<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 6, 1995
Registration No. 33-58467
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
AMENDMENT NO. 1 TO FORM S-4
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
----------------------
MERCANTILE BANCORPORATION INC.
(Exact name of registrant as specified in its charter)
MISSOURI 6712 43-0951744
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification
organization) Number)
P.O. Box 524
St. Louis, Missouri 63166-0524
(314) 425-2525
(Address, including ZIP code, and telephone number, including area code, of
registrant's principal executive offices)
----------------------
W. RANDOLPH ADAMS
Chief Financial Officer
Mercantile Bancorporation Inc.
P.O. Box 524
St. Louis, Missouri 63166-0524
(314) 425-2525
(Name, address, including ZIP code, and telephone number, including area
code, of agent for service)
----------------------
Copies to:
JON W. BILSTROM, ESQ. ROBERT M. LaROSE, ESQ. DAVID B. MYATT, P.C.
General Counsel Thompson & Mitchell CHRISTOPHER R. KELLY, P.C.
and Secretary Suite 3400 Silver, Freedman & Taff,
Mercantile Bancorporation One Mercantile Center L.L.P.
Inc. St. Louis, Missouri 63101 1100 New York Avenue,
P.O. Box 524 (314) 231-7676 Suite 700
St. Louis, Missouri Washington, DC
63166-0524 20005-3934
(314) 425-2525 (202) 414-6100
----------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO
THE PUBLIC: As soon as practicable after the effective date of this
Registration Statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. / /
----------------------
<TABLE>
CALCULATION OF REGISTRATION FEE
===================================================================================================================================
<CAPTION>
Title of each class of Amount to be Proposed maximum Proposed maximum Amount of
securities to be registered registered offering price per aggregate offering price<F2> registration fee<F3>
unit<F2>
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $5.00 par value<F1> 1,400,000 $29.438 $42,973,764 $14,818.65
shares
====================================================================================================================================
<FN>
<F1> Includes one attached Preferred Share Purchase Right per share.
<F2> Estimated solely for purposes of computing the Registration Fee pursuant to the provisions of Rule 457(f), and based upon the
average of the high and low sale prices of the Common Stock, $0.01 par value, of Plains Spirit Financial Corporation as
reported on the Nasdaq National Market on March 30, 1995 ($29.438), of which 1,906,932 shares were issued and
outstanding, less $13,162,500, the estimated cash to be paid by the Registrant in connection with the exchange. The
proposed maximum offering price per unit has been determined by dividing the proposed maximum aggregate offering price by
the number of shares being registered.
<F3> The entire Registration Fee was paid with the original filing on April 6, 1995.
</TABLE>
----------------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration
Statement shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.
===============================================================================
<PAGE> 2
MERCANTILE BANCORPORATION INC.
<TABLE>
CROSS REFERENCE SHEET FURNISHED PURSUANT TO ITEM 501(b)
OF REGULATION S-K SHOWING HEADING OR LOCATION IN PROSPECTUS
OF INFORMATION REQUIRED BY ITEMS IN PART I OF FORM S-4
-----------------------------------------------------------
<CAPTION>
Form S-4 Item Number and Caption Heading or Location in Prospectus
- -------------------------------- ---------------------------------
<S> <C>
A. Information about the Transaction
1. Forepart of Registration Facing Page; Cross Reference Sheet; Outside
Statement and Outside Front Front Cover Page of Prospectus
Cover Page of Prospectus
2. Inside Front and Outside Back Available Information; Incorporation of
Cover Pages of Prospectus Certain Information by Reference; Table of
Contents
3. Risk Factors, Ratio of Earnings Summary Information; Pro Forma Financial
to Fixed Charges and Other Information
Information
4. Terms of the Transaction Summary Information; Incorporation of
Certain Information by Reference; Terms of
the Proposed Merger; Certain Federal
Income Tax Consequences of the Merger;
Information Regarding MBI Common Stock
5. Pro Forma Financial Pro Forma Financial Information
Information
6. Material Contacts with the Summary Information; Terms of the
Company Being Acquired Proposed Merger
7. Additional Information Required Not Applicable
for Reoffering by Persons and
Parties Deemed to be
Underwriters
8. Interests of Named Experts and Legal Matters
Counsel
9. Disclosure of Commission Not Applicable
Position on Indemnification for
Securities Act Liabilities
- i -
<PAGE> 3
<CAPTION>
Form S-4 Item Number and Caption Heading or Location in Prospectus
- -------------------------------- ---------------------------------
<S> <C>
B. Information About the Registrant
10. Information with Respect to S-3 Incorporation of Certain Information by
Registrants Reference; Summary Information;
Information Regarding MBI Common Stock
11. Incorporation of Certain Incorporation of Certain Information by
Information by Reference Reference
12. Information with Respect to S-2 Not Applicable
or S-3 Registrants
13. Incorporation of Certain Not Applicable
Information by Reference
14. Information with Respect to Not Applicable
Registrants Other Than S-3 or
S-2 Registrants
C. Information About the Company Being Acquired
15. Information with Respect to S-3 Not Applicable
Companies
16. Information with Respect to S-2 Not Applicable
or S-3 Companies
17. Information with Respect to Summary Information; Information
Companies Other Than S-3 or Regarding Plains Spirit
S-2 Companies
D. Voting and Management Information
18. Information if Proxies, Consents Information Regarding Special Meeting;
or Authorizations are to be Incorporation of Certain Information by
Solicited Reference; Appraisal Rights of Stockholders
of Plains Spirit; Information Regarding
Plains Spirit
19. Information if Proxies, Consents Not Applicable
or Authorizations are not to be
Solicited in an Exchange Offer
</TABLE>
- ii -
<PAGE> 4
NOTICE OF SPECIAL MEETING AND PROXY STATEMENT
[PLAINS SPIRIT FINANCIAL CORPORATION LOGO]
June 7, 1995
Dear Fellow Stockholder:
On behalf of the Board of Directors and management of Plains Spirit
Financial Corporation ("Plains Spirit"), I cordially invite you to attend a
Special Meeting of Stockholders of Plains Spirit to be held at 1:30 p.m.
Central Time, on Thursday, July 6, 1995, at the main office of Plains Spirit,
131 West Third Street, Davenport, Iowa (the "Special Meeting"). At this
important meeting, you will be asked to consider and vote upon the Agreement
and Plan of Merger, dated December 23, 1994 (the "Merger Agreement"), pursuant
to which Plains Spirit will be merged (the "Merger") with and into a wholly
owned subsidiary of Mercantile Bancorporation Inc. ("MBI"). Upon consummation
of the Merger, each share of Plains Spirit common stock will be converted into
either (i) the right to receive an amount in cash equal to $31.25 per share or
(ii) the right to receive such number of shares (or fraction thereof) of MBI
common stock as shall equal the quotient of $31.25 divided by the average of
the closing stock price of one share of MBI common stock on the New York Stock
Exchange for the ten consecutive trading days ending on and including the date
of the last required regulatory approval of the Merger, as more fully
described in the accompanying Proxy Statement/Prospectus. Each Plains Spirit
stockholder will have the opportunity to elect whether to receive either
shares of MBI common stock or cash as consideration in the Merger. In certain
circumstances, Plains Spirit stockholders who have elected to receive all cash
or all shares of MBI common stock in the Merger will receive a combination of
cash and MBI common stock. The Merger Agreement is attached as Annex A to the
-------
accompanying Proxy Statement/Prospectus and is incorporated by reference
herein.
I have enclosed the following items relating to the Special Meeting
and the Merger:
1. Proxy Statement/Prospectus;
2. Proxy card;
3. Election form;
4. A white pre-addressed return envelope to Chemical Mellon
Shareholder Services, Inc. for the proxy card; and
5. A blue pre-addressed return envelope to KeyCorp Shareholder
Services, Inc., the Exchange Agent, for the election form.
The Proxy Statement/Prospectus and related proxy materials set forth,
or incorporate by reference, financial data and other important information
relating to Plains Spirit and MBI and describe the terms and conditions of the
proposed Merger. The Board of Directors requests that you carefully review
these materials before completing the enclosed proxy card and election form or
attending the Special Meeting.
MBI is a bank holding company headquartered in St. Louis, Missouri
with 51 banking subsidiaries located in Missouri, Illinois, Iowa, Arkansas and
Kansas. At March 31, 1995, MBI, on a restated basis, had total assets of $15.2
billion, total liabilities of $13.9 billion and shareholders' equity of $1.3
billion.
<PAGE> 5
THE BOARD OF DIRECTORS OF PLAINS SPIRIT CAREFULLY CONSIDERED AND
UNANIMOUSLY APPROVED THE TERMS OF THE MERGER AGREEMENT. THE BOARD HAS
DETERMINED THAT THE MERGER IS IN THE BEST INTEREST OF PLAINS SPIRIT AND ITS
STOCKHOLDERS AND UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE PROPOSAL
---
TO APPROVE THE MERGER AGREEMENT.
The investment banking firm of Kaplan Associates, Inc. has issued its
written opinion to your Board of Directors regarding the fairness from a
financial point of view of the consideration to be paid by MBI pursuant to the
Merger Agreement as of the date hereof.
It is very important that your shares are represented at the Special
Meeting, whether or not you plan to attend in person. The affirmative vote of
a majority of the outstanding Plains Spirit common stock is required for
approval of the Merger Agreement. A failure to vote for approval of the Merger
Agreement will have the same effect as a vote against the Merger Agreement.
Therefore, I urge you to execute, date and return the enclosed proxy card in
the enclosed postage-paid envelope as soon as possible to assure that your
shares will be voted at the Special Meeting.
The Board of Directors and management of Plains Spirit appreciate
your continued support and look forward to seeing you at the Special Meeting.
If you have any questions or require assistance, please call MacKenzie
Partners, Inc., which is assisting us in the solicitation of proxies,
at 1-800-322-2885.
Very truly yours,
WILLIAM L. WILKE
President and Chief Executive Officer
<PAGE> 6
PLAINS SPIRIT FINANCIAL CORPORATION
131 WEST THIRD STREET
DAVENPORT, IOWA 52801-1497
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON JULY 6, 1995
TO THE STOCKHOLDERS OF PLAINS SPIRIT:
Notice is hereby given that a Special Meeting of Stockholders of
PLAINS SPIRIT FINANCIAL CORPORATION, a Delaware corporation ("Plains Spirit"),
will be held at the main office of Plains Spirit, 131 West Third Street,
Davenport, Iowa, on Thursday, July 6, 1995, at 1:30 p.m. Central Time, for the
following purposes:
(1) To consider and vote upon the adoption and approval of the
Agreement and Plan of Merger (the "Merger Agreement"), dated December 23, 1994,
and each of the transactions contemplated thereby, pursuant to which Plains
Spirit will be merged (the "Merger") with and into Mercantile Bancorporation
Inc. of Iowa, an Iowa corporation and wholly owned subsidiary of Mercantile
Bancorporation Inc. ("MBI"), in a transaction which would result in the
business and operations of Plains Spirit being continued through such wholly
owned subsidiary, and whereby, upon the consummation of the Merger, each share
of Plains Spirit common stock (other than shares held by holders of Plains
Spirit common stock who perfect their appraisal rights) will be converted into
either (i) the right to receive an amount in cash equal to $31.25 per share or
(ii) the right to receive such number of shares (or fraction thereof) of MBI
common stock, the exchange ratio for which will be determined in the manner
described in detail at pages 24 to 27 of the accompanying Proxy Statement/
Prospectus. In certain circumstances, Plains Spirit stockholders who have
elected to receive all cash or all shares of MBI common stock in the Merger
will receive a combination of cash and MBI common stock. The Merger Agreement
is attached as Annex A to the accompanying Proxy Statement/Prospectus and is
-------
incorporated by reference herein.
(2) To transact such other business as may properly come before the
Special Meeting or any adjournments or postponements thereof.
The record date for determining the stockholders entitled to receive
notice of, and to vote at, the Special Meeting or any adjournments or
postponements thereof has been fixed as of the close of business on June 1,
1995.
Each holder of Plains Spirit common stock may have the right to
dissent from the Merger and to demand payment of the fair value of his or her
shares in the event the Merger is approved and consummated. Any right of any
such stockholder to receive such payment would be contingent upon strict
compliance with the requirements set forth in Section 262 of The General
Corporation Law of the State of Delaware, the full text of which is attached as
Annex B to the accompanying Proxy Statement/Prospectus. For a summary of these
- -------
requirements, see "APPRAISAL RIGHTS OF STOCKHOLDERS OF PLAINS SPIRIT" in the
Proxy Statement/Prospectus.
WHETHER OR NOT YOU EXPECT TO ATTEND THE SPECIAL MEETING,
PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT TO
CHEMICAL MELLON SHAREHOLDER SERVICES, INC. IN THE ACCOMPANYING ENVELOPE.
By Order of the Board of Directors
THOMAS W. PRIESTER
Secretary
Davenport, Iowa
June 7, 1995
<PAGE> 7
MERCANTILE BANCORPORATION INC.
PROSPECTUS
-----------------
PLAINS SPIRIT FINANCIAL CORPORATION
PROXY STATEMENT
SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON JULY 6, 1995
This Prospectus of Mercantile Bancorporation Inc. ("MBI") relates to
up to 1,400,000 shares of Common Stock, $5.00 par value, 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
stockholders of Plains Spirit Financial Corporation, a Delaware corporation
("Plains Spirit"), upon consummation of the proposed merger (the "Merger") of
Plains Spirit with and into Mercantile Bancorporation Inc. of Iowa, an Iowa
corporation which is a wholly owned subsidiary of MBI ("MBII"). Upon receipt
of the requisite stockholder and regulatory approvals, the Merger will be
consummated pursuant to the terms of the Agreement and Plan of Merger, dated
December 23, 1994 (the "Merger Agreement"), by and among MBI, MBII and Plains
Spirit. This Prospectus also serves as the Proxy Statement of Plains Spirit
for use in connection with the Special Meeting of Stockholders of Plains Spirit
(the "Special Meeting"), which will be held on July 6, 1995, at the time and
place and for the purposes stated in the Notice of Special Meeting of
Stockholders accompanying this Proxy Statement/Prospectus.
Pursuant to the Merger Agreement, MBI will issue up to an aggregate
of 1,400,000 shares of MBI Common Stock. Upon consummation of the Merger, the
business and operations of Plains Spirit will be continued through MBII and
each share of Plains Spirit common stock, $0.01 par value ("Plains Spirit
Common Stock") (other than shares held by holders of Plains Spirit Common Stock
who perfect their appraisal rights) will be converted into either (i) the right
to receive an amount in cash equal to $31.25 per share or (ii) the right to
receive such number of shares (or fraction thereof) of MBI Common Stock (the
"Exchange Ratio") as shall equal the quotient of $31.25 divided by the average
of the closing stock price of one share of MBI Common Stock (the "Average
Mercantile Stock Price") on the New York Stock Exchange (the "NYSE") for the
ten consecutive trading days ending on and including the date of the last
required regulatory approval, as more fully described in detail at pages 24 to
27 of this Proxy Statement/Prospectus. Each Plains Spirit stockholder will
have the opportunity to elect whether to receive either shares of MBI Common
Stock or cash as consideration in the Merger. In certain circumstances, as
more fully described below, Plains Spirit stockholders who have elected to
receive all cash or all shares of MBI Common Stock in the Merger will receive a
combination of cash and MBI Common Stock. See "TERMS OF THE PROPOSED
MERGER - General Description of the Merger." No fractional shares of MBI
Common Stock will be issued in the Merger, but cash will be paid in lieu of
such fractional shares. See "TERMS OF THE PROPOSED MERGER - Fractional
Shares."
The Merger Agreement also provides that upon consummation of the
Merger, the Plains Spirit Financial Corporation 1991 Stock Option and Incentive
Plan (the "Stock Option Plan"), and all options thereunder which are
outstanding at such time (whether or not then exercisable), will be assumed by
MBI. As a result of the assumption of the options by MBI, upon consummation of
the Merger, each outstanding option under the Stock Option Plan will entitle
the holder, upon exercise, to either (i) purchase such number of shares of MBI
Common Stock as is equal to the number of shares of Plains Spirit Common Stock
subject to such option multiplied by the Exchange Ratio, and at a per share
exercise price which shall equal the per share exercise price under such option
divided by the Exchange Ratio, subject to adjustment as appropriate to reflect
any stock split, stock dividend, capitalization or similar transaction
subsequent to the Effective Time, or (ii) receive either (A) cash or (B) shares
of MBI Common Stock valued at the time of exercise, as determined by the
committee of the MBI Board of Directors which will, after consummation of the
Merger, administer the Stock Option Plan, equal to the spread between the
<PAGE> 8
aggregate exercise price for the shares subject to the option and the value
(based on the market price of MBI Common Stock at the time of exercise) of the
number of shares of MBI Common Stock which such option holder would have been
entitled to receive if the option was exercised immediately prior to the
Effective Time. The options granted under the Stock Option Plan will continue
after the Merger to be governed by the provisions of the Stock Option Plan.
The transaction is intended to qualify as a reorganization under
Section 368 of the Internal Revenue Code of 1986, as amended (the "Code"). The
Merger generally is intended to achieve certain tax-deferral benefits for
federal income tax purposes for Plains Spirit stockholders with respect to
shares of MBI Common Stock they receive in the Merger. See "SUMMARY
INFORMATION - Certain Federal Income Tax Consequences" and "CERTAIN FEDERAL
INCOME TAX CONSEQUENCES OF THE MERGER." Because a Plains Spirit stockholder
who elects to receive all MBI Common Stock may, under certain circumstances,
receive a combination of MBI Common Stock and cash, a Plains Spirit stockholder
who elects to receive all MBI Common Stock may nevertheless receive some cash,
and as a result, recognize some taxable income. See "TERMS OF THE PROPOSED
MERGER - General Description of the Merger."
MBI Common Stock is traded on the NYSE under the symbol "MTL" and
Plains Spirit Common Stock is quoted on the Nasdaq National Market under the
symbol "PSFC." On June 5, 1995 the closing sale price for MBI Common Stock
as reported on the NYSE Composite Tape was $42.125 per share and the closing
sale price for Plains Spirit Common Stock as reported by the Nasdaq National
Market was $30.25 per share.
This Proxy Statement/Prospectus, the Notice of Special Meeting and
the form of proxy were first mailed to the stockholders of Plains Spirit on or
about June 7, 1995.
THESE SECURITIES 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 COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Proxy Statement/Prospectus is June 7, 1995.
- 2 -
<PAGE> 9
AVAILABLE INFORMATION
---------------------
MBI and Plains Spirit are subject to the informational requirements
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and,
in accordance therewith, file reports, proxy statements and other information
with the Commission. Such reports, proxy statements and other information
filed by MBI and Plains Spirit with the Commission can be inspected and copied
at the public reference facilities maintained by the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549 and at the Commission's regional offices
located at Suite 1300, Seven World Trade Center, New York, New York 10048 and
Room 1400, Northwestern Atrium Center, 500 West Madison Street, Chicago,
Illinois 60661. 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. Plains Spirit Common Stock is quoted on the Nasdaq National
Market, and such reports, proxy statements and other information concerning
Plains Spirit are available from Plains Spirit, without charge, upon written or
oral request to Donald J. Brewer, Treasurer, 131 West Third Street, Davenport,
Iowa 52801-1497, telephone (319) 383-4125.
This Proxy Statement/Prospectus does not contain all of the
information set forth in the Registration Statement on Form S-4 and exhibits
thereto (the "Registration Statement") covering the securities offered hereby
which has been filed by MBI with the Commission. 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. Statements contained in this Proxy Statement/Prospectus provide a
summary of the contents of any contract or other document referenced herein 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. For such further information, reference is made to the Registration
Statement.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
-------------------------------------------------
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES BY REFERENCE DOCUMENTS
RELATING TO MBI WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. SUCH
DOCUMENTS, EXCLUDING EXHIBITS UNLESS SPECIFICALLY INCORPORATED THEREIN, ARE
AVAILABLE, WITHOUT CHARGE, UPON WRITTEN OR ORAL REQUEST TO JON W. BILSTROM,
GENERAL COUNSEL AND SECRETARY, MERCANTILE BANCORPORATION INC., P.O. BOX 524,
ST. LOUIS, MISSOURI 63166-0524, TELEPHONE (314) 425-2525. IN ORDER TO ENSURE
TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE BY JUNE 28,
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 for the year ended December 31,
1994.
(b) MBI's Report on Form 10-Q for the quarter ended March 31, 1995.
(c) MBI's Current Reports on Form 8-K dated May 12, 1995 and May
31, 1995.
(d) The description of MBI's Common Stock set forth in Item 1 of
MBI's Registration Statement on Form 8-A, dated March 5, 1993,
and any amendment or report filed for the purpose of updating
such description.
- 3 -
<PAGE> 10
(e) The description of MBI's Preferred Share Purchase Rights set
forth in Item 1 of MBI's Registration Statement on Form 8-A,
dated March 5, 1993, and any amendment or report filed for the
purpose of updating such description.
All documents filed by MBI pursuant to Sections 13(a), 13(c), 14 and
15(d) of the Exchange Act after the date hereof and until 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 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 herein by reference shall be deemed to be modified
or superseded for purposes hereof to the extent that a subsequent statement
contained herein or in any other subsequently filed document 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 AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY MBI OR PLAINS SPIRIT. THIS PROXY STATEMENT/PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY
SECURITIES OTHER THAN THE SHARES OF MBI COMMON STOCK TO WHICH IT RELATES OR AN
OFFER TO ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER WOULD BE UNLAWFUL.
NEITHER THE DELIVERY OF THIS PROXY STATEMENT/PROSPECTUS NOR ANY DISTRIBUTION OF
SECURITIES PURSUANT HERETO SHALL IMPLY OR CREATE AN IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF MBI OR PLAINS SPIRIT OR ANY OF THEIR
SUBSIDIARIES OR IN THE INFORMATION SET FORTH HEREIN SUBSEQUENT TO THE DATE
HEREOF.
- 4 -
<PAGE> 11
<TABLE>
TABLE OF CONTENTS
<CAPTION>
Page
----
<S> <C>
AVAILABLE INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE. . . . . . . . . . . . . . . . . . 3
SUMMARY INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Business of MBI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Business of MBII. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Business of Plains Spirit . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
The Proposed Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Other Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Interests of Certain Persons in the Merger. . . . . . . . . . . . . . . . . . . . 14
Special Meeting of Plains Spirit Stockholders . . . . . . . . . . . . . . . . . . 15
Reasons for the Merger. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Opinion of Financial Advisor to Plains Spirit . . . . . . . . . . . . . . . . . . 15
Fractional Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Appraisal Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Waiver and Amendment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Certain Federal Income Tax Consequences . . . . . . . . . . . . . . . . . . . . . 16
Regulatory Approvals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Accounting Treatment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Markets and Market Prices . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Comparative Unaudited Per Share Data. . . . . . . . . . . . . . . . . . . . . . . 18
Summary Financial Data. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
INFORMATION REGARDING SPECIAL MEETING. . . . . . . . . . . . . . . . . . . . . . . . 22
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Date, Time and Place. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Record Date; Vote Required. . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Voting and Revocation of Proxies. . . . . . . . . . . . . . . . . . . . . . . . . 22
Solicitation of Proxies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
TERMS OF THE PROPOSED MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
General Description of the Merger . . . . . . . . . . . . . . . . . . . . . . . . 24
Other Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Background of and Reasons for the Merger; Board Recommendations . . . . . . . . . 29
Opinion of Financial Advisor to Plains Spirit . . . . . . . . . . . . . . . . . . 32
Conditions of the Merger. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Termination of the Merger Agreement . . . . . . . . . . . . . . . . . . . . . . . 40
Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Closing Date. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Surrender of Plains Spirit Stock Certificates and Receipt of
MBI Common Stock and/or Cash . . . . . . . . . . . . . . . . . . . . . . . . . 41
Fractional Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Regulatory Approvals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Business Pending the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Waiver and Amendment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Accounting Treatment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Interests of Certain Persons in the Merger. . . . . . . . . . . . . . . . . . . . 46
Effect on Employee Benefit Plans. . . . . . . . . . . . . . . . . . . . . . . . . 47
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER. . . . . . . . . . . . . . . . 47
APPRAISAL RIGHTS OF STOCKHOLDERS OF PLAINS SPIRIT. . . . . . . . . . . . . . . . . . 52
PRO FORMA FINANCIAL INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Comparative Unaudited Per Share Data. . . . . . . . . . . . . . . . . . . . . . . 54
Pro Forma Combined Consolidated Financial Statements (Unaudited). . . . . . . . . 55
INFORMATION REGARDING PLAINS SPIRIT. . . . . . . . . . . . . . . . . . . . . . . . . 65
Business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Management's Discussion and Analysis of Financial Condition and
Results of Operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Lending Activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
Mortgage-Backed and Investment Securities . . . . . . . . . . . . . . . . . . . . 80
Liquidity and Capital Resources . . . . . . . . . . . . . . . . . . . . . . . . . 84
Sources of Funds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
Provision for Income Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
Cumulative Effect of an Accounting Change . . . . . . . . . . . . . . . . . . . . 87
Asset/Liability Management. . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
Results of Operations (Second Quarter Comparison) . . . . . . . . . . . . . . . . 89
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96
Personnel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96
Properties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97
Security Ownership of Certain Beneficial Owners and Management. . . . . . . . . . 97
INFORMATION REGARDING MBI STOCK. . . . . . . . . . . . . . . . . . . . . . . . . . . 99
Description of MBI Common Stock and Attached Preferred Share
Purchase Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99
Restrictions on Resale of MBI Stock by Affiliates . . . . . . . . . . . . . . . . 101
Comparison of the Rights of Shareholders of MBI and Plains Spirit . . . . . . . . 101
SUPERVISION AND REGULATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106
Certain Transactions with Affiliates. . . . . . . . . . . . . . . . . . . . . . . 106
Payment of Dividends. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106
Capital Adequacy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107
FDIC Insurance Assessments. . . . . . . . . . . . . . . . . . . . . . . . . . . . 108
Support of Subsidiary Banks . . . . . . . . . . . . . . . . . . . . . . . . . . . 108
FIRREA and FDICIA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109
Depositor Preference Statute. . . . . . . . . . . . . . . . . . . . . . . . . . . 110
The Interstate Banking and Community Development Legislation. . . . . . . . . . . 110
RELATIONSHIP WITH INDEPENDENT ACCOUNTANTS. . . . . . . . . . . . . . . . . . . . . . 110
LEGAL MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111
EXPERTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111
OTHER MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111
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SHAREHOLDER PROPOSALS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111
CONSOLIDATED FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . 113
ANNEX A -- AGREEMENT AND PLAN OF MERGER DATED DECEMBER 23,
1994 BY AND AMONG MERCANTILE BANCORPORATION INC.,
MERCANTILE BANCORPORATION INC. OF IOWA AND PLAINS
SPIRIT FINANCIAL CORPORATION . . . . . . . . . . . . . . . . . . . . . . A
ANNEX B -- APPRAISAL RIGHTS PROVISIONS OF THE GENERAL
CORPORATION LAW OF THE STATE OF DELAWARE . . . . . . . . . . . . . . . . B-1
ANNEX C -- OPINION OF KAPLAN ASSOCIATES, INC. . . . . . . . . . . . . . . . . . . . C-1
</TABLE>
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SUMMARY INFORMATION
-------------------
The following summary of the important terms of the proposed Merger
and related information discussed elsewhere in this Proxy Statement/Prospectus
does not purport to be complete and is qualified in its entirety by reference
to the more detailed information which appears elsewhere in this Proxy
Statement/Prospectus and the documents incorporated by reference herein.
Stockholders of Plains Spirit are urged to read this Proxy Statement/Prospectus
in its entirety. All MBI per share data reflect a three-for-two stock split
distributed in the form of a stock dividend on April 11, 1994.
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"). At May 31, 1995, MBI owned, directly or indirectly,
all of the capital stock of Mercantile Bank of St. Louis National Association
("Mercantile Bank") and 50 other commercial banks which operate from 324
banking offices and 309 Fingertip Banking automated teller machines located
throughout Missouri, southern Illinois, eastern Kansas, Arkansas and Iowa.
MBI's services concentrate in four major lines of business -- consumer,
corporate, investment banking and trust services. MBI also operates
non-banking subsidiaries which provide related financial services, including
investment management, brokerage services and asset-based lending. As of
March 31, 1995, MBI had 52,749,516 shares of its Common Stock outstanding.
As of March 31, 1995, MBI reported, on a restated consolidated basis, total
assets of $15.2 billion, total deposits of $11.3 billion, total loans of
$10.1 billion and shareholders' equity of $1.3 billion.
On January 3, 1995, MBI completed the acquisitions of (i) UNSL Financial
Corp. ("UNSL"), a Delaware corporation and a savings and loan holding company
under the Home Owners' Loan Act, as amended (the "HOLA"), located in Lebanon,
Missouri, and (ii) Wedge Bank ("Wedge"), an Illinois state-chartered bank
located in Alton, Illinois. These acquisitions were accounted for under the
pooling-of-interests method of accounting. As of January 3, 1995, UNSL and
Wedge reported total assets of $508 million and $196 million, respectively,
and total deposits of $381 million and $153 million, respectively.
On May 1, 1995, MBI completed the acquisitions of Central Mortgage
Bancshares, Inc. ("CMB"), a Missouri corporation and a registered bank
holding company under the BHCA, located in Kansas City, Missouri, and (ii)
TCBankshares, Inc. ("TCB"), an Arkansas corporation and a registered bank
holding company under the BHCA, located in North Little Rock, Arkansas. These
acquisitions were accounted for under the pooling-of-interests method of
accounting. As of March 31, 1995, CMB and TCB reported total assets of $655
million and $1.4 billion, respectively, and total deposits of $570 million
and $1.2 billion, respectively.
In connection with the acquisitions of UNSL, CMB and TCB, MBI has
restated its consolidated financial statements as of and for the years
ended December 31, 1994, 1993 and 1992. MBI has filed supplemental financial
statements as of and for the years ended December 31, 1994, 1993 and 1992
in a Current Report on Form 8-K, dated May 31, 1995, which has been
incorporated by reference into this Proxy/Statement/Prospectus. Due to the
immateriality of the financial condition and results of operations of
Wedge to that of MBI, the supplemental consolidated financial statements
of MBI do not reflect the Wedge transaction.
On January 27, 1995, MBI entered into an agreement to acquire
Southwest Bancshares, Inc. ("Southwest"), located in Bolivar, Missouri.
Southwest, a Missouri corporation, is a registered bank holding company under
the BHCA which owns one commercial bank. As of March 31, 1995,
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<PAGE> 15
Southwest reported total assets of $181 million, total deposits of $149
million, total loans of $127 million and shareholders' equity of $15 million.
On February 16, 1995, MBI entered into an agreement to acquire
AmeriFirst Bancorporation, Inc. ("AmeriFirst"), located in Sikeston, Missouri.
AmeriFirst, a Missouri corporation, is a registered bank holding company under
the BHCA which owns one commercial bank. As of March 31, 1995, AmeriFirst
reported total assets of $157 million, total deposits of $131 million, total
loans of $116 million and shareholders' equity of $15 million.
MBI's principal executive offices are located at One Mercantile
Center, St. Louis, Missouri 63101 and its telephone number is (314) 425-2525.
BUSINESS OF MBII
MBII, an Iowa corporation, is a wholly owned subsidiary of MBI which
was organized in 1993. MBII is a registered bank holding company under the
BHCA. MBII currently owns all of the capital stock of one bank which operates
from eight locations in Iowa. MBII, which will continue to be a subsidiary of
MBI, will be the surviving corporation upon consummation of the Merger with
Plains Spirit.
BUSINESS OF PLAINS SPIRIT
Plains Spirit, an Iowa corporation, was organized in 1991 and is a
savings and loan holding company under the HOLA. Plains Spirit currently owns
all of the issued and outstanding shares of capital stock of First Federal
Savings Bank of Iowa, a federally-chartered stock savings bank ("First
Federal"), which operates five branches in eastern Iowa and one loan production
office in Rock Island, Illinois. As of March 31, 1995, 1,906,932 shares of
Plains Spirit Common Stock were issued and outstanding, and stock options to
purchase 140,886 shares of Plains Spirit Common Stock were outstanding. As of
March 31, 1995, Plains Spirit reported, on a consolidated basis, total assets
of $451.6 million, total deposits of $271.5 million, total loans receivable,
net, of $258.2 million and stockholders' equity of $56.4 million. See
"INFORMATION REGARDING PLAINS SPIRIT."
Plains Spirit's principal executive offices are located at 131 West
Third Street, Davenport, Iowa 52801-1497 and its telephone number is (319) 326-
0121.
THE PROPOSED MERGER
Subject to the satisfaction of the terms and conditions set forth in
the Merger Agreement, which are described below, Plains Spirit will be merged
with and into MBII. Upon consummation of the Merger, Plains Spirit's corporate
existence will terminate and MBII will continue as the surviving entity.
Simultaneously with the effectiveness of the Merger, and subject to elections
of stockholders and certain other adjustments intended to accommodate the tax-
deferred nature of the transaction for those stockholders who receive solely
shares of MBI Common Stock, each share of Plains Spirit Common Stock (other
than shares held by holders of Plains Spirit Common Stock who perfect their
appraisal rights) will be converted into either (i) the right to receive an
amount in cash equal to $31.25 per share (the "Cash Distribution") or (ii)
the right to receive such number of shares (or fraction thereof) of MBI
Common Stock as shall equal the quotient of $31.25 divided by the Average
Mercantile Stock Price (the "Stock Distribution") (the aggregate of the Cash
Distributions and the Stock Distributions payable or issuable pursuant to the
Merger is sometimes hereinafter referred to as the "Merger Consideration").
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Each Plains Spirit stockholder will have the opportunity to elect
whether to receive either the Cash Distribution (a "Cash Election," in which
case, such holder's shares shall be deemed to be "Cash Election Shares") or a
Stock Distribution (a "Stock Election," in which case, such holder's shares
shall be deemed to be "Stock Election Shares"). Enclosed with this Proxy
Statement/Prospectus is an Election Form for Use by Stockholders of Plains
Spirit Financial Corporation (the "Election Form") whereby stockholders may
indicate a Cash Election or a Stock Election. In order for an Election Form
to be deemed to be effective, such Election Form must be properly completed
and duly executed by the Plains Spirit stockholder and returned to KeyCorp
Shareholder Services, Inc. (the "Exchange Agent") by 5:00 P.M., Central
Daylight Time, on the date of the Special Meeting (the "Election Deadline").
Each separate entry on Plains Spirit's list of stockholders shall be
presumed to represent a separate and distinct holder of record of Plains Spirit
Common Stock. Shares held of record by a bank, trust company, broker, dealer
or other recognized nominee shall be deemed to be held by a single holder
unless the nominee advises the Exchange Agent otherwise, in which case, each
beneficial owner will be treated as a separate holder and, either directly or
through such nominee, may submit a separate Election Form. Any election may be
revoked or changed by the person submitting an Election Form or any other
person to whom the subject shares are subsequently transferred by submission of
a later dated Election Form, properly completed and duly executed, received by
the Exchange Agent by the Election Deadline.
Any stockholder who fails to deliver a properly completed and duly
executed Election Form to the Exchange Agent by the Election Deadline shall be
deemed to have made no election (a "No Election," in which case, such holder's
shares shall be deemed to be "No Election Shares"). Unless the aggregate Cash
Distribution elected by the holders of Cash Election Shares is required to be
reduced as described below, No Election Shares will be treated as Cash Election
Shares for purposes of determining the type and amount of the Merger
Consideration payable pursuant to the Merger. Shares of Plains Spirit Common
Stock that are subject to outstanding options (the "Option Shares") under the
Stock Option Plan shall be deemed to be Stock Election Shares for all purposes
except that such shares shall not be subject to any reduction of the Stock
Distribution payable to the holders thereof upon exercise of the options in the
event that the aggregate Stock Distribution elected by the holders of Stock
Election Shares is required to be reduced as described below.
The actual Merger Consideration that will be paid to each Plains
Spirit stockholder upon consummation of the Merger may differ from the form of
Merger Consideration elected by such stockholder pursuant to his or her
Election Form in the event that (i) the aggregate number of shares of MBI
Common Stock to be issued pursuant to the Merger would exceed 1,400,000 or (ii)
the number of shares to be issued pursuant to the Merger would be insufficient
to allow Thompson & Mitchell, counsel to MBI ("MBI's Counsel"), to render an
opinion that the Merger would qualify as a reorganization under Section 368 of
the Code for federal income tax purposes. In the event that the number of
shares of MBI Common Stock that would be issuable to Stock Election Shares on
the basis of the stockholders' elections exceeds 1,400,000, the Stock
Distribution to all holders of Stock Election Shares (other than Option Shares)
will be reduced pro rata and such holders will receive the Cash Distribution
in lieu thereof such that the aggregate Stock Distribution equals 1,400,000
shares of MBI Common Stock. In the event that the number of shares of MBI
Common Stock that would be issuable to Stock Election Shares on the basis of
the stockholders' elections is less than 1,400,000 shares of MBI Common Stock
and such number of shares is insufficient for MBI's Counsel to render its
- ---
opinion of the tax-deferred nature of the Merger for federal income tax
purposes the Cash Distribution payable, first, to all holders of the No
Election Shares, and then if necessary, to all holders of the Cash Election
Shares, will be reduced pro rata and be substituted with the Stock
Distribution such that the minimum number of shares of MBI Common Stock
necessary for MBI's Counsel to render its opinion will be
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<PAGE> 17
issued pursuant to the Merger. In all other cases, Plains Spirit holders
will receive the form of Merger Consideration for their shares of Plains
Spirit Common Stock in the form that such stockholder has elected on his or
her Election Form or has deemed to elected in the case of No Election Shares.
