock, or upon commencement or
announcement, or notice to MBI, of intent to make a tender offer for 20% or more
of the outstanding shares of MBI Common Stock, in either case without prior
written consent of a majority of the Board of Directors. When exercisable, each
Right will entitle
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<PAGE> 54
the holder to buy 1/100 of a share of Series A Junior Participating Preferred
Stock at an exercise price of $100 per Right. In the event a person or group
acquires beneficial ownership of 20% or more of MBI Common Stock, holders of
Rights (other than the acquiring person or group) may purchase MBI Common Stock
having a market value of twice the then current exercise price of each Right. If
MBI is acquired by any person or group after the Rights become exercisable, each
Right will entitle its holder to purchase stock of the acquiring company having
a market value of twice the current exercise price of each Right. The Rights are
designed to protect the interests of MBI and its stockholders against coercive
takeover tactics. The purpose of the Rights is to encourage potential acquirors
to negotiate with MBI's Board of Directors prior to attempting a takeover and to
give the Board leverage in negotiating on behalf of all stockholders the terms
of any proposed takeover. The Rights may deter certain takeover proposals. The
Rights, which can be redeemed by MBI's Board of Directors in certain
circumstances, expire by their terms on June 3, 1998.
Classification of Board of Directors. The Board of Directors of MBI is
divided into three classes, and the directors are elected by classes to
three-year terms, so that one of the three classes of the directors of MBI will
be elected at each annual meeting of the stockholders. While this provision
promotes stability and continuity of the Board of Directors, classification of
the Board of Directors may also have the effect of decreasing the number of
directors that could otherwise be elected at each annual meeting of stockholders
by a person who obtains a controlling interest in the MBI Common Stock and
thereby could impede a change in control of MBI. Because fewer directors will be
elected at each annual meeting, such classification also will reduce the
effectiveness of cumulative voting as a means of establishing or increasing
minority representation on the Board of Directors.
Other Matters. MBI's Restated Articles of Incorporation and By-Laws also
contain provisions which: (i) require the affirmative vote of holders of at
least 75% of the voting power of all of the outstanding shares of MBI entitled
to vote in the election of directors to remove a director or directors without
cause; (ii) require the affirmative vote of the holders of at least 75% of the
voting power of all shares of the outstanding capital stock of MBI to approve
certain "business combinations" with "interested parties" unless at least
two-thirds of the Board of Directors first approve such business combinations;
and (iii) require an affirmative vote of at least 75% of the voting power of all
shares of the outstanding capital stock of MBI for the amendment, alteration,
change or repeal of any of the above provisions unless at least two-thirds of
the Board of Directors first approve such an amendment, alteration, change or
repeal. MBI's Restated Articles of Incorporation also requires the Board of
Directors, in considering any business combination, to give due consideration to
all factors that the Board of Directors may consider relevant, including the
effects of the proposed transaction on the depositors and customers of MBI and
its subsidiaries, on their communities and geographic areas and on any of their
businesses and properties; and the adequacy of the consideration offered in the
proposed transaction in relation to the current market price of MBI's
outstanding securities and to the value of MBI in a freely negotiated
transaction and the Board's estimate of the future value of MBI. Such provisions
may be deemed to have an antitakeover effect.
RESTRICTIONS ON RESALE OF MBI CAPITAL STOCK BY AFFILIATES; AFFILIATE AGREEMENTS
MBI Common Stock. Under Rule 145 of the Securities Act, all Supporting
Stockholders, by virtue of being "affiliates" of Hawkeye, will be limited in
their right to resell the stock so received in the Merger. Supporting
Stockholders who desire to resell the MBI Common Stock so received must sell
such stock either pursuant to an effective registration statement under the
Securities Act or in accordance with an applicable exemption. In addition,
Supporting Stockholders who become "affiliates" of MBI following the Merger will
be limited in their right to resell the MBI Common Stock received in the Merger.
Rule 145(d) provides that persons deemed to be affiliates of a company such
as MBI solely by virtue of having been affiliates of a company such as Hawkeye
prior to a transaction such as the Merger may resell their stock pursuant to
certain of the requirements of Rule 144 under the Securities Act if such stock
is sold within the first two years after the receipt thereof. After two years if
such person is not an affiliate of MBI and if MBI is current with respect to its
required public filings, a former affiliate of Hawkeye may freely resell the
stock received in the Merger without limitation. After three years from the
issuance of the stock, if such person is
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<PAGE> 55
not an affiliate of MBI at the time of sale and for at least three months prior
to such sale, such person may freely resell such stock, without limitation,
regardless of the status of MBI's required public filings.
The shares of MBI Common Stock to be received by affiliates of Hawkeye in
the Merger will be legended as to the restrictions imposed upon resale of such
stock.
COMPARISON OF THE RIGHTS OF SHAREHOLDERS OF MBI AND HAWKEYE
MBI is incorporated under the laws of the State of Missouri. Hawkeye is
organized under the laws of the State of Iowa. The rights of MBI's stockholders
are governed by MBI's Restated Articles of Incorporation and By-Laws and The
General and Business Corporation Law of the State of Missouri (the "Missouri
Act"). The rights of Hawkeye's shareholders are governed by Hawkeye's Restated
Articles of Incorporation and By-Laws and by the Iowa Act. The rights of Hawkeye
shareholders who receive shares of MBI Common Stock in the Merger will
thereafter be governed by MBI's Restated Articles of Incorporation and By-Laws
and by the Missouri Act. The material rights of such shareholders, and, where
applicable, material differences between the rights of MBI stockholders and
Hawkeye shareholders, are summarized below.
Preferred Share Purchase Rights Plan. As described above under "--
Description of MBI Common Stock and Attached Preferred Share Purchase Rights,"
MBI Common Stock has attached Rights, which may deter certain takeover
proposals. Hawkeye does not have a rights plan.
Supermajority Provisions. MBI's Restated Articles of Incorporation and
MBI's By-Laws contain provisions requiring a supermajority vote of the
stockholders of MBI to approve certain proposals. Under both MBI's Restated
Articles and By-Laws, removal by the stockholders of the entire Board of
Directors or any individual director from office without cause requires the
affirmative vote of not less than 75% of the total votes entitled to be voted at
a meeting of stockholders called for the election of directors. Amendment by the
stockholders of MBI's Restated Articles or By-Laws relating to (i) the number or
qualification of directors; (ii) the classification of the Board of Directors;
(iii) the filling of vacancies on the Board of Directors; or (iv) the removal of
directors, requires the affirmative vote of not less than 75% of the total votes
of MBI's then outstanding capital stock entitled to vote, voting together as a
single class, unless such amendment has previously been expressly approved by at
least 66 2/3% of the Board of Directors. The MBI Restated Articles of
Incorporation also provides that, in addition to any stockholder vote required
under Missouri law, the affirmative vote of the holders of not less than 75% of
the total votes to which all of the then outstanding shares of capital stock of
MBI are entitled, voting together as a single class (the "Voting Stock"), shall
be required for the approval of any Business Combination. A "Business
Combination" is defined generally to include sales, exchanges, leases, transfers
or other dispositions of assets, mergers or consolidations, issuances of
securities, liquidations or dissolutions of MBI, reclassifications of securities
or recapitalizations of MBI, involving MBI on the one hand, and an Interested
Shareholder or an affiliate of an Interested Shareholder on the other hand. An
"Interested Shareholder" is defined generally to include any person, firm,
corporation or other entity which is the beneficial owner of 5% or more of the
voting power of the outstanding Voting Stock. If, however, at least 66 2/3% of
the Board of Directors of MBI approve the Business Combination, such Business
Combination shall require only the vote of stockholders as provided by Missouri
law or otherwise. The amendment of the provisions of MBI's Restated Articles
relating to the approval of Business Combinations requires the affirmative vote
of the holders of at least 75% of the Voting Stock unless such amendment has
previously been approved by at least 66 2/3% of the Board of Directors.