A description of the manner in which the Merger Consideration will be paid to
the Plains Spirit stockholders upon consummation of the Merger, including the
terms and conditions under which a portion of the consideration elected by
the Plains Spirit stockholders will be reallocated into the other category of
Merger Consideration is set forth below.
In the event the number of shares of MBI Common Stock issuable in
respect of the Stock Election Shares is less than 1,400,000, then:
(i) all Stock Election Shares will be converted into the right
to receive the Stock Distribution; and
(ii) all Cash Election Shares will be converted into the right
to receive the Cash Distribution; provided, however, that if the
number of shares issuable to all holders of Stock Election Shares is
insufficient, in the opinion of MBI's Counsel, for it to render the
tax opinion required by the Agreement (see "CERTAIN FEDERAL INCOME
TAX CONSEQUENCES OF THE MERGER"), then MBI's Counsel will advise the
Exchange Agent (the "Notice") as soon as practicable on or after the
date of the closing of the Merger (the "Closing Date") as to the
minimum number of additional shares of MBI Common Stock that will be
required to be issued as Stock Distributions in the Merger in order
to allow MBI's Counsel to render such opinion in its reasonable
judgment. Upon the receipt of the Notice, the Exchange Agent shall:
(A) first, reallocate the Merger Consideration
payable to each holder of No Election Shares pro rata (based
upon the number of No Election Shares owned by such holder as
compared with the total number of No Election Shares owned by
all holders) such that all holders of No Election Shares will
receive the number of shares of MBI Common Stock as Stock
Distributions which in the aggregate will be equal to the number
of shares set forth in the Notice and each such stockholder will
receive the balance of the Merger Consideration due to him or
her, if any, in the form of a Cash Distribution;
(B) if the reallocation set forth in paragraph (A)
above is not sufficient to allow the issuance of the number
of shares of MBI Common Stock set forth in the Notice, then,
reallocate the Merger Consideration payable to each holder of
Cash Election Shares, other than No Election Shares, pro rata
(based upon the number of Cash Election Shares, other than No
Election Shares, owned by all such holders) such that all
holders of Cash Election Shares, other than No Election
Shares, will receive the number of shares of MBI Common Stock
as Stock Distributions which in the aggregate will be equal to
the number of shares set forth in the Notice less the shares of
MBI Common Stock issuable pursuant to paragraph (A) above and
will receive the balance of the Merger Consideration, if any,
due him or her in the form of a Cash Distribution.
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<PAGE> 18
In the event the number of shares of MBI Common Stock distributable
in respect of the Stock Election Shares is greater than 1,400,000 then:
(i) all Cash Election Shares will be converted into the right
to receive the Cash Distribution; and
(ii) the Exchange Agent will reallocate the Merger Consideration
payable to each holder of Stock Election Shares, other than Option
Shares, pro rata (based upon the number of Stock Election Shares,
other than Option Shares, owned by such holder, as compared with the
total number of Stock Election Shares, other than Option Shares,
owned by all holders) such that all holders of the Stock Election
Shares, including all holders of Option Shares, will receive
1,400,000 shares of Mercantile Common Stock as Stock Distributions
and each such stockholder will receive the balance of the Merger
Consideration due to him or her in the form of a Cash Distribution.
Pursuant to the Merger Agreement, any holder of 1% or more of the
Plains Spirit Common Stock (determined as of the Closing Date) that shall not,
on or before the Election Date, have delivered to the Exchange Agent a properly
executed certification regarding certain tax matters (which will be provided to
such holders with the Election Form) shall be deemed to have made a timely
election to receive the Cash Distribution, and all shares of Plains Spirit
Common Stock held by such holder shall be deemed to be Cash Election Shares.
This provision will preclude a holder that acquires additional shares of Plains
Spirit Common Stock and becomes a holder of 1% or more of such shares after the
Election Deadline from receiving the Stock Distribution.
Following consummation of the Merger, the Exchange Agent will
distribute the applicable Merger Consideration in exchange for shares of Plains
Spirit Common Stock. See "TERMS OF THE PROPOSED MERGER - Surrender of Plains
Spirit Stock Certificate and Receipt of MBI Common Stock and/or Cash."
The Merger Agreement also provides that upon consummation of the
Merger, the Stock Option Plan and all options thereunder which are outstanding
at such time (whether or not then exercisable), will be assumed by MBI. As a
result of the assumption of the options by MBI, upon consummation of the
Merger, each outstanding option under the Stock Option Plan will entitle the
holder, upon exercise, to either (i) purchase such number of shares of MBI
Common Stock as is equal to the number of shares of Plains Spirit Common Stock
subject to such option multiplied by the Exchange Ratio, and at a per share
exercise price which shall equal the per share exercise price under such option
divided by the Exchange Ratio, subject to adjustment as appropriate to reflect
any stock split, stock dividend, capitalization or similar transaction
subsequent to the Effective Time, or (ii) receive either (A) cash or (B)
shares of MBI Common Stock valued at the time of exercise, as determined by the
committee of the MBI Board of Directors which will, after the consummation of
the Merger, administer the Stock Option Plan, equal to the spread between the
aggregate exercise price for the shares subject to the option and the value
(based on the market price of MBI Common Stock at the time of exercise) of the
number of shares of MBI Common Stock which such option holder would have been
entitled to receive if the option was exercised immediately prior to the
Effective Time. The options granted under the Stock Option Plan will
continue after the Merger to be governed by the provisions of the Stock
Option Plan.
The Merger Agreement provides that the consummation of the Merger is
subject to certain terms and conditions, including the approval of the Merger
Agreement by an affirmative vote of the holders of a majority of the
outstanding shares of Plains Spirit Common Stock and receipt of
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<PAGE> 19
the requisite regulatory approvals and an opinion of counsel to MBI regarding
certain federal income tax aspects of the transaction. For a discussion of
each of the conditions to the Merger, see "TERMS OF THE PROPOSED MERGER -
Conditions of the Merger." The Merger will be consummated and become
effective on the date and at the time (the "Effective Time") that a duly
certified, executed and acknowledged copy of the Articles of Merger in
respect of the Merger is filed with the Secretary of State of the State of
Iowa.
Unless the parties otherwise agree, the Closing Date shall be no
later than the first business day of the first full calendar month immediately
succeeding the month in which the later of the following events occurs (i) the
approval of the Merger Agreement by the stockholders of Plains Spirit and
(ii) the approval of the Merger by the Board of Governors of the Federal
Reserve System (the "Federal Reserve Board"), the Office of Thrift Supervision
(the "OTS") and any other applicable regulatory authorities, and all waiting
periods after such approvals have expired. The Merger Agreement may be
terminated at any time prior to the Closing Date by the mutual consent of the
parties or, unilaterally, by either party upon the occurrence of certain events
or if the Merger is not consummated by December 31, 1995. See "TERMS OF THE
PROPOSED MERGER - Conditions of the Merger" and "- Termination of the Merger
Agreement."
OTHER AGREEMENTS
In addition to and contemporaneously with the Merger Agreement, MBI
and Plains Spirit executed a Stock Option Agreement (the "Option Agreement")
and MBI and each of the directors of Plains Spirit executed separate Voting
Agreements (the "Voting Agreements"). The following are summaries of the
material terms of the Option Agreement and the Voting Agreements.
OPTION AGREEMENT. Concurrent with the execution of the Merger
Agreement, MBI and Plains Spirit entered into the Option Agreement pursuant to
which Plains Spirit has issued MBI an option (the "Option") to purchase up to
19.9% of the outstanding shares of Plains Spirit Common Stock at an exercise
price of $24.00 per share (the "Option Price"). The Option is exercisable upon
the occurrence of certain events generally relating to the failure of Plains
Spirit to consummate the Merger because of a material change or potential
material change in the ownership of Plains Spirit, all as set forth in the
Option Agreement. None of such events has occurred as of the date hereof.
Plains Spirit granted the Option as a condition of and in consideration for
MBI's entering into the Merger Agreement. The Option is intended to increase
the likelihood that the Merger will be consummated in accordance with the terms
of the Merger Agreement. Consequently, the Option may have the effect of
discouraging persons who might now or prior to the consummation of the Merger
be interested in acquiring Plains Spirit (or a significant interest in Plains
Spirit) from considering or proposing such an acquisition, even if such person
were prepared to pay a higher price per share for Plains Spirit Common Stock
than the price per share implicit in the Merger Consideration. In the event
MBI acquires shares pursuant to the Option, it could vote those shares in the
election of Plains Spirit directors and other matters requiring a stockholder
vote, thereby potentially having a material impact on the outcome of such
matters. For additional information regarding the Option Agreement, see "TERMS
OF THE PROPOSED MERGER - Other Agreements - Option Agreement."
VOTING AGREEMENTS. Concurrent with the execution of the Merger
Agreement, MBI and each of the directors of Plains Spirit, executed separate
Voting Agreements by which each such director agreed that he will vote all of
the shares of Plains Spirit Common Stock then owned or subsequently acquired by
him and over which he then has, or prior to the Record Date (as defined below)
acquires, voting control in favor of the approval of the Merger Agreement at
the Special Meeting. In addition, until the earliest to occur of the Effective
Time of the Merger, the termination of the Voting Agreement or the termination
of the Merger Agreement, each director further agreed he
- 13 -
<PAGE> 20
will not vote any such shares in favor of the approval of any other competing
acquisition proposal involving Plains Spirit and a third party. Each
director also agreed that he will not transfer shares of Plains Spirit Common
Stock unless, prior to such transfer, the transferee executes an agreement in
substantially the same form as the Voting Agreement. As of the Record Date,
the directors of Plains Spirit owned beneficially an aggregate of 92,780
shares of Plains Spirit Common Stock (excluding option shares), or
approximately 4.86% of the issued and outstanding shares.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
John C. Shenk, Jr., Chairman of First Federal, and Thomas G. Getz,
Vice Chairman of First Federal, have each entered into an agreement with MBI
whereby they will continue as Chairman and Vice Chairman, respectively, of
First Federal through December 31, 1995. Messrs. Shenk and Getz will receive
the same fees as other members of the Board of Directors of First Federal.
William L. Wilke, President of First Federal, has entered into an agreement
with MBI whereby he will continue to serve as President of First Federal
through December 31, 1995. After December 31, 1995 and through the period
ending three years after consummation of the Merger, Mr. Wilke will serve as
either the President or Chairman of First Federal. During such three year
period, Mr. Wilke will receive a base salary of $182,000 per year (inclusive of
director's fees) and be entitled to participate in MBI's welfare plans and
executive incentive programs. MBI also will assume the obligations of Plains
Spirit and First Federal under a Supplemental Retirement Agreement with Mr.
Wilke.
In addition, MBI will honor the termination agreements (the
"Termination Agreements") of First Federal executive officers Mark J.
Hoffschneider, James D. Van Hyfte and Donald J. Brewer. Pursuant to the
Termination Agreements, if the officer is involuntarily terminated following a
change in control, the officer will be entitled to certain compensation
payments. Consummation of the Merger will constitute a change in control for
the purposes of the Termination Agreements. See "TERMS OF THE PROPOSED
MERGER - Interests of Certain Persons in the Merger."
MBI has agreed to assume the Stock Option Plan and all stock options
issued thereunder. As a result of the assumption of the options by MBI, upon
consummation of the Merger, each outstanding option under the Stock Option Plan
will entitle the holder, upon exercise, to either (i) purchase such number of
shares of MBI Common Stock as is equal to the number of shares of Plains Spirit
Common Stock subject to such option multiplied by the Exchange Ratio, and at a
per share exercise price which shall equal the per share exercise price under
such option divided by the Exchange Ratio, subject to adjustment as appropriate
to reflect any stock split, stock dividend, capitalization or similar
transaction subsequent to the Effective Time, or (ii) receive either (A) cash
or (B) shares of MBI Common Stock valued at the time of exercise, as determined
by the committee of the MBI Board of Directors which will, after consummation
of the Merger, administer the Stock Option Plan, equal to the spread between
the aggregate exercise price for the shares subject to the option and the value
(based on the market price of MBI Common Stock at the time of exercise) of the
number of shares of MBI Common Stock which such option holder would have been
entitled to receive if the option was exercised immediately prior to the
Effective Time. The options granted under the Stock Option Plan will continue
after the Merger to be governed by the provisions of the Stock Option Plan.
Pursuant to the terms of the Stock Option Plan, options that are not then
exercisable will become exercisable for 60 days upon the approval of the
Merger Agreement by the stockholders of Plains Spirit, after which 60 day
period, such options will revert to being exercisable in accordance with
their terms.
Pursuant to the terms of the Plains Spirit Financial Corporation
Recognition and Retention Plan (the "RRP"), all shares of Plains Spirit Common
Stock granted thereunder and subject
- 14 -
<PAGE> 21
to restrictions shall become fully vested upon the approval of the Merger
Agreement by the Plains Spirit stockholders. See "TERMS OF THE PROPOSED
MERGER - Interests of Certain Persons in the Merger."
SPECIAL MEETING OF PLAINS SPIRIT STOCKHOLDERS
The Special Meeting will be held on July 6, 1995, at 1:30 p.m. Central
Time, at the main office of Plains Spirit, 131 West Third Street, Davenport,
Iowa. Approval by the Plains Spirit stockholders of the Merger Agreement
requires the affirmative vote of the holders of a majority of the outstanding
shares of Plains Spirit Common Stock. Only holders of record of Plains Spirit
Common Stock at the close of business on June 1, 1995 (the "Record Date") will
be entitled to notice of, and to vote at, the Special Meeting. At such date,
there were 1,907,682 shares of Plains Spirit Common Stock outstanding.
As of the Record Date, directors and executive officers of Plains Spirit
and their affiliates owned beneficially an aggregate of 132,148 shares of
Plains Spirit Common Stock (excluding option shares), or approximately 6.93%
of the shares entitled to vote at the Special Meeting. Each of the directors
of Plains Spirit, pursuant to the terms of his respective Voting Agreement,
has committed to vote his shares of Plains Spirit Common Stock for the
approval of the Merger Agreement. As of the Record Date, such directors owned
beneficially an aggregate of 92,780 shares of Plains Spirit Common Stock
(excluding option shares), or approximately 4.86% of the issued and
outstanding shares.
THE BOARD OF DIRECTORS OF PLAINS SPIRIT CAREFULLY CONSIDERED AND
UNANIMOUSLY APPROVED THE TERMS OF THE MERGER. THE BOARD HAS DETERMINED THAT
THE MERGER IS IN THE BEST INTEREST OF PLAINS SPIRIT AND ITS STOCKHOLDERS AND
UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE PROPOSAL TO APPROVE THE
MERGER AGREEMENT.
REASONS FOR THE MERGER
The Board of Directors of Plains Spirit believes that the Merger is
in the best interest of Plains Spirit and its stockholders. In the course of
reaching its determination to approve the Merger and recommend the approval of
the Merger Agreement to the stockholders of Plains Spirit, the Board of
Directors, without assigning any relative or specific weights, considered a
number of factors, including (i) the Merger Consideration to be received, (ii)
the other terms of the Merger Agreement and (iii) the fairness opinion of
Plains Spirit's financial advisor. See "TERMS OF THE PROPOSED MERGER -
Background of and Reasons for the Merger; Board Recommendations."
MBI's Board of Directors believes that the Merger will enable MBI to
(i) take advantage of an opportunity to increase its presence in the regional
banking market in eastern Iowa, through the acquisition of an established
banking organization, and (ii) enhance its ability to compete in the
increasingly competitive banking and financial services industry. See "TERMS
OF THE PROPOSED MERGER - Background of and Reasons for the Merger; Board
Recommendations."
OPINION OF FINANCIAL ADVISOR TO PLAINS SPIRIT
Kaplan Associates, Inc. ("Kaplan") has served as financial advisor to
Plains Spirit and has rendered an opinion to Plains Spirit's Board of Directors
that the consideration to be received by the Plains Spirit's stockholders in
the Merger is fair to Plains Spirit's stockholders from a financial point of
view. A copy of such opinion is attached hereto as Annex C and should be read
-------
in its entirety
- 15 -
<PAGE> 22
with respect to the assumptions made, other matters considered and
limitations on the reviews undertaken. See "TERMS OF THE PROPOSED MERGER -
Opinion of Financial Advisor to Plains Spirit."
FRACTIONAL SHARES
No fractional shares of MBI Common Stock will be issued to the
stockholders of Plains Spirit in connection with the Merger. Each holder of
Plains Spirit Common Stock who otherwise would have been entitled to receive a
fraction of a share of MBI Common Stock shall receive in lieu thereof cash,
without interest, in an amount equal to the holder's fractional share interest
multiplied by the Average Mercantile Stock Price. Cash received by Plains
Spirit stockholders in lieu of fractional shares may give rise to taxable
income. See "CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER."
APPRAISAL RIGHTS
Under The General Corporation Law of the State of Delaware (the
"Delaware Corporation Law"), each holder of Plains Spirit Common Stock may, in
lieu of receiving the Merger Consideration, seek appraisal of the fair value of
his or her shares and, if the Merger is consummated, receive payment of such
fair value in cash by following certain procedures set forth in Section 262 of
the Delaware Corporation Law, the text of which is attached hereto as Annex B.
-------
Failure to follow such procedures may result in a loss of such stockholder's
appraisal rights. Any Plains Spirit stockholder returning a blank executed
proxy card will be deemed to have approved the Merger Agreement, thereby
waiving any such appraisal rights. See "APPRAISAL RIGHTS OF STOCKHOLDERS OF
PLAINS SPIRIT."
WAIVER AND AMENDMENT
Any provision of the Merger Agreement, including, without limitation,
the conditions to the consummation of the Merger and the restrictions described
under the caption "TERMS OF THE PROPOSED MERGER - Business Pending the Merger,"
may be (i) waived in writing at any time by the party that is, or whose
shareholders or stockholders, as the case may be, are, entitled to the benefits
thereof or (ii) amended at any time by written agreement of the parties
approved by or on behalf of their respective Boards of Directors, whether
before or after the Special Meeting; provided, however, that after approval of
the Merger Agreement by the stockholders of Plains Spirit at the Special
Meeting no such modification may alter or change any of the terms of the Merger
Agreement if such alteration would (i) change the amount or kind of the Merger
Consideration or (ii) adversely affect the tax treatment to the Plains Spirit
stockholders.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
MBI's Counsel has delivered its opinion to the effect that, assuming
the Merger occurs in accordance with the Merger Agreement (including the
provision that allows an increase in the Stock Distribution from the number of
shares of MBI Common Stock issuable to the holders of Stock Election Shares in
the event that MBI's Counsel deems it necessary in order to render its tax
opinion at the Effective Time) and conditioned on the accuracy of certain
representations made by MBI, Plains Spirit and certain holders of Plains Spirit
Common Stock, the Merger will constitute a "reorganization" for federal income
tax purposes and that, accordingly, no gain or loss will be recognized by
Plains Spirit stockholders who exchange their shares of Plains Spirit Common
Stock solely for shares of MBI Common Stock in the Merger. However, Plains
Spirit stockholders who receive cash in exchange for Plains Spirit Common Stock
(whether in lieu of fractional shares or as a Cash Distribution in respect
- 16 -
<PAGE> 23
of some or all of their Plains Spirit Common Stock) may recognize taxable
income, but not in excess of the amount of cash received. EACH PLAINS SPIRIT
STOCKHOLDER IS URGED TO CONSULT HIS OR HER OWN TAX ADVISOR TO DETERMINE THE
SPECIFIC TAX CONSEQUENCES OF THE MERGER TO SUCH STOCKHOLDER. See "CERTAIN
FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER."
REGULATORY APPROVALS
Applications regarding the Merger have been filed with the Federal
Reserve Board and the OTS. The Merger cannot be consummated until receipt of
approval from such agencies. In reviewing the Merger, the Federal Reserve
Board and the OTS will consider various factors, including possible
anticompetitive effects of the Merger, and will examine the financial and
managerial resources and future prospects of the combined organization. There
can be no assurance that the necessary regulatory approvals will be received or
as to the timing of such approvals. See "TERMS OF THE PROPOSED MERGER -
Regulatory Approval" and "SUPERVISION AND REGULATION."
ACCOUNTING TREATMENT
The Merger will be accounted for under the purchase method of
accounting. See "TERMS OF THE PROPOSED MERGER - Accounting Treatment."
MARKETS AND MARKET PRICES
MBI Common Stock is currently traded on the NYSE under the symbol
"MTL." Prior to March 25, 1993, MBI Common Stock was quoted on the Nasdaq
National Market under the symbol "MTRC." The last sale price reported for MBI
Common Stock on December 23, 1994, the last trading date preceding the public
announcement of the Merger, was $31.75. Plains Spirit Common Stock is quoted
on the Nasdaq National Market under the symbol "PSFC." The last sale price
reported for Plains Spirit Common Stock on December 23, 1994, the last trading
day prior to the public announcement of the Merger, was $22.25.
The following table sets forth the high and low prices per share of
MBI Common Stock as reported on the NYSE (on the Nasdaq National Market prior
to March 25, 1993), and of Plains Spirit Common Stock as reported by the Nasdaq
National Market, and the quarterly cash dividends per share declared, for the
periods indicated. Such prices do not include adjustments for retail mark-ups,
mark-downs or commissions.
- 17 -
<PAGE> 24
<TABLE>
<CAPTION>
MBI Plains Spirit
--------------------------------- -----------------------------------
Sales Price Cash Sales Price Cash
------------- Dividend ---------------- Dividend
High Low Declared High Low Declared
---- --- -------- ---- --- --------
<S> <C> <C> <C> <C> <C> <C>
1993
- ----
First Quarter $35.625 $30.625 $ .2475 $22.500 $18.500 $.075
Second Quarter 37.625 29.375 .2475 23.500 20.000 .075
Third Quarter 34.375 31.625 .2475 25.000 21.500 .100
Fourth Quarter 34.625 29.125 .2475 25.000 20.250 .100
1994
- ----
First Quarter $34.125 $29.875 $ .28 $23.500 $21.250 $.125
Second Quarter 38.125 31.125 .28 26.000 20.750 .125
Third Quarter 39.250 34.875 .28 26.500 23.000 .140
Fourth Quarter 36.875 29.500 .28 31.000 21.750 .140
1995
- ----
First Quarter $37.250 $31.250 $ .33 $30.000 $28.125 $.140
Second Quarter 42.375 36.000 .33 30.125 29.250 .140
(through June 2,
1995)<F2>
<FN>
- -------------------
<F1> Plains Spirit completed its initial public offering of Plains Spirit
Common Stock on March 11, 1992.
<F2> For recent sale prices of MBI Common Stock and Plains Spirit Common
Stock, see page 2 of this Proxy Statement/Prospectus.
</TABLE>
COMPARATIVE UNAUDITED PER SHARE DATA
The following table sets forth for the periods indicated selected
historical per share data of MBI and Plains Spirit and the corresponding pro
forma and pro forma equivalent per share amounts giving effect to the
proposed Merger, the completed acquisitions of UNSL, CMB and TCB, the proposed
acquisitions of Southwest and AmeriFirst and the acquisition of Ameribanc,
Inc. ("ABNK"), which was completed on April 30, 1992. 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
Plains Spirit, Southwest and AmeriFirst included in this Proxy Statement/
Prospectus or 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 "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 have
occurred if the Merger, the completed mergers of ABNK, UNSL, CMB and TCB or
the proposed mergers of Southwest and AmeriFirst had been consummated prior to
the periods indicated.
- 18 -
<PAGE> 25
<TABLE>
<CAPTION>
MBI/Plains Plains Plains Spirit/
Plains Spirit Spirit MBI/All Entities All Entities
MBI Spirit Pro Forma Pro Forma Pro Forma Pro Forma
Reported Reported<F1> Combined <F2> Equivalent <F3> Combined <F4> Equivalent <F3>
-------- ------------ ------------- --------------- ---------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Book Value per Share:
March 31, 1995 $ 24.12 $ 28.55 $ 24.17 $ 19.37 $ 24.10 $ 19.31
December 31, 1994 23.70 28.26 23.76 19.04 23.69 18.98
Cash Dividends Declared per Share:
Quarter ended March 31, 1995 $ 0.33 $ 0.14 $ 0.33 $ 0.26 $ 0.33 $ 0.26
Year ended December 31, 1994 1.12 0.49 1.12 0.90 1.12 0.90
Earnings per Share:
Quarter ended March 31, 1995 $ 0.93 $ 0.56 $ 0.94 $ 0.75 $ 0.95 $ 0.76
Year ended December 31, 1994 3.22 2.21 3.22 2.58 3.27 2.62
Market Price per Share:
At December 23, 1994 <F5> $ 31.75 $ 22.25 n/a n/a n/a n/a
At June 2, 1995 <F5> 42.00 29.75 n/a n/a n/a n/a
<FN>
- ------------------------------
<F1> Plains Spirit has a September 30 fiscal year-end. For purposes of
this table, Plains Spirit information at or for the year ended
September 30, 1994 is reported as December 31, 1994 data. Plains
Spirit information at or for the three months ended December 31, 1994
is reported as March 31, 1995 data.
<F2> Includes the effect of pro forma adjustments for Plains Spirit
and ABNK, as appropriate. See "PRO FORMA FINANCIAL INFORMATION."
<F3> Based on the pro forma combined per share amounts multiplied by
.8013, an assumed Exchange Ratio determined by using an Average
Mercantile Stock Price equal to $39.00. Further explanation of the
assumptions used in the preparation of the pro forma combined
consolidated financial statements is included in the notes to pro
forma financial statements. See "PRO FORMA FINANCIAL INFORMATION."
<F4> Includes the effect of pro forma adjustments for Plains Spirit,
ABNK, Southwest and AmeriFirst, as appropriate. See "PRO FORMA
FINANCIAL INFORMATION."
<F5> The market price per share of MBI and Plains Spirit Common Stock was
determined as of the last trading day preceding the public
announcement of the proposed Merger and as of the latest available
date prior to the filing of the Proxy Statement/Prospectus, based
on the last sale price as reported on the NYSE Composite Tape and
the Nasdaq National Market, respectively.
</TABLE>
SUMMARY FINANCIAL DATA
The following table sets forth for the periods indicated certain
summary historical consolidated financial information for MBI and Plains
Spirit. The balance sheet data and income statement data included in
the summary financial data as of and for the five years ended
December 31, 1994 are taken from audited supplemental consolidated financial
statements of MBI as of the end of and for each such year. The balance
sheet data and income statement data included in the summary financial
data as of and for the five years ended September 30, 1994 are taken
from audited consolidated financial statements of Plains Spirit as of
the end of and for each such year. The balance sheet data and income
statement data included in the summary financial data as of and for the
three months ended March 31, 1995 and 1994 are taken from the unaudited
supplemental consolidated financial statements of MBI as of and for the three
months ended March 31, 1995 and 1994. The balance sheet data and income
statement data included in the summary financial data as of and for the six
months ended March 31, 1995 and 1994 are taken from the unaudited consolidated
financial statements of Plains Spirit as of and for the six months ended
March 31, 1995 and 1994. These data include all adjustments which are, in the
opinion of the management of Plains Spirit, necessary to present a fair
statement of these periods and are of a normal recurring nature. Results
for either the three months ended March 31, 1995 or the six months ended
March 31, 1995 are not necessarily indicative of results for the entire year.
The following information should be read in conjunction with the supplemental
consolidated financial statements of MBI and the consolidated financial
statements of Plains Spirit, and the related notes thereto, included herein
or in documents incorporated herein by reference, and in conjunction with the
unaudited pro forma combined consolidated financial information, including the
notes thereto, appearing elsewhere in this Proxy Statement/Prospectus. See
"INCORPORATION OF CERTAIN INFORMATION BY REFERENCE" and "PRO FORMA FINANCIAL
INFORMATION."
- 19 -
<PAGE> 26
<TABLE>
MERCANTILE BANCORPORATION INC.
SUMMARY FINANCIAL DATA
<CAPTION>
Three Months Ended
March 31 Year Ended December 31
-------------------------- ----------------------------------------------------------
1995 1994 1994 1993 1992 1991 1990
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
Net income <F1> $ .93 $ .88 $ 3.22 $ 2.79 $ 2.42 $ 2.25 $ 1.99
Dividends declared .33 .28 1.12 .99 .93 .93 .93
Book value at period end 24.12 22.46 23.70 21.92 19.76 19.48 18.04
Average common shares outstanding
(thousands) 52,920 51,724 51,957 50,965 47,276 39,391 37,847
EARNINGS (THOUSANDS)
Interest income $ 279,789 $ 236,106 $ 994,896 $ 971,482 $1,011,544 $1,018,688 $1,022,441
Interest expense 127,046 90,791 399,349 390,911 485,253 588,993 642,365
---------- --------- --------- --------- ---------- ---------- ----------
Net interest income 152,743 145,315 595,547 580,571 526,291 429,695 380,076
Provision for possible loan losses 13,975 8,879 43,201 63,513 77,874 62,360 56,196
Other income 56,803 55,094 209,758 219,703 201,965 170,770 150,508
Other expense 119,243 119,884 492,070 508,043 471,903 431,155 361,992
Income taxes 26,625 26,051 101,705 85,467 61,072 24,029 31,759
---------- --------- --------- --------- ---------- ---------- ----------
Net income $ 49,703 $ 45,595 $ 168,329 $ 143,251 $ 117,407 $ 82,921 $ 80,637
========== ========= ========= ========= ========== ========== ==========
ENDING BALANCE SHEET (MILLIONS)
Total assets $ 15,151 $ 14,180 $ 14,806 $ 14,423 $ 14,190 $ 12,377 $ 11,674
Earning assets 14,095 13,145 13,671 13,259 12,989 11,331 10,447
Investment securities 3,851 4,152 3,844 4,180 4,106 2,949 2,286
Loans and leases,
net of unearned income 10,074 8,816 9,670 8,702 8,525 7,881 7,827
Deposits 11,333 11,283 11,189 11,599 11,629 10,211 9,660
Long-term debt 290 307 299 288 310 216 247
Shareholders' equity 1,272 1,164 1,234 1,133 996 805 683
Reserve for possible loan losses 196 183 195 185 179 158 159
SELECTED RATIOS
Return on average assets 1.32% 1.26% 1.16% 1.00% 0.86% 0.70% 0.73%
Return on average equity 15.71 15.81 14.07 13.37 12.71 10.96 12.30
Net interest rate margin 4.47 4.49 4.55 4.55 4.34 4.12 3.95
Equity to assets 8.40 8.21 8.34 7.85 7.02 6.50 5.85
Reserve for possible loan losses to:
Outstanding loans 1.94 2.07 2.01 2.12 2.10 2.00 2.04
Non-performing loans 546.22 377.76 579.62 278.23 147.60 105.33 108.49
<FN>
<F1> Based on weighted average common shares outstanding.
</TABLE>
- 20 -
<PAGE> 27
<TABLE>
PLAINS SPIRIT FINANCIAL CORPORATION
SUMMARY FINANCIAL DATA
<CAPTION>
As of or for the
Six Months Ended As of or for the
March 31 Year Ended September 30
--------------------- ----------------------------------------------------------
1995 1994 1994 1993 1992 1991 1990
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
Net income <F1> $ 1.12 $ 1.10 $ 2.21 $ 2.05 $ 1.34 $ n/a $ n/a
Dividends declared .28 .23 .49 .30 .10 n/a n/a
Book value at period end 29.56 28.13 28.26 27.47 25.82 n/a n/a
EARNINGS (THOUSANDS)
Interest income $ 15,531 $ 11,151 $ 24,807 $ 23,774 $ 26,962 $ 28,837 $ 28,417
Interest expense 8,932 5,226 12,271 11,569 16,385 20,405 20,718
--------- --------- --------- --------- --------- --------- ---------
Net interest income 6,599 5,925 12,536 12,205 10,577 8,432 7,699
Provision for possible loans losses 120 80 200 706 583 62 427
Other income (loss) 1,107 2,172 3,247 3,758 1,896 665 (176)
Other expense 4,220 4,590 8,752 8,530 7,411 6,308 5,443
Income taxes 1,140 1,164 2,359 2,459 1,718 973 579
--------- --------- --------- --------- --------- --------- ---------
Net income $ 2,226 $ 2,263 $ 4,472 $ 4,268 $ 2,761 $ 1,754 $ 1,074
========= ========= ========= ========= ========= ========= =========
ENDING BALANCE SHEET (THOUSANDS)
Total assets $ 451,631 $ 374,199 $ 428,466 $ 331,934 $ 337,070 $ 326,417 $ 309,089
Investment and mortgage-backed
securities 172,492 148,100 177,861 94,808 70,051 78,563 48,341
Loans and leases,
net of unearned income 260,163 205,437 236,577 211,865 233,827 217,543 235,644
Deposits 271,459 248,482 253,626 249,834 266,632 279,749 271,521
Borrowings 114,000 64,750 112,750 22,500 13,000 12,712 6,000
Stockholders' equity 56,376 55,619 53,177 53,952 50,784 n/a n/a
Reserve for possible loan losses 2,001 1,828 1,903 1,777 1,115 773 898
SELECTED RATIOS
Return on average assets 1.00%<F2> 1.00%<F2> 1.20% 1.41% .81% .55% .35%
Return on average equity 8.12<F2> 6.21<F2> 8.18 8.89 6.79 n/a n/a
Net interest rate margin 3.07<F2> 3.64<F2> 3.48 3.81 3.18 2.70 2.64
Equity to assets 12.48 14.86 12.41 16.25 15.07 8.56 8.43
Reserve for possible loan losses to:
Outstanding loans .77 .89 .80 .84 .48 .36 .38
Non-performing loans 67.69 55.73 61.03 27.57 162.72 172.54 81.49
Cash dividend payout 25.00<F2> 29.80<F2> 22.17 14.63 7.46 n/a n/a
<FN>
<F1> Based on weighted average common shares outstanding.
<F2> Annualized.
n/a Not Applicable - Plains Spirit initially issued common stock
in connection with First Federal's conversion to stock
ownership effective March 11, 1992.
</TABLE>
- 21 -
<PAGE> 28
INFORMATION REGARDING SPECIAL MEETING
-------------------------------------
GENERAL
This Proxy Statement/Prospectus is being furnished to holders
of Plains Spirit Common Stock in connection with the solicitation
of proxies by the Board of Directors of Plains Spirit for use at
the Special Meeting and any adjournments or postponements thereof
at which the stockholders of Plains Spirit will consider and vote
upon a proposal to approve the Merger Agreement, and each of the
transactions contemplated thereby, and consider and vote upon any
other business which may properly be brought before the Special
Meeting or any adjournments or postponements thereof. Each copy
of this Proxy Statement/Prospectus is accompanied by the Notice
of Special Meeting of Stockholders of Plains Spirit, a proxy
card, an Election Form and related instructions and a self-
addressed return envelope to Plains Spirit for the proxy card.
This Proxy Statement/Prospectus is also furnished by MBI to
each holder of Plains Spirit Common Stock as a prospectus in
connection with the issuance by MBI of shares of MBI Common Stock
upon the consummation of the Merger. This Proxy
Statement/Prospectus and the Notice of Special Meeting, proxy
card, Election Form and related materials are being first mailed
to stockholders of Plains Spirit on June 7, 1995.
DATE, TIME AND PLACE
The Special Meeting will be held at the main office of Plains
Spirit, 131 West Third Street, Davenport, Iowa, on Thursday, July 6,
1995, at 1:30 p.m. Central Time.
RECORD DATE; VOTE REQUIRED
On the Record Date, there were 1,907,682 shares of Plains
Spirit Common Stock outstanding and entitled to vote at the
Special Meeting. 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 Plains Spirit Common Stock is required to approve the
Merger Agreement.
As of the Record Date, directors and executive officers of Plains
Spirit and their affiliates owned beneficially an aggregate of 132,148
shares of Plains Spirit Common Stock (excluding option shares), or
approximately 6.93% of the outstanding shares of Plains Spirit Common
Stock entitled to vote at the Special Meeting. Each of the directors
of Plains Spirit, pursuant to the terms of his respective Voting
Agreement, has committed to vote his shares of Plains Spirit
Common Stock for approval of the Merger Agreement. As of the
Record Date, directors of Plains Spirit owned beneficially an
aggregate of 92,780 shares of Plains Spirit Common Stock (excluding
option shares), or approximately 4.86% of the issued and outstanding
shares.