Hawkeye's Articles of Incorporation and By-Laws do not require
supermajority approval by shareholders of any corporate actions.
Voting for Directors. MBI's By-Laws provide for cumulative voting in the
election of directors. Cumulative voting entitles each stockholder to cast an
aggregate number of votes equal to the number of voting shares held, multiplied
by the number of directors to be elected. Each stockholder may cast all such
votes for one nominee or distribute them among two or more nominees, thus
permitting holders of less than a majority of the outstanding shares of voting
stock to achieve board representation. Hawkeye's Articles and By-Laws likewise
provide for cumulative voting in the election of directors.
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<PAGE> 56
Classified Board. As described under "-- Description of MBI Common Stock
and Attached Preferred Share Purchase Rights -- Classification of Board of
Directors," the Board of Directors of MBI is divided into three classes of
directors, with each class being elected to a staggered three-year term. By
reducing the number of directors to be elected in any given year, the existence
of a classified Board of Directors diminishes the benefits of the cumulative
voting rights of minority stockholders. Hawkeye's Board of Directors is likewise
divided into three classes of directors, with each class being elected to a
staggered three-year term.
Dissenters' Rights. Under the Missouri Act, a stockholder of any
corporation which is party to a merger or consolidation, or which sells all or
substantially all of its assets, has the right to dissent from such corporate
action and to demand payment of the fair value of such shares. Under the Iowa
Act, shareholders of Hawkeye are entitled to dissenters' rights upon the
consolidation or merger of Hawkeye or the sale of all or substantially all of
Hawkeye's property which are similar but not identical to those under the
Missouri Act. Specifically, the procedures and the filing deadlines applicable
to dissenters' rights under the Missouri Act are somewhat different than those
applicable in dissenters' rights proceedings under the Iowa Act.
Antitakeover Statutes. The Missouri Act contains certain provisions
applicable to Missouri corporations such as MBI which may be deemed to have an
antitakeover effect. Such provisions include Missouri's Business Combination
Statute and the Control Share Acquisition Statute.
The Missouri Business Combination Statute protects domestic corporations
from hostile takeovers by prohibiting certain transactions once an acquiror has
gained control. Specifically, the statute restricts certain "Business
Combinations" between a corporation and an "Interested Shareholder" or
affiliates of the Interested Shareholder for a period of five years unless
certain conditions are met. A "Business Combination" includes a merger or
consolidation, certain sales, leases exchanges, mortgages, pledges, transfers
and similar dispositions of corporate assets or stock and certain
reclassifications, recapitalizations, liquidations or dissolutions. An
"Interested Shareholder" includes any person or entity which beneficially owns
or controls 20% or more of the outstanding voting shares of the corporation.
During the initial five-year restricted period, no Business Combination may
occur unless such Business Combination or the transaction in which an Interested
Shareholder becomes "interested" is approved by the board of directors of the
corporation on or prior to the date of the transaction on which the Interested
Shareholder became "interested." Furthermore, no Business Combinations may occur
unless (i) prior to the stock acquisition by the Interested Shareholder, the
board of directors approves the transaction in which the Interested Shareholder
became such or approves the Business Combination in question; (ii) the holders
of a majority of the outstanding voting stock, other than stock owned by the
Interested Shareholder, approve the Business Combination; or (iii) the Business
Combination satisfies certain detailed fairness and procedural requirements.
The Missouri Act exempts from its provisions (i) corporations not having a
class of voting stock registered under Section 12 of the Exchange Act, unless
the articles provide otherwise; (ii) corporations which adopt, as provided in
the statute, provisions in their articles of incorporation or by-laws expressly
electing not to be covered by the statute; and (iii) certain circumstances in
which a stockholder inadvertently becomes an Interested Shareholder. MBI's
Restated Articles of Incorporation and By-Laws do not "opt out" of the Missouri
Business Combination Statute.
The Missouri Act also contains a "Control Share Acquisition Statute" which
provides that an "Acquiring Person" who after any acquisition of shares of a
publicly traded corporation has the voting power, when added to all shares of
the same corporation previously owned or controlled by the Acquiring Person, to
exercise or direct the exercise of: (i) 20% but less than 33 1/3%, (ii) 33 1/3%
or more but less than a majority or (iii) a majority or more, of the voting
power of outstanding stock of such corporation must obtain stockholder approval
for the purchase of the "Control Shares." If approval is not given, the
Acquiring Person's Control Shares lose the right to vote. The statute prohibits
an Acquiring Person from voting its Control Shares unless certain disclosure
requirements are met and the retention or restoration of voting rights is
approved by both: (i) a majority of the outstanding voting stock, and (ii) a
majority of the outstanding voting stock after exclusion of "Interested Shares."
Interested Shares are defined as shares owned by the Acquiring Person, by
directors who are also employees, and by officers of the corporation elected or
appointed by the directors of the
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corporation. Stockholders are given dissenters' rights with respect to the vote
on Control Share Acquisitions and may demand payment of the fair value of their
shares.
A number of acquisitions of shares are deemed not to constitute Control
Share Acquisitions, including good faith gifts, transfers pursuant to wills,
purchases pursuant to an issuance by the corporation, mergers involving the
corporation which satisfy the other requirements of the Missouri Act,
transactions with a person who owned a majority of the voting power of the
corporation within the prior year, or purchases from a person who has previously
satisfied the provisions of the Control Share Acquisition Statute so long as the
transaction does not result in the purchasing party having voting power after
the purchase in a percentage range (as set forth in the immediately preceding
paragraph) beyond the range for which the selling party previously satisfied the
provisions of the statute. Additionally, a corporation may exempt itself from
application of the statute by inserting a provision in its articles of
incorporation or by-laws expressly electing not to be covered by the statute.
MBI's Restated Articles of Incorporation and By-Laws do not "opt out" of the
Control Share Acquisition Statute.
The Iowa Act does not include similar antitakeover statutes.
Shareholder's Right to Inspect. Under the Iowa Act, any shareholder may
inspect the corporation's stock ledger, shareholder list and other books and
records if the shareholder's demand for inspection is made in good faith and for
a proper purpose. The Iowa Act specifically provides that a shareholder may
appoint an agent for the purpose of examining the books and records of the
corporation. The right of stockholders to inspect under the Missouri Act is
generally similar to that of shareholders under the Iowa Act. However, in
comparison with the Iowa Act, in a given situation a Missouri stockholder may be
provided with less guidance as to the scope of his or her ability to inspect the
books and records of the corporation.
Size of Board of Directors. As permitted under the Missouri Act, the number
of directors on the Board of Directors of MBI is set forth in MBI's By-Laws,
which provide that the number of directors may be fixed from time to time at not
less than 12 nor more than 24 by an amendment of the By-Laws or by a resolution
of the Board of Directors, in either case, adopted by the vote or consent of at
least 66 2/3% of the number of directors then authorized under the By-Laws.
MBI's By-Laws provide for 19 directors on the Board of Directors of MBI. MBI's
Board currently has 16 directors. Similar to the Missouri Act, the Iowa Act
provides that a corporation may fix the number of directors in its articles of
incorporation or by-laws. Hawkeye's By-Laws provide for 17 directors on the
Board of Directors of Hawkeye. Hawkeye's By-Laws, including the provision
establishing the number of members of Hawkeye's Board of Directors, may be
amended by the vote of the holders of a majority of the Hawkeye Common Stock or
by the vote of a majority of the members of the Hawkeye Board of Directors.
Hawkeye's Board currently has 14 directors.
SUPERVISION AND REGULATION
GENERAL
As a bank holding company, MBI is subject to regulation under the BHCA and
its examination and reporting requirements. Under the BHCA, a bank holding
company may not directly or indirectly acquire the ownership or control of more
than 5% of the voting shares or substantially all of the assets of any company,
including a bank or savings and loan association, without the prior approval of
(or, in the case of certain non-bank companies, prior notice to) the Federal
Reserve Board. In addition, bank holding companies are generally prohibited
under the BHCA from engaging in nonbanking activities, subject to certain
exceptions.
As a savings and loan holding company, MBI is also subject to regulatory
oversight by the Office of Thrift Supervision (the "OTS"). As such, MBI is
required to register and file reports with the OTS and is subject to regulation
by the OTS. In addition, the OTS has enforcement authority over MBI which
permits the OTS to restrict or prohibit activities that are determined to be a
serious risk to its subsidiary savings association.
MBI and its subsidiaries are subject to supervision and examination by
applicable federal and state banking agencies. The earnings of MBI's
subsidiaries, and therefore the earnings of MBI, are affected by
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general economic conditions, management policies and the legislative and
governmental actions of various regulatory authorities, including the Federal
Reserve Board, the OTS, the Federal Deposit Insurance Corporation (the "FDIC"),
the Comptroller of the Currency (the "Comptroller") and the state banking
regulatory agencies. In addition, there are numerous governmental requirements
and regulations that affect the activities of MBI and its subsidiaries.
CERTAIN TRANSACTIONS WITH AFFILIATES
There are various legal restrictions on the extent to which a bank holding
company such as MBI and its nonbank subsidiaries can engage in certain
transactions, including borrowing or otherwise obtaining credit from its bank
subsidiaries. In general, these restrictions require that any such extensions of
credit must be on non-preferential terms and secured by designated amounts of
specified collateral and be limited, as to any one of the holding company or
such nonbank subsidiaries, to 10% of the lending bank's capital stock and
surplus, and as to the holding company and all such nonbank subsidiaries in the
aggregate, to 20% of such bank's capital stock and surplus. See "-- Recent
Legislation."
PAYMENT OF DIVIDENDS
MBI is a legal entity separate and distinct from its banking and other
subsidiaries. The principal source of MBI's revenues is dividends from its
national and state banking subsidiaries. Various federal and state statutory
provisions limit the amount of dividends the affiliate banks can pay to MBI
without regulatory approval. The approval of the appropriate bank regulator is
generally required for any dividend by a national bank or state member bank if
the total of all dividends declared by the bank in any calendar year would
exceed the total of its net profits, as defined by regulatory authorities, for
such year combined with its retained net profits for the preceding two years. In
addition, a national bank or a state member bank generally may not pay a
dividend in an amount greater than its net profits then on hand. The payment of
dividends by any affiliate bank may also be affected by other factors, such as
the maintenance of adequate capital for such affiliate bank.
CAPITAL ADEQUACY
The Federal Reserve Board has issued standards for measuring capital
adequacy for bank holding companies. These standards are designed to provide
risk-responsive capital guidelines and to incorporate a consistent framework for
use by financial institutions operating in major international financial
markets. The banking regulators have issued standards for banks that are similar
but not identical to the standards for bank holding companies.
In general, the risk-related standards require banks and bank holding
companies to maintain capital based on "risk adjusted" assets so that categories
of assets with potentially higher credit risk will require more capital backing
than categories with lower credit risk. In addition, banks and bank holding
companies are required to maintain capital to support off-balance sheet
activities such as loan commitments.
The standards classify total capital for this risk-based measure into two
tiers referred to as Tier 1 and Tier 2. Tier 1 capital consists of common
stockholders' equity, certain noncumulative and cumulative perpetual preferred
stock, and minority interests in equity accounts of consolidated subsidiaries;
Tier 2 capital consists of the allowance for loan and lease losses (within
certain limits), perpetual preferred stock not included in Tier 1, hybrid
capital instruments, term subordinated debt, and intermediate-term preferred
stock. By December 31, 1992, bank holding companies were required to meet a
minimum ratio of 8% of qualifying total capital to risk-adjusted assets, and a
minimum ratio of 4% of qualifying Tier 1 capital to risk-adjusted assets.
Capital that qualifies as Tier 2 capital is limited in amount to 100% of Tier 1
capital in testing compliance with the total risk-based capital minimum
standards. See "-- Recent Legislation."
In addition, the Federal Reserve Board has established minimum leverage
ratio guidelines for bank holding companies. These guidelines provide for a
minimum ratio of Tier 1 capital to adjusted average total assets (the "leverage
ratio") of 3% for bank holding companies that meet certain specified criteria,
including having the highest regulatory rating. Other bank holding companies
generally are required to maintain a leverage ratio of at least 3% plus 100 to
200 basis points. The guidelines also provide that bank holding
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companies experiencing internal growth or making acquisitions will be expected
to maintain strong capital positions substantially above minimum supervisory
levels, without significant reliance on intangible assets. Furthermore, the
Federal Reserve Board has indicated that it may consider other indicia of
capital strength in evaluating proposals for expansion or new activities.
SUPPORT OF SUBSIDIARY BANKS
Under Federal Reserve Board policy, MBI is expected to act as a source of
financial strength to each subsidiary bank and to commit resources to support
each of the subsidiaries in circumstances where it might not choose to do so
absent such a policy. In addition, any capital loans by MBI to any of its
subsidiaries would also be subordinate in right of payment to deposits and
certain other indebtedness of such subsidiary. This support may be required at
times when MBI may not find itself able to provide it.
Consistent with this policy regarding bank holding companies serving as a
source of financial strength for their subsidiary banks, the Federal Reserve
Board has stated that, as a matter of prudent banking, a bank holding company
generally should not maintain a rate of cash dividends unless its net income
available to common stockholders has been sufficient to fully fund the
dividends, and the prospective rate of earnings retention appears consistent
with the bank holding company's capital needs, asset quality and overall
financial condition.