VOTING AND REVOCATION OF PROXIES
Shares of Plains Spirit Common Stock which are represented 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
PLAINS SPIRIT STOCKHOLDER RETURNING AN EXECUTED PROXY CARD WHICH
DOES NOT PROVIDE INSTRUCTIONS TO VOTE AGAINST THE APPROVAL OF THE
MERGER AGREEMENT WILL BE DEEMED TO HAVE APPROVED 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 approval of the Merger Agreement.
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<PAGE> 29
Shares subject to abstentions will be treated as shares that
are present and voting at the Special Meeting for purposes of
determining the presence of a quorum. Such shares will have the
effect of votes against the approval of the Merger Agreement. Broker
"non-votes" (i.e., proxies from brokers or nominees indicating
that such persons have not received instructions from the
beneficial owners or other persons entitled to vote shares with
respect to which the brokers or nominees do not have
discretionary power to vote without such instructions) will be
considered as present for purposes of determining the presence of
a quorum but will not be considered as voting at the Special
Meeting. Broker non-votes will have the effect of votes against
the approval of the Merger Agreement.
Any stockholder of Plains Spirit giving a proxy may revoke it
at any time prior to the vote at the Special Meeting.
Stockholders of Plains Spirit wishing to revoke a proxy prior to
the vote may do so by delivering to the Secretary of Plains
Spirit at 131 West Third Street, Davenport, Iowa 52801, at or
before the Special Meeting, a written notice of revocation
bearing a later date than the proxy or a later dated proxy
relating to the same shares, or by attending the Special Meeting
and voting such shares in person. Attendance at the Special
Meeting will not in itself constitute the revocation of a proxy.
The Board of Directors of Plains Spirit 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 adjournments
or postponements 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 Plains Spirit.
SOLICITATION OF PROXIES
Plains Spirit 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
Plains Spirit may also solicit proxies in person or by telephone.
Directors, executive officers and any other employees of Plains
Spirit who solicit proxies will not be specially compensated for
such services. 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 sending proxy materials to beneficial
owners. In addition, Plains Spirit has engaged MacKenzie Partners, Inc.
("MacKenzie") to assist Plains Spirit in distributing proxy
materials and contacting record and beneficial owners of Plains
Spirit Common Stock. Plains Spirit has agreed to pay MacKenzie
approximately $4000 plus out-of-pocket expenses
for its services to be rendered on behalf of Plains Spirit.
HOLDERS OF PLAINS SPIRIT COMMON STOCK ARE REQUESTED TO
COMPLETE, DATE AND SIGN THE ACCOMPANYING PROXY CARD AND RETURN IT
PROMPTLY IN THE ENCLOSED POSTAGE-PREPAID ENVELOPE.
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<PAGE> 30
TERMS OF THE PROPOSED MERGER
----------------------------
The following is a summary of the material terms and
conditions of the Merger Agreement, which document is attached as
Annex A to the accompanying Proxy Statement/Prospectus and is
- -------
incorporated by reference herein. This summary is qualified in
its entirety by the full text of the Merger Agreement. All
stockholders of Plains Spirit are urged to read the Merger
Agreement in its entirety.
GENERAL DESCRIPTION OF THE MERGER
Subject to the satisfaction of the terms and conditions set
forth in the Merger Agreement, which are described below, Plains
Spirit will be merged with and into MBII. Upon consummation of
the Merger, Plains Spirit's corporate existence will terminate
and MBII will continue as the surviving entity. First Federal
will be operated as a direct, wholly owned subsidiary of MBII
upon consummation of the Merger. Following consummation of the
Merger, and subject to approval by the appropriate regulatory
agencies, it is contemplated that First Federal will be converted
from a federally-chartered stock savings bank to a national
banking association. Until such conversion, First Federal will
continue to be operated as a federally-chartered stock savings
bank.
Simultaneously with the effectiveness of the Merger, and
subject to certain elections of stockholders and other
adjustments intended to accommodate the tax-deferred nature of
the transaction under the federal income tax laws for those
stockholders who receive solely shares of MBI Common Stock, each
share of Plains Spirit Common Stock will be converted into either
(i) the right to receive the Cash Distribution or (ii) the right
to receive the Stock Distribution.
Each Plains Spirit stockholder will have the opportunity to
elect whether to receive either the Cash Distribution or a Stock
Distribution. Enclosed with this Proxy Statement/Prospectus is
an Election Form whereby stockholders may indicate a Cash
Election or a Stock Election. In order for an Election Form to
be deemed to be effective, such Election Form must be properly
completed and duly executed by the Plains Spirit stockholder and
returned to the Exchange Agent by the Election Deadline.
Each separate entry on Plains Spirit's list of stockholders
shall be presumed to represent a separate and distinct holder of
record of Plains Spirit Common Stock. Shares held of record by a
bank, trust company, broker, dealer or other recognized nominee
shall be deemed to be held by a single holder unless the nominee
advises the Exchange Agent otherwise, in which case, each
beneficial owner will be treated as a separate holder and, either
directly or through such nominee, may submit a separate Election
Form. Any election may be revoked or changed by the person
submitting an Election Form or any other person to whom the
subject shares are subsequently transferred by submission of a
later dated Election Form, properly completed and duly executed,
received by the Exchange Agent by the Election Deadline.
Any stockholder who fails to deliver a properly completed and
duly executed Election Form to the Exchange Agent by the Election
Deadline shall be deemed to have made no election. Unless the
aggregate Cash Distribution elected by the holders of Cash
Election Shares is required to be reduced as described below, No
Election Shares will be treated as Cash Election Shares for
purposes of determining the type and amount of the Merger
Consideration payable pursuant to the Merger. Option Shares
under the Stock Option Plan shall be deemed to be Stock Election
Shares for all purposes except that such shares shall not be
subject to any reduction of the Stock Distribution payable to the
holders thereof upon exercise of the options in the event that
the aggregate Stock Distribution elected by the holders of Stock
Election Shares is required to be reduced as described below.
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<PAGE> 31
The actual Merger Consideration that will be paid to each
Plains Spirit stockholder upon consummation of the Merger may
differ from the form of Merger Consideration elected by such
stockholder pursuant to his or her Election Form, in the event
that (i) the aggregate number of shares of MBI Common Stock to be
issued pursuant to the Merger would exceed 1,400,000 or (ii) the
number of shares to be issued pursuant to the Merger would be
insufficient to allow MBI's Counsel to render an opinion that the
Merger would qualify as a reorganization under Section 368 of the
Code for federal income tax purposes. In the event that the
number of shares of MBI Common Stock that would be issuable to
Stock Election Shares on the basis of the stockholders' elections
exceeds 1,400,000, the Stock Distribution to all holders of Stock
Election Shares (other than Option Shares) will be reduced pro
rata and such holders will receive the Cash Distribution in lieu
thereof such that the aggregate Stock Distribution equals
1,400,000 shares of MBI Common Stock. In the event that the
number of shares of MBI Common Stock that would be issuable to
Stock Election Shares on the basis of the stockholders' elections
is less than 1,400,000 shares of MBI Common Stock and such number
---
of shares is insufficient for MBI's Counsel to render its opinion
of the tax-deferred nature of the Merger for federal income tax
purposes, the Cash Distribution payable, first, to all holders of
the No Election Shares, and then if necessary, to all holders of
the Cash Election Shares, will be reduced pro rata and be
substituted with the Stock Distribution such that the minimum
number of shares of MBI Common Stock necessary for MBI's Counsel
to render its opinion will be issued pursuant to the Merger. In
all other cases, Plains Spirit holders will receive the form of
Merger Consideration for their shares of Plains Spirit Common
Stock in the form that such stockholder has elected on his or her
Election Form or has deemed to have elected in the case of No Election
Shares. A description of the manner in which the Merger
Consideration will be paid to the Plains Spirit stockholders upon
consummation of the Merger, including the terms and conditions
under which a portion of the consideration elected by the Plains
Spirit stockholders will be reallocated into the other category
of Merger Consideration is set forth below.
In the event the number of shares of MBI Common Stock
distributable in respect of the Stock Election Shares is less
than 1,400,000, then:
(i) all Stock Election Shares will be converted into the
right to receive the Stock Distribution; and
(ii) all Cash Election Shares will be converted into the
right to receive the Cash Distribution; provided, however,
that if the number of shares issuable to all holders of Stock
Election Shares is insufficient, in the opinion of MBI's
Counsel, for it to render the tax opinion required by the
Agreement (see "CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE
MERGER"), then, MBI's Counsel will advise the Exchange Agent
as soon as practicable on or after the Closing Date as to the
minimum number of additional shares of MBI Common Stock that
will be required to be issued as Stock Distributions in the
Merger in order to allow MBI's Counsel to render such opinion
in its reasonable judgment. Upon the receipt of the Notice,
the Exchange Agent shall:
(A) first, reallocate the Merger Consideration payable
to each holder of No Election Shares pro rata (based upon
the number of No Election Shares owned by such holder as
compared with the total number of No Election Shares owned
by all holders) such that all holders of No Election Shares
will receive the number of shares of MBI Common Stock as
Stock Distributions which in the aggregate will be equal to
the number of shares set forth in the Notice and each such
stockholder will receive the balance of the Merger
Consideration due to him or her, if any, in the form of a
Cash Distribution;
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<PAGE> 32
(B) if the reallocation set forth in paragraph (A)
above is not sufficient to allow the issuance of the number
of shares of MBI Common Stock set forth in the Notice,
then, reallocate the Merger Consideration payable to each
holder of Cash Election Shares, other than No Election
Shares, pro rata (based upon the number of Cash Election
Shares, other than No Election Shares, owned by all such
holders) such that all holders of Cash Election Shares,
other than No Election Shares, will receive the number of
shares of MBI Common Stock as Stock Distributions which in
the aggregate will be equal to the number of shares set
forth in the Notice less the shares of MBI Common Stock
issuable pursuant to paragraph (A) above and will receive
the balance of the Merger Consideration, if any, due him or
her in the form of a Cash Distribution.
In the event the number of shares of MBI Common Stock
distributable in respect of the Stock Election Shares is greater
than 1,400,000 then:
(i) all Cash Election Shares will be converted into the
right to receive the Cash Distribution; and
(ii) the Exchange Agent will reallocate the Merger
Consideration payable to each holder of Stock Election Shares,
other than Option Shares, pro rata (based upon the number of
Stock Election Shares, other than Option Shares, owned by such
holder, as compared with the total number of Stock Election
Shares, other than Option Shares, owned by all holders) such
that all holders of the Stock Election Shares, including
holders of Option Shares, will receive 1,400,000 shares of MBI
Common Stock as Stock Distributions and each such stockholder
will receive the balance of the Merger Consideration due to
him or her in the form of a Cash Distribution.
Pursuant to the Merger Agreement, any holder of 1% or more of
the Plains Spirit Common Stock (determined as of the Closing
Date) that shall not, on or before the Election Date, have
delivered to the Exchange Agent a properly executed certification
regarding certain tax matters (which will be provided to such
holders with the Election Form) shall be deemed to have made a
timely election to receive the Cash Distribution, and all shares
of Plains Spirit Common Stock held by such holder shall be deemed
to be Cash Election Shares. This provision will preclude a
holder that acquires additional shares of Plains Spirit Common
Stock and becomes a holder of 1% or more of such shares after the
Election Deadline from receiving the Stock Distribution.
The amount and nature of the Merger Consideration was
established through arm's-length negotiations between MBI and
Plains Spirit, 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 of and Reasons for the Merger;
Board Recommendations."
NO ASSURANCE CAN BE GIVEN THAT THE FAIR MARKET VALUE OF MBI
COMMON STOCK DURING THE VALUATION PERIOD IMMEDIATELY PRECEDING
REGULATORY APPROVAL OF THE MERGER WILL BE EQUIVALENT TO THE FAIR
MARKET VALUE OF MBI COMMON STOCK ON THE DATE SUCH STOCK IS
RECEIVED BY A PLAINS SPIRIT STOCKHOLDER OR AT ANY OTHER TIME.
THE FAIR MARKET VALUE OF MBI COMMON STOCK AT THE TIME IT IS
RECEIVED BY A PLAINS SPIRIT STOCKHOLDER MAY BE GREATER OR LESS
THAN THE FAIR MARKET VALUE OF MBI COMMON STOCK DURING THE
VALUATION PERIOD DUE TO NUMEROUS MARKET FACTORS.
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<PAGE> 33
Following the Closing Date, each stockholder of Plains Spirit
will be required to submit to the Exchange Agent a properly
executed letter of transmittal and surrender to the Exchange
Agent the stock certificate(s) formerly representing the shares
of Plains Spirit Common Stock held by such stockholder in order
to receive the Cash Distribution and/or a new stock certificate
evidencing the Stock Distribution. As soon as practicable following
the Closing Date, the Exchange Agent will mail to each Plains Spirit
stockholder a notice of consummation of the Merger and a form of
letter of transmittal, together with instructions and a return
envelope to facilitate the exchange of such holder's certificate(s)
formerly representing Plains Spirit Common Stock for the Merger
Consideration. No interest will be accrued or paid on the Cash
Distribution. No dividends or other distributions will be paid to a
former Plains Spirit shareholder with respect to the Stock Distribution
until such stockholder's letter of transmittal and stock certificates
formerly representing Plains Spirit Common Stock, or documentation
reasonably acceptable to the Exchange Agent in lieu of lost or destroyed
certificates, is delivered to the Exchange Agent. Following surrender of
certificates formerly representing Plains Spirit Common Stock in
accordance with the instructions of the Exchange Agent, the holders of
newly-issued MBI certificates will be paid, without interest, any
dividends or other distributions with respect to the shares of MBI Common
Stock, the record date for which is after the Effective Time (less any
taxes that may have been imposed thereon). See "- Surrender of Plains
Spirit Stock Certificates and Receipt of MBI Common Stock and/or Cash."
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 being
calculated by multiplying the holder's fractional share interest by the
Average Mercantile Stock Price. See "- Fractional Shares." The shares
of MBI Common Stock to be issued as the Stock Distribution pursuant to
the Merger will be freely transferable except by certain stockholders of
Plains Spirit who are deemed to be "affiliates" of Plains Spirit. The
shares of MBI Common Stock issued as the Stock Distribution to such
affiliates will be restricted in their transferability in accordance with
the rules and regulations promulgated by the Commission. See
"INFORMATION REGARDING MBI STOCK - Restrictions on Resale of MBI Stock by
Affiliates."
OTHER AGREEMENTS
In addition to and contemporaneously with the Merger
Agreement, MBI and Plains Spirit executed the Option Agreement
and MBI and each of the directors of Plains Spirit executed
separate Voting Agreements. The following are summaries of the
material terms of the Option Agreement and the Voting Agreements:
OPTION AGREEMENT. Concurrent with the execution of the Merger
Agreement, MBI and Plains Spirit entered into the Option
Agreement pursuant to which Plains Spirit issued the Option to
MBI. The Option was granted by Plains Spirit as a condition of
and in consideration for MBI's entering into the Merger
Agreement. The following description does not purport to be
complete and is qualified in its entirety by reference to the
Option Agreement, which is attached as an exhibit to the
Registration Statement and is incorporated herein by reference.
The Option is intended to increase the likelihood that the
Merger will be consummated in accordance with the terms of the
Merger Agreement. The occurrence of certain events described
below could cause the Option to become exercisable, which could
significantly increase the cost to a potential acquiror of
acquiring Plains Spirit compared to its cost had the Option
Agreement not been entered into. Consequently, the Option may
have the effect of discouraging persons who might now or prior to
the consummation of the Merger be interested in acquiring Plains
Spirit (or a significant interest in Plains Spirit) from
considering or proposing such an acquisition, even if such
persons were prepared to pay a higher price per share for Plains
Spirit Common Stock than the price per share implicit in the
Merger Consideration, or may result in a potential acquiror
proposing to pay a lower per share price than it might otherwise
have proposed to pay. In addition, the exercise of the Option
may prohibit any acquiror of
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<PAGE> 34
Plains Spirit from accounting for an acquisition of Plains Spirit using the
pooling-of-interests accounting method for a period of two years, which
could discourage or preclude an acquisition of Plains Spirit.
The maximum number of shares issuable pursuant to the Option
(the "Mercantile Option Shares") would represent 19.9% of the
issued and outstanding shares of Plains Spirit Common Stock. The
Option exercise price is $24.00 per share. In the event MBI
acquires shares pursuant to the Option, it could vote those
shares in the election of Plains Spirit directors and other
matters requiring a stockholder vote, thereby potentially having
a material impact on the outcome of such matters.
If not then in material breach of the Merger Agreement, MBI
may exercise the Option, in whole or in part, at any time or from
time to time if a Purchase Event (as defined below) has occurred;
provided, however, that (i) to the extent the Option has not been
exercised, it will terminate and be of no further force and
effect upon the earliest to occur of (A) the Effective Time, and
(B) the termination of the Merger Agreement in accordance with
its terms, provided that in the case of certain terminations of
the Merger Agreement, as specified in the Option Agreement, the
Option will not terminate until the date that is 12 months
following such termination, (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, the Option
will expire on the 30th business day after such injunction, order
or restraint has been dissolved or when such injunction, order or
restraint has become permanent and no longer subject to appeal,
as the case may be and (iii) any such exercise will be subject to
compliance with applicable law, including the BHCA and the HOLA.
"Purchase Event" means any of the following events: (i)
Plains Spirit or any of its subsidiaries, without having received
prior written consent from MBI, enters into, authorizes,
recommends, proposes or publicly announces 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 (A) effect a merger, consolidation or similar
transaction involving Plains Spirit or any of its subsidiaries,
(B) purchase, lease or otherwise acquire 15% or more of the
assets of Plains Spirit or any of its subsidiaries or (C)
purchase or otherwise acquire (including by way of merger,
consolidation, share exchange or similar transaction) beneficial
ownership of securities representing 20% or more of the voting
power of Plains Spirit or any of its subsidiaries; (ii) any
person (other than MBI or any subsidiary of MBI, or Plains Spirit
or any subsidiary of Plains Spirit in a fiduciary capacity)
acquires beneficial ownership or the right to acquire beneficial
ownership of 20% or more of the voting power of Plains Spirit; or
(iii) the holders of Plains Spirit Common Stock do not approve
the Merger Agreement at the Special Meeting, the Special Meeting
is not held or is cancelled prior to termination of the Merger
Agreement in accordance with its terms or Plains Spirit's Board
of Directors withdraws or modifies in a manner adverse to MBI the
recommendation of Plain Spirit's Board of Directors with respect
to the Merger Agreement, in each case after an Extension Event.
"Extension Event" means any of the following events: (i) a
Purchase Event; (ii) any person (other than MBI or any of its
subsidiaries) "commences" (as such term is defined in Rule 14d-2
under the Exchange Act), or files a registration statement under
the Securities Act with respect to, a tender offer or exchange
offer to purchase shares of Plains Spirit Common Stock such that,
upon consummation of such offer, such person would have
beneficial ownership or the right to acquire beneficial ownership
of 20% or more of the voting power of Plains Spirit for a value
per share of Plains Spirit Common Stock in excess of $31.25; or
(iii) any person (other than MBI or any subsidiary of MBI, or
Plains Spirit or any subsidiary of Plains Spirit in a fiduciary
capacity) publicly announces its willingness, or publicly
announces a proposal, or publicly discloses an intention to make
a proposal, (x) to make an offer described in clause (ii) above
or (y) to engage in a transaction described in clause (i) above
at a price per share of Plains Spirit Common Stock in excess of
$31.25.
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<PAGE> 35
Subject to extension as provided in the Option Agreement,
after a Purchase Event and prior to termination of the Option,
subject to regulatory approval, Plains Spirit is required, upon
MBI's request, to repurchase the Option and/or the Mercantile
Option Shares from MBI, at a price based on the market price or
the highest price per share at which a tender or exchange offer
has been made for shares of Plains Spirit Common Stock (the
"Market Price"), in the case of a repurchase of Mercantile Option
Shares, or the amount by which the Market Price exceeds the
Option Price, in the case of a repurchase of the Option.
At the request of Plains Spirit during the first six month
period commencing 13 months following the first occurrence of a
Purchase Event, Plains Spirit may repurchase from MBI, and MBI
shall sell to Plains Spirit, all (but not less than all) of
Plains Spirit Common Stock acquired by MBI pursuant to the Option
at a price per share equal to the greater of (i) the Market Price
or (ii) the sum of (A) the aggregate purchase price of such
shares plus (B) interest on the aggregate purchase price paid for
such shares from the date of purchase to the date of repurchase,
less any dividends received on such shares.
To the best of MBI's and Plains Spirit's knowledge, no
Purchase Event or other Extension Event has occurred as of the
date of this Proxy Statement/Prospectus.
VOTING AGREEMENTS. Concurrent with the execution of the
Merger Agreement, MBI and each of the directors of Plains Spirit
executed separate Voting Agreements by which each such director
agreed that he will vote all of the shares of Plains Spirit
Common Stock that he then owns or subsequently acquires and over
which he then has, or prior to the Record Date acquires, voting
control in favor of the approval of the Merger Agreement at the Special
Meeting. In addition, until the earliest to occur of the Effective Time
of the Merger, the termination of the Voting Agreements or the
abandonment of the Merger, each such director further agreed that
he will not vote any such shares in favor of the approval of any
other competing acquisition proposal involving Plains Spirit and
a third party. Each such director also agreed that he will not
transfer shares of Plains Spirit Common Stock owned by him
unless, prior to such transfer, the transferee executes an agreement
in substantially the same form as the Voting Agreement. As of the Record
Date, the directors of Plains Spirit owned beneficially an aggregate of
92,780 shares of Plains Spirit Common Stock (excluding option shares), or
approximately 4.86% of the issued and outstanding shares.
BACKGROUND OF AND REASONS FOR THE MERGER; BOARD RECOMMENDATIONS
BACKGROUND OF THE MERGER. Effective March 11, 1992, First
Federal converted from a federally chartered mutual savings bank
to a federally chartered stock savings bank. At the same time,
Plains Spirit was formed as First Federal's holding company.
In connection with the conversion, Plains Spirit completed an
initial public offering of stock, selling 2,070,000 shares of
Plains Spirit Common Stock at $11.50 per share.
Following the conversion, management of Plains Spirit focused
its attention primarily on increasing Plains Spirit's core
business while reviewing, from time to time, its strategic
alternatives in light of its size, the increasing consolidation
of the financial services industry and other relevant
considerations. In October 1993, the Board of Directors
determined to maintain an informed position with respect to its
strategic alternatives by, among other things, retaining a
financial advisor.
In November 1993, Plains Spirit engaged Kaplan to serve as its
financial advisor on financial and strategic matters relating to
the enhancement of stockholder value, including the possible sale
of Plains Spirit.
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<PAGE> 36
In December 1993, Kaplan initiated a marketing process of
soliciting offers from third parties regarding a potential merger
with Plains Spirit. At the start of the marketing process,
Kaplan contacted 22 potential third party acquirors that Kaplan,
along with the management of Plains Spirit, believed were likely
to have a strategic and/or financial interest in the potential
acquisition of Plains Spirit.
These 22 institutions were provided a Confidentiality
Agreement and, in the form of a Confidential Information
Memorandum ("CIM") prepared by Kaplan and Plains Spirit, certain
public and non-public financial and operating data regarding
Plains Spirit. Of the 22 institutions contacted initially, 14
returned signed Confidentiality Agreements, and seven expressed
an interest (the "Interested Parties") in further exploration of
a possible acquisition of Plains Spirit. The Interested Parties
were given the opportunity by Kaplan and Plains Spirit to request
further clarification or additional information regarding the
contents of the CIM, and were instructed by Kaplan to submit
preliminary indications of value to Plains Spirit by February 28,
1994.
On or before February 28, 1994, five of the seven Interested
Parties submitted preliminary indications of value. Following
subsequent discussions with the Interested Parties that submitted
preliminary indications of value, and, with the assistance of
Kaplan and Plains Spirit's management, the Board of Directors of
Plains Spirit concluded that none of the offers were likely to
lead to a business combination that would fully maximize
stockholder value and further discussions were terminated.
Various factors were considered in reaching this conclusion
including, among other things, prevailing economic, market and
monetary conditions, the reasonableness and achievability of
Plains Spirit's financial and operating forecasts (and the
assumptions and bases therefor) and its future prospects as an
independent institution, the future financial and operating
prospects of the seven Interested Parties that submitted
preliminary indications of value after giving effect to a
business combination involving an acquisition of Plains Spirit,
and the likely structures of the business combinations
contemplated by the preliminary indications of value submitted by
the seven Interested Parties.
Upon termination of the marketing process, Plains Spirit began
to pursue other avenues to enhance stockholder value. Beginning
in March 1994, Plains Spirit initiated discussions with an in-
market savings institution regarding its possible acquisition by
Plains Spirit. Discussions and negotiations continued over the
next month with Plains Spirit submitting a preliminary indication
of potential interest on April 22, 1994. Further discussions
resulted in Plains Spirit updating its indication of interest on
April 28, 1994.
At this time, Plains Spirit was approached by a commercial
bank holding company regarding a possible "merger-of-equals" with
Plains Spirit. Plains Spirit continued to negotiate the
acquisition of the savings institution while exploring the
feasibility of a merger-of-equals transaction with the commercial
bank holding company. On May 5, 1994, Plains Spirit presented
its preliminary terms regarding the merger-of-equals transaction.
Discussions continued over the next month relating to both the
exchange ratio and the resulting management structure.
Negotiations were eventually terminated because of differences
regarding the exchange ratio and the resulting organizational and
management structure.
As discussions were ending relating to the contemplated
merger-of-equals transaction, the savings institution that Plains
Spirit had previously expressed an interest in acquiring
indicated that it had received a substantially higher offer from
another party and negotiations were terminated in relation to
Plains Spirit's possible acquisition of such savings institution.
During this period of time, Plains Spirit also initiated a stock
repurchase program on terms consistent with other stock
repurchase programs that it had undertaken previously.
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<PAGE> 37
Subsequent to the marketing process and the aforementioned
events, MBI expressed its interest to Plains Spirit of entering
into discussions that could lead to a potential acquisition of
Plains Spirit. This contact occurred in July 1994. While MBI
was not one of the Interested Parties, MBI was one of the 22
institutions that received a CIM and one of the 14 to return an
executed Confidentiality Agreement. Further discussions between
Plains Spirit and MBI resulted in the submission of an oral
indication of value by MBI.
At MBI's specific request, Plains Spirit allowed MBI to
perform a preliminary on-site due diligence review of Plains
Spirit's books and records. On October 27, 1994, subsequent to
the completion of its preliminary on-site due diligence review,
MBI presented orally a preliminary indication of potential
interest in acquiring all of the outstanding shares of Plains
Spirit Common Stock and outstanding options to purchase shares of
Plains Spirit Common Stock. Such preliminary indication of
interest contemplated that First Federal would continue to
operate as a wholly owned, independent thrift subsidiary of MBI,
and was subject to a number of ordinary and customary conditions
regarding the negotiation of a definitive agreement and the
receipt of all relevant regulatory and stockholder approvals.
Subsequent discussions and negotiations over the next two
months between MBI, Plains Spirit and Kaplan, acting on behalf of
Plains Spirit, resulted in a formal offer for Plains Spirit, as
set forth in the Merger Agreement.
On December 22, 1994, at a meeting of Plains Spirit's Board of
Directors that included the participation of Kaplan and Silver,
Freedman & Taff, L.L.P., Plains Spirit's outside legal counsel, Plains
Spirit's Board reviewed the terms of the proposed Merger. The
following day, December 23, 1994, the Board unanimously approved
the offer from MBI and authorized the execution and delivery of
the Merger Agreement.
PLAINS SPIRIT'S REASONS AND BOARD RECOMMENDATION. The terms
of the Merger Agreement, including the consideration to be paid
to Plains Spirit's stockholders, were the result of arm's-length
negotiations between the representatives of MBI and Plains
Spirit. In the course of reaching its determination to approve
the Merger Agreement and recommend it to the stockholders of
Plains Spirit, the Board of Directors, without assigning any
relative or specific weights, considered a number of factors,
including, among other things (i) the financial and valuation
analyses prepared by Kaplan, (ii) the draft of the fairness
opinion to be rendered by Kaplan, (iii) the terms of the Merger
Agreement as negotiated (including the transaction structure, the
form and amount of the Merger Consideration, and the potential
impact of the proposed Merger Agreement and the Option Agreement
on other institutions that might have an interest in a business
combination with Plains Spirit), and the negotiation process,
(iv) the financial condition, operations and prospects of MBI and
the anticipated effect thereon of the proposed transaction, (v)
industry and economic factors, (vi) the nature and compatibility
of MBI's management and business philosophy, (vii) the prospects
for growth and expanded products and services, and other
anticipated impact on depositors, employees, customers and
communities served by Plains Spirit and (viii) regulatory and
other factors.
In approving the Merger, Plains Spirit's Board of Directors
was aware that (i) the Merger Agreement contains certain
provisions prohibiting Plains Spirit from soliciting,
facilitating or accepting other offers or agreements to acquire
Plains Spirit (see "- Business Pending the Merger") and (ii) MBI
would be able to exercise the Option in certain circumstances
generally relating to a failure of Plains Spirit to consummate
the Merger because of another offer for Plains Spirit or a
material change or potential material change in the ownership of
Plains Spirit (see "- Other Agreements - Option Agreement").
However, the Board was also aware that such terms were
specifically bargained for and insisted upon by MBI as
inducements to enter into the Merger Agreement, and that the
Board's obligations under the
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<PAGE> 38
Merger Agreement to recommend that Plains Spirit's stockholders approve the
Merger Agreement and to use its reasonable best efforts to obtain such
approval were explicitly made subject to the Board's fiduciary duties upon
written advice of counsel to Plains Spirit. Accordingly, the
Merger Agreement expressly permits the Board, in the exercise of
its fiduciary duties, to withdraw or change its recommendation of
the Merger Agreement and to suspend or terminate its efforts to
obtain stockholder approval of the Merger Agreement at the
Special Meeting (it should be noted, however, that in such
circumstances MBI might still be able to exercise its rights
under the Option Agreement). In addition, in connection with its
approval of the proposed Merger, the Board was advised by Kaplan
that the indicated value of the Merger (i) exceeded the upper end
of Kaplan's range of estimates of Plains Spirit's stand-alone
value, (ii) exceeded Kaplan's estimates of the value of the
preliminary indications of interest previously received by Plains
Spirit and (iii) was at the upper end of Kaplan's range of
estimates of Plains Spirit's likely value in an acquisition
transaction. In presenting this advice, Kaplan stated that these
findings were necessarily based upon economic, market, monetary
and other conditions as they existed and could be evaluated at
the time, represented its best business judgment under the
circumstances and should not be construed in any way as a
financial fairness or other form of expert opinion. Kaplan's
fairness opinion is described below and is included as Annex C to
-------
this Proxy Statement/Prospectus. See "- Opinion of Financial
Advisor to Plains Spirit."
THE BOARD OF DIRECTORS OF PLAINS SPIRIT BELIEVES THAT THE
MERGER IS IN THE BEST INTERESTS OF PLAINS SPIRIT AND ITS
STOCKHOLDERS. THE BOARD UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS
OF PLAINS SPIRIT VOTE FOR THE PROPOSAL TO APPROVE THE MERGER
---
AGREEMENT.
MBI'S REASONS AND BOARD RECOMMENDATIONS. The Executive
Committee of the Board of Directors of MBI considered a number of
factors, including, among other things, the financial condition
of Plains Spirit and projected synergies which MBI anticipates
will result from the Merger. The Executive Committee concluded
that the Merger presents an unique opportunity for MBI to
increase its presence in eastern Iowa through the acquisition of
an established banking organization having significant operations
in the targeted area. MBI's decision to pursue discussions with
Plains Spirit was primarily a result of MBI's assessment of the
value of Plains Spirit's banking franchise, its substantial asset
base within that area and the compatibility of the businesses of
the two banking organizations.
OPINION OF FINANCIAL ADVISOR TO PLAINS SPIRIT
Plains Spirit has retained Kaplan to act as its financial
advisor in connection with rendering a fairness opinion with
respect to the Merger. Kaplan has rendered its opinions that,
based upon and subject to the various considerations set forth
therein, as of December 23, 1994 and the date of this Proxy
Statement/Prospectus, the Merger Consideration to be received for
each share of Plains Spirit Common Stock resulted in
consideration that was fair, from a financial point of view, to
the holders of Plains Spirit Common Stock. Kaplan is familiar
with Plains Spirit, having acted as its financial advisor in
connection with, and having participated in, the negotiations
leading to the Merger Agreement. Representatives of Kaplan
participated in the meeting of Plains Spirit's Board of Directors
on December 22, 1994 where the proposed Merger was considered and
certain officers of Plains Spirit were authorized to enter into
the Merger Agreement.
THE FULL TEXT OF KAPLAN'S OPINION AS OF THE DATE HEREOF, WHICH
SETS FORTH THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND
LIMITATIONS OF THE REVIEW UNDERTAKEN, IS ATTACHED AS ANNEX C TO
-------
THIS PROXY STATEMENT/PROSPECTUS AND IS INCORPORATED HEREIN BY
REFERENCE, AND SHOULD BE READ IN ITS ENTIRETY IN CONNECTION WITH
THIS PROXY STATEMENT/PROSPECTUS. THE SUMMARY OF THE OPINION OF
KAPLAN SET FORTH IN THIS PROXY STATEMENT/PROSPECTUS IS QUALIFIED
IN ITS ENTIRETY BY
- 32 -
<PAGE> 39
REFERENCE TO THE FULL TEXT OF SUCH OPINION. THE DECEMBER 23, 1994 OPINION
WAS SUBSTANTIALLY IDENTICAL TO THE OPINION ATTACHED HERETO.
KAPLAN'S OPINION IS DIRECTED ONLY TO THE MERGER CONSIDERATION
AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY HOLDERS OF PLAINS
SPIRIT COMMON STOCK AS TO HOW SUCH HOLDERS OF PLAINS SPIRIT
COMMON STOCK SHOULD VOTE AT THE SPECIAL MEETING OR AS TO ANY
OTHER MATTER.
In connection with its opinion dated the date hereof, Kaplan
reviewed and analyzed material bearing upon the financial and
operating condition of Plains Spirit and MBI and material
prepared in connection with the Merger, including, among other
things: (a) the Merger Agreement, the Option Agreement and the
Voting Agreements; (b) this Proxy Statement/Prospectus; (c)
publicly available reports filed with the OTS by Plains Spirit
and with the Commission by MBI; (d) certain other publicly
available financial and other information concerning Plains
Spirit and MBI and the trading markets for the publicly traded
securities of Plains Spirit and MBI; (e) certain other internal
information, including projections for Plains Spirit, relating to
Plains Spirit and MBI prepared by the managements of Plains
Spirit and MBI and furnished to Kaplan for purposes of its
analysis; and (f) publicly available information concerning
certain other banks and bank holding companies, savings and loan
associations, savings and loan holding companies, the trading
markets for their securities and the nature and terms of certain
other merger and acquisition transactions believed relevant to
its inquiry. Kaplan also met with certain officers and
representatives of Plains Spirit and MBI to discuss the foregoing
as well as other matters relevant to its inquiry, including the
past and current business operations, results of regulatory
examinations, financial condition and future prospects of Plains
Spirit and MBI, both separately and on a combined basis. In
addition, Kaplan reviewed the reported price and trading activity
for Plains Spirit Common Stock and MBI Common Stock, compared
certain financial and stock market information for Plains Spirit
and MBI with similar information for certain other companies, the
securities of which are publicly traded, reviewed the financial
terms of certain recent business combinations in the commercial
banking and thrift industries, and performed such other studies
and analyses as it considered appropriate. Kaplan also took into
account its assessment of general economic, market and financial
conditions and its experience in other transactions, as well as
its experience in securities valuations and knowledge of the
commercial banking and thrift industries generally.
In conducting its review and arriving at its opinions, Kaplan
relied upon and assumed the accuracy and completeness of the
financial and other information provided to it or publicly
available and did not attempt independently to verify the same.
Kaplan has relied upon the managements of Plains Spirit and MBI
as to the reasonableness and achievability of the projections
(and the assumptions and bases therefor) provided to Kaplan, and
assumed that such projections, including, without limitation,
projected cost savings and operating synergies resulting from the
Merger, reflected the best currently available estimates and
judgments of such Plains Spirit management and MBI
representatives and that such projections would be realized in
the amounts and time periods estimated. Kaplan also assumed,
without independent verification, that the aggregate allowances
for loan losses for Plains Spirit and MBI were adequate to cover
such losses. Kaplan did not conduct physical inspections of any
of the properties or assets of Plains Spirit or MBI, and Kaplan
did not make or obtain any evaluations or appraisals of any
properties, assets or liabilities of Plains Spirit or MBI.
Kaplan was retained by the Plains Spirit Board to express an
opinion as to the fairness, from a financial point of view, to
the holders of Plains Spirit Common Stock of the Merger
Consideration.
IN CONNECTION WITH RENDERING ITS OPINIONS TO THE PLAINS SPIRIT
BOARD, KAPLAN PERFORMED A VARIETY OF FINANCIAL ANALYSES THAT ARE
SUMMARIZED BELOW. THE SUMMARY OF THE PRESENTATIONS BY KAPLAN TO
THE BOARD OF DIRECTORS OF PLAINS SPIRIT AS SET FORTH HEREIN DOES
NOT PURPORT TO BE A COMPLETE DESCRIPTION OF SUCH PRESENTATIONS.
KAPLAN BELIEVES THAT ITS ANALYSES AND
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<PAGE> 40
THE SUMMARY SET FORTH HEREIN MUST BE CONSIDERED AS A WHOLE AND THAT
SELECTING PORTIONS OF SUCH ANALYSES AND THE FACTORS CONSIDERED THEREIN,
WITHOUT CONSIDERING ALL FACTORS AND ANALYSES, COULD CREATE AN INCOMPLETE
VIEW OF THE ANALYSES AND PROCESSES UNDERLYING ITS OPINIONS. THE
PREPARATION OF A FAIRNESS OPINION IS A COMPLEX PROCESS INVOLVING
SUBJECTIVE JUDGMENTS AND IS NOT NECESSARILY SUSCEPTIBLE TO
PARTIAL ANALYSES OR SUMMARY DESCRIPTION. IN ITS ANALYSES, KAPLAN
MADE NUMEROUS ASSUMPTIONS WITH RESPECT TO INDUSTRY PERFORMANCE,
BUSINESS AND ECONOMIC CONDITIONS, AND OTHER MATTERS, MANY OF
WHICH ARE BEYOND THE CONTROL OF PLAINS SPIRIT OR MBI. ANY
ESTIMATES CONTAINED IN KAPLAN'S ANALYSES ARE NOT NECESSARILY
INDICATIVE OF ACTUAL FUTURE VALUES OR RESULTS, WHICH MAY BE
SIGNIFICANTLY MORE OR LESS FAVORABLE THAN SUGGESTED BY SUCH
ESTIMATES. ESTIMATES OF VALUES OF COMPANIES DO NOT PURPORT TO BE
APPRAISALS OR NECESSARILY REFLECT THE PRICES AT WHICH COMPANIES
OR THEIR SECURITIES ACTUALLY MAY BE SOLD. NO COMPANY OR
TRANSACTION UTILIZED IN KAPLAN'S ANALYSES WAS IDENTICAL TO PLAINS
SPIRIT OR MBI OR THE MERGER. ACCORDINGLY, SUCH ANALYSES ARE NOT
BASED SOLELY ON ARITHMETIC CALCULATIONS; RATHER, THEY INVOLVE
COMPLEX CONSIDERATIONS AND JUDGMENTS CONCERNING DIFFERENCES IN
FINANCIAL AND OPERATING CHARACTERISTICS OF THE RELEVANT
COMPANIES, THE TIMING OF THE RELEVANT TRANSACTIONS, AND
PROSPECTIVE BUYER INTEREST, AS WELL AS OTHER FACTORS THAT COULD
AFFECT THE PUBLIC TRADING VALUES OF THE COMPANY OR COMPANIES TO
WHICH THEY ARE BEING COMPARED. NONE OF THE ANALYSES PERFORMED BY
KAPLAN WAS ASSIGNED A GREATER SIGNIFICANCE BY KAPLAN THAN ANY
OTHER.
The following is a brief summary of the analyses performed by
Kaplan in connection with its opinions:
(a) DISCOUNTED CASH FLOW ANALYSIS. Kaplan prepared a
discounted cash flow analysis that indicated theoretical
values for Plains Spirit based on a range of terminal price-
to-earnings ("P/E") multiples between 7.0x and 18.0x and a
discount rate of 12.0%. The range of values was based on a
range of earnings for the next five years assuming annual
earnings growth rates between 0.0% and 10.0%. The results of
this analysis indicated a range of theoretical values for
Plains Spirit between $10.80 per share (0.0% earnings growth
rate; P/E of 7.0x) and $36.19 per share (10.0% earnings growth
rate; P/E of 18.0x).
Kaplan also prepared a discounted cash flow analysis based
upon a range of terminal price-to-book ("P/B") values between
85.0% and 135.0% and a discount rate of 12.0%. The range of
values was based upon an assumed earnings growth rate between
0.0% and 10.0%. The analysis indicated a range of values for
Plains Spirit between $19.15 per share (0.0% earnings growth;
terminal P/B value of 85.0%) and $31.09 per share (10.0%
earnings growth; terminal P/B value of 135.0%). The nominal
value of the offer from MBI for each share of Plains Spirit
Common Stock was $31.25 per share.
Kaplan also prepared analyses of comparative theoretical
stockholder returns for several scenarios, including Plains
Spirit remaining independent, Plains Spirit repurchasing
shares, Plains Spirit being sold to another third party and
Plains Spirit accepting the MBI offer. Additionally, Kaplan
evaluated the future prospects of Plains Spirit and MBI on a
pro forma combined basis based on various estimates of pro
forma net income for the twelve month period ending September
30, 1994.
(b) CONTRIBUTION ANALYSIS. Kaplan prepared a contribution
analysis showing the percentage of assets, deposits, common
equity, tangible common equity and estimated 1995 net income
contributed to the combined company on a pro forma basis, and
compared these percentages to the pro forma ownership of MBI.
This analysis showed that Plains Spirit, as of September 30,
1994, after taking into account certain pre-closing
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<PAGE> 41
adjustments, would contribute 3.1% of pro forma consolidated
total assets, 2.8% of pro forma consolidated deposits and 0.6%
of pro forma consolidated net income for the fiscal year ended
September 30, 1994. As MBI plans to repurchase shares equal
to the Stock Distribution, Plains Spirit will not contribute
any additional equity to MBI on a pro forma basis.
(c) MERGER CONSIDERATION ANALYSIS. As set forth in the
Merger Agreement, MBI's offer allows each Plains Spirit
stockholder to elect to receive either cash or MBI Common
Stock, subject to certain adjustments intended, among other
things, to accommodate the tax-deferred nature of the Merger
and to ensure that the maximum number of shares of MBI Common
Stock to be issued does not exceed 1,400,000. In the event
the Stock Distribution is fully subscribed, the Cash
Distribution will vary inversely in relation to changes in the
Average Mercantile Stock Price to ensure a "constant dollar"
offer price of $31.25 per share.
Kaplan performed a review of Plains Spirit Common Stock
over the period from January 1, 1993, to December 23, 1994.
The price of Plains Spirit Common Stock ranged from a low of
$18.75 to a high of $26.50. During the same period, the price
of MBI Common Stock ranged from a low of $29.33 to a high of
$39.250. The Kaplan analyses also compared the weekly trading
volume for Plains Spirit and MBI Common Stock from January
1993 to December 1994. During these periods, the weekly
trading volume for Plains Spirit Common Stock averaged 47,295
shares, while the weekly trading volume for the MBI Common
Stock averaged 293,988 shares.
(d) FINANCIAL IMPLICATIONS TO PLAINS SPIRIT'S STOCKHOLDERS.
Kaplan presented to the Board of Directors of Plains Spirit an
analysis of the financial implications of the MBI proposal to
Plains Spirit stockholders. This analysis showed that, for
those Plains Spirit stockholders that receive MBI Common
Stock, on a pro forma common share equivalent basis, a
stockholder of Plains Spirit would achieve, as a result of the
proposal, an 88.9% improvement in projected earnings per share
and a 12.1% dilution in projected fully-diluted tangible book
value per share. Plains Spirit stockholders would also
receive a dividend of $0.77 per share.
(e) COMPARABLE TRANSACTION ANALYSIS. Kaplan performed an
analysis of prices and premiums paid in recent highly
capitalized thrift acquisition transactions nationwide.
Multiples of earnings, fully-diluted book value and fully-
diluted tangible book value implied by the consideration to be
received by Plains Spirit's stockholders in the Merger were
compared with multiples paid in such nationwide thrift
transactions, which included selected pending and completed
acquisitions of thrifts with total assets less than $450
million and an equity/assets ratio greater than 11.00%,
announced between January 1, 1993 and December 23, 1994. The
average offer price to book value for this nationwide group of
comparable transactions was 128.4%. The equivalent offer
price to book value for Plains Spirit was 110.6% based on the
Merger Consideration for each outstanding share of Plains
Spirit Common Stock and Plains Spirit's stockholders' equity
as of September 30, 1994. The average offer price to tangible
book value was 129.4% for the comparative group, as compared
to 110.6% for the prevailing offer consideration to be
received by Plains Spirit stockholders. The average multiple
of offer price to latest twelve months earnings was 14.0x for
the comparative group, as compared to 14.1x for Plains Spirit.
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<PAGE> 42
Kaplan also performed an analysis of selected pending and
completed acquisitions announced between January 1, 1993 and
December 23, 1994, of highly capitalized thrifts headquartered
in midwestern states with total assets less than $500 million
and an equity/assets ratio greater than 11.00%. The average
offer price to book value for this group of comparable
transactions was 139.9%. The equivalent offer price to book
value for Plains Spirit was 110.6%. The average offer price
to tangible book value was 139.9% for the comparative group,
as compared to 110.6% for the prevailing offer consideration
to be received by the holders of Plains Spirit Common Stock.
The average multiple of offer price to latest twelve months
earnings was 14.7x for the comparative group, as compared to
14.1x for Plains Spirit.
The thrift transactions included in the above averages are
summarized in the tables below and on the following page:
<TABLE>
SELECTED NATIONWIDE THRIFT TRANSACTIONS
<CAPTION>
State of State of
Buyer Target Buyer Target
-------- -------- ------------------ -------------------------
<C> <C> <C> <S>
NC NC Centura Banks First Southern Bncrp
FO NH Bank of Ireland Great Bay Bnkshrs.
PA OH PNC Bank Corp Brentwood Fin'l Corp
OH IN National City Corp Central Indiana Bncrp
WI IL Advantage Bancorp. Amity Bancshares
PA PA First Commonwealth Reliable Financial
VA VA Signet Banking Corp Pioneer Financial
PA PA PennFirst Bancorp ESB Bancorp
AL FL Regions Financial First Federal Enterprises
MN SD South Dakota Fin'l Dakota Bancorp
</TABLE>
<TABLE>
SELECTED MIDWEST REGION THRIFT TRANSACTIONS
<CAPTION>
State of State of
Buyer Target Buyer Target
-------- -------- -------------------- ------------------------
<C> <C> <C> <S>
WI IL First Financial Corp FirstRock Bancorp
PA OH PNC Bancorp Brentwood Fin'l Corp
OH IN National City Corp Central Indiana Bncrp.
OH OH Fifth Third Bancorp Mutual FSB
WI IL Advantage Bancorp Amity Bancshares
MO MO First Banks, Inc. St. Charles Fed Bncshrs.
OH OH Fifth Third Bancorp TriState Bancorp
MN SD South Dakota Fin'l Dakota Bancorp
</TABLE>
(f) COMPARABLE COMPANY ANALYSIS. In performing
its comparable company analyses, Kaplan examined the
operating performance of Plains Spirit in comparison to
publicly traded thrift institutions that Kaplan deemed
to be comparable to Plains Spirit. This group of
companies included 16 publicly traded thrift
institutions with headquarter locations in various
midwestern states having total assets between $250
million and $500 million and an equity/assets ratio
greater than 12.00%. The group included Ameriana
Bancorp (Indiana), First Midwest Financial, Inc.
(Iowa), Calumet Bancorp, Inc. (Illinois), Fidelity
Bancorp, Inc. (Illinois), FirstFed Bancshares
(Illinois), First Federal Financial Corp. (Kentucky),
Financial Security Corp. (Illinois), HMN Financial,
Inc. (Minnesota), Kentucky Enterprise Bancorp
(Kentucky), Kankakee Bancorp, Inc. (Illinois), Ottawa
- 36 -
<PAGE> 43
Financial Corp. (Michigan), Permanent Bancorp, Inc.
(Indiana), Peoples Bancorp (Indiana), Southwest
Bancshares (Illinois), WFS Bancorp, Inc. (Kansas) and
Westco Bancorp (Illinois).
Kaplan analyzed the relative performance and
outlook for Plains Spirit by comparing certain
financial and trading market information of Plains
Spirit with the group of comparable thrifts. Kaplan
compared Plains Spirit with the comparable thrifts
based on selected operating fundamentals, including
profitability, capital adequacy and asset quality.
Using financial data as of or for the twelve months
ended September 30, 1994, and market price data as of
December 20, 1994, the average market price to latest
twelve months earnings multiple was 10.9x for the
comparable thrifts and 10.3x for Plains Spirit. The
average price to stated book value was 84.6% for the
comparable thrifts and 80.5% for Plains Spirit. The
average price to tangible book value was 85.2% for the
comparable thrifts and 80.5% for Plains Spirit. The
implied market trading values for Plains Spirit derived
from such comparable company analysis utilizing the
resulting valuation ratio averages ranged from
approximately $23.91 to $24.08 per share. At September
30, 1994, the average equity to assets ratio was 15.27%
for the group of comparable thrifts and 12.41% for
Plains Spirit. The average tangible equity to assets
ratio was 15.19% for the comparable thrifts and 12.41%
for Plains Spirit. The average last twelve months
return on average assets was 1.13% for the comparable
thrifts and 1.20% for Plains Spirit. The average
return on average equity was 7.63% for the comparable
thrifts and 8.18% for Plains Spirit. Based on the
Merger Consideration of $31.25 per share, as of
September 30, 1994, the MBI offer price represented
110.6% of Plains Spirit's book value, 110.6% of Plains
Spirit's tangible book value, and 14.1x Plains Spirit's
latest twelve months earnings through September 30,
1994.
In addition, Kaplan compared the market price,
price-to-book value and price-to-earnings multiples of
the MBI Common Stock with the individual market
multiples and averages of sixteen selected comparable
companies deemed to be reasonably similar to MBI in
size, financial character, operating profile,
historical performance and geographic market and
included Boatmen's Bancshares, Inc. (Missouri),
Commerce Bancshares, Inc. (Missouri), First Bank
System, Inc. (Minnesota), First of America Bank Corp.
(Michigan), FirsTier Financial, Inc. (Nebraska), Fourth
Financial Corporation (Kansas), Firstar Corporation
(Wisconsin), Hawkeye Bancorporation (Iowa), Magna
Group, Inc. (Missouri), Marshall & Ilsley Corporation
(Wisconsin), Norwest Corporation (Minnesota) and Old
Kent Financial Corporation (Michigan).
The analysis also compared returns on average
assets and on average equity of MBI to those of the
selected comparable companies and the averages of the
comparable group. Using financial data as of or for
the twelve months ended September 30, 1994, and market
price data as of December 20, 1994, the analysis
indicated that the MBI Common Stock traded at a price-
to-earnings multiple of 10.2x trailing twelve months
earnings for the period ending September 30, 1994 as
compared to a comparative group average of 10.9x
trailing twelve months earnings. MBI Common Stock
traded at 133.7% of book value and 142.6% of tangible
book value, as compared to 151.7% and 174.7%,
respectively, for the comparative group. MBI's
operating results, as measured by returns on average
assets and average equity was 1.13% and 13.76%,
respectively, as compared to the average of the
selected comparable companies, which was 1.26% and
14.83%, respectively.
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<PAGE> 44
The Kaplan analyses also included summary income statement and
balance sheet data and selected ratio analyses for MBI and
various other potential acquirors of Plains Spirit. In addition,
on December 22, 1994, the senior management of Plains Spirit, in
conjunction with Kaplan, summarized certain historical financial
information of MBI and reported to the Plains Spirit Board of
Directors regarding the results of a due diligence review of MBI
conducted during the week of January 17, 1995.
In connection with its opinion as of the date hereof, Kaplan
also confirmed the appropriateness of its reliance on the
analyses used to render its December 23, 1994 opinion by
performing procedures to update certain of such analyses and by
reviewing the assumptions on which such analyses were based and
the factors considered in connection therewith.
Kaplan is a nationally recognized financial advisory and
consulting firm that specializes in the commercial banking,
thrift and mortgage banking industries. Kaplan is regularly
engaged in the independent valuation of businesses and securities
in connection with mergers and acquisitions, initial public
offerings, private placements, recapitalizations and valuations
for estate, corporate and other purposes. The Board of Directors
of Plains Spirit selected Kaplan to serve as its financial
advisor on the basis of its reputation, experience and expertise
in transactions such as the Merger.
Pursuant to the terms of an engagement letter, dated November
29, 1993, between Plains Spirit and Kaplan, Plains Spirit engaged
Kaplan as its financial advisor to generally advise Plains
Spirit's Board of Directors on financial and strategic matters
relating to the enhancement of stockholder value and, more
specifically, in connection with the possible sale of Plains
Spirit and such other matters as requested by the Plains Spirit
Board of Directors. Plains Spirit has paid Kaplan a general
advisory fee of $25,000 upon the execution of the above-
referenced engagement letter, and a specific advisory fee of
$75,000 following the delivery of Kaplan's financial fairness
opinion issued in conjunction with Plains Spirit's execution of
the Merger Agreement. In addition, on the closing date of the
Merger, Plains Spirit will pay Kaplan a contingent transaction
fee equal to 0.85% of the gross consideration to be received by
the holders of Plains Spirit Common Stock less the aggregate
amount of the above-referenced general and specific advisory fees
previously paid to Kaplan by Plains Spirit, or $444,000. During
1993, Plains Spirit also paid Kaplan a total of $30,000 in
professional fees for financial advisory services relating to
Plains Spirit's evaluation of a possible acquisition of an in-
market thrift institution and a possible merger-of-equals
transaction with a commercial bank. Whether or not the Merger is
consummated, Plains Spirit has also agreed to reimburse Kaplan
for its reasonable out-of-pocket expenses incurred in connection
with the services provided to Plains Spirit by Kaplan and to
indemnify and hold harmless Kaplan to the full extent lawful from
and against certain liabilities, including certain liabilities
under the federal securities laws, in connection with its
engagement.
CONDITIONS OF THE MERGER
The respective obligations of MBI and Plains Spirit to
consummate the Merger are subject to the satisfaction of certain
mutual conditions, including the following:
(1) The Merger Agreement shall be approved by the holders
of a majority of the outstanding shares of Plains Spirit
Common Stock at the Special Meeting.
(2) The Merger Agreement and the transactions contemplated
therein shall have been approved by the Federal Reserve Board,
the OTS and any other federal and/or state regulatory agency
whose approval is required for the consummation of the
transactions contemplated therein, and all waiting periods
after such approvals required by law or regulation have been
satisfied.
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<PAGE> 45
(3) The Registration Statement of which this Proxy
Statement/Prospectus is a part, registering shares of MBI
Common Stock to be issued in the Merger, shall have been
declared effective and not be subject to a stop order or any
threatened stop order.
(4) Neither Plains Spirit, MBI nor MBII 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.
(5) Each of MBI, MBII and Plains Spirit shall have received
from MBI's Counsel an opinion (which opinion shall not have
been withdrawn at or prior to the Effective Time) 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 Code and that no gain or loss will be
recognized by those stockholders of Plains Spirit who receive
solely MBI Common Stock in exchange for Plains Spirit Common
Stock.
The obligation of MBI and MBII to consummate the Merger is
subject to the satisfaction by Plains Spirit, unless waived by
MBI and MBII, of certain other conditions, including the
following:
(1) The representations and warranties of Plains Spirit
made in the Merger Agreement shall be true and correct in all
material respects, as of December 23, 1994 and as of the
Effective Time, except for inaccuracies therein that are not
of a magnitude as to have a material adverse effect on Plains
Spirit and its subsidiaries, taken as a whole, and MBI shall
have received an officers' certificate from Plains Spirit to
that effect.
(2) All obligations required to be performed by Plains
Spirit prior to or as of the Closing Date shall have been
performed in all material respects, and MBI shall have
received an officers' certificate from Plains Spirit to that
effect.
(3) Plains Spirit shall have obtained any and all material
permits, authorizations, consents, waivers and approvals
required of Plains Spirit for the lawful consummation of the
Merger.
(4) Since December 23, 1994, there shall have been no
material adverse change in the business, financial condition
or results of operations of Plains Spirit or its subsidiaries,
taken as a whole, except as may have resulted from changes to
laws and regulations, generally accepted or regulatory
accounting principles, or interpretations thereof, or changes
in economic conditions, including interest rates, applicable
to thrift institutions generally.
(5) Silver, Freedman & Taff, L.L.P., counsel to Plains
Spirit, shall have delivered to MBI an opinion regarding
certain legal matters.
Plains Spirit's obligation to consummate the Merger is subject
to the satisfaction, by MBI and MBII, unless waived by Plains
Spirit, of certain other conditions, including the following:
(1) The representations and warranties of MBI and MBII made
in the Merger Agreement shall be true and correct in all
material respects, as of December 23, 1994 and as of the
Effective Time, except for inaccuracies therein that are not
of a magnitude as to have a material adverse effect on MBI and
its subsidiaries, taken as a whole, and Plains Spirit shall
have received an officer's certificate from MBI to that
effect.
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<PAGE> 46
(2) All obligations required to be performed by MBI prior
to or as of the Closing Date shall have been performed in all
material respects, and Plains Spirit shall have received an
officers' certificate from MBI to that effect.
(3) MBI and MBII shall have obtained any and all material
permits, authorizations, consents, waivers and approvals
required of MBI or MBII for the lawful consummation of the
Merger.
(4) Since December 23, 1994, there shall have been no
material adverse change in the business, financial condition
or results of operations of MBI on a consolidated basis taken
as a whole, except as may have resulted from changes to laws
and regulations, generally accepted or regulatory accounting
principles, or interpretations thereof, or changes in economic
conditions, including interest rates, applicable to commercial
banking institutions.
(5) MBI's Counsel shall have delivered to Plains Spirit an
opinion regarding certain legal matters.
TERMINATION OF THE MERGER AGREEMENT
The Merger Agreement may be terminated at any time prior to
the Effective Time, whether before or after approval by the
stockholders of Plains Spirit, by mutual consent of the Executive
Committee of the Board of Directors of MBI and the Boards of
Directors of Plains Spirit and MBII, or unilaterally by the
Executive Committee of the Board of Directors of MBI or the
Boards of Directors of Plains Spirit or MBII: (i) at any time
after December 31, 1995, if the Merger shall not have been
consummated by such date (provided that the terminating party is
not then in material breach of any representation, warranty,
covenant or other agreement contained in the Merger Agreement);
(ii) if the Federal Reserve Board or the OTS shall have denied
the application to approve the Merger, and such denial has become
nonappealable; (iii) if the Merger Agreement is not approved by a
majority of the outstanding shares of Plains Spirit Common Stock
at the Special Meeting; or (iv) in the event of a breach by the
other party of any representation, warranty or agreement
contained in the Merger Agreement or the Option Agreement, which
breach is not cured after 30 days' written notice thereof is
given to the party committing such breach or waived by the non-
breaching party. No assurance can be given that the Merger will
be consummated on or before December 31, 1995 or that MBI, MBII
or Plains Spirit will not elect to terminate the Merger Agreement
if the Merger has not been consummated on or before such date.
In the event of the termination of the Merger Agreement, it
shall become void and there shall be no liability on the part of
any party except, that (i) confidentiality and indemnification
obligations shall survive termination; (ii) MBI shall pay all
printing, mailing and filing expenses with respect to the
Registration Statement and this Proxy Statement/Prospectus and
(iii) in the case of termination due to continued material breach
after notice and opportunity to cure, the breaching party shall
not be relieved of liability to the nonbreaching party arising
from the willful nonperformance of any covenant in the Merger
Agreement. In addition, as described above under "- Other
Agreements - Option Agreement," in the case of certain
terminations of the Merger Agreement, the Option Agreement will
become exercisable and Plains Spirit may be obligated to
repurchase the Option and any Mercantile Option Shares.
INDEMNIFICATION
Plains Spirit, MBI and MBII have agreed to indemnify each
other against any claims or liabilities to which any such party
may become subject under federal or state securities laws or
regulations,
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<PAGE> 47
to the extent that such claim or liability arises out of information
furnished to the party subject to such liability by the other party, or out
of an omission by such other party to state a necessary or material fact in
the Registration Statement of which this Proxy Statement/Prospectus is a
part.
CLOSING DATE
The Merger will be consummated and become effective on the
Closing Date upon the filing of the Articles of Merger in respect
of the Merger with the Secretary of State of the State of Iowa.
Under the Merger Agreement, unless the parties otherwise agree,
the Closing Date shall be the first business day of the month
beginning at least five business days after the month in which
the later of the following events occurs: (i) the receipt of the
requisite approval of the Merger Agreement by the stockholders of
Plains Spirit and (ii) the approval of the Merger by the Federal
Reserve Board, the OTS and any other federal and/or state
regulatory agency whose approval is required, and all waiting
periods for such approvals have been satisfied.
SURRENDER OF PLAINS SPIRIT STOCK CERTIFICATES AND RECEIPT OF MBI
COMMON STOCK AND/OR CASH
At the Effective Time of the Merger, each outstanding share of
Plains Spirit Common Stock will be converted into the right to
receive the Stock Distribution and/or the Cash Distribution as
shall be attributable to such share in accordance with the
elections and adjustments described above. See "- General
Description of the Merger." Each holder of Plains Spirit Common
Stock, upon submission to the Exchange Agent of a properly
executed letter of transmittal and surrender to the Exchange
Agent of the stock certificate(s) formerly representing shares of
Plains Spirit Common Stock, will be entitled to receive the Stock
Distribution and/or the Cash Distribution to which such
stockholder is entitled.
As soon as practicable after the Effective Time of the Merger,
the Exchange Agent will mail to each former Plains Spirit
stockholder of record as of the Effective Time notification of
the consummation of the Merger. The Exchange Agent will also
provide a letter of transmittal and instructions as to the
procedure for the surrender of the stock certificates evidencing
the Plains Spirit Common Stock.
Following the Effective Time of the Merger, it will be the
responsibility of each holder of Plains Spirit shares to submit all
certificates formerly evidencing such holder's shares of Plains Spirit
Common Stock to the Exchange Agent. No interest will be accrued or paid
on the Cash Distribution. No dividends or other distribution will be
paid to a Plains Spirit stockholder on the Stock Distribution until such
stockholder's properly completed letter of transmittal and stock
certificates formerly representing Plains Spirit Common Stock, or, in
lieu thereof, such evidence of a lost, stolen or destroyed certificate
and/or such insurance bond as the Exchange Agent may reasonably require
in accordance with customary exchange practices, are delivered to the
Exchange Agent. All dividends or other distributions on the Stock
Distribution declared between the Effective Time and the date of the
surrender of a Plains Spirit stock certificate will be held for the
benefit of the stockholder and will be paid to the stockholder, without
interest thereon, upon the surrender of such stock certificate or
documentation and/or insurance bond in lieu thereof.
After the Effective Time, there will be no further transfers
on the records of Plains Spirit of Plains Spirit stock
certificates and, if such certificates are presented to MBI for
transfer, they will be cancelled against delivery of the Merger
Consideration.
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<PAGE> 48
FRACTIONAL SHARES
No fractional shares of MBI Common Stock will be issued to the
stockholders of Plains Spirit in connection with the Merger. Each holder
of Plains Spirit Common Stock who otherwise would have been entitled to
receive a fraction of a share of MBI Common Stock shall receive in lieu
thereof cash, without interest, in an amount equal to the holder's
fractional share interest multiplied by the Average Mercantile Stock
Price. Cash received by Plains Spirit stockholders in lieu of fractional
shares may give rise to taxable income. See "CERTAIN FEDERAL INCOME TAX
CONSEQUENCES OF THE MERGER."
REGULATORY APPROVALS
In addition to the approval of the Merger Agreement by the
stockholders of Plains Spirit, the obligations of the parties to
effect the Merger are subject to prior approval of the Federal
Reserve Board and the OTS. As a bank holding company, MBI is
subject to regulation under the BHCA. The Merger is subject to
prior approval by the Federal Reserve Board under Section 4 of
the BHCA. Under the BHCA, the Federal Reserve Board may withhold
approval of the Merger if, among other things, it determines that
the effect of the Merger would be to substantially lessen
competition in the relevant markets. In addition, the Federal
Reserve Board will consider whether the combined organization
meets the requirements of the Community Reinvestment Act of 1977,
as amended, by assessing the involved entities' respective
records of meeting the credit needs of the local communities in
which they are chartered, consistent with the safe and sound
operation of such institutions. In its review, the Federal
Reserve Board must also examine the financial and managerial
resources and future prospects of the combined organization and
analyze the capital structure and soundness of the resulting
entity. The Federal Reserve Board has the authority to deny an
application if it concludes that the combined organization would
have inadequate capital.
As a savings and loan holding company, MBI is also subject to
regulation under the HOLA. The Merger is also subject to the
prior approval of the OTS under the HOLA. The OTS may disapprove
the Merger based on the financial and managerial resources and
future prospects of MBI and the effect of the Merger on First
Federal and the insurance risk posed by the Merger to the Savings
Association Insurance Fund (the "SAIF") or the Bank Insurance
Fund (the "BIF") of the Federal Deposit Insurance Corporation
(the "FDIC"). In determining whether to approve the Merger, the
OTS may also consider the effect of the Merger on the convenience
and needs of the communities to be served, including community
reinvestment needs. In addition, under HOLA, the OTS may not
approve the Merger if it would result in a monopoly or have a
substantial anticompetitive effect unless the anticompetitive
effect of the Merger is clearly outweighed in the public interest
by the probable effect of the Merger in meeting the convenience
and needs of the communities to be served.
Applications for such approvals have been filed with the
Federal Reserve Board and the OTS. The Federal Reserve granted
its approval of the Merger on April 26, 1995. MBI and Plains Spirit
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
approvals or actions will be timely received or taken, that no
action will be brought challenging any such approval or action
or, if such a challenge is brought, as to 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
"SUPERVISION AND REGULATION."
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<PAGE> 49
In connection with the filing of the applications with the
Federal Reserve Board and the OTS, MBI has committed to divest
or terminate, within such time limits, if any, as may be imposed
by the Federal Reserve Board, all impermissible activities conducted
and impermissible investments owned by S&L Service Corporation,
an Iowa corporation and wholly owned subsidiary of Plains Spirit,
which operates a general insurance agency.
BUSINESS PENDING THE MERGER
The Merger Agreement provides that, during the period from
December 23, 1994 to the Effective Time, Plains Spirit will, and
will cause each of its subsidiaries to, conduct its business
according to the ordinary and usual course consistent with past
practices and 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 the date of the Merger Agreement to the
Effective Time, except as provided in the Merger Agreement,
Plains Spirit will not, and will not permit any of its
subsidiaries to, without the prior written consent of MBI, which
consent will not be unreasonably withheld:
(1) declare, set aside or pay any dividends or other
distributions, directly or indirectly, in respect of its
capital stock (other than dividends from any of Plains
Spirit's subsidiaries to Plains Spirit), except that Plains
Spirit may declare and pay regular quarterly cash dividends in
amounts not to exceed $0.14 per share on the Plains Spirit
Common Stock; provided, however, no dividend will be paid to a
Plains Spirit stockholder for any quarter in which such Plains
Spirit stockholder will be entitled to receive a regular
quarterly dividend on the shares of MBI Common Stock to be
issued in the Merger;
(2) enter into or amend any employment, severance or
similar agreement or arrangement with any director, officer or
employee, or materially modify any of Plains Spirit's employee
plans or policies 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, and except for such increases of
which Plains Spirit notifies MBI in writing and which MBI does
not disapprove within ten days of the receipt of such notice;
(3) authorize, recommend, propose or announce an intention
to authorize, so 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 relinquishment of any material contract rights;
(4) propose or adopt any amendments to the Certificate of
Incorporation or the Articles of Incorporation or Charter of
Plains Spirit or any subsidiary of Plains Spirit, as the case
may be, or its respective by-laws;
(5) issue, sell, grant, confer or award any shares of
capital stock, except with respect to the issuance of Plains
Spirit Common Stock upon the exercise or conversion of
employee stock options, or effect any stock split or otherwise
change its capitalization as it existed on December 23, 1994;
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<PAGE> 50
(6) purchase, redeem, retire, repurchase or exchange, or
otherwise acquire or dispose of, directly or indirectly, any
shares of its capital stock, whether pursuant to the terms of
such capital stock or otherwise;
(7) (i) 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 $250,000 or in any amount
which, when aggregated with any and all loans or credit
commitments of Plains Spirit and its subsidiaries to such
person or entity, would be in excess of $500,000, provided no
such consultation shall be required in respect of single-
family residential loans or credits not exceeding $500,000
that are saleable in recognized secondary markets pursuant to
Plains Spirit's lending policies as in effect on the date
hereof; (ii) without first obtaining the written consent of
MBI, Lend to any person or entity in an amount in excess of
$500,000 or in any amount which, or when aggregated with any
and all loans or credit commitments of Plains Spirit and its
subsidiaries to such person or entity, would be in excess of
$1,000,000; (iii) Lend to any person other than in accordance
with lending policies as in effect on the date hereof,
provided that in the case of clauses (i) and (iii) Plains
Spirit or any of its subsidiaries may make any such loan in
the event (A) Plains Spirit or any of its 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 (B) 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 or its designated
representative of the notice of intention and information as
aforesaid; or (iv) 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
Plains Spirit or any of its subsidiaries (except those denoted
"pass" thereon), in an amount in excess of $100,000; provided,
however, that nothing shall prohibit Plains Spirit or any its
subsidiaries from honoring any contractual obligation in
existence on December 23, 1994 or, with respect to loans
described in clause (i) above, making such loans after
consulting with MBI;
(8) directly or indirectly, including through its
officers, directors, employees or other representatives:
(i) initiate, solicit or encourage any discussions,
inquiries or proposals with any third party (other than MBI
or MBII) relating to the disposition of any significant
portion of the business or assets of Plains Spirit or any
of its subsidiaries or the acquisition of the capital stock
(or rights or options exercisable for, or securities
convertible or exchangeable into, capital stock) of Plains
Spirit or any of its subsidiaries or the merger of Plains
Spirit or any of its subsidiaries with any person (other
than MBI or MBII) or any similar transaction (each such
transaction being referred to herein as an "Acquisition
Transaction"), or
(ii) provide any third party with information or
assistance or negotiate with any third party with respect
to an Acquisition Transaction, and Plains Spirit shall
promptly notify MBI orally of all the relevant details
relating to all inquiries,
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<PAGE> 51
indications of interest and proposals which it or any of its
subsidiaries may receive with respect to any Acquisition
Transaction;
(9) take any action that would (i) materially impede or
delay the consummation of the transactions contemplated by the
Merger Agreement or the ability of MBI or Plains Spirit to
obtain any necessary approvals 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 (ii) prevent or impede the Merger from
qualifying as a reorganization within the meaning of Section
368 of the Code;
(10) other than in ordinary course of business consistent
with past practice, incur any indebtedness for borrowed money
or assume, guarantee, endorse or otherwise as an accommodation
become responsible or liable for the obligations of any other
individual, corporation or other entity;
(11) materially restructure or change its investment
securities portfolio, through purchases, sales or otherwise,
or the manner in which the portfolio is classified or
reported, or execute individual investment transactions of
greater than $1,000,000 for U.S. Treasury Securities and
$500,000 for all other investment instruments, provided that
for purposes of this subsection, such consent by MBI shall not
be unreasonably withheld;
(12) agree in writing or otherwise to take any of the
foregoing actions or engage in any activity, enter into any
transaction or intentionally take or omit to take any other
act which would make any of the representations and warranties
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;
or
(13) enter into, increase or renew any loan or credit
commitment (including standby letters of credit) to any
executive officer or director of Plains Spirit or any of its
subsidiaries, any stockholder of Plains Spirit, or any entity
controlled, directly or indirectly, by any of the foregoing or
engage in any transaction with any of the foregoing which is
of the type or nature sought to be regulated in 12 U.S.C. Section
371c and 12 U.S.C. Section 371c-1, without first obtaining the
prior written consent of MBI, which consent shall not be
unreasonably withheld.
WAIVER AND AMENDMENT
Any provision of the Merger Agreement, including, without
limitation, the conditions to the consummation of the Merger and
the restrictions described under "- Business Pending the Merger,"
may be (i) waived in writing at any time by the party that is, or
whose shareholders or stockholders, as the case may be, are,
entitled to the benefits thereof, or (ii) amended at any time by
written agreement of the parties approved by or on behalf of
their respective Boards of Directors or Executive Committees,
whether before or after the Special Meeting; provided, however,
that after approval of the Merger Agreement by the stockholders
of Plains Spirit at the Special Meeting no such modification may
(i) alter or change the amount or form of the Merger Consideration
or (ii) adversely affect the tax treatment to the Plains Spirit
stockholders as a result of the Merger Consideration. See
"CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER."
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<PAGE> 52
ACCOUNTING TREATMENT
The Merger will be accounted for under the purchase method of
accounting. Accordingly, data regarding the financial condition
and results of operations of Plains Spirit will be included in
MBI's consolidated financial statements on and after the Closing
Date.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
JOHN C. SHENK, JR. AND THOMAS G. GETZ. John C. Shenk, Jr.,
Chairman of First Federal, and Thomas G. Getz, Vice Chairman of
First Federal, have each entered into an agreement with MBI
whereby they will continue as Chairman and Vice Chairman,
respectively, of First Federal through December 31, 1995.