RECENT LEGISLATION
The Financial Institutions Reform, Recovery and Enforcement Act of 1989
("FIRREA") contains a "cross-guarantee" provision which could result in insured
depository institutions owned by MBI being assessed for losses incurred by the
FDIC in connection with assistance provided to, or the failure of, any other
insured depository institution owned by MBI. Under FIRREA, failure to meet the
capital guidelines could subject a banking institution to a variety of
enforcement remedies available to federal regulatory authorities, including the
termination of deposit insurance by the FDIC.
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") made extensive changes to the federal banking laws, some of which
have delayed effective dates or require implementing regulations. FDICIA
instituted certain changes to the supervisory process, including provisions that
mandate certain regulatory agency actions against undercapitalized institutions
within specified time limits, and contain various provisions that may affect the
operations of banks and savings institutions.
The prompt corrective action provisions of FDICIA require the federal
banking regulators to assign each insured institution to one of five capital
categories ("well capitalized," "adequately capitalized" or one of three
"undercapitalized" categories) and to take progressively more restrictive
actions as specified below. Under FDICIA, capital requirements would include a
leverage limit, a risk-based capital requirement and any other measure of
capital deemed appropriate by the federal banking regulators for measuring the
capital adequacy of an insured depository institution. All institutions,
regardless of their capital levels, are restricted from making any capital
distribution or paying any management fees that would cause the institution to
fail to satisfy the minimum levels for any relevant capital measure. An
institution that fails to meet the minimum level for any relevant capital
measure (an "undercapitalized institution") shall be: (i) subject to increased
monitoring by the appropriate federal banking regulator; (ii) required to submit
an acceptable capital restoration plan within 45 days after the institution
becomes undercapitalized; (iii) subject to asset growth limits; and (iv)
required to obtain prior regulatory approval for acquisitions, branching and new
lines of businesses. The capital restoration plan must include a guarantee by
the institution's holding company (under which the holding company would be
liable up to the lesser of 5% of the institution's total assets at the time the
institution became undercapitalized or the amount necessary to bring the
institution into capital compliance as of the date it failed to comply with its
capital restoration plan) that the institution will comply with the plan until
it has been adequately capitalized on average for four consecutive quarters.
The bank regulatory agencies have discretionary authority to reclassify a
well capitalized institution as adequately capitalized or to impose on an
adequately capitalized institution requirements or actions specified for
undercapitalized institutions if the agency determines after notice and an
opportunity for hearing that the
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institution is in an unsafe or unsound condition or is engaging in an unsafe or
unsound practice, which can consist of the receipt of an unsatisfactory
examination rating if the deficiencies cited are not corrected. A significantly
undercapitalized institution, as well as any undercapitalized institution that
did not submit or implement an acceptable capital restoration plan, may be
subject to regulatory demands for recapitalization, broader application of
restrictions on transactions with affiliates, limitations on interest rates paid
on deposits, restrictions on asset growth and other activities, possible
replacement of directors and officers, and restrictions on capital distributions
by any bank holding company controlling the institution. Any company controlling
the institution could also be required to divest the institution or the
institution could be required to divest subsidiaries. The senior executive
officers of a significantly undercapitalized institution may not receive bonuses
or increases in compensation without prior approval and a critically
undercapitalized institution is prohibited from making payments of principal or
interest on its debt that is subordinated to claims of general creditors. If an
institution's ratio of tangible equity to total assets falls below a level
established by the appropriate federal banking regulator, which may not be less
than 2% of total assets nor more than 65% of the minimum tangible equity level
otherwise required (the "critical capital level"), the institution will be
subject to conservatorship or receivership within 90 days unless periodic
determinations are made that forbearance from such action would better protect
the deposit insurance fund. Unless appropriate findings and certifications are
made to the appropriate federal bank regulatory agencies, a critically
undercapitalized institution must be placed in receivership if it remains
critically undercapitalized on average during the calendar quarter beginning 270
days after the date it became critically undercapitalized.
The FDIC, the Comptroller and the Federal Reserve Board have adopted
capital-related regulations under FDICIA. Under those regulations, a bank will
be deemed well capitalized if it: (a) has a risk-based capital ratio of 10% or
greater; (b) has a ratio of Tier 1 capital to risk-adjusted assets of 6% or
greater; (c) has a ratio of Tier 1 capital to adjusted total assets of 5% or
greater; and (d) is not subject to an order, written agreement, capital
directive, or prompt corrective action directive to meet and maintain a specific
capital level for any capital measure. An association will be deemed adequately
capitalized if it was not "well-capitalized" and: (a) has a risk-based capital
ratio of 8% or greater; (b) has a ratio of Tier 1 capital to risk-adjusted
assets of 4% or greater; and (c) has a ratio of Tier 1 capital to adjusted total
assets of 4% or greater (except that certain associations rated "composite 1"
under the federal banking agencies' CAMEL rating system may be adequately
capitalized if their ratio of Tier 1 capital to adjusted total assets were 3% or
greater). An institution that does not meet one or more of the "adequately
capitalized" tests is deemed to be "undercapitalized." If the institution has a
total risk-based capital ratio that is less than 6%, a Tier 1 risk-based capital
ratio that is less than 3%, or a leverage ratio that is less than 3%, the
institution is deemed to be "significantly undercapitalized." An institution is
deemed to be "critically undercapitalized" if it has a ratio of tangible equity
(as defined in the Comptroller's regulations) to total assets that is equal to
or less than 2%.
The federal bank regulatory agencies have issued various proposals to amend
the risk-based capital guidelines for banks and bank holding companies. Under
one proposal, a bank would be required to give explicit consideration to
interest rate risk as an element of capital adequacy by maintaining capital to
compensate for such risk in an amount measured by such bank's exposure to
interest rate risk in excess of a regulatory threshold. Another proposal would
revise the treatment given to (i) low-level recourse arrangements to reduce the
amount of capital required and (ii) certain direct credit substitutes provided
by banking organizations to require that capital be maintained against the value
of the assets enhanced or the loans protected. A proposal recently issued by the
Federal Reserve Board and expected to be joined in by the other bank regulatory
agencies increases the amount of capital required to be carried against certain
long-term derivative contracts; in addition, the proposal recognizes the effect
of certain bilateral netting arrangements in reducing potential future exposure
under these contracts.
The FDIC has adopted final regulations under FDICIA governing the receipt
of brokered deposits. Under these regulations, a bank cannot accept brokered
deposits unless (i) it is "well capitalized" or (ii) it is "adequately
capitalized" and receives a waiver from the FDIC. In addition, banks that accept
brokered deposits pursuant to such waivers (as well as banks in conservatorship)
may not pay interest on such deposits in excess of 75 basis points over
prevailing market rates. A bank that cannot receive brokered deposits also
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cannot offer "pass-through" insurance on certain employee benefit accounts.
There are no such restrictions on a bank that is "well capitalized."