Messrs. Shenk and Getz will receive the same fees as other
members of the Board of Directors of First Federal.
WILLIAM L. WILKE. William L. Wilke, President of First
Federal, has entered into an agreement with MBI whereby he will
continue to serve as President of First Federal through December
31, 1995. After December 31, 1995 and through the period ending
three years after consummation of the Merger, Mr. Wilke will
serve as either the President or Chairman of First Federal.
During such three year period, Mr. Wilke will receive a base
salary of $182,000 per year (inclusive of director's fees) and be
entitled to participate in MBI's welfare plans and executive
incentive programs.
MBI has agreed to satisfy the obligations of Plains Spirit and
First Federal under the Supplemental Retirement Agreement with
Mr. Wilke. Mr. Wilke will receive from MBI a lump sum
supplemental retirement benefit equal to the present value of an
annuity which will provide Mr. Wilke with annual lifetime
payments equal to $106,500. The supplemental retirement benefit
will be payable upon the consummation of the Merger. The benefit
is to be calculated net of any federal, state or local income,
excise or other tax liability.
MARK J. HOFFSCHNEIDER, JAMES D. VAN HYFTE AND DONALD J.
BREWER. Plains Spirit and First Federal have entered into the
Termination Agreements with each of Messrs. Hoffschneider, Van
Hyfte and Brewer. Pursuant to the Termination Agreements, if
employment is terminated during the term of the Termination
Agreements following a change in control of Plains Spirit either
(i) without the employee's express written consent, or (ii) by a
material diminution of or interference with the employee's
duties, responsibilities and benefits then the employee will
receive in cash, in semi-monthly installments during the 24-month
period following termination, an amount equal to 200% of his
current base salary plus incentive compensation for the most
recently completed fiscal year; provided, however, that any
compensation received by the employee from a third party during
such period in the form of salary and/or incentive compensation
will reduce the severance benefit accordingly. The employee will
also receive life, health and disability benefits substantially
identical to the coverage maintained by First Federal prior to
his severance. Consummation of the Merger will constitute a
change in control for the purposes of the Termination Agreements.
In connection with the Merger, MBI has agreed to honor the
Termination Agreements in accordance with their terms.
STOCK OPTIONS AND RESTRICTED STOCK. MBI has agreed to assume
the Stock Option Plan and all outstanding stock options to
purchase Plains Spirit Common Stock thereunder. Each such option
outstanding at the Effective Time, whether or not exercisable or
vested, shall, at the Effective Time, be converted into an option
to purchase such number of shares of MBI Common Stock as is equal
to the number of shares of Plains Spirit Common Stock subject to
such option multiplied by the Exchange Ratio, and at a per share
exercise price which shall equal the per share exercise price
under such option divided by the Exchange Ratio, subject to
adjustment as appropriate to reflect any stock split, stock dividend,
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capitalization or similar transaction subsequent to the
Effective Time. With respect to options which qualify as
"incentive stock options" under Section 422 of the Code, any
adjustment is intended to satisfy the requirements of Section
422. Alternatively, as a result of such assumptions by MBI, in
accordance with the terms of the Stock Option Plan, each holder
of options thereunder shall be entitled from and after the
Effective Time, upon exercise, to receive either (i) cash or (ii)
shares of MBI Common Stock valued at the time of exercise, as
determined by the committee of the MBI Board of Directors which
will, after the consummation of the Merger, administer the Stock
Option Plan, equal to the spread between the aggregate exercise
price for the shares subject to such option and the value (based
on the market price of MBI Common Stock at the time of exercise)
of the number of shares of MBI Common Stock which such option
holder would have been entitled to receive in the Merger if the
option was exercised immediately prior to the Effective Time. In
addition, in accordance with the terms of the Stock Option Plan,
all options thereunder that are not fully exercisable or vested
shall become exercisable in full upon the approval of the Merger
Agreement by the Plains Spirit stockholders and shall remain so
exercisable for a period of 60 days following such date, after
which they shall revert to being exercisable in accordance with
their terms. As of June 1, 1995, 61,704 shares of Plains Spirit
Common Stock were subject to options not then vested or exercisable.
MBI has agreed, at and after the Effective Time, to reserve
sufficient shares of MBI Common Stock for issuance with respect
to the options under the Stock Option Plan to be assumed upon the
Merger. MBI will also file with the Commission, and obtain the
effectiveness of, a registration statement with respect to such
options.
Pursuant to the terms of the RRP, all shares of Plains Spirit
Common Stock granted thereunder and subject to restrictions shall
become fully vested upon the approval of the Merger Agreement by
the Plains Spirit stockholders. As of June 1, 1995, 22,770 shares of
Plains Spirit Common Stock were subject to restrictions under the RRP.
EFFECT ON EMPLOYEE BENEFIT PLANS
The Merger Agreement provides that MBI shall honor all
provisions for vested benefits or other vested amounts earned or
accrued through the Effective Time under Plains Spirit's employee
plans. Except with respect to the RRP, which will terminate upon
the Merger, the Plains Spirit employee plans will continue as
plans of MBI until such time as the former Plains Spirit and
First Federal employees are integrated into MBI's employee
benefit plans that are available to other employees of MBI and
its subsidiaries. MBI will take such steps as are necessary or
required to integrate the former Plains Spirit and First Federal
employees in MBI's employee benefit plans available to other
employees of MBI and its subsidiaries as soon as practicable
after the Effective Time, with (i) full credit for prior service
with Plains Spirit or First Federal 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.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
-----------------------------------------------------
The following discussion of the material federal income tax
consequences of the Merger to certain Plains Spirit stockholders
does not purport to be a complete analysis or listing of all
potential tax considerations or consequences relevant to a
decision whether to vote for the approval of the Merger. The
discussion does not address all aspects of federal income
taxation that may be applicable to Plains Spirit stockholders
subject to special federal income tax treatment including
(without limitation) foreign persons, insurance companies, tax-
exempt entities, retirement plans, dealers in securities and
persons who acquired their Plains Spirit Common Stock pursuant to the
exercise of employee stock options or otherwise
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as compensation. The discussion addresses neither the effect of any
applicable state, local or foreign tax laws, nor the effect of any
federal tax laws other than those pertaining to federal income taxes.
IN VIEW OF THE INDIVIDUAL NATURE OF FEDERAL INCOME TAX CONSEQUENCES,
EACH PLAINS SPIRIT STOCKHOLDER IS URGED TO CONSULT HIS OR HER OWN TAX
ADVISOR TO DETERMINE THE SPECIFIC TAX CONSEQUENCES OF THE MERGER TO
HIM OR HER.
The discussion is based on the 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 discussed herein.
The discussion is also based on certain customary assumptions
regarding the factual circumstances that will exist at the
Effective Time of the Merger, including without limitation,
certain representations of MBI, Plains Spirit and holders of 1%
or more of Plains Spirit Common Stock (determined as of the
Closing Date) who make a valid Stock Election. If any of these
factual assumptions or representations is inaccurate, the tax
consequences of the Merger could differ from those described
herein. The discussion assumes that shares of Plains Spirit
Common Stock are held as capital assets (within the meaning of
Section 1221 of the Code).
If the Merger occurs in accordance with the Merger Agreement,
the Merger will constitute a "reorganization" for federal income
tax purposes under Section 368(a)(1)(A) of the Code, by reason of
the application of Section 368(a)(2)(D) of the Code, with the
following federal income tax consequences:
(1) Plains Spirit stockholders who receive solely shares of
MBI Common Stock in exchange for their Plains Spirit Common
Stock pursuant to the Merger will recognize no gain or loss,
except with respect to cash received in lieu of fractional
shares, if any, as discussed below.
(2) A Plains Spirit stockholder who receives only cash
(i) in exchange for shares of Plains Spirit Common Stock
pursuant to the Merger or (ii) as a result of the exercise of
appraisal rights, will realize gain or loss for federal income
tax purposes (determined separately as to each block of Plains
Spirit Common Stock exchanged) in an amount equal to the
difference between (x) the amount of cash received by such
stockholder, and (y) such stockholder's tax basis for the
shares of Plains Spirit 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. 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 stockholder's tax basis for the shares of Plains
Spirit Common Stock surrendered in the exchange) generally
will be recognized by such stockholder. 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 Code, taking into account
the constructive stock ownership rules of Section 318 of the
Code. See "- Impact of Section 302 of the Code," below.
(3) A Plains Spirit stockholder who receives shares of MBI
Common Stock and cash in exchange for shares of Plains Spirit
Common Stock in the Merger will realize gain (determined
separately as to each block of Plains Spirit Common Stock
exchanged) if (i) the sum of the amount of cash and the fair
market value of the shares of MBI Common Stock received by such
stockholder exceeds (ii) such stockholder's tax basis for
- 48 -
<PAGE> 55
the shares of Plains Spirit Common Stock surrendered in exchange
therefor. The amount of such gain that is recognized for federal
income tax purposes will be limited to the amount of cash
received. If the amount of cash received exceeds the amount of
gain realized, only the amount of gain realized will be recognized
for federal income tax purposes. Any such gain recognized will be
taxable as capital gain, provided that the cash payment does not
have the effect of the distribution of a dividend. Any loss
realized will not be recognized for federal income tax purposes.
Under section 356 of the Code, the determination of whether a cash
payment has the effect of the distribution of a dividend generally
will be made in accordance with the provisions and limitations of
Section 302 of the Code, taking into account the constructive
stock ownership rules of Section 318 of the Code. See "- Impact
of Section 302 of the Code," below.
(4) The aggregate adjusted tax basis of the shares of MBI
Common Stock received by each Plains Spirit stockholder in the
Merger (including any fractional share of MBI Common Stock
deemed to be received, as described in paragraph 6 below),
will be equal to the aggregate adjusted tax basis of the
shares of Plains Spirit Common Stock surrendered, decreased by
the amount of any cash received and increased by the amount of
any gain (or dividend) recognized.
(5) The holding period of the shares of MBI Common Stock
(including any fractional share of MBI Common Stock deemed to
be received, as described in paragraph 6 below) will include
the holding period of the shares of Plains Spirit Common Stock
exchanged therefor.
(6) A Plains Spirit stockholder who receives cash in the
Merger in lieu of a fractional share of MBI Common Stock will
be treated as if the fractional share had been received in the
Merger and then redeemed by MBI in return for the cash. The
receipt of such cash will cause the recipient to recognize
capital gain or loss equal to the difference between the
amount of cash received and the portion of such holder's
adjusted tax basis in the shares of MBI Common Stock allocable
to the fractional share.
IMPACT OF SECTION 302 OF THE CODE. The determination of
whether a cash payment has the effect of the distribution of a
dividend generally will be made in accordance with the provisions
of Section 302 of the Code. A cash payment to a Plains Spirit
stockholder will be considered not to have the effect of the
distribution of a dividend under Section 302 of the Code and such
stockholder will recognize capital gain or loss only if the cash
payment (i) results in a "complete redemption" of such
stockholder's actual and constructive stock interest, (ii)
results in a "substantially disproportionate" reduction in such
stockholder's actual and constructive stock interest or (iii) is
"not essentially equivalent to a dividend."
A cash payment will result in a "complete redemption" of a
stockholder's stock interest and such stockholder will recognize
capital gain or loss if such stockholder does not actually or
constructively own any stock after the receipt of the cash payment. A
reduction in a stockholder's stock interest will be "substantially
disproportionate" and such stockholder will recognize capital gain or
loss if (i) the percentage of outstanding shares actually and
constructively owned by such stockholder after the receipt of the cash
payment is less than four-fifths (80%) of the percentage of
outstanding shares actually and constructively owned by such
stockholder immediately prior to the receipt of the cash payment. A
cash payment will qualify as "not essentially equivalent to a
dividend" and a stockholder will recognize capital gain or loss if it
results in a meaningful reduction in the percentage of outstanding
shares actually and constructively owned by such stockholder. No
specific tests apply to determine whether a reduction
- 49 -
<PAGE> 56
in a stockholder's ownership interest is meaningful; rather, such
determination will be made based on all the facts and circumstances
applicable to such Plains Spirit stockholder. No general guidelines
dictating the appropriate interpretation of facts and circumstances
have been announced by the courts or issued by the Internal Revenue
Service (the "Service"). However, the Service has indicated in
Revenue Ruling 76-385 that a minority stockholder (i.e., a holder who
-----
exercises no control over corporate affairs and whose proportionate
stock interest is minimal in relation to the number of shares
outstanding) generally is treated as having had a "meaningful
reduction" in interest if a cash payment reduces such holder's actual
and constructive stock ownership to any extent.
With regard to Plains Spirit stockholders who receive MBI
Common Stock and cash in the Merger, the determination of whether
a cash payment has the effect of a distribution of a dividend
will be made as if the Plains Spirit Common Stock exchanged for
cash in the Merger had instead been exchanged in the Merger for
shares of MBI Common Stock followed immediately by a redemption
of such shares by MBI for the cash payment (a "deemed MBI
redemption"). Under this analysis, the determination of whether
a cash payment qualifies as a substantially disproportionate
reduction of interest or is not essentially equivalent to a
dividend will be made by comparing (i) the stockholder's actual
and constructive stock interest in MBI before the deemed MBI
redemption (determined as if such stockholder had received solely
MBI Common Stock in the Merger) with (ii) such stockholder's
actual and constructive stock interest in MBI after the deemed
MBI redemption.
With regard to Plains Spirit stockholders who receive only
cash (i) in exchange for shares of Plains Spirit Common Stock
pursuant to the Merger or (ii) as a result of the exercise of
appraisal rights, MBI's Counsel has noted in its opinion that
many tax practitioners believe that the determination of whether
a cash payment has the effect of a distribution of a dividend
should be made in accordance with the deemed MBI redemption
analysis discussed above; i.e., as if the Plains Spirit Common
----
Stock exchanged for cash in the Merger had instead been exchanged
in the Merger for shares of MBI Common Stock followed immediately
by a redemption of such shares by MBI for the cash payment.
However, under the traditional analysis, which apparently
continues to be used by the Service, Section 302 of the Code will
apply as though the cash payment were made by Plains Spirit in a
hypothetical redemption of Plains Spirit Common Stock immediately
prior to, and in a transaction separate from, the Merger (a
"deemed Plains Spirit redemption"). Accordingly, under the
traditional analysis, the determination of whether a cash payment
results in a complete redemption of interest, qualifies as a
substantially disproportionate reduction of interest or is not
essentially equivalent to a dividend will be made by comparing
(x) the stockholder's actual and constructive stock interest in
Plains Spirit before the deemed Plains Spirit redemption, with
(y) such stockholder's actual and constructive stock interest in
Plains Spirit after the deemed Plains Spirit redemption (but
before the Merger). The law is unclear regarding whether the
approach of the Service is correct, and MBI's Counsel has
rendered no opinion on the correctness of the Service's approach.
MBI's Counsel has noted in its opinion that because the
traditional analysis, as applied by the Service, is more likely
to result in dividend treatment than the deemed MBI redemption
analysis, each Plains Spirit stockholder who receives solely cash
in exchange for all of the Plains Spirit Common Stock he or she
actually owns should discuss with his or her tax advisor which
analysis is applicable.
The determination of ownership for purposes of the three
foregoing tests will be made by taking into account both shares
owned actually by such stockholder and shares owned
constructively by such stockholder pursuant to Section 318 of the
Code. Under Section 318 of the Code, a stockholder will be
deemed to own stock that is actually or constructively owned by
certain members of his or her family (spouse, children,
grandchildren and parents) and other related parties including,
for example, certain entities in which such stockholder has a
direct or indirect interest (including partnerships, estates, trusts
and corporations), as well as shares of stock that such stockholder (or a
related person) has the right to
- 50 -
<PAGE> 57
acquire upon exercise of an option or conversion right. Section
302(c)(2) of the Code provides certain exceptions to the family
attribution rules for the purpose of determining whether a complete
redemption of a stockholder's interest has occurred for purposes of
Section 302 of the Code. These exceptions apply only to Plains Spirit
stockholders who receive, in the Merger, solely cash in return for the
Plains Spirit Common Stock they actually own.
BECAUSE THE DETERMINATION OF WHETHER A PAYMENT WILL BE TREATED
AS HAVING THE EFFECT OF THE DISTRIBUTION OF A DIVIDEND WILL
GENERALLY DEPEND UPON THE FACTS AND CIRCUMSTANCES OF EACH PLAINS
SPIRIT STOCKHOLDER, PLAINS SPIRIT STOCKHOLDERS ARE STRONGLY
ADVISED TO CONSULT THEIR OWN TAX ADVISORS REGARDING THE TAX
TREATMENT OF CASH RECEIVED IN THE MERGER.
Each Plains Spirit stockholder's ability to elect the type of
consideration he or she receives pursuant to the Merger affords
each such stockholder the opportunity to select that type of
consideration which will best serve his or her personal tax and
financial planning needs. However, each Plains Spirit
stockholder should be aware that his or her ability to satisfy
(or, alternatively, fail to satisfy) any of the foregoing tests
and thereby avoid (or, alternatively, obtain) dividend treatment
may be affected by any redesignation of the stockholder's
election by the Exchange Agent, without regard to whether such
stockholder made a Stock Election, a Cash Election or, instead,
made no election. See "TERMS OF THE PROPOSED MERGER - General
Description of the Merger."
Plains Spirit's obligation to consummate the Merger is subject
to the condition that it shall have received from MBI's Counsel
an opinion to the effect that the tax consequences of the Merger
will in all material respects be as described in this section and
that such opinion shall not have been withdrawn. Such opinion is
subject to the conditions and assumptions stated therein and
relies upon various representations made by MBI, Plains Spirit
and certain stockholders of Plains Spirit. The opinion is
attached as an exhibit to the Registration Statement and copies
of the opinion will be available, without charge, to Plains
Spirit stockholders upon written request to Jon W. Bilstrom,
General Counsel and Secretary, Mercantile Bancorporation Inc,
P.O. Box 524, St. Louis, Missouri, 63166-0524, telephone (314)
425-2525. An opinion of counsel, unlike a private letter ruling
from the Service, has no binding effect on the Service. The
Service could take a position contrary to MBI's 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 consequences of the Merger, and no such ruling
has been requested.
THE FOREGOING IS A GENERAL DISCUSSION OF CERTAIN 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 PLAINS SPIRIT STOCKHOLDER'S TAX STATUS AND ATTRIBUTES.
AS A RESULT, THE FEDERAL INCOME TAX CONSEQUENCES ADDRESSED IN THE
FOREGOING DISCUSSION MAY NOT APPLY TO EACH PLAINS SPIRIT
STOCKHOLDER. IN VIEW OF THE INDIVIDUAL NATURE OF INCOME TAX
CONSEQUENCES, EACH PLAINS SPIRIT STOCKHOLDER SHOULD CONSULT HIS
OR HER OWN TAX ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES OF
THE MERGER TO HIM OR HER, 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.
- 51 -
<PAGE> 58
APPRAISAL RIGHTS OF STOCKHOLDERS OF PLAINS SPIRIT
-------------------------------------------------
Each stockholder of Plains Spirit has the right to demand the
appraised value of his or her shares of Plains Spirit Common
Stock in cash if the stockholder follows the procedures set forth
under Section 262 of the Delaware Corporation Law.
Under the Delaware Corporation Law, a stockholder of Plains
Spirit may demand an appraisal of the fair value (as determined
pursuant to Section 262 of the Delaware Corporation Law) of his
or her shares of Plains Spirit Common Stock and payment of such
fair value to the stockholder in cash if the Merger is
consummated. MBII, as the surviving corporation, will pay to
such stockholder the fair value of such stockholder's shares of
Plains Spirit Common Stock if such Plains Spirit stockholder (a)
files with Plains Spirit, prior to the vote at the Special
Meeting, a written demand for an appraisal of the fair value of
his or her shares; (b) does not vote in favor of the Merger; (c)
continues to hold his or her shares through the Effective Time;
and (d) does not withdraw the demand for appraisal within a
- ---
period of 60 days after the Closing Date. Such demand shall be
sufficient if it reasonably informs Plains Spirit of the identity
of the stockholder and that the stockholder intends thereby to
demand an appraisal of his or her shares. A VOTE AGAINST THE
APPROVAL OF THE MERGER AGREEMENT WILL NOT, BY ITSELF, BE REGARDED AS
A WRITTEN OBJECTION FOR PURPOSES OF ASSERTING APPRAISAL RIGHTS. A
VOTE IN FAVOR OF THE APPROVAL OF THE MERGER AGREEMENT WILL
CONSTITUTE A WAIVER OF A STOCKHOLDER'S APPRAISAL RIGHTS.
All written demands for appraisal should be addressed to:
Plains Spirit Financial Corporation, 131 West Third Street,
Davenport, Iowa 52801, Attention: Donald J. Brewer, before the
taking of the vote concerning the Merger Agreement at the Special
Meeting, and should be executed by, or on behalf of, the holder
of record.
To be effective, a demand for appraisal must be executed by or
for the stockholder of record who held such shares on the date of
making such demand, and who continuously holds such shares
through the Effective Time, fully and correctly, as such
stockholder's name appears on his or her stock certificate(s) and
cannot be made by the beneficial owner if he or she does not also
hold the shares of record. The beneficial holder must, in such
case, have the registered owner submit the required demand in
respect of such shares.
If Plains Spirit Common Stock is owned of record in a
fiduciary capacity, as by a trustee, guardian or custodian,
execution of a demand for appraisal should be made in such
capacity. If Plains Spirit Common Stock is owned of record by
more than one person, as in a joint tenancy or tenancy in common,
such demand must be executed by or for all joint owners. An
authorized agent, including one of two or more joint owners may
execute the demand for appraisal for a stockholder of record;
however, the agent must identify the record owner or owners and
expressly disclose the fact that, in executing the demand, he or
she is acting as agent for the record owner. A record owner,
such as a broker, who holds Plains Spirit Common Stock as nominee
for others may exercise his or her right of appraisal with
respect to the shares held for one or more beneficial owners,
while not exercising such right for other beneficial owners. In
such case, the written demand should set forth the number of
shares as to which the record owner dissents. Where no number of
shares is expressly mentioned, the demand will be presumed to
cover all shares of Plains Spirit Common Stock in the name of
such record owner.
If at any time within the 60-day period after the Effective
Time, a stockholder of Plains Spirit withdraws his or her demand
for appraisal, then he or she will be deemed to have accepted the
terms offered pursuant to the Merger. After the 60-day
withdrawal period, a Plains Spirit stockholder may withdraw only
with the consent of MBII and the approval of the Delaware Court
of Chancery. Within
- 52 -
<PAGE> 59
10 days after the Effective Time, MBII (as the surviving corporation in the
Merger) must give written notice that the Merger has become effective to
each stockholder who so filed a written demand for appraisal and who did
not vote in favor of the Merger Agreement. Within 120 days after the
Effective Time, any stockholder of Plains Spirit who has validly
perfected appraisal rights shall be entitled, upon written
request, to receive from MBII a statement setting forth the
aggregate number of shares of Plains Spirit Common Stock not
voted in favor of the Merger with respect to which demands for
appraisal have been received and the aggregate number of holders
of such shares. MBII shall respond to such request within 10
days after receipt or within 10 days after the date of the
Special Meeting, whichever is later. Within 120 days after the
Effective Time, MBII or any such stockholder seeking appraisal
may file a petition in the Delaware Court of Chancery demanding a
determination of the value of the Plains Spirit Common Stock held
by all stockholders seeking appraisal. The Delaware Corporation
Law contemplates a single proceeding in the Delaware Court of
Chancery that will apply to all stockholders of Plains Spirit who
have perfected their appraisal rights, whether or not such
stockholders have individually filed a petition seeking appraisal
with the Court of Chancery. If neither MBII nor any of the
stockholders of Plains Spirit who have perfected their appraisal
rights have filed a petition in the Court Chancery within the
120-day period following the Effective Time, such appraisal
rights will be waived, and the stockholders will be entitled to
receive, upon surrender of the certificates evidencing their
shares of Plains Spirit Common Stock, the amount of cash equal to
that paid to the Cash Election Shares in the Merger (i.e., $31.25
-----
per share of Plains Spirit Common Stock), subject to the
adjustments as provided in the Merger Agreement. MBII has no
present intention to file such a petition with the Delaware Court
of Chancery.
If a petition for appraisal is filed by a stockholder, a copy
of the petition shall be served on MBII, which then will have 20
days after such service to file with the Register of the Delaware
Court of Chancery a verified list of Plains Spirit stockholders
who have perfected appraisal rights but have not yet reached
agreement as to value with MBII. If the petition is filed by
MBII, such verified list must accompany the filing. The
Register, if so ordered by the Court, will give notice of the
time and place fixed for hearing of the petition, by registered
or certified mail, to MBII and each stockholder named on the
verified list. Such notice shall also be published at least one
week prior to the hearing in one or more newspapers of general
circulation in Wilmington, Delaware and in such other
publications as directed by the Court.
The Court of Chancery shall conduct a hearing on the petition
for appraisal at which the Court will determine the stockholders
of Plains Spirit who have properly perfected appraisal rights
with respect to their shares and may require such stockholders to
submit the certificates evidencing their Plains Spirit Common
Stock to the Register of the Court for notation of the pendency
of the appraisal proceeding thereon. Failure to comply with such
direction may result in dismissal of the proceeding as to such
non-complying stockholder. After determining the stockholders
entitled to appraisal, the Court of Chancery, after taking into
account all relevant factors, will appraise the shares,
determining their fair value exclusive of any element of value
arising from the accomplishment or expectation of the Merger,
together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. Upon application of
either MBI or any of the stockholders entitled to appraisal, the
Court may permit discovery or other pretrial proceedings and may
proceed to trial prior to a final determination of the
stockholders entitled to appraisal. Any stockholder whose name
appears on the verified list submitted by MBII may participate in
the appraisal proceedings until it is finally determined by the
Court that such stockholder is not entitled to appraisal rights.
The judgment shall be payable only upon and simultaneously with
the surrender to MBII of the certificate(s) representing such
shares of Plains Spirit Common Stock. Upon payment of the
judgment, the stockholder who sought appraisal shall cease to
have any interest in such shares or in Plains Spirit and will
have no right to receive dividends in such stock or exercise
other rights of stock ownership.
- 53 -
<PAGE> 60
Section 262 provides fair value is to be "exclusive of any
element of value arising from the accomplishment or expectation of
the merger." The Delaware Supreme Court has construed Section 262
to mean that "elements of future value, including the nature of the
enterprise, which are known or susceptible of proof as of the date
of the merger and are not the product of speculation, may be
considered." Stockholders who are considering seeking an appraisal
should bear in mind that the fair value of their shares of Plains
Spirit Common Stock determined under Section 262 could be more
than, the same as or less than the consideration they are to
receive pursuant to the Merger Agreement if they do not seek
appraisal of their shares of Plains Spirit Common Stock, and that
an opinion of an investment banking firm as to fairness is not an
opinion as to fair value under Section 262.
Costs of the appraisal proceeding may be assessed against the
parties thereto (i.e., MBII and the stockholders participating in
the appraisal proceeding) by the court as the court deems equitable
in the circumstances. Upon the application of any stockholder, the
court may determine the amount of interest, if any, to be paid upon
the value of the stock of stockholders entitled thereto. Upon
application of a stockholder, the court may order all or a portion
of the expenses incurred by any stockholder in connection with the
appraisal proceeding, including, without limitation, reasonable
attorneys' fees and the fees and expenses of experts, to be charged
pro rata against the value of all shares entitled to appraisal.
Any stockholder who has demanded appraisal rights will not, after
the Effective Time, be entitled to vote the stock subject to such
demand for any purpose or to receive payment of dividends or any
other distribution with respect to such shares (other than
dividends or distributions, if any, payable to holders of record as
of a record date prior to the Effective Time) or to receive the
payment of the consideration provided for in the Merger Agreement.
However, if no petition for an appraisal is filed within 120 days
after the Effective Time or if such stockholder delivers to MBII a
written withdrawal of his demand for an appraisal and an acceptance
of the Merger, either within 60 days after the Effective Time or
thereafter with the written approval of MBII, then the right of
such stockholder to an appraisal will cease. Notwithstanding the
foregoing, no appraisal proceeding in the Court of Chancery will be
dismissed as to any stockholder without the approval of the court,
and such approval may be conditioned upon such terms as the court
deems just.
FAILURE TO COMPLY STRICTLY WITH THESE PROCEDURES WILL CAUSE THE
STOCKHOLDER TO LOSE HIS OR HER APPRAISAL RIGHTS. CONSEQUENTLY, ANY
STOCKHOLDER WHO DESIRES TO EXERCISE HIS OR HER APPRAISAL RIGHTS IS
URGED TO CONSULT A LEGAL ADVISOR BEFORE ATTEMPTING TO EXERCISE SUCH
RIGHTS.
THE PRECEDING DISCUSSION IS A SUMMARY OF THE PROVISIONS
REGARDING APPRAISAL RIGHTS UNDER THE DELAWARE CORPORATION LAW AND
IS QUALIFIED IN ITS ENTIRETY BY THE TEXT OF SECTION 262 OF THE
DELAWARE CORPORATION LAW WHICH IS ATTACHED HERETO AS ANNEX B.
-------
PLAINS SPIRIT STOCKHOLDERS WHO ARE INTERESTED IN PERFECTING
APPRAISAL RIGHTS PURSUANT TO THE DELAWARE CORPORATION LAW IN
CONNECTION WITH THE MERGER SHOULD CONSULT WITH THEIR COUNSEL FOR
ADVICE AS TO THE PROCEDURES REQUIRED TO BE FOLLOWED.
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 Plains Spirit and the
corresponding pro forma and pro forma equivalent per share amounts
giving effect to the proposed Merger, the completed acquisitions of
UNSL, CMB and TCB, the proposed acquisitions of Southwest
and AmeriFirst and the acquisition of Ameribanc, Inc. ("ABNK"), which was
- 54 -
<PAGE> 61
completed on April 30, 1992. 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
Plains Spirit, Southwest and AmeriFirst included in this Proxy
Statement/Prospectus or 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 "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 have occurred if the Merger, the completed mergers of ABNK,
UNSL, CMB or TCB or the proposed mergers of Southwest and AmeriFirst
had been consummated prior to the periods indicated.
<TABLE>
<CAPTION>
MBI/Plains Plains Plains Spirit/
Plains Spirit Spirit MBI/All Entities All Entities
MBI Spirit Pro Forma Pro Forma Pro Forma Pro Forma
Reported Reported<F1> Combined <F2> Equivalent <F3> Combined <F4> Equivalent <F3>
-------- ------------ ------------- --------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Book Value per Share:
March 31, 1995 $ 24.12 $ 28.55 $ 24.17 $ 19.37 $ 24.10 $ 19.31
December 31, 1994 23.70 28.26 23.76 19.04 23.69 18.98
Cash Dividends Declared per Share:
Quarter ended March 31, 1995 $ 0.33 $ 0.14 $ 0.33 $ 0.26 $ 0.33 $ 0.26
Year ended December 31, 1994 1.12 0.49 1.12 0.90 1.12 0.90
Earnings per Share:
Quarter ended March 31, 1995 $ 0.93 $ 0.56 $ 0.94 $ 0.75 $ 0.95 $ 0.76
Year ended December 31, 1994 3.22 2.21 3.22 2.58 3.27 2.62
Market Price per Share:
At December 23, 1994 <F5> $ 31.75 $ 22.25 n/a n/a n/a n/a
At June 2, 1995 <F5> 42.00 29.75 n/a n/a n/a n/a
<FN>
- --------------------------
<F1> Plains Spirit has a September 30 fiscal year-end. For purposes
of this table, Plains Spirit information at or for the year
ended September 30, 1994 is reported as December 31, 1994 data.
Plains Spirit information at or for the three months ended
December 31, 1994 is reported as March 31, 1995 data.
<F2> Includes the effect of pro forma adjustments for Plains Spirit
and ABNK, as appropriate. See "PRO FORMA FINANCIAL INFORMATION."
<F3> Based on the pro forma combined per share amounts multiplied
by .8013, an assumed Exchange Ratio determined by using an
Average Mercantile Stock Price equal to $39.00. Further
explanation of the assumptions used in the preparation of the
pro forma combined consolidated financial statements is
included in the notes to pro forma financial statements. See
"PRO FORMA FINANCIAL INFORMATION."
<F4> Includes the effect of pro forma adjustments for Plains Spirit,
ABNK, Southwest and AmeriFirst, as appropriate. See "PRO FORMA
FINANCIAL INFORMATION."
<F5> The market price per share of MBI and Plains Spirit Common
Stock was determined as of the last trading day preceding the
public announcement of the proposed Merger and as of the latest
available date prior to the filing of the Proxy
Statement/Prospectus, based on the last sale price as reported
on the NYSE Composite Tape and the Nasdaq National Market,
respectively.
</TABLE>
PRO FORMA COMBINED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The following unaudited pro forma combined consolidated balance
sheet gives effect to the Merger, the acquisitions of UNSL, CMB and
TCB and the proposed acquisitions of Southwest and AmeriFirst as if
each of the mergers was 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
- 55 -
<PAGE> 62
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 three months ended March 31, 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
Plains Spirit, UNSL, CMB, TCB, Southwest and AmeriFirst as if the
Merger, the acquisitions of UNSL, CMB and TCB and the proposed
acquisitions of Southwest and AmeriFirst had occurred as of the
first day of the period presented. As stated above, the pro forma
combined consolidated income statement 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 financial
statements should be read in conjunction with the accompanying
Notes to the Pro Forma Combined Consolidated Financial Statements
and with the historical financial statements of Plains Spirit.
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 of the results of operations that may
be achieved in the future.
- 56 -
<PAGE> 63
<TABLE>
MERCANTILE BANCORPORATION INC.
PRO FORMA COMBINED CONSOLIDATED BALANCE SHEET
March 31, 1995
(Thousands)
(Unaudited)
<CAPTION>
MBI, Plains
Spirit
Pro Forma
Plains Spirit Combined
MBI<F1> Plains Spirit Adjustments<F2> Consolidated
--- ------------- --------------- ------------
<S> <C> <C> <C> <C>
ASSETS
Cash and due from banks. . . . . . . . . . . . . . . . $680,581 $2,731 ($31,625)<F3> $631,962
(19,725)<F4>
Due from banks-interest bearing. . . . . . . . . . . . 23,441 4,050 27,491
Federal funds sold and repurchase agreements . . . . . 146,389 -- 146,389
Investments in debt and equity securities. . . . . . .
Trading. . . . . . . . . . . . . . . . . . . . . . 11,542 -- 11,542
Available-for-sale . . . . . . . . . . . . . . . . 439,061 93,385 532,446
Held-to-maturity . . . . . . . . . . . . . . . . . 3,400,420 79,107 3,479,527
----------- ---------- ---------- -----------
Total. . . . . . . . . . . . . . . . . . . . . 3,851,023 172,492 -- 4,023,515
Loans and leases . . . . . . . . . . . . . . . . . . . 10,074,377 261,101 10,335,478
Reserve for possible loan losses . . . . . . . . . . . (195,683) (2,001) (197,684)
----------- ---------- ---------- -----------
Net Loans and Leases . . . . . . . . . . . . . . . 9,878,694 259,100 -- 10,137,794
Other assets . . . . . . . . . . . . . . . . . . . . . 570,443 13,258 56,376 <F4> 591,325
7,624 <F5>
(56,376)<F6>
----------- ---------- ---------- -----------
Total Assets . . . . . . . . . . . . . . . . . . . .$15,150,571 $451,631 ($43,726) $15,558,476
=========== ========== ========== ===========
<CAPTION>
All Entities
Southwest Pro Forma
AmeriFirst Combined
Southwest AmeriFirst Adjustments<F7> Consolidated
---------- ----------- --------------- ------------
<S> <C> <C> <C> <C>
ASSETS
Cash and due from banks. . . . . . . . . . . . . . . . $7,113 $6,356 ($4,634)<F3> $640,797
Due from banks-interest bearing. . . . . . . . . . . . 3,080 -- 30,571
Federal funds sold and repurchase agreements . . . . . 5,425 3,150 154,964
Investments in debt and equity securities. . . . . . .
Trading. . . . . . . . . . . . . . . . . . . . . . -- -- 11,542
Available-for-sale . . . . . . . . . . . . . . . . 35,666 9,663 577,775
Held-to-maturity . . . . . . . . . . . . . . . . . -- 17,424 3,496,951
---------- ---------- ----------- -----------
Total. . . . . . . . . . . . . . . . . . . . . 35,666 27,087 -- 4,086,268
Loans and leases . . . . . . . . . . . . . . . . . . . 126,796 116,297 10,578,571
Reserve for possible loan losses . . . . . . . . . . . (1,093) (972) (199,749)
---------- ---------- ----------- -----------
Net Loans and Leases . . . . . . . . . . . . . . . 125,703 115,325 -- 10,378,822
Other assets . . . . . . . . . . . . . . . . . . . . . 3,597 4,650 15,212 <F8> 599,572
. . . . . . . . . . . . . . . . . . . . . . . . . (15,212)<F9>
14,789 <F10>
(14,789)<F11>
Total Assets . . . . . . . . . . . . . . . . . . . . $180,584 $156,568 ($4,634) $15,890,994
========== ========== =========== ===========
- 57 -
<PAGE> 64
<CAPTION>
MERCANTILE BANCORPORATION INC.
PRO FORMA COMBINED CONSOLIDATED BALANCE SHEET
March 31, 1995
(Thousands)
(Unaudited)
MBI, Plains
Spirit
Pro Forma
Plains Spirit Combined
MBI<F1> Plains Spirit Adjustments<F2> Consolidated
--- ------------- --------------- ------------
<S> <C> <C> <C> <C>
LIABILITIES
Deposits
Non-interest bearing . . . . . . . . . . . . . . . . $1,610,841 $6,039 $-- $1,616,880
Interest bearing . . . . . . . . . . . . . . . . . . 9,482,958 265,420 9,748,378
Foreign. . . . . . . . . . . . . . . . . . . . . . . 239,499 -- 239,499
----------- ---------- ---------- -----------
Total Deposits . . . . . . . . . . . . . . . . . . 11,333,298 271,459 -- 11,604,757
Federal funds purchased and repurchase agreements. . . 1,608,407 -- 1,608,407
Other borrowings . . . . . . . . . . . . . . . . . . . 730,271 114,000 844,271
Other liabilities. . . . . . . . . . . . . . . . . . . 206,422 9,796 216,218
----------- ---------- ---------- -----------
Total Liabilities . . . . . . . . . . . . . . . . . 13,878,398 395,255 -- 14,273,653
SHAREHOLDERS' EQUITY
Preferred stock. . . . . . . . . . . . . . . . . . . . 12,153 12,153
Common stock . . . . . . . . . . . . . . . . . . . . . 267,573 20 7,000 <F4> 274,573
(20)<F6>
Capital surplus. . . . . . . . . . . . . . . . . . . . 176,011 23,323 37,275 <F4> 213,286
(23,323)<F6>
Retained earnings. . . . . . . . . . . . . . . . . . . 843,710 33,033 (33,033)<F6> 843,710
Treasury stock . . . . . . . . . . . . . . . . . . . . (27,274) (31,625)<F3> (58,899)
----------- ---------- ---------- -----------
Total Shareholders' Equity . . . . . . . . . . . . . 1,272,173 56,376 (43,726) 1,284,823
----------- ---------- ---------- -----------
Total Liabilities and Shareholders' Equity . . . . . $15,150,571 $451,631 ($43,726) $15,558,476
=========== ========== ========== ===========
<CAPTION>
All Entities
Southwest Pro Forma
AmeriFirst Combined
Southwest AmeriFirst Adjustments<F7> Consolidated
---------- ----------- --------------- ------------
<S> <C> <C> <C> <C>
LIABILITIES
Deposits
Non-interest bearing . . . . . . . . . . . . . . . . $18,020 $19,186 $-- $1,654,086
Interest bearing . . . . . . . . . . . . . . . . . . 131,428 111,471 9,991,277
Foreign. . . . . . . . . . . . . . . . . . . . . . . -- -- 239,499
---------- ---------- ---------- -----------
Total Deposits . . . . . . . . . . . . . . . . . . 149,448 130,657 -- 11,884,862
Federal funds purchased and repurchase agreements. . . 8,768 9,100 1,626,275
Other borrowings . . . . . . . . . . . . . . . . . . . 6,010 728 851,009
Other liabilities. . . . . . . . . . . . . . . . . . . 1,146 1,294 218,658
---------- ---------- ---------- -----------
Total Liabilities . . . . . . . . . . . . . . . . . 165,372 141,779 -- 14,580,804
SHAREHOLDERS' EQUITY
Preferred stock. . . . . . . . . . . . . . . . . . . . 12,153
Common stock . . . . . . . . . . . . . . . . . . . . . 360 1,522 3,375 <F8> 281,255
(360)<F9>
3,307 <F10>
(1,522)<F11>
Capital surplus. . . . . . . . . . . . . . . . . . . . 3,641 7,128 626 <F8> 219,255
(3,641)<F9>
5,343 <F10>
(7,128)<F11>
Retained earnings. . . . . . . . . . . . . . . . . . . 11,211 6,139 11,211 <F8> 861,060
(11,211)<F9>
6,139 <F10>
(6,139)<F11>
Treasury stock . . . . . . . . . . . . . . . . . . . . (4,634)<F3> (63,533)
---------- ---------- ---------- -----------
Total Shareholders' Equity . . . . . . . . . . . . . 15,212 14,789 (4,634) 1,310,190
---------- ---------- ---------- -----------
Total Liabilities and Shareholders' Equity . . . . . $180,584 $156,568 ($4,634) $15,890,994
========== ========== ========== ===========
See notes to pro forma combined consolidated financial statements.
</TABLE>
- 58 -
<PAGE> 65
<TABLE>
MERCANTILE BANCORPORATION INC.
PRO FORMA COMBINED CONSOLIDATED INCOME STATEMENT
For the Three Months Ended March 31, 1995
(Thousands except per share data)
(Unaudited)
<CAPTION>
MBI, Plains
Spirit All Entities
Pro Forma Pro Forma
Plains Combined Combined
MBI<F1> Spirit<F13> Consolidated Southwest AmeriFirst Consolidated
--- ------ ------------ --------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Interest Income. . . . . . . . . . . . . . . . . . . . . $279,789 $7,655 $287,444 $3,318 $2,903 $293,665
Interest Expense . . . . . . . . . . . . . . . . . . . . 127,046 4,324 131,370 1,564 1,381 134,315
---------- ------ ---------- ------ ------ ----------
Net Interest Income. . . . . . . . . . . . . . . . . . 152,743 3,331 156,074 1,754 1,522 159,350
Provision for Possible Loan Losses . . . . . . . . . . . 13,975 60 14,035 -- 22 14,057
-------- ------ -------- ------ ------ --------
Net Interest Income after Provision
for Possible Loan Losses . . . . . . . . . . . . . . 138,768 3,271 142,039 1,754 1,500 145,293
Other Income
Trust. . . . . . . . . . . . . . . . . . . . . . . . . 15,398 -- 15,398 -- -- 15,398
Service charges. . . . . . . . . . . . . . . . . . . . 16,500 362 16,862 123 159 17,144
Credit card fees . . . . . . . . . . . . . . . . . . . 6,576 -- 6,576 -- -- 6,576
Securities gains (losses). . . . . . . . . . . . . . . (43) -- (43) -- -- (43)
Other. . . . . . . . . . . . . . . . . . . . . . . . . 18,372 190 18,562 60 42 18,664
---------- ------ ---------- ------ ------ ----------
Total Other Income . . . . . . . . . . . . . . . . . 56,803 552 57,355 183 201 57,739
Other Expense
Salaries and employee benefits . . . . . . . . . . . . 64,758 1,233 65,991 447 623 67,061
Net occupancy and equipment. . . . . . . . . . . . . . 17,129 337 17,466 126 104 17,696
Other. . . . . . . . . . . . . . . . . . . . . . . . . 37,356 563 37,919 307 364 38,590
---------- ------ ---------- ------ ------ ----------
Total Other Expense. . . . . . . . . . . . . . . . . 119,243 2,133 121,376 880 1,091 123,347
---------- ------ ---------- ------ ------ ----------
Income Before Income Taxes . . . . . . . . . . . . . 76,328 1,690 78,018 1,057 610 79,685
Income Taxes . . . . . . . . . . . . . . . . . . . . . . 26,625 580 27,205 363 201 27,769
---------- ------ ---------- ------ ------ ----------
Net Income . . . . . . . . . . . . . . . . . . . . . $49,703 $1,110 $50,813 $694 $409 $51,916
========== ====== ========== ====== ====== ==========
Per Share Data
Average Common Shares Outstanding. . . . . . . . . . . 52,919,978 53,319,978 54,524,363
Net Income . . . . . . . . . . . . . . . . . . . . . . $0.93 $0.94 $0.95
See notes to pro forma combined consolidated financial statements.
</TABLE>
- 59 -
<PAGE> 66
<TABLE>
MERCANTILE BANCORPORATION INC.
PRO FORMA COMBINED CONSOLIDATED INCOME STATEMENT
For the Three Months Ended March 31, 1994
(Thousands except per share data)
(Unaudited)
<CAPTION>
MBI, Plains
Spirit All Entities
Pro Forma Pro Forma
Plains Combined Combined
MBI<F1> Spirit<F13> Consolidated Southwest AmeriFirst Consolidated
--- ------ ------------ --------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Interest Income. . . . . . . . . . . . . . . . . . . . . $236,106 $5,628 $241,734 $2,529 $2,382 $246,645
Interest Expense . . . . . . . . . . . . . . . . . . . . 90,791 2,635 93,426 1,217 1,090 95,733
---------- ------ ---------- ------ ------ ----------
Net Interest Income. . . . . . . . . . . . . . . . . . 145,315 2,993 148,308 1,312 1,292 150,912
Provision for Possible Loan Losses . . . . . . . . . . . 8,879 40 8,919 -- 43 8,962
---------- ------ ---------- ------ ------ ----------
Net Interest Income after Provision
for Possible Loan Losses . . . . . . . . . . . . . . 136,436 2,953 139,389 1,312 1,249 141,950
Other Income
Trust. . . . . . . . . . . . . . . . . . . . . . . . . 15,877 -- 15,877 -- -- 15,877
Service charges. . . . . . . . . . . . . . . . . . . . 17,034 730 17,764 121 144 18,029
Credit card fees . . . . . . . . . . . . . . . . . . . 5,858 -- 5,858 -- -- 5,858
Securities gains . . . . . . . . . . . . . . . . . . . 1,418 654 2,072 -- 6 2,078
Other. . . . . . . . . . . . . . . . . . . . . . . . . 14,907 109 15,016 54 54 15,124
---------- ------ ---------- ------ ------ ----------
Total Other Income . . . . . . . . . . . . . . . . . 55,094 1,493 56,587 175 204 56,966
Other Expense
Salaries and employee benefits . . . . . . . . . . . . 63,777 1,302 65,079 439 648 66,166
Net occupancy and equipment. . . . . . . . . . . . . . 17,526 323 17,849 125 106 18,080
Other. . . . . . . . . . . . . . . . . . . . . . . . . 38,581 683 39,264 332 381 39,977
---------- ------ ---------- ------ ------ ----------
Total Other Expense. . . . . . . . . . . . . . . . . 119,884 2,308 122,192 896 1,135 124,223
---------- ------ ---------- ------ ------ ----------
Income Before Income Taxes . . . . . . . . . . . . . 71,646 2,138 73,784 591 318 74,693
Income Taxes . . . . . . . . . . . . . . . . . . . . . . 26,051 742 26,793 215 104 27,112
---------- ------ ---------- ------ ------ ----------
Net Income . . . . . . . . . . . . . . . . . . . . . $45,595 $1,396 $46,991 $376 $214 $47,581
========== ====== ========== ====== ====== ==========
Per Share Data
Average Common Shares Outstanding. . . . . . . . . . . 51,723,559 52,123,559 53,327,944
Net Income . . . . . . . . . . . . . . . . . . . . . . $0.88 $0.87 $0.89
See notes to pro forma combined consolidated financial statements.
</TABLE>
- 60 -
<PAGE> 67
<TABLE>
MERCANTILE BANCORPORATION INC.
PRO FORMA COMBINED CONSOLIDATED INCOME STATEMENT
For the Year Ended December 31, 1994
(Thousands except per share data)
(Unaudited)
<CAPTION>
MBI, Plains
Spirit All Entities
Pro Forma Pro Forma
Plains Combined Combined
MBI<F1> Spirit<F12> Consolidated Southwest AmeriFirst Consolidated
--- ------ ------------ --------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Interest Income. . . . . . . . . . . . . . . . . . . . . $994,896 $24,807 $1,019,703 $11,318 $10,482 $1,041,503
Interest Expense . . . . . . . . . . . . . . . . . . . . 399,349 12,271 411,620 5,205 4,916 421,741
---------- ------- ---------- ------- ------- ----------
Net Interest Income. . . . . . . . . . . . . . . . . . 595,547 12,536 608,083 6,113 5,566 619,762
Provision for Possible Loan Losses . . . . . . . . . . . 43,201 200 43,401 -- (123) 43,278
---------- ------- ---------- ------- ------- ----------
Net Interest Income after Provision
for Possible Loan Losses . . . . . . . . . . . . . . 552,346 12,336 564,682 6,113 5,689 576,484
Other Income
Trust. . . . . . . . . . . . . . . . . . . . . . . . . 60,769 -- 60,769 -- -- 60,769
Service charges. . . . . . . . . . . . . . . . . . . . 68,783 2,191 70,974 494 626 72,094
Credit card fees . . . . . . . . . . . . . . . . . . . 24,895 -- 24,895 -- -- 24,895
Securities gains . . . . . . . . . . . . . . . . . . . 1,727 734 2,461 36 7 2,504
Other. . . . . . . . . . . . . . . . . . . . . . . . . 53,584 322 53,906 265 143 54,314
---------- ------- ---------- ------- ------- ----------
Total Other Income . . . . . . . . . . . . . . . . . 209,758 3,247 213,005 795 776 214,576
Other Expense
Salaries and employee benefits . . . . . . . . . . . . 258,546 4,869 263,415 1,746 2,645 267,806
Net occupancy and equipment. . . . . . . . . . . . . . 69,784 1,341 71,125 541 454 72,120
Other. . . . . . . . . . . . . . . . . . . . . . . . . 163,740 2,542 166,282 1,283 1,443 169,008
---------- ------- ---------- ------- ------- ----------
Total Other Expense. . . . . . . . . . . . . . . . . 492,070 8,752 500,822 3,570 4,542 508,934
---------- ------- ---------- ------- ------- ----------
Income Before Income Taxes . . . . . . . . . . . . . 270,034 6,831 276,865 3,338 1,923 282,126
Income Taxes . . . . . . . . . . . . . . . . . . . . . . 101,705 2,359 104,064 1,064 680 105,808
---------- ------- ---------- ------- ------- ----------
Net Income . . . . . . . . . . . . . . . . . . . . . $168,329 $4,472 $172,801 $2,274 $1,243 $176,318
========== ======= ========== ======= ======= ==========
Per Share Data
Average Common Shares Outstanding. . . . . . . . . . . 51,957,002 52,357,002 53,561,387
Net Income . . . . . . . . . . . . . . . . . . . . . . $3.22 $3.22 $3.27
See notes to pro forma combined consolidated financial statements.
</TABLE>
- 61 -
<PAGE> 68
<TABLE>
MERCANTILE BANCORPORATION INC.
PRO FORMA COMBINED CONSOLIDATED INCOME STATEMENT
For the Year Ended December 31, 1993
(Thousands except per share data)
(Unaudited)
<CAPTION>
MBI, Plains
Spirit All Entities
Pro Forma Pro Forma
Plains Combined Combined
MBI<F1> Spirit<F12> Consolidated Southwest AmeriFirst Consolidated
--- ------ ------------ --------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Interest Income. . . . . . . . . . . . . . . . . . . . . $971,482 $23,774 $995,256 $10,047 $9,661 $1,014,964
Interest Expense . . . . . . . . . . . . . . . . . . . . 390,911 11,569 402,480 4,900 4,341 411,721
---------- ------- ---------- ------- ------ ----------
Net Interest Income. . . . . . . . . . . . . . . . . . 580,571 12,205 592,776 5,147 5,320 603,243
Provision for Possible Loan Losses . . . . . . . . . . . 63,513 706 64,219 -- 124 64,343
---------- ------- ---------- ------- ------ ----------
Net Interest Income after Provision
for Possible Loan Losses . . . . . . . . . . . . . . 517,058 11,499 528,557 5,147 5,196 538,900
Other Income
Trust. . . . . . . . . . . . . . . . . . . . . . . . . 61,996 -- 61,996 -- -- 61,996
Service charges. . . . . . . . . . . . . . . . . . . . 67,144 1,921 69,065 511 551 70,127
Credit card fees . . . . . . . . . . . . . . . . . . . 24,312 -- 24,312 -- -- 24,312
Securities gains . . . . . . . . . . . . . . . . . . . 5,121 1,477 6,598 -- -- 6,598
Other. . . . . . . . . . . . . . . . . . . . . . . . . 61,130 360 61,490 201 160 61,851
---------- ------- ---------- ------- ------ ----------
Total Other Income . . . . . . . . . . . . . . . . . 219,703 3,758 223,461 712 711 224,884
Other Expense
Salaries and employee benefits . . . . . . . . . . . . 245,469 4,656 250,125 1,692 2,437 254,254
Net occupancy and equipment. . . . . . . . . . . . . . 70,911 1,248 72,159 496 419 73,074
Other. . . . . . . . . . . . . . . . . . . . . . . . . 191,663 2,626 194,289 1,346 1,430 197,065
---------- ------- ---------- ------- ------ ----------
Total Other Expense. . . . . . . . . . . . . . . . . 508,043 8,530 516,573 3,534 4,286 524,393
---------- ------- ---------- ------- ------ ----------
Income Before Income Taxes . . . . . . . . . . . . . 228,718 6,727 235,445 2,325 1,621 239,391
Income Taxes . . . . . . . . . . . . . . . . . . . . . . 85,467 2,459 87,926 786 557 89,269
---------- ------- ---------- ------- ------ ----------
Net Income Before Change in Accounting Principle . . $143,251 $4,268 $147,519 $1,539 $1,064 $150,122
========== ======= ========== ======= ====== ==========
Per Share Data
Average Common Shares Outstanding. . . . . . . . . . . 50,965,103 51,365,103 52,569,488
Net Income Before Change in Accounting Principle . . . $2.79 $2.79 $2.83
See notes to pro forma combined consolidated financial statements.
</TABLE>
- 62 -
<PAGE> 69
<TABLE>
MERCANTILE BANCORPORATION INC.
PRO FORMA COMBINED CONSOLIDATED INCOME STATEMENT
For the Year Ended December 31, 1992
(Thousands except per share data)
(Unaudited)
<CAPTION>
MBI, ABNK,
MBI, ABNK Plains Spirit All Entities
Pro Forma Pro Forma Pro Forma
Combined Plains Combined Combined
MBI<F1> Consolidated<F14> Spirit<F12> Consolidated Southwest AmeriFirst Consolidated
--- ------------ ------ ------------- --------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Interest Income. . . . . . . . . . . $1,011,544 $1,040,492 $26,962 $1,067,454 $11,363 $9,844 $1,088,661
Interest Expense . . . . . . . . . . 485,253 501,802 16,385 518,187 6,354 4,905 529,446
---------- ---------- ------- ---------- ------- ------ ----------
Net Interest Income. . . . . . . . 526,291 538,690 10,577 549,267 5,009 4,939 559,215
Provision for Possible Loan Losses . 77,874 79,787 583 80,370 155 154 80,679
---------- ---------- ------- ---------- ------- ------ ----------
Net Interest Income after Provision
for Possible Loan Losses . . . . 448,417 458,903 9,994 468,897 4,854 4,785 478,536
Other Income
Trust. . . . . . . . . . . . . . . 58,222 58,835 -- 58,835 -- -- 58,835
Service charges. . . . . . . . . . 62,670 64,813 1,280 66,093 492 533 67,118
Credit card fees . . . . . . . . . 21,658 21,745 -- 21,745 -- -- 21,745
Securities gains . . . . . . . . . 5,590 5,590 477 6,067 10 -- 6,077
Other. . . . . . . . . . . . . . . 53,825 55,091 139 55,230 289 122 55,641
---------- ---------- ------- ---------- ------- ------ ----------
Total Other Income . . . . . . . 201,965 206,074 1,896 207,970 791 655 209,416
Other Expense
Salaries and employee benefits . . 217,749 224,948 3,880 228,828 1,733 2,169 232,730
Net occupancy and equipment. . . . 62,470 64,466 927 65,393 508 394 66,295
Other. . . . . . . . . . . . . . . 191,684 196,930 2,604 199,534 1,496 1,432 202,462
---------- ---------- ------- ---------- ------- ------ ----------
Total Other Expense. . . . . . . 471,903 486,344 7,411 493,755 3,737 3,995 501,487
---------- ---------- ------- ---------- ------- ------ ----------
Income Before Income Taxes . . . 178,479 178,633 4,479 183,112 1,908 1,445 186,465
Income Taxes . . . . . . . . . . . . 61,072 60,990 1,718 62,708 671 494 63,873
---------- ---------- ------- ---------- ------- ------ ----------
Net Income Before Change in
Accounting Principle . . . . . $117,407 $117,643 $2,761 $120,404 $1,237 $951 $122,592
========== ========== ======= ========== ======= ====== ==========
Per Share Data
Average Common Shares Outstanding. 47,275,834 47,972,446 48,372,446 49,576,831
Net Income Before Change in
Accounting Principle . . . . . . $2.42 $2.39 $2.39 $2.41
See notes to pro forma combined consolidated financial statements.
</TABLE>
- 63 -
<PAGE> 70
MERCANTILE BANCORPORATION INC.
NOTES TO PRO FORMA COMBINED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
<F1> Represents MBI restated historical consolidated financial
statements reflecting the acquisition of UNSL effective January
3, 1995 and the acquisitions of CMB and TCB effective May 1,
1995, each of which was accounted for as a pooling-of-
interests.
<F2> The acquisition of Plains Spirit will be accounted for as a
purchase transaction. Purchase accounting adjustments are
considered immaterial to the income statements of the pro forma
combined entity.
<F3> As part of an ongoing stock repurchase program, MBI will
repurchase 1,132,000 shares of its own common stock in the open
market.
<F4> Purchase entry of Plains Spirit with consideration of $64
million consisting of cash and 1,400,000 shares of MBI Common
Stock at $31.625 per share, which was the closing price on
December 22, 1994, the day preceding the execution of the
Merger Agreement.
<F5> The pro forma excess of cost over fair value of net assets
acquired ("goodwill") was $7,624,000 as of March 31, 1995.
This amount may vary depending on final purchase price
adjustments and adjustment to equity of Plains Spirit for
income, dividends and FAS 115 prior to the Closing Date. See
footnote (2) above.
<F6> Elimination of MBI's investment in Plains Spirit.
<F7> The acquisitions of Southwest and AmeriFirst will be accounted
for as poolings-of-interests.
<F8> Acquisition of Southwest with 675,000 shares of MBI Common
Stock.
<F9> Elimination of MBI's investment in Southwest.
<F10> Acquisition of AmeriFirst with 661,385 shares of MBI Common
Stock.
<F11> Elimination of MBI's investment in AmeriFirst.
<F12> Plains Spirit's fiscal year end is September 30, so those
amounts are used for the December 31, 1994, 1993 and 1992
pro forma income statements.
<F13> Plains Spirit's fiscal year end is September 30, so the
three months ending December 31 amounts are used for the
March 31, 1995 and 1994 pro forma income statements.
<F14> The acquisition of ABNK by MBI, on April 30, 1992, was
accounted for as a purchase transaction. The MBI historical
financial data includes ABNK from the date of acquisition.
The results of operations of ABNK were included in the MBI
pro forma combined income statement from January 1, 1992.
- 64 -
<PAGE> 71
INFORMATION REGARDING PLAINS SPIRIT
-----------------------------------
BUSINESS
Plains Spirit is a savings bank holding company organized in 1991 and
incorporated under the laws of the State of Delaware. Substantially all of
Plains Spirit's assets are held by, and operations conducted through, First
Federal and its subsidiaries. As of March 31, 1995, Plains Spirit reported
total consolidated stockholders' equity of $56.4 million, book value per share
of $29.56, and net income for the six months ended March 31, 1995 of $2.2
million, or $1.12 per share.
First Federal, a federally chartered stock savings bank, is
headquartered in Davenport, Iowa. Originally organized in 1933, First
Federal is the second largest thrift institution headquartered in
Iowa. First Federal serves the Quad Cities area of Iowa and Illinois
and Muscatine County, Iowa through five full service offices located
in Davenport, Bettendorf and Muscatine, Iowa and one loan origination
office in Rock Island, Illinois.
First Federal continues its tradition of a community-oriented
financial institution offering a variety of financial services to meet
the needs of the communities it serves. The principal business of
First Federal consists of attracting deposits from the general public
and using these deposits, together with borrowings and other funds,
primarily to originate loans secured by first mortgages on owner-
occupied, one- to four-family residences located in First Federal's
primary market area. Additionally, First Federal also originates
consumer loans, multi-family and commercial real estate loans and
residential construction loans. First Federal, on a limited basis,
may make commercial real estate construction loans or land acquisition
and development loans. First Federal also acquires funds from the
Federal Home Loan Bank of Des Moines ("FHLB Des Moines"), manages a
portfolio of mortgage-backed securities and collateralized mortgage
obligations, services first mortgage loans for others, and through its
wholly-owned subsidiary, First Federal engages in real estate
appraisal and insurance activities and owns an interest in a real
estate development joint venture.
First Federal is a member of the Federal Home Loan Bank ("FHLB")
System and is subject to regulation, examination and supervision by
the OTS, the FDIC and to certain limited regulation by the Federal
Reserve Board. First Federal's deposits are insured by the FDIC
through the SAIF, and First Federal is a member of the FHLB Des
Moines.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following sections present an analysis of the consolidated
financial condition of Plains Spirit and its subsidiaries at September
30, 1994 and 1993 and the consolidated results of operations for the
years ended September 30, 1994, 1993 and 1992. This review should be
read in conjunction with the consolidated financial statements, notes
to consolidated financial statements and other financial data
presented elsewhere in this Proxy Statement/Prospectus.
RESULTS OF OPERATIONS
NET INTEREST INCOME. Net interest income is First Federal's
principal source of recurring earnings. Net interest income
represents the difference between income on interest-earning assets
and expense on interest-bearing liabilities. Net interest income is
impacted by the volume of average interest-earning assets and
interest-bearing liabilities, the general level of interest rates and
other factors.
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<PAGE> 72
During fiscal 1994, net interest income increased $331,000, from
$12.2 million to $12.5 million. The increase in net interest income
was the result of a higher level of earnings assets and lower rates
paid on liabilities. The average balance of interest-earnings assets
increased to $360.3 million in 1994 from $320.7 million during the
prior fiscal year. During fiscal 1994 the ratio of interest-earning
assets to interest-bearing liabilities declined to 116.64% from
117.95% due to the stock repurchase program designed to increase First
Federal's return on equity.
First Federal utilized its high level of capital to increase the
amount of interest-earnings assets by purchasing mortgage related
securities during fiscal 1994. However, the yield on such assets
typically is less than the yield from loans held in First Federal's
portfolio. For fiscal 1994, the average yield on interest-earning
assets was 6.89%, down from 7.41% in 1993. The yield on loans
decreased to 8.00% from 8.33% due to the favorable rates during the
first six months of the fiscal year. The yield on remaining interest-
earning assets increased from 5.04% to 5.20%. The general level of
interest rates increased in fiscal 1994 due to aggressive Federal
Reserve Board action. However, due to the lagging effect of interest
rate changes, the costs of interest-bearing liabilities decreased 29
basis points to 3.97% from 4.26%. The net interest margin declined to
3.48% in 1994 from 3.81% in 1993.
During fiscal 1993, net interest income increased $1.6 million,
from $10.6 million for the year ended September 30, 1992 to $12.2
million. The increase in net interest income resulted from the
generally lower interest rate environment and the very steep yield
curve in effect throughout the fiscal year. Although total interest-
earning assets declined in fiscal 1993, the ratio of interest-earning
assets over interest-bearing liabilities increased, thereby
contributing to the higher net interest income.
The combination of lower levels of market interest rates and a $3.1
million increase in First Federal's excess of average interest-earning
assets over average interest-bearing liabilities increased First
Federal's net interest margin to 3.81% during the fiscal year ended
September 30, 1993, compared to 3.18% during the prior year. The
lower levels of market interest rates during 1993 reduced the yields
earned on First Federal's earning assets by 71 basis points, from
8.12% during 1992 to 7.41% during 1993. The costs of interest-bearing
liabilities decreased at an even faster rate during 1993 than did the
yields on earning assets. During 1993, the cost of interest-bearing
liabilities decreased by 146 basis points, from 5.72% during 1992 to
4.26% during 1993.
The following table sets forth interest income from average
interest-earning assets, expressed in dollars and average yields, and
interest expense on average interest-bearing liabilities, expressed in
dollars and average rates. Interest income from loans includes the
accretion of net deferred loan origination and commitment fees and
unearned discounts. Interest income from investment and mortgage
related securities includes the accretion/amortization of unearned
discounts/premiums. Average balances for 1994 and 1993 are daily
average balances and average balances for 1992 are monthly average
balances. All balances include non-accruing loans.
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<PAGE> 73
<TABLE>
<CAPTION>
Year Ended September 30,
------------------------------------------------------------------------------------------
1994 1993 1992
----------------------------- ---------------------------- -------------------------
(dollars in thousands)
Average Yield/ Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate Balance Interest Rate
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Real estate loans $206,567 $16,286 7.88% $219,928 $18,047 8.21% $214,641 $19,378 9.03%
Consumer loans 10,762 1,091 10.14 11,264 1,218 10.81 14,101 1,688 11.97
-------- ------- ----- -------- ------- ----- -------- ------- -----
Total Loans 217,329 17,377 8.00 231,192 19,265 8.33 228,742 21,066 9.21
Mortgage-backed securities 46,479 2,120 4.56 29,634 1,635 5.52 22,449 1,541 6.86
Investment securities 93,370 5,196 5.57 51,412 2,609 5.07 53,843 3,412 6.34
Other 3,123 114 3.65 8,435 265 3.14 27,023 943 3.49
-------- ------- ---- -------- ------- ---- -------- ------- ----
Total interest-earning
assets $360,301 $24,807 6.89% $320,673 $23,774 7.41% $332,057 $26,962 8.12%
======== ======= ==== ======== ======= ==== ======== ======= ====
Interest-bearing liabilities
Savings deposits 250,833 9,485 3.78 256,832 10,788 4.20 276,632 15,444 5.58
FHLB advances 56,858 2,729 4.80 15,032 781 5.20 9,385 917 9.77
Securities sold under agreements
to repurchase 1,206 57 4.73 -- -- -- 362 24 6.63
-------- ------- ---- -------- ------- ---- -------- ------- ----
Total interest-bearing
liabilities $308,897 $12,271 3.97% $271,864 $11,569 4.26% $286,379 $16,385 5.72%
======== ======= ==== ======== ======= ==== ======== ======= ====
Net interest income $12,536 $12,205 $10,577
======= ======= =======
Interest rate spread 2.92% 3.15% 2.40%
==== ==== ====
Net interest margin
(Net interest income divided by
average interest-earning assets) 3.48% 3.81% 3.18%
==== ==== ====
</TABLE>
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<PAGE> 74
The following table represents the dollar amount of changes
in interest income and interest expense for major components of
interest-earnings assets and interest-bearing liabilities. The
table distinguishes between the changes related to average
outstanding balances (changes in volume while holding the initial
rate constant) and the changes related to average interest rates
(changes in average rates while holding the initial balance
constant). Changes attributable to both volume and rates have
been allocated proportionally.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30
-------------------------------------------------------------------
1994 Versus 1993 1993 Versus 1992
--------------------------- -----------------------------
Increase (Decrease) Increase (Decrease)
due to: due to:
Volume Rates Total Volume Rates Total
------ ----- ----- ------ ----- -----
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest earning assets:
Loans receivable $(1,586) $(302) $(1,888) $ 222 $(2,023) $(1,801)
Mortgage-backed securities 494 (9) 485 430 (336) 94
Investment securities 2,513 74 2,587 (414) (389) (803)
Other (244) 93 (151) (513) (165) (678)
------- ----- ------- ------ ------- -------
Total interest-earning assets 1,177 (144) 1,033 (275) (2,913) (3,188)
------- ----- ------- ------ ------- -------
Interest-bearing liabilities:
Savings deposits (977) (326) (1,303) (1,558) (3,098) (4,656)
FHLB advances and
other borrowings 1,890 115 2,005 313 (473) (160)
Total interest-bearing liabilities 913 (211) 702 (1,245) (3,571) (4,816)
------- ----- ------- ------ ------- -------
Net interest income $ 264 $ 67 $ 331 $ 970 $ 658 $ 1,628
======= ===== ======= ====== ======= =======
</TABLE>
ALLOWANCE FOR LOAN LOSSES. The allowance for loan losses is
established through a provision for loan losses based on management's
evaluation of the risk inherent in its loan portfolio and changes in
the nature and volume of its loan activity. This evaluation, which
includes a review of all loans of which full collectibility may not be
reasonably assured, considers among other matters, the estimated net
realizable value of the underlying collateral, economic conditions,
historical loan loss experience and other factors that warrant
recognition in providing for an adequate loan allowance. Although
management believes it uses the best information available to make
such determination, the possibility exists that abrupt changes in such
estimates, appraisals and evaluations might be required because of
changing economic conditions and the economic prospects of borrowers.
First Federal's ratio of gross nonperforming assets to total
assets was 0.73%, 1.94% and 0.25% at September 30, 1994, 1993 and
1992, respectively. For the fiscal years ended September 30, 1994,
1993 and 1992, the ratio of net charge-offs to average loans
outstanding was 0.03%, 0.02% and 0.10%, respectively.
First Federal had allowances for loan losses of $1.9 million, $1.8
million and $1.1 million at September 30, 1994, 1993 and 1992,
respectively. Chargeoffs against the allowance for losses totaled
$106,000 in fiscal 1994, $57,000 in fiscal 1993 and $283,000 in fiscal
1992. The total allowance at September 30, 1994 included $1.7 million
of general reserves.
Management is of the opinion that the allowance for loan losses at
September 30, 1994, which represents 61.0% of total nonperforming
assets, is adequate to meet potential losses in the portfolio. It must
be understood, however, that there are inherent risks and
uncertainties related to the operation of
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<PAGE> 75
a financial institution. By necessity, Plains Spirit's Consolidated
Financial Statements are dependent upon estimates, appraisals and
evaluations of loans. Therefore, the possibility exists that abrupt changes
in such estimates, appraisals and evaluations might be required because of
changing economic conditions and the economic prospects of borrowers.
The following table sets forth an analysis of First Federal's
allowance for loan losses at the dates indicated.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30
------------------------------------------------------------
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Balance at beginning of year $ 1,777 $ 1,115 $ 773 $ 898 $ 1,016
========= ========= ======== ========= =========
Chargeoffs:
Real estate loans (7) (14) (134) (158) (442)
Consumer loans (99) (43) (149) (125) (187)
--------- --------- -------- --------- ---------
Total (106) (57) (283) (283) (629)
--------- --------- -------- --------- ---------
Recoveries:
Real estate loans 19 11 1 45 35
Consumer loans 13 2 41 42 49
--------- --------- -------- --------- ---------
Total 32 13 42 87 84
--------- --------- -------- --------- ---------
Net Charge-offs (74) (44) (241) (196) (545)
Provision for losses 200 706 583 71 427
--------- --------- -------- --------- ---------
Balance at end of year $ 1,903 $ 1,777 $ 1,115 $ 773 $ 898
========= ========= ======== ========= =========
Average loans outstanding $ 217,329 $ 231,192 $228,742 $ 230,696 $ 245,463
========= ========= ======== ========= =========
Ratio of net charge-offs
to average loans outstanding 0.03% 0.02% 0.10% 0.08% 0.22%
===== ===== ===== ===== =====
</TABLE>
NON-INTEREST INCOME. First Federal continues to derive increasing
amounts of income from its mortgage-banking activities. Loan fees and
service charges during fiscal 1994 were approximately the same as the
$1.4 million recorded in fiscal 1993. The heavy volume of loan
closings resulted from continued high levels of mortgage activity and
greater market share penetration during fiscal 1994. Within First
Federal's asset/liability management process, most fixed-rate
mortgages are sold into the secondary market. During fiscal 1994 gains
from the sale of new loan originations amounted to $734,000. This is
approximately one-half the $1.5 million recorded in fiscal 1993.
Higher interest rates throughout the year reduced the gains from sale.
The level of future sales and gains is dependent upon the levels and
compositions of loan originations and the general levels of market
interest rates. Due to these factors, gains recognized upon the sales
of loans are subject to fluctuations from period to period.
The secondary market activity associated with First Federal's
fixed-rate mortgage loan production enhances fee income from mortgage
servicing for others. During 1994, total loans serviced for others
increased to $206.6 million from $124.2 million as of September 30,
1993. This increased portfolio provided servicing fee income of
$515,000 for fiscal 1994 compared to $254,000 in fiscal 1993. In
addition to loan servicing fee income, First Federal derives a certain
amount of its interest income from this operation as a result of the
use of the related cash balances.