The FDIC, pursuant to the directive of FDICIA, has adopted a risk-based
premium schedule. Each financial institution is assigned to one of three capital
groups -- well capitalized, adequately capitalized or undercapitalized -- and
further assigned to one of three subgroups within a capital group, on the basis
of supervisory evaluations by the institution's primary federal and, if
applicable, state supervisors and on the basis of other information relevant to
the institution's financial conditions and the risk posed to the applicable
insurance fund. The actual assessment rate applicable to a particular
institution will, therefore, depend in part upon the risk assessment
classification so assigned to the institution by the FDIC.
The legislation adopted in August 1989 to provide for the resolution of
insolvent savings associations also required the FDIC to establish separate
deposit insurance funds -- the Bank Insurance Fund ("BIF") for banks and the
Savings Association Insurance Fund ("SAIF") for savings associations. The law
also requires the FDIC to set deposit insurance assessments at such levels as
will cause BIF and SAIF to reach their "designated reserve ratios" of 1.25
percent of the deposits insured by them within a reasonable period of time. Due
to low costs of resolving bank insolvencies in the last few years, BIF reached
its designated reserve ratio in May, 1995. As a result, the FDIC recently
lowered deposit insurance assessment rates on banks by revising the range to
$.04 to $.31 for every $100 of deposits. However, the balance in SAIF is not
expected to reach the designated reserve ratio until about the year 2002, as the
law provides that a significant portion of the costs of resolving past
insolvencies of savings associations must be paid from its source.
MBI, which has acquired substantial amounts of SAIF-insured deposits during
the years from 1989 to the present, is required to pay deposit insurance
premiums on these SAIF-insured deposits. Currently, SAIF-member institutions pay
deposit insurance premiums based on a schedule of from $0.23 to $0.31 per $100
of deposits. Bills have recently been proposed by the U.S. Congress to
recapitalize the SAIF through a one-time special assessment of approximately 85
basis points on the amount of deposits held by the institution. If such special
assessment occurs, it is expected that the deposit premiums paid by the
SAIF-member institutions would be reduced to approximately $.04 for every $100
of deposits and would have the effect of immediately reducing the capital of
SAIF-member institutions by the amount of the fee (provided SAIF-member
institutions are not permitted to amortize the expense of the one-time fee over
a period of years). MBI cannot predict whether the special assessment proposal
will be enacted, or, if enacted, the amount of any one-time fee or whether
ongoing SAIF premiums will be reduced to a level equal to that of BIF premiums.
If the one-time assessment is not enacted, it is presently expected that the
SAIF will not be recapitalized until 2002 and the disparity between SAIF and BIF
deposit premiums will continue. MBI does not expect that either such additional
deposit insurance costs or the proposed one-time assessment will have a
significant, adverse effect on its earnings.
Proposals recently have been introduced in the U.S. Congress that, if
adopted, would overhaul the savings association industry. The most significant
of these proposals would recapitalize the SAIF through a one-time special
assessment, spread the FICO Bond obligation across the BIF and SAIF, merge the
Comptroller and the OTS, abolish the federal savings association charter,
require federal thrifts to convert to commercial banks and merge the SAIF and
the BIF. MBI cannot predict whether these or any other legislative proposals
will be enacted, or, if enacted, the final form of the law.
FDICIA also made extensive changes in existing rules regarding audits,
examinations and accounting. It generally requires annual on-site, full-scope
examinations by each bank's primary federal regulator. It also imposed new
responsibilities on management, the independent audit committee and outside
accountants to develop or approve reports regarding the effectiveness of
internal controls, legal compliance and off-balance sheet liabilities and
assets.
Legislation enacted in August 1993 provides a preference for deposits and
certain claims for administrative expenses and employee compensation against an
insured depository institution, such as Hawkeye's and MBI's insured bank
subsidiaries, in the "liquidation or other resolution" of such an institution by
any receiver. Such obligations would be afforded priority over other general
unsecured claims against such an institution,
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including federal funds and letters of credit, as well as any obligation to
stockholders of such an institution in their capacity as such.
In September 1994, legislation was enacted that is expected to have a
significant effect in restructuring the banking industry in the United States.
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
facilitates the interstate expansion and consolidation of banking organizations
(i) by permitting bank holding companies that are adequately capitalized and
managed, one year after enactment of the legislation, to acquire banks located
in states outside their home states regardless of whether such acquisitions are
authorized under the law of the host state, (ii) by permitting the interstate
merger of banks after June 1, 1997, subject to the right of individual states to
"opt in" or to "opt out" of this authority before that date, (iii) by permitting
banks to establish new branches on an interstate basis provided that such action
is specifically authorized by the law of the host state, (iv) by permitting
foreign banks to establish, with approval of the regulators in the United
States, branches outside their home states to the same extent that national or
state banks located in the home state would be authorized to do so, and (v) by
permitting, beginning September 29, 1995, banks to receive deposits, renew time
deposits, close loans, service loans and receive payments on loans and other
obligations as agent for any bank or thrift affiliate, whether the affiliate is
located in the same state or a different state. One effect of this legislation
will be to permit MBI to acquire banks located in any state and to permit bank
holding companies located in any state to acquire banks and bank holding
companies in Missouri. Overall, this legislation is likely to have the effects
of increasing competition and promoting geographic diversification in the
banking industry.
LEGAL MATTERS
The validity of the MBI Common Stock to be issued in the Merger will be
passed upon by Jon W. Bilstrom, General Counsel and Secretary of MBI, who, as of
the Record Date, beneficially owned 30,216 shares of MBI Common Stock and held
options to acquire 51,749 additional shares of MBI Common Stock.
EXPERTS
The consolidated financial statements of MBI as of December 31, 1994, 1993
and 1992, and for each of the years in the three-year period ended December 31,
1994, incorporated by reference in the 1994 MBI Form 10-K, and the supplemental
consolidated financial statements of MBI as of December 31, 1994, 1993 and 1992,
and for each of the years in the three-year period ended December 31, 1994,
contained in MBI's Current Report on Form 8-K dated May 31, 1995, have been
incorporated by reference herein in reliance upon the report of KPMG Peat
Marwick LLP, independent certified public accountants, incorporated by reference
herein, and upon the authority of such firm as experts in accounting and
auditing.
The consolidated financial statements incorporated in this Proxy
Statement/Prospectus by reference from the 1994 Hawkeye Form 10-K have been
audited by Deloitte & Touche LLP, independent auditors, as stated in their
report, which is incorporated herein by this reference, and have been so
incorporated in reliance upon the report of such firm given upon their authority
as experts in accounting and auditing.
OTHER MATTERS
The Board of Directors of Hawkeye, at the date hereof, is not aware of any
business to be presented at the Special Meeting other than that referred to in
the Notice of Special Meeting and discussed herein. If any other matter should
properly come before the Special Meeting, the persons named as proxies will have
discretionary authority to vote the shares represented by proxies in accordance
with their discretion and judgment as to the best interests of Hawkeye.
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STOCKHOLDER PROPOSALS
If the Merger is consummated, shareholders of Hawkeye will become
stockholders of MBI at the Effective Time. MBI stockholders may submit to MBI
proposals for formal consideration at the 1996 annual meeting of MBI's
stockholders and inclusion in MBI's proxy statement and proxy for such meeting.
All such proposals must be received in writing by the Corporate Secretary at
Mercantile Bancorporation Inc., P.O. Box 524, St. Louis, Missouri 63166-0524 by
November 25, 1995 in order to be considered for inclusion in MBI's Proxy
Statement and proxy for the 1996 annual meeting.
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ANNEX A
DISSENTERS' RIGHTS PROVISIONS UNDER THE
IOWA BUSINESS CORPORATION ACT
Set forth below is the text of the statutory dissenters' rights provisions
under Division XIII of the Iowa Business Corporation Act.
DIVISION XIII
DISSENTERS' RIGHTS
PART A
490.1301 DEFINITIONS FOR DIVISION XIII. -- In this division:
1. "Beneficial shareholder" means the person who is a beneficial owner of
shares held by a nominee as the record shareholder.
2. "Corporation" means the issuer of the shares held by a dissenter before
the corporate action, or the surviving or acquiring corporation by merger or
share exchange of that issuer.
3. "Dissenter" means a shareholder who is entitled to dissent from
corporate action under section 490.1302 and who exercises that right when and in
the manner required by sections 490.1320 through 490.1328.
4. "Fair value", with respect to a dissenter's shares, means the value of
the shares immediately before the effectuation of the corporate action to which
the dissenter objects, excluding any appreciation or depreciation in
anticipation of the corporate action unless exclusion would be inequitable.
5. "Interest" means interest from the effective date of the corporate
action until the date of payment, at the average rate currently paid by the
corporation on its principal bank loans or, if none, at a rate that is fair and
equitable under all the circumstances.
6. "Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner of shares to
the extent of the rights granted by a nominee certificate on file with a
corporation.
7. "Shareholder" means the record shareholder or the beneficial
shareholder.
490.1302 SHAREHOLDERS' RIGHT TO DISSENT. -- 1. A shareholder is entitled to
dissent from, and obtain payment of the fair value of the shareholder's shares
in the event of, any of the following corporate actions:
a. Consummation of a plan of merger to which the corporation is a
party if either of the following apply:
(1) Shareholder approval is required for the merger by section
490.1103 or the articles of incorporation and the shareholder is
entitled to vote on the merger.
(2) The corporation is a subsidiary that is merged with its parent
under section 490.1104.
b. Consummation of a plan of share exchange to which the corporation
is a party as the corporation whose shares will be acquired, if the
shareholder is entitled to vote on the plan.
c. Consummation of a sale or exchange of all, or substantially all, of
the property of the corporation other than in the usual and regular course
of business, if the shareholder is entitled to vote on the sale or
exchange, including a sale in dissolution, but not including a sale
pursuant to court order or a sale for cash pursuant to a plan by which all
or substantially all of the net proceeds of the sale will be distributed to
the shareholders within one year after the date of sale.
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d. An amendment of the articles of incorporation that materially and
adversely affects rights in respect of a dissenter's shares because it does
any or all of the following:
(1) Alters or abolishes a preferential right of the shares.
(2) Creates, alters, or abolishes a right in respect of redemption,
including a provision respecting a sinking fund for the redemption or
repurchase, of the shares.
(3) Alters or abolishes a preemptive right of the holder of the
shares to acquire shares or other securities.
(4) Excludes or limits the right of the shares to vote on any
matter, or to cumulate votes, other than a limitation by dilution
through issuance of shares or other securities with similar voting
rights.
(5) Reduces the number of shares owned by the shareholder to a
fraction of a share if the fractional share so created is to be acquired
for cash under section 490.604.
(6) Extends, for the first time after being governed by this
chapter, the period of duration of a corporation organized under chapter
491 or 496A and existing for a period of years on the day preceding the
date the corporation is first governed by this chapter.
e. Any corporate action taken pursuant to a shareholder vote to the
extent the articles of incorporation, bylaws, or a resolution of the board
of directors provides that voting or nonvoting shareholders are entitled to
dissent and obtain payment for their shares.
2. A shareholder entitled to dissent and obtain payment for the
shareholder's shares under this chapter is not entitled to challenge the
corporate action creating the shareholder's entitlement unless the action is
unlawful or fraudulent with respect to the shareholder or the corporation.
490.1303 DISSENT BY NOMINEES AND BENEFICIAL OWNERS. -- 1. A record
shareholder may assert dissenters' rights as to fewer than all the shares
registered in that shareholder's name only if the shareholder dissents with
respect to all shares beneficially owned by any one person and notifies the
corporation in writing of the name and address of each person on whose behalf
the shareholder asserts dissenters' rights. The rights of a partial dissenter
under this subsection are determined as if the shares as to which the
shareholder dissents and the shareholder's other shares were registered in the
names of different shareholders.
2. A beneficial shareholder may assert dissenters' rights as to shares held
on the shareholder's behalf only if the shareholder does both of the following:
a. Submits to the corporation the record shareholder's written consent
to the dissent not later than the time the beneficial shareholder asserts
dissenters' rights.
b. Does so with respect to all shares of which the shareholder is the
beneficial shareholder or over which that beneficial shareholder has power
to direct the vote.
PART B
490.1320 NOTICE OF DISSENTERS' RIGHTS. -- 1. If proposed corporate action
creating dissenters' rights under section 490.1302 is submitted to a vote at a
shareholders' meeting, the meeting notice must state that shareholders are or
may be entitled to assert dissenters' rights under this part and be accompanied
by a copy of this part.
2. If corporate action creating dissenters' rights under section 490.1302
is taken without a vote of shareholders, the corporation shall notify in writing
all shareholders entitled to assert dissenters' rights that the action was taken
and send them the dissenters' notice described in section 490.1322.
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490.1321 NOTICE OF INTENT TO DEMAND PAYMENT. -- 1. If proposed corporate
action creating dissenters' rights under section 490.1302 is submitted to a vote
at a shareholders' meeting, a shareholder who wishes to assert dissenters'
rights must do all of the following:
a. Deliver to the corporation before the vote is taken written notice
of the shareholder's intent to demand payment for the shareholder's shares
if the proposed action is effectuated.
b. Not vote the dissenting shareholder's shares in favor of the
proposed action.
2. A shareholder who does not satisfy the requirements of subsection 1, is
not entitled to payment for the shareholder's shares under this part.
490.1322 DISSENTERS' NOTICE -- 1. If proposed corporate action creating
dissenters' rights under section 490.1302 is authorized at a shareholders'
meeting, the corporation shall deliver a written dissenters' notice to all
shareholders who satisfied the requirements of section 490.1321.
2. The dissenters' notice must be sent no later than ten days after the
proposed corporate action is authorized at a shareholders' meeting, or, if the
corporate action is taken without a vote of the shareholders, no later than ten
days after the corporate action is taken, and must do all of the following:
a. State where the payment demand must be sent and where and when
certificates for certificated shares must be deposited.
b. Inform holders of uncertificated shares to what extent transfer of
the shares will be restricted after the payment demand is received.
c. Supply a form for demanding payment that includes the date of the
first announcement to news media or to shareholders of the terms of the
proposed corporate action and requires that the person asserting
dissenters' rights certify whether or not the person acquired beneficial
ownership of the shares before that date.
d. Set a date by which the corporation must receive the payment
demand, which date shall not be fewer than thirty nor more than sixty days
after the date the dissenters' notice is delivered.
e. Be accompanied by a copy of this division.