Income from transaction and other account-related fees increased to
$324,000 in fiscal 1994, compared to the fiscal 1993 amount of
$264,000. Other income during fiscal 1994 decreased $40,000 to
$335,000 as compared to $375,000 in fiscal 1993. During fiscal 1993,
the final disbursement
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<PAGE> 76
from the prepaid FSLIC Secondary Reserve was distributed. The disbursement
of $196,000 was recognized during First Federal's second quarter of fiscal
1993. In fiscal 1994, a lot sale within a First Federal subsidiary
resulted in $36,000 of additional income.
The high quality of First Federal's loan portfolio reflects in its
low foreclosed assets level and corresponding loss on disposition of
those assets. During the fiscal year ended September 30, 1994, First
Federal's losses on real estate operations, net totaled $13,000 down
$2,000 from the prior year.
Total non-interest income increased during the fiscal year ended
September 30, 1993 to $3.8 million, a $1.9 million increase from the
$1.9 million during fiscal 1992. Gains from the sale of mortgage
originations totaled $1.5 million, an increase of $1.0 million
compared to fiscal 1992. Loan fees and service charges from the loan
origination process totaled $1.4 million in fiscal 1993, an increase
of $407,000 from fiscal 1992. During fiscal 1993, loan originations
totaled $152.9 million. The increase in loan originations accounted
for the substantial increase in loan fees and charges. Loan servicing
income accounted for $254,000 during fiscal 1993, an increase of
$168,000 over fiscal 1992, reflecting First Federal's plan to increase
its portfolio of loans serviced for others. At September 30, 1993,
loans serviced for the benefit of others totaled $124.2 million,
compared to $42.4 million at September 30, 1992. In addition, First
Federal derives non-interest income from retail banking fees and other
sources of income. For fiscal 1993, other fees and charges totaled
$264,000, an increase of $66,000 from the fiscal 1992 total of
$198,000. In fiscal 1993, real estate operations, net, including real
estate owned dispositions, totaled a negative $15,000, a decrease of
$7,000 from fiscal 1992.
NON-INTEREST EXPENSE. First Federal's non-interest expense totaled
$8.8 million and $8.5 million for the fiscal years ended September 30,
1994 and 1993, respectively. The 2.6% increase in fiscal 1994 over
1993 compared to a 15% increase in fiscal 1993 over 1992 reflects
First Federal's attention to controlling expenses.
Compensation expense increased $213,000 in 1994 over 1993 due to
salary adjustments and a higher charge for a deferred retirement
benefit. As of September 30, 1994, First Federal had 118 full-time
equivalent employees compared to 116 such employees at September 30,
1993. Occupancy and furniture, equipment and data processing
collectively totaled $1.3 million and $1.2 million for fiscal years
1994 and 1993, respectively. Although First Federal's deposits
increased in fiscal 1994, Federal insurance of accounts premiums
decreased due to the assessment being calculated on a lagging basis.
Future increases are anticipated because of the higher level of
deposits. For 1994, First Federal's premium was the lowest rate
permitted under current FDIC regulations. Other loan expense
decreased $126,000 in fiscal 1994 from $629,000 during the prior year.
This decrease results from the lower utilization of third-parties in
the loan origination process. Other expenses increased $58,000 during
the year due to higher advertising and promotional expenses.
During the fiscal year ended September 30, 1993, First Federal's
non-interest expense totaled $8.5 million, an increase of $1.1 million
over fiscal 1992. The 15% increase in fiscal 1993 was attributable to
an increased mortgage banking enterprise and increased retail
operation. During the fiscal year ended September 30, 1993, First
Federal opened two new facilities; a new retail branch located in the
Cub Food Store in Davenport and, a loan production office located in
Rock Island, Illinois, First Federal's first office in the state.
Compensation and employee benefits increased $776,000 to $4.7 million
in fiscal 1993 compared to fiscal 1992. The increase was principally
related to increased staff levels for First Federal's operations as
well as higher commissions paid to its loan originators, all of whom
are incentive-based paid. Expenses for furniture, equipment and data
processing increased $321,000 in fiscal 1993 over fiscal 1992,
primarily as a result of increased lease expenses and associated
equipment for the new offices. Federal deposit insurance premiums
increased by $25,000 reflecting the final distribution
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<PAGE> 77
of the prepaid secondary reserve. Other loan expense totaled $629,000 for
fiscal 1993, an increase of $85,000 over fiscal 1992. Third party
expenses related to higher levels of loan originations caused the
increase. Other non-interest expense decreased $88,000 to $1.4 million in
fiscal 1993 from fiscal 1992.
LENDING ACTIVITIES
First Federal is primarily a consumer-oriented financial services
organization. First Federal's principal business is obtaining funds
in the form of deposits and borrowings and investing those funds in
various types of loans. The origination of single-family home
mortgage loans is First Federal's primary lending activity. Each loan
originated for the purpose of acquiring, constructing or refinancing a
single-family residence is secured by a first mortgage on the
acquired, constructed or refinanced property. First Federal offers
fixed-rate and adjustable-rate mortgage loans with terms ranging from
one to 30 years, including traditional single-family home mortgage
loans with terms of either 15 or 30 years. The relative customer
demand for adjustable-rate and fixed-rate loans varies considerably,
depending on such factors as the level of interest rates, expectations
regarding future interest rates and the relationship between long-term
and short-term interest rates.
Loan originations are generated by First Federal's marketing
efforts, its present customers, walk-in customers and referrals from
real estate brokers and builders. First Federal employs a system of
internal controls designed to maintain the quality of its loan
portfolio. Loan commitments of up to $500,000 must be approved at
various levels of authority, depending on the type and amount of the
loan. Loan commitments of more than $500,000 but less than $1,000,000
must be approved by a committee comprised of officers of First
Federal. Loan commitments between $1,000,000 and $1,500,000 must be
approved by at least two directors in addition to an authorized
officer. Commitments over $1,500,000 require approval by the full
Board of Directors or Interim Board Action Committee.
SINGLE-FAMILY HOME MORTGAGE LOANS. First Federal originated $125.9
million, $139.5 million and $104.6 million of single-family home
mortgage loans (including all one- to four-family loans) during the
fiscal years ended September 30, 1994, 1993 and 1992, respectively.
Approximately $37.2 million, or 29.5%, of fiscal 1994 single-family
loan originations were adjustable-rate loans ("ARMS"), compared to
$32.8 million, or 23.5%, of fiscal 1993 loan originations and $11.2
million, or 10.7%, of fiscal 1992 loan originations. Substantially
all of First Federal's fixed-rate single-family loan originations met,
or exceeded, FHLMC and FNMA underwriting guidelines and substantially
all of such loans with terms in excess of 15 years have been sold.
During fiscal year 1994, First Federal purchased $19.1 million of
single-family loans through its ongoing correspondent loan
arrangements with other banks and mortgage originators, compared to
$1.8 million in the prior fiscal year. These loans are underwritten
to the same standards as First Federal's own originations and such
loans with terms in excess of 15 years have been sold with servicing
rights retained. The majority of purchased loans are located outside
First Federal's traditional market of the Quad Cities, but within
eastern Iowa.
First Federal's written underwriting guidelines for single-family
home mortgage loans meet, and in some instances exceed, FHLMC and FNMA
underwriting guidelines. In underwriting single-family home mortgage
loans, First Federal evaluates both the borrower's ability to make
monthly payments and the value of the property securing the loan.
Potential borrowers are qualified for fixed-rate loans based upon the
stated interest rate of the loan. On ARM loans, the borrower is
qualified on either the starting interest rate or an assumed higher
interest rate, depending on the loan-to-value ratio, frequency of
interest rate adjustment and the existence of interest rate adjustment
caps. First Federal does not make single-family mortgage loans in
excess of $600,000. Generally, the limit for loans with an initial loan-to-
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<PAGE> 78
value ratio of more than 80% to 90% is $250,000, and loans with an
initial loan-to-value ratio of more than 90% are limited to the FHLMC or
FNMA limit.
In fiscal 1994, 78% of all owner-occupied, single-family home
mortgage loans originated by First Federal had loan-to-value ratios of
80% or less. The remainder of First Federal's loans had loan-to-value
ratios in excess of 80% but not higher than 95%. (Loan-to-value ratio
is the ratio that the original principal amount of a loan bears to the
appraised value of the mortgaged property or, in the case of purchase
money mortgages, the lower of the appraised value of the property or
the purchase price of the property securing the loan.) Generally,
that portion of a loan in excess of 80% value is insured by a private
mortgage insurance company on the amount in excess of 75% of the value
of the underlying property. First Federal requires a lower loan-to-
value ratio for non-owner-occupied loans. In addition, all home
mortgage loans originated by First Federal are subject to prescribed
requirements for title insurance or an opinion of counsel, and fire
and casualty insurance, as well as flood insurance where appropriate.
First Federal issues commitments as to the interest rate and points
to be charged on the loan based upon the prevailing interest rate and
points in effect on the date the borrower elects to "lock-in" the
interest rate and points. At September 30, 1994, First Federal had
commitments to originate loans totaling $10.5 million, commitments to
purchase newly originated loans of $2.5 million and a master loan
commitment to sell loans totaling $28.1 million. Commitments to
originate loans, which may be disbursed subject to certain
limitations, extend over varying periods of time, with substantially
all of such funds expected to be disbursed within a three month
period.
First Federal's largest lending relationship, including commitments
outstanding, with a single borrower at September 30, 1994, was $3.5
million, which was approximately $2.3 million below the limit
prescribed by the Financial Institutions Reform, Recovery and
Enforcement Act of 1989 ("FIRREA").
CONSTRUCTION LOANS. First Federal also originates loans to finance
the construction of single-family residences as well as multi-family
dwellings. In response to market demand First Federal has increased
its activity in this type of lending. Construction loans are
generally provided in conjunction with permanent financing, whether
First Federal provided or from another source. On a limited and
select basis, First Federal will provide financing on spec homes to
residential builders.
First Federal originated approximately $17.0 million, $6.0 million
and $4.1 million of construction loans during the fiscal years ended
September 30, 1994, 1993 and 1992, respectively. Construction loans
are made to individuals who intend to occupy the premises upon
completion of construction or to builders. Construction loans to
individuals are structured for up to a 30 year term with a 12 month
construction phase. Upon completion of the construction phase, these
loans continue as permanent loans of First Federal. Builder
construction loans are generally fixed-rate loans for up to 12 months.
Loan proceeds are disbursed in increments as construction progresses
and as inspections warrant. Construction loans for multi-family
dwellings are generally structured as construction/permanent loans for
up to a 15 year term with a 12 month construction period. Interest
rates for these loans are adjustable based on a spread over the prime
rate during the construction period and either fixed or adjustable at
the time the loan becomes a permanent loan. Of the construction loans
originated in fiscal 1994, $8.0 million were for commercial properties
with the remainder for single-family residences.
CONSUMER LOANS. First Federal offers a variety of consumer loans,
including home equity and home improvement loans and loans secured by
savings deposits. First Federal originates substantially all of its
consumer loans in its market area. Home equity and home improvement
loans are secured by
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<PAGE> 79
a mortgage on the borrower's home. On a limited basis, First Federal
makes unsecured loans, student loans, and manufactured home loans. First
Federal does not originate consumer loans on an indirect basis.
The underwriting standards employed by First Federal for consumer
loans include a determination of the applicant's payment history on
other debts and an assessment of the ability to meet existing
obligations and payments on the proposed loan. Although
creditworthiness of the applicant is a primary consideration, the
underwriting process also includes a comparison of the value of the
security, if any, in relation to the proposed loan amount.
At September 30, 1994, First Federal's consumer loan portfolio
totaled approximately $11.8 million, or 4.9% of First Federal's total
loan portfolio. Home equity and home improvement loans totaled $8.5
million at September 30, 1994, representing 72.2% of First Federal's
consumer loan portfolio. The remaining balance of consumer loans, or
approximately $3.3 million, consisted primarily of manufactured home
loans.
MULTI-FAMILY AND COMMERCIAL REAL ESTATE LOANS. Multi-family and
commercial real estate loans are generally originated in amounts of up
to 75% of the appraised value of the property securing the loan.
Additionally, First Federal normally requires net operating income to
debt service of at least 1.25 for loans secured by multi-family
residential property and at least 1.30 for loans secured by commercial
real estate unless other compensating factors are present. The other
terms of multi-family and commercial real estate loans are negotiated
on a case by case basis. During fiscal year 1994, First Federal
originated 34 loans secured by commercial real estate, excluding
construction loans of this type. Of the originations, 20 loans
totaling $4.9 million were for multi-family dwellings and 14 loans
totaling $11.8 million were for commercial properties and office
buildings.
First Federal's multi-family and commercial real estate loan
portfolio includes loans secured by apartment buildings, office
buildings, retail stores, warehouses and other properties. First
Federal has begun commercial real estate lending on a select basis in
properties outside First Federal's primary market area. During fiscal
year 1994, including construction loans, First Federal originated
$12.4 million of multi-family and commercial real estate loans
outstate (within Iowa but outside of Scott County, Iowa) or out-of-
state. At September 30, 1994, First Federal's loan portfolio of
permanent and construction loans included $20.9 million of multi-
family and commercial real estate loans in outstate or out-of-state
locations.
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<PAGE> 80
LOAN PORTFOLIO COMPOSITION. The following table sets forth
information concerning the composition of First Federal's loan
portfolio, including loans held for sale, in dollar amounts and in
percentages (before deductions for loans in process, deferred fees and
discounts and allowance for loan losses) as of the dates indicated.
<TABLE>
<CAPTION>
At September 30
-----------------------------------------------------------------------------------------------
1994 1993 1992 1991 1990
---------------- ---------------- ---------------- ---------------- ----------------
Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real Estate Loans:
Single family $186,134 76.74% $191,294 84.10% $202,889 83.19% $175,005 79.60% $190,166 80.09%
Multi-family and commercial 30,826 12.71 19,979 8.78 24,874 10.20 27,092 12.32 25,523 10.75
Construction or development 13,772 5.68 5,467 2.40 3,487 1.43 1,607 .73 2,412 1.02
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Total real estate loans 230,732 95.13 216,740 95.28 231,250 94.82 203,704 92.65 218,101 91.86
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Consumer Loans:
Home equity 7,938 3.27 5,322 2.34 4,815 1.97 5,220 2.37 4,073 1.72
Manufactured housing 2,626 1.08 3,880 1.71 5,320 2.18 6,973 3.17 8,718 3.67
Home improvement 595 .25 972 .43 1,624 0.67 2,462 1.12 2,884 1.21
Deposit account 569 .24 523 .23 856 0.35 1,001 0.46 789 0.33
Other 83 .03 25 .01 18 0.01 503 0.23 2,866 1.21
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Total consumer loans 11,811 4.87 10,722 4.72 12,633 5.18 16,159 7.35 19,330 8.14
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Total loans 242,543 100.00% 227,462 100.00% 243,883 100.00% 219,863 100.00% 237,431 100.00%
-------- ====== -------- ====== -------- ====== -------- ====== -------- ======
Less:
Loans in process 4,243 2,312 1,836 882 1,427
Deferred fees and discounts 639 665 544 611 360
Allowance for loan losses 1,903 1,777 1,115 773 898
-------- -------- -------- -------- --------
Total loans, net $235,758 $222,708 $240,388 $217,597 $234,746
======== ======== ======== ======== ========
</TABLE>
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<PAGE> 81
LOAN ACTIVITY. The following table sets forth single-family, multi-
family, commercial real estate and consumer loan origination,
purchase, sale and repayment activities for the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30
----------------------------------------
1994 1993 1992
---- ---- ----
(dollars in thousands)
<S> <C> <C> <C>
Loans originated by type:
Adjustable-rate:
Real estate:
Single-family $ 37,153 $ 32,806 $ 11,190
Multi-family and Commercial 5,671 1,667 1,416
Construction or development 1,231 -- 400
-------- -------- --------
Total adjustable-rate originated 44,055 34,473 13,006
Fixed Rate:
Real estate:
Single-family 88,746 106,669 93,396
Multi-family and Commercial 10,991 1,845 740
Construction or development 15,720 6,029 3,719
Consumer 8,313 3,886 3,608
-------- -------- --------
Total fixed-rate originated 123,770 118,429 101,463
-------- -------- --------
Total loans originated 167,825 152,902 114,469
Loans purchased:
Real estate loans 19,085 1,750 2,992
-------- -------- --------
Total loans purchased 19,085 1,750 2,992
Loans sold or exchanged:
Real estate loans sold 105,893 99,897 32,856
Real estate loans exchanged
for mortgage-backed securities 4,200 -- --
-------- -------- --------
Total loans sold or exchanged 110,093 99,897 32,856
Principal repayments 61,736 71,176 60,585
-------- -------- --------
Total reductions 171,829 171,073 93,441
-------- -------- --------
Net increase (decrease) $ 15,081 $(16,421) $ 24,020
======== ======== ========
</TABLE>
LOAN REPAYMENT SCHEDULE. The following table sets forth the
contractual maturity of First Federal's loan portfolio, including
loans held for sale, at September 30, 1994. Adjustable-rate loans in
the amount of $130 million are included in their respective maturity
date categories rather than the dates at which they reprice. The
schedule does not reflect the effects of possible prepayments.
Management expects prepayments will cause actual maturities to be
shorter.
<TABLE>
<CAPTION>
LOAN PORTFOLIO
Due During Multi-family Construction
Years ending and or
September 30, Single-family Commercial Development Consumer Total
------------- ------------- ---------- ----------- -------- -----
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
1995 $ 568 $ 3 $13,684 $ 1,181 $ 15,436
1996 434 -- 88 576 1,098
1997 820 1,501 -- 1,372 3,693
1998 and 1999 3,747 1,355 -- 3,552 8,654
2000 to 2004 20,246 9,722 -- 3,171 33,139
2005 to 2019 84,303 18,029 -- 1,954 104,286
2020 and beyond 76,016 216 -- 5 76,237
-------- ------- ------- ------- --------
Total $186,134 $30,826 $13,772 $11,811 $242,543
======== ======= ======= ======= ========
</TABLE>
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<PAGE> 82
As of September 30, 1994, the total amount of loans due after
September 30, 1995 which had predetermined interest rates was $111.3
million, while the total amount of loans due after such date which had
floating, adjustable or renegotiable interest rates was $115.8
million.
ASSET QUALITY. Federal regulations provide for the classification
of loans and other assets, such as debt and equity securities
considered by the OTS to be of lesser quality, as "substandard,"
"doubtful" or "loss." An asset is considered "substandard" if it is
inadequately protected by the current net worth and paying capacity of
the obligor or the collateral pledged, if any. "Substandard" assets
include those characterized by the "distinct possibility" that the
insured institution will sustain "some loss" if the deficiencies are
not corrected. Assets classified as "doubtful" have all of the
weaknesses inherent in those classified "substandard," with the added
characteristic that the weakness present makes "collection or
liquidation in full," on the basis of currently existing facts,
conditions and values, "highly questionable and improbable." Assets
classified as "loss" are those considered "uncollectible" and of such
little value that their continuance as assets without the
establishment of a specific loss reserve is not warranted. Assets
which do not currently expose the insured institution to sufficient
risk to warrant classification in one of the aforementioned categories
but possess weaknesses are required to be designated "special mention"
by management.
Each insured institution classifies its own assets. For assets
classified "substandard" or "doubtful," the insured institution is
required to establish prudent general allowances for losses based on
the assets classified and the overall quality of the asset portfolio.
The allowance must be established in accordance with generally
accepted accounting principles ("GAAP") and, more specifically, the
Financial Accounting Standards Board's ("FASB") Statement of Financial
Accounting Standards No. 5, Accounting for Contingencies ("FAS 5") and
Statement of Financial Accounting Standards No. 114, Accounting by
Creditors for Impairment of a Loan ("FAS 114"). If an asset is
classified as "loss," then the institution must establish specific
loss reserves of 100% of the amounts so classified or must charge-off
such amounts. These specific loss reserves must be established in
accordance with GAAP. Although the establishment of the reserves and
allowances reduces GAAP capital, the savings institution can, subject
to limitation, include general valuation allowances in the
determination of its risk-based capital, but not its core capital or
tangible capital, for purposes of the OTS capital standards. A
savings institution's determination as to the classification of its
assets and the amount of its valuation allowance is subject to review
by the OTS, which may order the establishment of additional general
valuation allowances or specific loss reserves.
First Federal has implemented comprehensive internal asset review
systems and loan loss allowance methodologies which are designed to
provide for early detection of problem assets and adequate general
loss allowances for the duration of each portfolio's life. As
required by law, First Federal's asset classification methodology
provides for the classification of loans as special mention,
substandard, doubtful or loss. Specific loss reserves are provided as
needed for assets classified as loss at 100% of the amount so
classified. Any such loan is charged-off when it is no longer deemed
collectible. Although this system will not eliminate future losses
due to unanticipated declines in the real estate market or economic
downturns, it should provide for timely identification of those
losses.
Residential property loans are considered by First Federal to be
delinquent when any payment of principal and/or interest is past due.
While in a majority of cases First Federal is able to work out a
satisfactory repayment schedule with a delinquent borrower, First
Federal will undertake foreclosure proceedings if the delinquency is
not satisfactorily resolved.
First Federal's procedures regarding delinquent loans are designed
to assist borrowers in meeting their contractual obligations with
First Federal. First Federal customarily mails a first notice of
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<PAGE> 83
past due payment to the borrower,with late charges assessed in accordance
with First Federal policy, 16 days after the due date. First
Federal's collection group attempts to make telephone contact with
borrowers usually 21 days after the payment due date. In certain
cases, First Federal recommends that the borrower seek credit
counseling assistance and may grant forbearance if First Federal
determines that the borrower is likely to correct loan delinquencies
within a reasonable period of time. When a loan becomes more than 90
days past due, First Federal categorizes the loan as nonaccrual and
generally provides an allowance for the loss of uncollected interest.
Although these past due loans may remain on an accrual status, First
Federal generally does not recognize interest as income until
collected. At September 30, 1994, First Federal had no loans
categorized as nonaccrual where interest income continues to be
accrued.
Gross nonaccrual loans decreased to $3.1 million as of September
30, 1994 from $6.4 million at September 30, 1993. The decrease is due
to the resolution of two loans with apartment complexes as security.
The apartment complexes were sold and the loans were assumed by the
new owner. First Federal did not recognize any loss nor was it
required to set up any reserves as a result of the resolution of the
problem loans.
The largest nonaccrual loan at September 30, 1994, in the amount of
$2.6 million, is to a partnership and secured by three mobile home
parks located in the Quad Cities area. The partnership ceased making
payments on the loan effective with the April 1, 1993 payment and has
filed Chapter 11 bankruptcy in the United States Bankruptcy Court for
the Central District of Illinois. The partnership is facing a
potential environmental issue regarding soil contamination from
leaking fuel lines. Although First Federal cannot guarantee no loss
will occur on this loan, it believes that, based on available
information, First Federal's general reserves are adequate to absorb
any loss thereby not significantly impacting future earnings.
Real property which First Federal acquires as a result of
foreclosure proceedings is classified as "real estate owned" until it
is sold or otherwise disposed of. Generally, First Federal is able to
dispose of a substantial portion of this type of real estate and other
repossessed assets during each year. At September 30, 1994, First
Federal did not hold any real estate or other repossessed assets.
During fiscal 1994, First Federal disposed of $139,000 of real estate
and repossessed assets, recognizing a net gain of approximately $5,000
from the sales.
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<PAGE> 84
<TABLE>
The following table sets forth information concerning the
nonperforming assets of the First Federal at the dates indicated.
<CAPTION>
AT SEPTEMBER 30
----------------------------------------------------
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Nonaccrual loans:
Real estate loans:
Single-family $ 455 $ 540 $657 $320 $686
Multi-family and commercial 2,564 5,469 -- 43 43
Construction or development -- 400 -- -- 156
Consumer 99 31 35 85 217
----- ----- ---- ---- ----
Total gross nonaccrual loans 3,118 6,440 692 448 1,102
Past due loans:
Not classfied as nonaccrual -- -- -- -- --
Foreclosed assets:
Real estate acquired:
Single-family -- 6 118 162 843
Multi-family and commercial -- -- -- -- 2,715
Construction or development -- -- -- 99 747
Consumer -- -- 19 71 132
---- ---- ---- --- -----
Total real estate and other assets -- 6 137 332 4,437
---- ---- ---- --- -----
Total gross nonperforming assets 3,118 6,446 829 780 5,539
Less allowance for losses 1,903 1,777 1,125 773 898
----- ----- ----- --- -----
Total net nonperforming assets 1,215 4,669 (296) 7 4,641
----- ----- ------ --- -----
Restructured real estate loans:
Single-family 1,021 1,225 110 69 435
Multi-family and commercial -- -- -- -- --
Manufactured housing 113 73 36 21 67
------ ------ ----- --- ------
Total restructured loans 1,134 1,298 146 90 502
------ ------ ----- --- ------
Total net nonperforming assets and
restructured loans $2,349 $5,967 $(150) $97 $5,143
====== ------ ====== === ======
Ratio of gross nonperforming assets
to total assets 0.73% 1.94% 0.25% 0.24% 1.74%
Ratio of gross nonperforming assets
to total loans and REO 1.32 2.89 0.36 0.36 2.32
Allowance coverage of gross
nonaccrual loans 61.03 27.57 162.72 172.54 81.49
Ratio of net nonperforming assets and
restructured loans to total assets
0.55 1.80 -0.04 0.03 1.66
</TABLE>
- 78 -
<PAGE> 85
<TABLE>
The following table sets forth information concerning
the breakdown of allowance for loan losses.
<CAPTION>
Percent of
Loans In
Specific General Total Category to
Valuation Allowance Allowance Total Loans
--------- --------- --------- -----------
(dollars in thousands)
<S> <C> <C> <C> <C>
At September 30, 1994
- ---------------------
Real estate - mortgage $ 43 $ 635 $ 678 89.45%
Real estate - construction -- 38 38 5.68
Consumer 129 39 168 4.87
Unallocated -- 1,019 1,019 --
-------- -------- -------- --------
Total $ 172 $ 1,731 $ 1,903 100.00%
======== ======== ======== ========
At September 30, 1993
- ---------------------
Real estate - mortgage $ 51 $ 578 $ 629 92.88%
Real estate - construction -- 14 14 2.40
Consumer 145 43 188 4.72
Unallocated -- 946 946 --
-------- -------- -------- --------
Total $ 196 $ 1,581 $ 1,777 100.00%
======== ======== ======== ========
At September 30, 1992
- ---------------------
Real estate - mortgage $ 75 $ 569 $ 644 93.39%
Real estate - construction -- 9 9 1.43
Consumer 149 63 212 5.18
Unallocated -- 250 250 --
-------- -------- -------- --------
Total $ 224 $ 891 $ 1,115 100.00%
======== ======== ======== ========
At September 30, 1991
- ---------------------
Real estate - mortgage $ 97 $ 323 $ 420 91.37%
Real estate - construction -- -- -- 0.71
Consumer 180 173 353 7.92
Unallocated -- -- -- --
-------- -------- -------- --------
Total $ 277 $ 496 $ 773 100.00%
======== ======== ======== ========
At September 30, 1990
- ---------------------
Real estate - mortgage $ 52 $ 180 $ 242 90.97%
Real estate - construction -- -- -- 1.00
Consumer 188 468 656 8.03
Unallocated -- -- -- --
-------- -------- -------- --------
Total $ 250 $ 648 $ 898 100.00%
======== ======== ======== ========
</TABLE>
- 79 -
<PAGE> 86
<TABLE>
The following table discloses the gross interest income for
nonaccrual and restructured loans that would have been recorded
if the nonaccrual and restructured loans had been current in
accordance with their original terms and had been outstanding
throughout the 12 months ended September 30, 1994 or since
origination, and the amount of interest income on those loans
that was included in net income for the fiscal year.
<CAPTION>
YEAR ENDED SEPTEMBER 30, 1994
-----------------------------
(dollars in thousands)
<S> <C>
Nonaccrual loans:
Real estate loans:
Single-family $ 18
Multi-family and commercial 251
Construction or development --
Consumer 4
-------
Nonaccrual interest income 273
Restructured real estate loans:
Single-family 83
-------
Total interest income under
original terms $ 356
=======
Interest included in net income $ 79
=======
</TABLE>
MORTGAGE-BACKED AND INVESTMENT SECURITIES
Mortgage-backed securities ("MBSs") and collateralized mortgage
obligations ("CMOs") constitute the second largest category of
First Federal's assets, totaling $167.7 million at September 30,
1994. The fair value of the MBS portfolio consist of FHLMC,
$13.3 million, FNMA, $30.0 million and GNMA, $8.9 million. Of
the CMOs held at September 30, 1994, those issued with collateral
of the federally chartered agencies totaled $58.4 million, with
$57.1 million issued by private concerns.
First Federal has purchased MBSs and CMOs to supplement loan
originations and to augment asset/liability management. MBSs with
adjustable rates or estimated maturities of ten years or less
from the date of purchase total $48.5 million. At September 30,
1994, First Federal did not have any commitments to purchase
additional MBSs or CMOs.
Federal savings institutions have the authority to purchase
various types of investments, including United States Treasury
obligations and securities of Federal agencies, federal funds,
securities purchased under agreements to sell ("Repos"),
commercial paper, banker's acceptances and corporate bonds.
FIRREA provides that no savings institution may invest in
corporate debt securities not rated, at the time of purchase, in
one of the four highest rating categories by a nationally
recognized rating organization.
First Federal's investment portfolio is determined by First
Federal's Asset/Liability Committee and takes into consideration
interest rate risk, liquidity needs and the profitability of
short-term investment opportunities. The current conditions
within the financial markets have resulted in First Federal
maintaining its investment portfolio in securities to meet the
demands of loan origination and the regulations concerning
liquidity.
- 80 -
<PAGE> 87
<TABLE>
The following table sets forth the composition of First
Federal's investment portfolio at the dates indicated.
<CAPTION>
AT SEPTEMBER 30
----------------------------------------------------------
1994 1993 1992
------------------- ------------------- ------------------
Book Percent Book Percent Book Percent
Value Of Total Value Of Total Value Of Total
----- -------- ----- -------- ----- --------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning deposits with banks $ 2,314 62.30% $ 4,174 73.71% $ 18,100 80.80%
Federal funds sold 1,400 37.70 1,489 26.29 4,300 19.20
--------- ------ -------- ------ -------- ------
Total $ 3,714 100.00% $ 5,663 100.00% $ 22,400 100.00%
========= ====== ======== ====== ======== ======
Investment securities:
Collateralized mortgage obligations $ 115,452 91.93% $ 55,479 92.08% $ 43,053 71.99%
U.S. government securities 4,500 3.58 2,000 3.32 11,994 20.06
Corporate debt securities -- 0.00 -- 0.00 200 0.33
Marketable securities, mutual funds -- 0.00 -- 0.00 2,173 3.64
FHLB stock, at cost 5,638 4.49 2,769 4.60 2,382 3.98
--------- ------ -------- ------ -------- ------
Total investment securities $ 125,590 100.00% $ 60,248 100.00% $ 59,802 100.00%
========= ====== ======== ====== ======== ======
</TABLE>
- 81 -
<PAGE> 88
<TABLE>
The following table sets forth certain information regarding
the carrying value, fair value, weighted average yields and
contractual maturities of First Federal's investment securities
at September 30, 1994.
<CAPTION>
One to Five Years Five to 10 Years More than 10 Years Total Investment Securities
------------------- ----------------- ------------------ ------------------------------------------
Securities Held To Maturity Annualized Annualized Annualized Annualized
Weighted Weighted Weighted Average Weighted
Amortized Average Amortized Average Amortized Average Life in Amortized Fair Average
Cost Yield<F1> Cost Yield<F1> Cost Yield<F1> Years<F2><F3> Cost Value Yield<F1>
---- --------- ---- --------- ---- --------- ------------- ---- ----- ---------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CMOs with agency collateral
Fixed rate $ 3,253 4.78% $ 1,055 5.32% $ 26,834 6.24% 21.2 $ 31,142 $ 30,374 6.06%
CMOs with non-agency collateral
Fixed rate -- -- -- -- 39,065 6.94 27.2 39,065 37,427 6.94
U.S government agency 4,500 6.08 -- -- -- -- 4.3 4,500 4,386 6.08
FHLB stock, at cost -- -- -- -- 5,638 8.50 -- 5,638 5,638 8.50
------- ---- ------- ---- -------- ---- ---- -------- -------- ----
Total held for investment 7,753 5.53% 1,055 5.32% 71,537 6.80% 23.3 80,345 77,825 6.66%
------- ------- -------- -------- --------
<CAPTION>
Securities Available for Sale Annualized Annualized Annualized Annualized
Weighted Weighted Weighted Average Weighted
Amortized Average Amortized Average Amortized Average Life in Amortized Fair Average
Cost Yield<F1> Cost Yield<F1> Cost Yield<F1> Years<F2><F3> Cost Value Yield<F1>
---- --------- ---- --------- ---- --------- ------------- ---- ----- ---------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CMOs with agency collateral
Floating rate $ 808 5.41% $ -- -- $ 6,131 5.30% 22.7 $ 6,939 $ 6,762 5.31%
Fixed rate -- -- 2,044 5.81% 19,575 6.42 23.2 21,619 20,501 6.36
CMOs with non-agency collateral
Fixed rate -- -- -- -- 19,331 6.46 29.8 19,331 17,982 6.46
Net unrealized holding (loss)
for securities (1) -- (84) -- (2,559) -- -- (2,644) -- --
------- ---- ------- ---- -------- ---- ---- -------- -------- ----
Total available for sale 807 5.41 1,960 5.81 42,478 6.28 27.3 45,245 45,245 6.25
------- ---- ------- ---- -------- ---- ---- -------- -------- ----
Grand total $ 8,560 5.52% $ 3,015 5.64% $114,015 6.61% 24.8 $125,590 $123,070 6.51%
======= ======= ======== ======== ========
<FN>
- ------------------------------
<F1> The annualized weighted average yield for securities available for
sale is based on amortized cost.
<F2> FHLB Des Moines stock is excluded in the calculation.
<F3> The weighted average life in years is based on contractual maturity
without regard for individual tranche's performance assuming certain
prepayment rates.
Management believes actual average life in years will be less than
stated herein.
</TABLE>
- 82 -
<PAGE> 89
<TABLE>
The following table sets forth certain information regarding the
amortized cost, fair value, weighted average yields and contractual
maturities of First Federal's mortgage-backed securities at
September 30, 1994.
<CAPTION>
One to Three Years Three to Five Years Five to 10 Years More than 10 Years Total Mortgage-Backed Securities
------------------ ------------------- ---------------- ------------------ --------------------------------
Annualized Annualized Annualized Annualized Annualized
Weighted Weighted Weighted Weighted Average Weighted
Amortized Average Amortized Average Amortized Average Amortized Average Life in Amortized Fair Average
Cost Yield<F1> Cost Yield<F1> Cost Yield<F1> Cost Yield<F1> Years<F2> Cost Value Yield<F1>
---- --------- ---- --------- ---- --------- ---- --------- --------- ---- ----- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(dollars in thousands)
FHLMC certificates $ 2,592 7.96% $ 544 4.60% -- -- $ 10,461 5.90% 18.4 $13,597 $13,341 6.24%
FHMA certificates -- -- -- -- -- -- 30,839 4.52 27.9 30,839 30,012 4.52
GHMA certificates -- -- -- -- -- -- 9,130 5.81 27.8 9,130 8,918 5.81
Net unrealized
holding (loss)
for securities 7 -- (4) -- -- -- (1,298) -- -- (1,295) -- --
------- ---- ----- ---- ---- ---- -------- ---- ---- ------- ------- ----
$ 2,599 7.96% $ 540 4.60% -- -- $ 49,132 5.04% 25.9 $52,271 $52,271 5.18%
======= ===== ======== ======= =======
<FN>
- ------------------------------
<F1> The annualized weighted average yield is based on amortized cost.
<F2> The weighted average life in years is based on contractual
maturity without regard for individual pool's performance
assuming certain prepayment rates.
Management believes actual average life in years will be less than
stated herein.
</TABLE>
- 83 -
<PAGE> 90
LIQUIDITY AND CAPITAL RESOURCES
First Federal's primary sources of funds are deposits, amortization
and prepayment of loan principal, including MBSs and CMOs, sales of
mortgage loans, sales or maturities of investment securities, net
interest income and borrowings from the FHLB Des Moines. While
scheduled loan repayments and maturing investments are relatively
predictable, deposit flows and early loan repayments are more influenced
by interest rates, general economic conditions and competition. First
Federal attempts to price its products to meet its asset/liability
objectives, consistent with local market conditions.
The standard measure of liquidity in the thrift industry is the ratio
of cash and eligible investments, as defined by regulation, to the sum
of net withdrawable savings and borrowings due within one year. The OTS
has established the current minimum liquid asset ratio requirement at
5%. First Federal, as a component of its overall asset/liability
management strategy, maintains qualifying liquid assets at levels in
excess of those required. For the measurement period ending September
30, 1994 and 1993, First Federal's liquidity ratio was 5.37% and 7.73%,
respectively. For the fiscal years ended September 30, 1994 and 1993,
First Federal's average liquidity ratios were 6.54% and 9.43%
respectively.