490.1323 DUTY TO DEMAND PAYMENT. -- 1. A shareholder sent a dissenter's
notice described in section 490.1322 must demand payment, certify whether the
shareholder acquired beneficial ownership of the shares before the date required
to be set forth in the dissenter's notice pursuant to section 490.1322,
subsection 2, paragraph "c", and deposit the shareholder's certificates in
accordance with the terms of the notice.
2. The shareholder who demands payment and deposits the shareholder's
shares under subsection 1 retains all other rights of a shareholder until these
rights are canceled or modified by the taking of the proposed corporate action.
3. A shareholder who does not demand payment or deposit the shareholder's
share certificates where required, each by the date set in the dissenters'
notice, is not entitled to payment for the shareholder's shares under this
division.
490.1324 SHARE RESTRICTIONS. -- 1. The corporation may restrict the
transfer or uncertificated shares from the date the demand for their payment is
received until the proposed corporate action is taken or the restrictions
released under section 490.1326.
2. The person for whom dissenters' rights are asserted as to uncertificated
shares retains all other rights of a shareholder until these rights are canceled
or modified by the taking of the proposed corporate action.
490.1325 PAYMENT. -- 1. Except as provided in section 490.1327, at the time
the proposed corporate action is taken, or upon receipt of a payment demand,
whichever occurs later, the corporation shall pay each dissenter who complied
with section 490.1323 the amount the corporation estimates to be the fair value
of the dissenter's shares, plus accrued interest.
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2. The payment must be accompanied by all of the following:
a. The corporation's balance sheet as of the end of a fiscal year
ending not more than sixteen months before the date of payment, an income
statement for that year, a statement of changes in shareholders' equity for
that year, and the latest available interim financial statements, if any.
b. A statement of the corporation's estimate of the fair value of the
shares.
c. An explanation of how the interest was calculated.
d. A statement of the dissenter's right to demand payment under
section 490.1328.
e. A copy of this division.
490.1326 FAILURE TO TAKE ACTION. -- 1. If the corporation does not take the
proposed action within sixty days after the date set for demanding payment and
depositing share certificates, the corporation shall return the deposited
certificates and release the transfer restrictions imposed on uncertificated
shares.
2. If after returning deposited certificates and releasing transfer
restrictions, the corporation takes the proposed action, it must send a new
dissenters' notice under section 490.1322 as if the corporate action was taken
without a vote of the shareholders and repeat the payment demand procedure.
490.1327 AFTER-ACQUIRED SHARES. -- 1. A corporation may elect to withhold
payment required by section 490.1325 from a dissenter unless the dissenter was
the beneficial owner of the shares before the date set forth in the dissenters'
notice as the date of the first announcement to news media or to shareholders of
the terms of the proposed corporate action.
2. To the extent the corporation elects to withhold payment under
subsection 1, after taking the proposed corporate action, it shall estimate the
fair value of the shares, plus accrued interest, and shall pay this amount to
each dissenter who agrees to accept it in full satisfaction of the dissenter's
demand. The corporation shall send with its offer a statement of its estimate of
the fair value of the shares, an explanation of how the interest was calculated,
and a statement of the dissenter's right to demand payment under section
490.1328.
490.1328 PROCEDURE IF SHAREHOLDER DISSATISFIED WITH PAYMENT OR OFFER. --
1. A dissenter may notify the corporation in writing of the dissenter's own
estimate of the fair value of the dissenter's shares and amount of interest due,
and demand payment of the dissenter's estimate, less any payment under section
490.1325, or reject the corporation's offer under section 490.1327 and demand
payment of the fair value of the dissenter's shares and interest due, if any of
the following apply:
a. The dissenter believes that the amount paid under section 490.1325
or offered under section 490.1327 is less than the fair value of the
dissenter's shares or that the interest due is incorrectly calculated.
b. The corporation fails to make payment under section 490.1325 within
sixty days after the date set for demanding payment.
c. The corporation, having failed to take the proposed action, does
not return the deposited certificates or release the transfer restrictions
imposed on uncertificated shares within sixty days after the date set for
demanding payment.
2. A dissenter waives the dissenter's right to demand payment under this
section unless the dissenter notifies the corporation of the dissenter's demand
in writing under subsection 1 within thirty days after the corporation made or
offered payment for the dissenter's shares.
PART C
490.1330 COURT ACTION. -- 1. If a demand for payment under section 490.1328
remains unsettled, the corporation shall commence a proceeding within sixty days
after receiving the payment demand and petition the court to determine the fair
value of the shares and accrued interest. If the corporation does not
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commence the proceeding within the sixty-day period, it shall pay each dissenter
whose demand remains unsettled the amount demanded.
2. The corporation shall commence the proceeding in the district court of
the county where a corporation's principal office or, if none in this state, its
registered office is located. If the corporation is a foreign corporation
without a registered office in this state, it shall commence the proceeding in
the county in this state where the registered office of the domestic corporation
merged with or whose shares were acquired by the foreign corporation was
located.
3. The corporation shall make all dissenters, whether or not residents of
this state, whose demands remain unsettled parties to the proceeding as in an
action against their shares and all parties must be served with a copy of the
petition. Nonresidents may be served by registered or certified mail or by
publication as provided by law.
4. The jurisdiction of the court in which the proceeding is commenced under
subsection 2 is plenary and exclusive. The court may appoint one or more persons
as appraisers to receive evidence and recommend decision on the question of fair
value. The appraisers have the powers described in the order appointing them, or
in any amendment to it. The dissenters are entitled to the same discovery rights
as parties in other civil proceedings.
5. Each dissenter made a party to the proceeding is entitled to judgment
for either of the following:
a. The amount, if any, by which the court finds the fair value of the
dissenter's shares, plus interest, exceeds the amount paid by the
corporation.
b. The fair value, plus accrued interest, of the dissenter's
after-acquired shares for which the corporation elected to withhold payment
under section 490.1327.
490.1331 COURT COSTS AND COUNSEL FEES. -- 1. The court in an appraisal
proceeding commenced under section 490.1330 shall determine all costs of the
proceeding, including the reasonable compensation and expenses of appraisers
appointed by the court. The court shall assess the costs against the
corporation, except that the court may assess costs against all or some of the
dissenters, in amounts the court finds equitable, to the extent the court finds
the dissenters acted arbitrarily, vexatiously, or not in good faith in demanding
payment under section 490.1328.
2. The court may also assess the fees and expenses of counsel and experts
for the respective parties, in amounts the court finds equitable, for either of
the following:
a. Against the corporation and in favor of any or all dissenters if
the court finds the corporation did not substantially comply with the
requirements of sections 490.1320 through 490.1328.
b. Against either the corporation or a dissenter, in favor of any
other party, if the court finds that the party against whom the fees and
expenses are assessed acted arbitrarily, vexatiously, or not it good faith
with respect to the rights provided by this chapter.
3. If the court finds that the services of counsel for any dissenter were
of substantial benefit to other dissenters similarly situated, and that the fees
for those services should not be assessed against the corporation, the court may
award to these counsel reasonable fees to be paid out of the amounts awarded the
dissenters who were benefited.
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ANNEX B
[DONALDSON, LUFKIN & JENRETTE LETTERHEAD]
November 21, 1995
Board of Directors
Hawkeye Bancorporation
222 Equitable Building
604 Locust Street
Des Moines, Iowa 50309-3723
Members of the Board:
You have requested our opinion as to the fairness, from a financial
point of view, to the holders of the outstanding shares of common stock, without
par value (the "Hawkeye Common Stock"), of Hawkeye Bancorporation ("Hawkeye") of
the exchange ratio for the exchange of common shares in the merger (the
"Merger") of Hawkeye with and into Mercantile Bancorporation Inc. of Iowa, a
wholly-owned subsidiary of Mercantile Bancorporation Inc. ("MBI"), pursuant to
the Agreement and Plan of Reorganization, dated August 4, 1995, between Hawkeye
and MBI (the "Merger Agreement").
Pursuant to the Merger Agreement, in the Merger each share of Hawkeye
Common Stock shall be converted into the right to receive .585 of a share of
common stock, par value $5.00 per share, of MBI ("MBI Common Stock") (the
"Exchange Ratio"). We understand that the Merger is conditioned upon, among
other things, receipt of opinions to the effect that the Merger will qualify for
treatment as a tax-free reorganization and as a pooling of interests for
accounting purposes. In connection with the Merger, the parties have also
entered into an agreement (the "Stock Option Agreement") pursuant to which
Hawkeye has irrevocably granted MBI an option to purchase 2,678,000 shares of
Hawkeye Common Stock (subject to adjustment in certain circumstances but in no
event to exceed 19.9% of the then outstanding shares of Hawkeye Common Stock),
at a price and on the terms and conditions set forth in the Stock Option
Agreement. The terms of the Merger are more fully set forth in the Merger
Agreement.
For purposes of this opinion and in connection with our review of the
proposed transaction, we have, among other things:
1. Participated in discussions and negotiations among
representatives of Hawkeye and MBI and their respective legal
advisors that resulted in the Merger Agreement;
2. Reviewed the terms of the Merger Agreement and Stock Option
Agreement;
3. Reviewed the proxy statement/prospectus dated the date hereof
relating to the Merger to be sent to the holders of Hawkeye
Common Stock;
4. Reviewed certain publicly available financial statements, both
audited and unaudited, of Hawkeye and MBI, including those
included in their respective Annual Reports on Form 10-K for the
five years ended December 31, 1994 and the respective Quarterly
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Board of Directors
Hawkeye Bancorporation
Page 2 November 21, 1995
Reports on Form 10-Q for the periods ended March 31, 1995, June
30, 1995 and September 30, 1995;
5. Reviewed certain financial statements and other financial and
operating data concerning Hawkeye and MBI prepared by their
respective managements;
6. Reviewed certain financial forecasts of Hawkeye prepared by its
management and made inquiries of representatives of MBI
management as to the expected future financial performance of MBI
on a stand-alone basis and giving effect to the Merger;
7. Discussed certain aspects of the past and current business
operations, financial condition and future prospects of Hawkeye
and MBI with certain members of their respective managements;
8. Reviewed reported market prices and historical trading activity
of Hawkeye Common Stock and MBI Common Stock;
9. Reviewed certain aspects of the financial performance of Hawkeye
and MBI and compared such financial performance of Hawkeye and
MBI, together with stock market data relating to Hawkeye Common
Stock and MBI Common Stock, with similar data available for
certain other financial institutions and certain of their
publicly traded securities;
10. Reviewed certain of the financial terms, to the extent publicly
available, of certain recent business combinations involving
other financial institutions; and
11. Conducted such other studies, analyses, and examinations as we
deemed appropriate.
We have relied upon and assumed without independent verification the
accuracy and completeness of all of the financial and other information that has
been provided to us by Hawkeye, MBI and their respective representatives and of
the publicly available information that was reviewed by us. With your
permission, we have also relied upon the managements of both Hawkeye and MBI as
to the reasonableness and achievability of the financial and operating forecasts
provided to us (and the assumptions and bases therefor). In that regard, we have
assumed with your permission that such forecasts, including without limitation
projected cost savings and operating synergies resulting from the Merger,
reflect the best currently available estimates and judgments of such respective
managements and that such forecasts will be realized in the amounts and in the
time periods currently estimated by the managements of Hawkeye and MBI. We have
not independently verified and have relied on and assumed that the aggregate
allowances for loan losses set forth in the balance sheets of each of Hawkeye
and MBI at September 30, 1995 are adequate to cover such losses and complied
fully with applicable law, regulatory policy and sound banking practice as of
the date of such financial statements. We were not retained to and we did not
conduct a physical inspection of any of the properties or facilities of Hawkeye
or MBI, did not make any independent evaluation or appraisal of the assets,
liabilities or prospects of Hawkeye or MBI, were not furnished with any such
evaluation or appraisal, and did not review any individual credit files. In
rendering our opinion, we have been advised by Hawkeye and MBI and have assumed
with your permission that there are no other factors that would
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Board of Directors
Hawkeye Bancorporation
Page 3 November 21, 1995
delay or subject to adverse conditions any necessary regulatory or governmental
approval for the Merger, and we have assumed that all conditions to the Merger
will be satisfied and not waived.
Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"), as part of
its investment banking business, is regularly engaged, with respect to bank
holding companies and other corporations, in the valuation of businesses and
their securities in connection with mergers and acquisitions, negotiated
underwritings, competitive biddings, secondary distributions of listed and
unlisted securities, private placements, and valuations for corporate and other
purposes. DLJ has performed investment banking services for Hawkeye in the past
and has been compensated for such services. In the ordinary course of our
business we may actively trade the debt and equity securities of companies,
including Hawkeye and MBI, for our own account and for the accounts of customers
and may hold a long or short position in such securities at any time.
Our opinion is based solely upon the information available to us and the
economic, market, and other circumstances as they exist as of the date hereof.
Events occurring after the date hereof could materially affect the assumptions
used in preparing this opinion. We have not undertaken to reaffirm or revise
this opinion or otherwise comment upon any events occurring after the date
hereof.
We are not expressing any opinion herein as to the prices at which
shares of MBI Common Stock issued in the Merger may trade if and when they are
issued or at any future time. Our opinion as expressed herein is limited to the
fairness, from a financial point of view, of the Exchange Ratio to the holders
of Hawkeye Common Stock and does not address Hawkeye's underlying business
decision to proceed with the Merger. We have been retained on behalf of
Hawkeye's Board of Directors, and our opinion does not constitute a
recommendation to any holder of Hawkeye Common Stock as to how such holder
should vote with respect to the Merger Agreement at any meeting of holders of
Hawkeye Common Stock.
Subject to the foregoing and based on our experience as investment
bankers, our activities as described above, and other factors we have deemed
relevant, we are of the opinion as of the date hereof that the Exchange Ratio is
fair, from a financial point of view, to the holders of Hawkeye Common Stock.
Very truly yours,
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By: /s/David D. Olson
------------------------------------
David D. Olson
Managing Director
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