Loan principal repayments totaled $61.7 million during fiscal 1994,
representing a decrease of $9.4 million, or 13.3%, compared to fiscal
1993. The decrease was due to higher interest rates which resulted in a
slowdown in mortgage loan turnover and refinances during the year.
Sale of mortgage loans totaled $105.9 million in fiscal 1994,
compared to $99.9 million sold in fiscal 1993. The increase in sales
continues the strategy of building the loans serviced for others
retaining the servicing fee. First Federal sells substantially all of
its fixed-rate mortgage originations, servicing retained, consistent
with its asset/liability management strategy.
Customer deposits increased $3.8 million, or 1.5%, to $253.6 million
at September 30, 1994 compared to $249.8 million at September 30, 1993.
First Federal's borrowings totaled $112.7 million at September 30, 1994
representing an increase of $90.2 million from September 30, 1993. The
source of the increase in borrowing was the FHLB Des Moines.
During the 12 months ended September 30, 1994, stockholders' equity
decreased by $775,000 or 1.4%. The decrease reflected total earnings of
$4.47 million, issuance of common shares under the stock option plan
offset by open-market purchases of outstanding common stock which
combined totaled a decrease of $1.898 million, dividends paid to
stockholders totaling $947,000 and the net unrealized holding loss for
securities classified as available for sale, net of tax in the amount of
$2.4 million.
On March 18, 1994, Plains Spirit announced its intention to
repurchase up to five percent of its outstanding common shares in the
open market. During the period from March 29, 1994 to August 5, 1994,
98,700 shares were purchased at an average cost of $23.61 per share.
Plains Spirit has retained 276,700 shares of common stock as treasury
shares for general corporate use, including the issuance of shares in
connection with the exercise of stock options.
At September 30, 1994, First Federal had outstanding mortgage loan
commitments, excluding undisbursed portions of loans in process, of
$10.5 million compared to $14.8 million at September 30, 1993. At
September 30, 1994, First Federal also had master commitments to sell
newly originated mortgage loans of $28.1 million and commitments to
purchase newly originated mortgage loans of approximately $2.5 million.
- 84 -
<PAGE> 91
SOURCES OF FUNDS
DEPOSITS. Deposits are the principal source of funds used by First
Federal in its lending and investment activities. At September 30,
1994, deposits totaled $253.6 million, an increase of $3.8 million, or
1.5%, from September 30, 1993. First Federal also derives funds from
operations, repayments of earning assets, sales of loans and borrowings
from the FHLB Des Moines.
<TABLE>
Deposits at September 30, 1994 included $78.6 million of demand
accounts versus $87.2 million at September 30, 1993. The remaining
deposits were time deposits with maturities of up to 60 months. The
various interest rates paid on time deposits are summarized as follows:
<CAPTION>
YEAR ENDED SEPTEMBER 30
---------------------------
Percent Range 1994 1993
------------- -------- --------
(dollars in thousands)
<S> <C> <C>
2.00 - 2.99% $ 4 $ --
3.00 - 3.99% 44,547 85,501
4.00 - 4.99% 69,295 29,061
5.00 - 5.99% 50,611 25,834
6.00 - 6.99% 8,038 12,732
7.00 - 7.99% 1,889 6,346
8.00 - 8.99% 653 3,160
-------- --------
$175,037 $162,634
======== ========
</TABLE>
First Federal offers a variety of deposit accounts of varying
interest rates and terms. First Federal's deposits consist of passbook
accounts, NOW and non-interest checking accounts, certificate accounts
and individual retirement accounts. First Federal relies on its branch
network, advertising programs, the quality and efficiency of its
service, and its pricing policies to attract deposits. First Federal
primarily solicits deposits from its market area, and does actively
solicit deposits from brokers. The flow of deposits is influenced
significantly by general economic conditions, changes in money market
and prevailing interest rates and competition.
<TABLE>
The following table sets forth information relating to First
Federal's deposit flows for each of the periods indicated.
<CAPTION>
YEAR ENDED SEPTEMBER 30
---------------------------------------
1994 1993 1992
--------- --------- ---------
(dollars in thousands)
<S> <C> <C> <C>
Opening balance $ 249,834 $ 266,632 $ 279,749
Net withdrawals (5,638) (26,120) (27,863)
Interest credited 9,430 9,322 14,746
--------- --------- ---------
Ending balance $ 253,626 $ 249,834 $ 266,632
========= ========= =========
Net increase (decrease) $ 3,792 $ (16,798) $ (13,117)
========= ========= =========
Percent increase (decrease) 1.52% (6.30%) (4.69%)
========= ========= =========
</TABLE>
<TABLE>
The following table sets forth the average amount of and the average
rate paid on each of the following deposit categories at the dates
indicated. Average balances shown for 1994 and 1993 are daily averages
while 1992 is based on the month-end averages.
- 85 -
<PAGE> 92
<CAPTION>
YEAR ENDED SEPTEMBER 30
---------------------------------------------------------------------
1994 1993 1992
-------------------- ------------------ -------------------
Weighted Weighted Weighted
Average Average Average Average Average Average
Balance Rate Balance Rate Balance Rate
------- ---- ------- ---- ------- ----
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Non-interest bearing demand deposits . . . . $ 5,063 0.00% $ 3,635 0.00% $ 2,635 0.00%
Interest bearing checking. . . . . . . . . . 14,067 2.10 13,815 2.21 10,181 3.32
Money market accounts. . . . . . . . . . . . 44,519 2.90 39,726 3.21 21,504 4.19
Savings deposits . . . . . . . . . . . . . . 22,274 2.49 25,562 3.00 21,973 3.65
Time deposits. . . . . . . . . . . . . . . . 164,910 4.45 174,094 4.85 220,339 6.08
-------- ---- -------- ---- -------- ----
$250,833 3.78% $256,832 4.20% $276,632 5.58%
======== ======== ========
</TABLE>
<TABLE>
The following table sets forth the amount of First Federal's
certificates of deposits by time remaining until maturity as of
September 30, 1994.
<CAPTION>
3 Months Over 3 to Over 6 to Over
Or Less 6 Months 12 Months 12 Months Total
------- -------- --------- --------- -----
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Certificates of deposits:
less than $100,000. . . . . . . . . . . . $36,749 $31,965 $45,532 $50,408 $164,654
$100,000 and greater. . . . . . . . . . . 1,884 1,855 2,184 4,460 10,383
------- ------- ------- ------- --------
$38,633 $33,820 $47,716 $54,868 $175,037
======= ======= ======= ======= ========
</TABLE>
At the time of its conversion to a stock institution, eligible
account holders of First Federal were granted priority in the unlikely
event of First Federal's complete liquidation through the establishment
of a liquidation account equal to First Federal's net worth on a GAAP
basis at September 30, 1991. If such a complete liquidation were to
occur at some time in the future, an eligible deposit account holder who
had continued to maintain his or her deposit account would be entitled
to receive a distribution from this liquidation account, in the
proportionate amount of the then current adjusted balance for deposit
accounts, before any distribution would be made to First Federal's
stockholders. The liquidation account established by the First Federal
at the time of conversion was approximately $27.9 million. At September
30, 1994, it had been reduced to approximately $3.98 million.
BORROWINGS. The FHLB System provides credit for savings institutions
and certain other member financial institutions. First Federal is a
member of the FHLB Des Moines and is required to own stock in the FHLB
Des Moines. First Federal obtains advances from the FHLB Des Moines
upon the security of its capital stock of the FHLB Des Moines and
certain of its mortgage loans. Such advances are made pursuant to
several different credit programs, each of which has its own interest
rate and range of maturity. At September 30, 1994, First Federal's FHLB
Des Moines advances totaled $112.7 million, the highest level of
borrowings during the fiscal year, representing 30.0% of total
liabilities. During fiscal year 1994, First Federal's average borrowing
from the FHLB Des Moines totaled $56.9 million at a weighted average
rate of 4.80%.
<TABLE>
The following table sets forth certain information regarding borrowed
funds at the dates and for the periods indicated.
- 86 -
<PAGE> 93
<CAPTION>
AT OR FOR THE YEAR ENDED
SEPTEMBER 30
-----------------------------------
1994 1993 1992
---- ---- ----
(dollars in thousands)
<S> <C> <C> <C>
FHLB advances:
Average balance outstanding $ 56,858 $15,032 $ 9,347
Maximum amount outstanding at any
month-end during the period 112,750 22,500 13,000
Balance outstanding at end of period 112,750 22,500 13,000
Weighted average interest rate:
During the period 4.80% 5.20% 9.81%
At end of period 5.32 4.53 8.31
Reverse repurchase agreements:
Average balance outstanding $ 1,206 $ -- $ 362
Maximum amount outstanding at any
month-end during the period 3,133 -- --
Balance outstanding at end of period -- -- --
Weighted average interest rate:
During the period 4.73% -- 6.63%
At end of period -- -- --
Total borrowings:
Average balance outstanding $ 58,064 $15,032 $ 9,709
Maximum amount outstanding at any
month-end during the period 112,750 22,500 13,000
Balance outstanding at end of period 112,750 22,500 13,000
Weighted average interest rate:
During the period 4.80% 5.20% 9.69%
At end of period 5.32 4.53 8.31
</TABLE>
PROVISION FOR INCOME TAXES
Plains Spirit files a consolidated federal income tax return with its
subsidiaries and computes its income tax provision or benefit on a
consolidated basis. Plains Spirit and First Federal's subsidiary file
an Iowa corporation tax return whereas First Federal files an Iowa
franchise tax return. The provisions presented in the Consolidated
Statements of Income include the federal income tax provision and the
State of Iowa corporate and franchise taxes. For the fiscal year ended
September 30, 1994, First Federal's provision for taxes as a percentage
of pretax earnings was 34.5%, compared to 36.6% in fiscal 1993 and 38.4%
in fiscal 1992.
CUMULATIVE EFFECT OF AN ACCOUNTING CHANGE
In May, 1993, the FASB issued Statement of Financial Accounting
Standard No. 115 ("FAS 115") effective for fiscal years beginning after
December 15, 1993. Plains Spirit adopted FAS 115 with its fiscal year
beginning October 1, 1993. FAS 115 addresses accounting and reporting
for investments in equity securities that have readily determinable fair
values and for all investments in debt securities. Such securities
would be classified as held for trading, available for sale or held to
maturity. Securities held to maturity are stated at cost, adjusted for
amortization of premiums and accretion of discounts by a method which
approximates the effective interest method. Plains Spirit has adequate
liquidity and capital, and it is management's intention to hold such
assets to maturity. Securities held for trading would be carried at
fair value with the adjustment, if any, reflected in the statement of
income. Securities classified as available for sale are carried at fair
value, however, the adjustment is reflected, net of income tax effect,
in stockholders' equity.
- 87 -
<PAGE> 94
In February, 1992, the FASB issued Statement of Financial Accounting
Standards No. 109 ("FAS 109") which supersedes FAS 96. FAS 109 is
effective for fiscal years beginning after December 15, 1992. The
primary impact of FAS 109 is the requirement that First Federal
recognize the deferred tax consequence of differences between the book
and tax treatment of allowances for loan losses arising after December
31, 1987. During the second quarter of fiscal year ended September 30,
1993, First Federal adopted FAS 109 and recorded a $405,000 tax benefit
relating to the adoption.
ASSET/LIABILITY MANAGEMENT
Managing the mix of First Federal's assets and liabilities to reduce
First Federal's interest margin exposure to fluctuations in interest
rates has been and continues to be a primary business focus. Like many
savings institutions, First Federal has had an excess of rate-sensitive
liabilities over rate-sensitive assets measured on the basis of its
cumulative one-year gap, the difference between interest-earning assets
and interest-bearing liabilities, anticipated to mature or reprice
within one year, based on certain assumptions. As of September 30,
1994, First Federal's calculated cumulative one-year gap was a negative
4.83%, as compared to a positive 14.52% at September 30, 1993 and a
negative 1.58% at September 30, 1992. A negative gap will generally
result in a reduced net interest margin in periods of rising interest
rates, while lower interest rates will generally result in a higher net
interest margin. First Federal's policy is to maintain its cumulative
one-year gap within a range of negative 15% to positive 15%.
In an attempt to effectively manage the mix of assets and
liabilities, First Federal emphasizes single-family residential
mortgages originated with adjustable interest rates or with terms of
fifteen years or less. These types of loans tend to reprice more
frequently and have shorter effective maturities than do longer term
fixed-rate mortgages. However, First Federal may not always be able to
originate mortgage loans of sufficient volume to meet its asset goals.
Therefore, to supplement lending activities, First Federal will, from
time to time, purchase collateralized mortgage obligation tranches with
an average life in a range of 2 to 4 years based on prepayment
expectations on the date of purchase. Additionally, First Federal may
purchase adjustable-rate mortgage related securities in the secondary
market.
In response to customer demand, First Federal has continued to
originate fixed-rate mortgage loans with terms greater than 15 years,
but has sold substantially all of these loans in the secondary market in
order to maintain its interest rate sensitivity. In selling these
fixed-rate mortgage loans, First Federal has retained the servicing
rights to some of these loans, which provide servicing fee income. For
fiscal 1994, First Federal originated $44.0 million of adjustable-rate
mortgage loans and $123.8 million of fixed-rate mortgage loans.
A continuing goal of First Federal is its emphasis of low-rate long-
term core deposits. These retail deposits are more attractive than
wholesale borrowings or brokered deposits since they generally offer
cost advantages and are less volatile in rising interest rate
environments. At September 30, 1994, deposits totaled $253.6 million,
of which $78.6 million consisted of consumer checking accounts, money
market accounts, NOW accounts and passbook accounts, representing 31% of
First Federal's total deposits.
First Federal has utilized FHLB advances as a source of short and
intermediate-term, fixed-rate funds for purposes of investing in assets.
At September 30, 1994, FHLB advances totaled $112.75 million, or 30.8%
of interest-bearing liabilities, compared to $22.5 million, or 8.3%, at
the end of fiscal 1993.
- 88 -
<PAGE> 95
The following table below sets forth the repricing of First Federal's
interest-earning assets and interest-bearing liabilities at September
30, 1994. The principal amount of each asset and liability is shown in
the period in which it matures or reprices. Nonaccrual loans and
undisbursed portions of construction loans are not included in amounts
shown. Funds from loan principal payments and anticipated loan
repayments are included in the period in which they are expected to be
received. Based on available published statistics, average annual
prepayment rates with respect to fixed-rate conventional single-family
mortgages and mortgage-backed securities have been estimated at 10.5%.
For adjustable rate mortgages and mortgage-backed securities an average
annual prepayment rate of 15% has been utilized. Annual prepayment
rates for non-residential mortgage loans and consumer loans 10%. For
CMOs the weighted prepayment rate has been estimated at 9.6%. Passbook
savings, money market accounts, consumer checking accounts and NOW
accounts have been included in the various date categories based on
First Federal's historic pattern of withdrawal rates.
<TABLE>
AMOUNTS MATURING OR REPRICING
<CAPTION>
Within Over 1-3 Over 3-5 Over 5-10 Over 10-20 Over 20
One Year Years Years Years Years Years Total
-------- -------- -------- --------- ---------- ------- -----
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Interest earning assets:
Fixed 1-4, MBS, commercial
and construction $ 24,259 $26,989 $19,229 $28,574 $ 13,878 $ 405 $113,334
Adj 1-4, MBS, commercial
and construction 114,380 32,598 16,724 -- -- -- 163,702
Consumer loans 4,463 3,936 1,703 1,309 301 -- 11,712
Investment portfolio 26,512 21,615 24,161 31,398 25,948 -- 129,634
-------- -------- -------- ------- -------- -------- --------
Total 169,614 85,138 61,817 61,281 40,127 405 418,382
-------- -------- -------- ------- -------- -------- --------
Interest-bearing liabilities:
Savings deposits 120,169 41,796 91,661 -- -- -- 253,626
FHLB advances and other 70,150 42,600 -- -- -- -- 112,750
-------- -------- -------- ------- -------- -------- --------
Total 190,319 84,396 91,661 -- -- -- 366,376
-------- -------- -------- ------- -------- -------- --------
Excess (Deficiency) of earning
assets over (to) interest-bearing
liabilities $(20,705) $ 742 $(29,844) $61,281 $ 40,127 $ 405 $ 52,006
======== ======== ======== ======= ======== ======== ========
Cumulative interest rate
sensitivity gap $(20,705) $(19,963) $(49,807) $11,474 $ 51,601 $ 52,006
======== ======== ======== ======= ======== ========
Cumulative rate sensitivity
gap as percentage of assets
as of September 30, 1994 -4.83% -4.66% -11.62% 2.68% 12.04% 12.14%
</TABLE>
RESULTS OF OPERATIONS (SECOND QUARTER COMPARISON)
FINANCIAL CONDITION. During the six months ended March 31, 1995,
total assets increased by $23.1 million, from $428.5 million at September 30,
1994 to $451.6 million at March 31, 1995. Mortgage-backed securities
declined $3.1 million from $52.3 million at September 30, 1994 to $49.2
million at March 31, 1995. Investments, including CMOs, declined $2.3
million from $125.6 million at September 30, 1994 to $123.3 million at
March 31, 1995. The decline in mortgage-backed securities and CMOs was due
to payments on existing holdings and the lack of purchase activity in
mortgage-related securities reflecting the decision to reduce mortgage-
related investments in connection with the announced business combination of
Plains Spirit and MBI. Loans receivable and real estate loans held for sale
increased $23.3 million during the period to $259.1 million from $235.8
million. The increase was due to an excess of loans closed and held in
portfolio over loan repayments.
- 89 -
<PAGE> 96
Savings deposits increased $17.8 million from the September 30,
1994 total of $253.6 million to $271.4 million at March 31, 1995, due in part
to increases in general market interest rates and the movement of bank
industry deposits into certificates of deposit. The increase in deposits
also reflects First Federal's purchase of an 1,800 loan package of mortgage
servicing rights, which created substantial increases in custodial account
balances for both escrow and principal and interest. Balances of custodial
accounts held for Federal National Mortgage Association increased from
$292,000 at September 30, 1994 to $2.5 million at March 31, 1995 as a result
of the purchase.
Advances from the FHLB Des Moines increased $1.2 million from the
September 30, 1994 total of $112.8 million to $114.0 million at March 31,
1995. These funds are being utilized to maintain OTS liquidity requirements
and are being invested consistently with First Federal's asset/liability
management policy.
Stockholders' equity increased 6%, or $3.2 million, from the
September 30, 1994 total of $53.2 million to $56.4 million at March 31, 1995.
The increase in stockholders' equity primarily reflects year-to-date net
earnings of $2.2 million and a decrease in the adjustment for net unrealized
holding loss on available-for-sale securities of $878,000. Plains Spirit
paid a quarterly dividend of $0.14 per share on December 31, 1994, and a
quarterly dividend of $0.14 per share on March 31, 1995.
As of March 31, 1995, First Federal's liquidity, as defined by OTS
regulations, totaled $21.2 million, compared to a required amount of $18.0
million. Also as of March 31, 1995, First Federal had commitments to fund
loans and home equity lines of credit of $5.8 million and $1.3 million,
respectively. At March 31, 1995, First Federal had outstanding commitments
of $1.5 million to sell loans and $3.1 million to purchase loans, but did not
have any commitments outstanding to purchase investment securities.
First Federal exceeded all of the current OTS capital requirements
at March 31, 1995. Actual capital ratios were: Tangible Capital 9.16%
(1.50% required), Core Capital 9.16% (3.00% required) and Risk-based Capital
21.27% (8.00% required).
As a federal savings bank, First Federal's deposits are insured up
to the maximum amount provided by applicable laws and regulations by the SAIF
which is administered and managed by the FDIC. Under the FDIC risk-based
assessments system for deposit insurance premiums, First Federal has been
assigned a classification group of 1A, which results in an annual deposit
insurance premium of 0.23% assessed semi-annually.
RESULTS OF OPERATIONS. Plains Spirit recorded net income for the
three months ended March 31, 1995 of $1.1 million, or $0.56 per share,
compared to $867,000, or $0.42 per share for the three months ended March 31,
1994. The increase of $249,000 was due to a number of factors including,
larger average balances of interest-earning assets and lower non-interest
expense. For the six months ended March 31, 1995, net income totaled $2.2
million, or $1.12 per share. This was a decrease of $37,000 from the $2.3
million recorded for the six months ended March 31, 1994. The slight
decrease in earnings was due to a substantial decrease in non-interest income
of $1.1 million almost totally offset by an increase in net interest income
of $674,000 and a decrease in non-interest expense of $370,000, as more fully
described below.
Interest Income and Expense. Interest income for the three months
---------------------------
ended March 31, 1995 totaled $7.9 million, an increase of approximately $2.4
million from the same period in 1994. The increase in average yield on
interest-earning assets of 59 basis points, in combination with greater
average balances outstanding caused an increase in interest revenues.
Interest income for the six months ended
- 90 -
<PAGE> 97
March 31, 1995 was $15.5 million, an increase of $4.3 million from the
six months ended March 31, 1994. The increase in earnings was caused
by a rise in average yield on interest earning assets of 37 basis
points in combination with an increase in average balances outstanding
of $104.4 million. With the higher interest rates now prevailing,
loan prepayments have declined and average balances for both real
estate and consumer loans have increased.
Interest expense for the three months ended March 31, 1995 and 1994
was $4.6 million and $2.6 million, respectively. The increase in expense was
caused by a rise in the average interest rate paid on interest-bearing
liabilities of 111 basis points in combination with increased average
balances outstanding for the three months ended March 31, 1995 compared to
1994. The increased average balance in interest-bearing liabilities was
primarily due to Federal Home Loan Bank advances acquired to meet OTS
liquidity requirements at March 31, 1995. Interest expense for the six month
periods ended March 31, 1995 and 1994 was $8.9 and $5.2 million,
respectively.
Net Interest Income. The increase in interest rates earned, in
-------------------
combination with an increase in the average amount of interest-earning
assets, less interest-rates paid as shown in the tables below, resulted in
higher net interest income for the three months ended March 31, 1995 as
compared to the three months ended March 31, 1994. For the six months ended
March 31, 1995, net interest income increased to $6.6 million from the $5.9
million earned in the six months ended March 31, 1994. The increase for the
six months related to similar changes in interest yields earned and average
balances maintained.
The following table sets forth interest income from average
interest-earning assets, expressed in dollars and average yields, and
interest expense on average interest-bearing liabilities, expressed in
dollars and average rates. Interest income from loans includes the accretion
of net deferred loan origination and commitment fees and unearned discounts.
Interest income from investment and mortgage-related securities includes the
accretion/amortization of unearned discounts/premiums. All balances include
non-accruing loans.
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31
--------------------------------------------------------------
1995 1994
----------------------------- -----------------------------
(dollars in thousands)
Average Average
Balance Interest Yield/Rate Balance Interest Yield/Rate
------- -------- ---------- ------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Real estate loans . . . . . . . . . . . . $ 242,451 $ 4,769 7.87% $199,135 $ 3,834 7.70%
Consumer loans . . . . . . . . . . . . . 12,220 303 9.92 10,472 264 10.08
--------- -------- ---- -------- ------- -----
Total Loans . . . . . . . . . . . . . . 254,671 5,072 7.97 209,607 4,098 7.82
Mortgage-backed securities. . . . . . . . 50,521 713 5.65 42,715 469 4.39
Investment securities . . . . . . . . . . 126,616 2,073 6.55 75,115 933 4.97
Other interest-earning assets . . . . . . 1,248 18 5.77 2,855 23 3.22
--------- -------- ---- -------- ------- -----
Total interest-earning assets . . . . . 433,056 7,876 7.28 330,292 5,523 6.69
========= ======== ==== ======== ======= =====
Interest-bearing liabilities
Savings deposits . . . . . . . . . . . . 270,745 2,957 4.37 248,348 2,287 3.68
FHLB advances . . . . . . . . . . . . . . 109,268 1,651 6.04 28,839 304 4.22
--------- -------- ---- -------- ------- -----
Total interest-bearing liabilities . . $ 380,013 $ 4,608 4.85% $277,187 $ 2,591 3.74%
========= ======== ==== ======== ======= =====
Net interest income . . . . . . . . . . . . 3,268 2,932
======== =======
Interest rate spread . . . . . . . . . . . 2.43% 2.95%
==== ====
Net interest margin . . . . . . . . . . . . 3.02% 3.55%
==== ====
</TABLE>
- 91 -
<PAGE> 98
<TABLE>
<CAPTION>
SIX MONTHS ENDED MARCH 31
--------------------------------------------------------------
1995 1994
----------------------------- -----------------------------
(dollars in thousands)
Average Average
Balance Interest Yield/Rate Balance Interest Yield/Rate
------- -------- ---------- ------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Real estate loans . . . . . . . . . . . . $ 237,180 $ 9,304 7.85% $200,672 $ 8,057 8.03%
Consumer loans . . . . . . . . . . . . . 12,097 602 9.95 10,519 539 10.25
--------- -------- ---- -------- ------- -----
Total Loans . . . . . . . . . . . . . . 249,277 9,906 7.95 211,191 8,596 8.14
Mortgage-backed securities. . . . . . . . 51,377 1,411 5.49 40,250 887 4.41
Investment securities . . . . . . . . . . 127,682 4,181 6.55 69,124 1,599 4.63
Other interest-earning assets . . . . . . 1,201 33 5.50 4,604 69 3.00
--------- -------- ---- -------- ------- -----
Total interest-earning assets . . . . . 429,537 15,531 7.23 325,169 11,151 6.86
========= ======== ==== ======== ======= =====
Interest-bearing liabilities
Savings deposits . . . . . . . . . . . . 265,488 5,658 4.26 248,726 4,688 3.77
FHLB advances . . . . . . . . . . . . . . 111,496 3,274 5.87 23,992 538 4.48
--------- -------- ---- -------- ------- -----
Total interest-bearing liabilities . . $ 376,984 $ 8,932 4.74% $272,718 $ 5,226 3.83%
========= ======== ==== ======== ======= =====
Net interest income . . . . . . . . . . . . 6,599 5,925
======== =======
Interest rate spread . . . . . . . . . . . 2.49% 3.03%
==== ====
Net interest margin . . . . . . . . . . . . 3.07% 3.64%
==== ====
</TABLE>
The following table represents the dollar amount of changes in
interest income and interest expense for major components of interest-earning
assets and interest-bearing liabilities. The table distinguishes between the
changes related to average outstanding balances (changes in volume while
holding the initial rate constant) and the changes related to average
interest rates (changes in average rates while holding the initial balance
constant). Changes due to both volume and rates have been allocated
proportionally.
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31
----------------------------------------
1995 Versus 1994
Increase (Decrease) due to:
---------------------------
Volume Rate Total
------ ---- -----
(dollars in thousands)
<S> <C> <C> <C>
Loans receivable . . . . . . . . . . . . . . . . . $ 713 $ 261 $ 974
Mortgage-backed securities . . . . . . . . . . . . 102 142 244
Investment securities. . . . . . . . . . . . . . . 1,056 84 1,140
Other interest-earning assets. . . . . . . . . . . (67) 62 (5)
------- -------- --------
Total interest-earning assets . . . . . . . . $ 1,804 $ 549 $ 2,353
======= ======== ========
Interest-bearing liabilities:
Savings deposits. . . . . . . . . . . . . . . . $ 195 $ 475 $ 670
FHLB advances and other borrowings. . . . . . . 1,042 305 1,347
------- -------- --------
Total interest-bearing liabilities. . . . . . 1,237 780 2,017
------- -------- --------
Net interest income . . . . . . . . . . . . . $ 567 $ (231) $ 336
======= ======== ========
</TABLE>
- 92 -
<PAGE> 99
<TABLE>
<CAPTION>
SIX MONTHS ENDED MARCH 31
----------------------------------------
1995 Versus 1994
Increase (Decrease) due to:
---------------------------
Volume Rate Total
------ ---- -----
(dollars in thousands)
<S> <C> <C> <C>
Loans receivable . . . . . . . . . . . . . . . . . $ 912 $ 398 $ 1,310
Mortgage-backed securities . . . . . . . . . . . . 272 252 524
Investment securities. . . . . . . . . . . . . . . 2,426 156 2,582
Other interest-earning assets. . . . . . . . . . . (140) 104 (36)
------- -------- --------
Total interest-earning assets . . . . . . . . $ 3,470 $ 910 $ 4,380
======= ======== ========
Interest-bearing liabilities:
Savings deposits. . . . . . . . . . . . . . . . $ 228 $ 742 $ 970
FHLB advances and other borrowings. . . . . . . 2,388 348 2,736
------- -------- --------
Total interest-bearing liabilities. . . . . . 2,616 1,090 3,706
------- -------- --------
Net interest income . . . . . . . . . . . . . $ 854 $ (180) $ 674
======= ======== ========
</TABLE>
Provision for Loan Losses. During the six months ended March 31,
-------------------------
1995, First Federal added $120,000 additional provisions for loan losses to
its general valuation allowance compared to additions of $80,000 during the
six months ended March 31, 1994. For the three months ended March 31, 1995
and 1994, First Federal's provision for loan losses totaled $60,000 and
$40,000, respectively. At March 31, 1995, total allowances for loan and real
estate losses was $2.0 million, an increase of $98,000 from September 30,
1994. First Federal's gross non-performing assets represented 0.65% of total
assets at March 31, 1995, compared to 0.73% at September 30, 1994.
Non-Interest Income. Total non-interest income was $555,000 and
-------------------
$679,000 for the three months ended March 31, 1995 and 1994, respectively.
Loan fees and service charges decreased $119,000 to $159,000 for the three
months ended March 31, 1995 compared to $278,000 for the three months ended
March 31, 1994. The decrease was attributable to total loan closings of
$26.0 million during the three months ended March 31, 1995 versus $35.6
million during the three months ended March 31, 1994. Servicing fees for
loans sold with the servicing retained increased to $158,000 from $122,000
during the three months ended March 31, 1995 and 1994, respectively. The
increase related to the significant increase of $160.4 million in the loans
serviced for others from $185.8 million at March 31, 1994 to $346.2 million
at March 31, 1995. During the second quarter of fiscal 1995, First Federal
purchased a package of mortgage servicing rights from Midland Financial
Corporation representing $138.2 million of the increase.
For the six months ended March 31, 1995, total non-interest income
was $1.1 million versus $2.2 million for the six months ended March 31, 1994.
Loan fees and charges totaled $372,000, a decrease of 55% from the $820,000
recorded during the six months ended March 31, 1994. During the six months
ended March 31, 1995, real estate loans closed totaled $56.6 million, a
decrease of 48% from the $108.0 million of real estate loan closings during
the six months ended March 31, 1994. Servicing fees increased from $230,000
to $307,000 for the six months ended March 31, 1994 and 1995, respectively,
reflecting the continued growth in the servicing portfolio.
Other fees and charges totaled $94,000 for the three months ended
March 31, 1995 versus $92,000 for the three months ended March 31, 1994. For
the six months ended March 31, 1995 and 1994 total other fees and charges
were $190,000 and $172,000. Increased fees for certain bank services was
responsible for the increased revenue. On an ongoing basis, First Federal
reviews its fee structure to ensure competitiveness as well as providing
additional earnings.
- 93 -
<PAGE> 100
Gain on sale of interest-earning assets between the three months
ended March 31, 1995 and March 31, 1994 decreased significantly from $126,000
to $39,000. The substantial decrease is attributable to a decrease in sales
of mortgage loans from $22.9 million in the three months ended March 31, 1994
to $3.8 million for the same period in 1995.
During the six months ended March 31, 1995, total gain on sale of
interest earnings assets was $34,000 versus $780,000 during the similar
period one year ago. Sales of loans into the secondary market totaled $11.0
million during the 1995 period and $79.1 million during the comparable period
one year ago.
Real estate operations, net, decreased to an expense of $1,000 for
the three months ended March 31, 1995 versus revenue of $2,000 for the three
months ended March 31, 1994. For the six months ended March 31, 1995, real
estate operations, net, totaled an expense of $8,000 versus revenue of $6,000
for the six months ended March 31, 1994. The net expense of this activity
reflects loan charge-offs and real estate disposition losses.
Other income increased from $59,000 to $106,000 for the three
months ended March 31, 1994 and 1995, respectively. For the six months ended
March 31, 1995, other income totaled $212,000, an increase of $48,000 from
the amount recorded during the six months ended March 31, 1994 reflecting
increased earnings in First Federal's subsidiary, S&L Service Corporation.
Non-Interest Expense. Compensation and benefits totaled $1.2
--------------------
million for the three months ended March 31, 1995 versus $1.3 million for the
three months ended March 31, 1994. For the six months ended March 31, 1995,
compensation and benefits totaled $2.4 million, a decrease of $186,000 over
the $2.6 million recorded during the six months ended March 31, 1994. A
decline in outside commissions paid on mortgage originations and expenses
related to the exercise of stock options was responsible for the decrease.
Occupancy expense decreased $12,000 to $143,000 as compared to
$155,000 for the three months ended March 31, 1995 and 1994, respectively.
For the six months ended March 31, 1995 and 1994, occupancy expense totaled
$282,000 and $304,000. Lower costs for utilities and repairs resulted in the
$22,000 year over year change. The expense for furniture, equipment and data
processing increased for both the three months and six months ended March 31,
1995 versus 1994. For the six months, expenses in this category were $34,000
higher year over year.
Federal insurance increased to $160,000 for the three months ended
March 31, 1995 from $151,000 for the three months ended March 31, 1994. For
the six months ended March 31, 1995 and 1994, Federal insurance premiums
totaled $312,000 and $304,000, respectively. The increase was due to larger
deposit levels at First Federal.
Loan expense decreased to $58,000 from $132,000 for the three
months ended March 31, 1995 versus the three months ended March 31, 1994.
For the six months ended March 31, 1995 and 1994, other loan expenses totaled
$132,000 and $319,000, respectively. The frequent use of third party service
providers during fiscal 1994 resulted in the substantial changes.
Other expense decreased from $302,000 for the three months ended
March 31, 1994 to $291,000 for the same three months in 1995. For the six
months ended March 31, 1995 and 1994, other expenses totaled $628,000 and
$645,000, respectively. The decreases were due primarily to lower
advertising, telephone and NOW program administration expenses.
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<PAGE> 101
Provision for Income Taxes. The $387,000 increase in income before
--------------------------
income taxes for the three months ended March 31, 1995 compared to the three
months ended March 31, 1994, resulted in higher tax provisions being
recorded. For the six months ended March 31, 1995 provision for income taxes
totaled $1.1 million, remaining steady with the six months ended March 31,
1994 and reflecting consistent pretax income results.
ASSET QUALITY. First Federal's lending operations emphasize first
mortgages on single-family homes which historically have resulted in a low
exposure to credit losses. First Federal's management believes that it has
established prudent general allowances for losses based on its internal
review of assets and the overall high quality of the asset portfolio.
The following table sets forth information concerning the
nonperforming assets of First Federal at the dates indicated.
<TABLE>
March 31, 1995 September 30, 1994
-------------- ------------------
(dollars in thousands)
<S> <C> <C>
Nonaccrual loans:
Real estate loans. . . . . . . . . . . . $ 2,904 $ 3,019
Consumer . . . . . . . . . . . . . . . . 52 99
-------- --------
Total gross nonaccrual loans . . . . . 2,956 3,118
Foreclosed assets:
Real estate acquired . . . . . . . . . . -- --
Consumer . . . . . . . . . . . . . . . . -- --
-------- --------
Total real estate and other. . . . . . -- --
-------- --------
Total gross nonperforming
assets. . . . . . . . . . . . . . . . 2,956 3,118
Less allowances for losses . . . . . . . . . 2,001 1,903
-------- --------
Total net nonperforming
assets . . . . . . . . . . . . . . . . 955 1,215
Restructured loans . . . . . . . . . . . . . 1,091 1,134
-------- --------
Total net nonperforming assets
and restructured loans. . . . . . . . . $ 2,046 $ 2,349
======== ========
Ratio of gross nonperforming assets
to total assets . . . . . . . . . . . . . . 0.65% 0.73%
Ratio of gross nonperforming assets to total
loans and REO. . . . . . . . . . . . . . . . 1.14 1.32
Allowance coverage of gross
nonperforming assets. . . . . . . . . . . . 67.69 61.03
Ratio of net nonperforming assets
and restructured loans to
total assets. . . . . . . . . . . . . . . . 0.45 0.55
</TABLE>
Previously, First Federal reported and discussed a nonperforming
loan to a partnership secured by three mobile home parks located in the Quad
Cities area with a loan balance of approximately $2.5 million. This
partnership continues in the process of bankruptcy proceedings. Although
First Federal cannot guarantee no loss will occur on this loan, management
believes that, based on available information, First Federal's general
reserves are adequate to absorb any loss, thereby not significantly impacting
future earnings.
LEGAL PROCEEDINGS
Although Plains Spirit and its subsidiaries are, from time to time,
involved in various legal proceedings in the normal course of business,
there are no material legal proceedings to which Plains Spirit, First
Federal or its subsidiaries is a party, or to which any of their
properties is subject.
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<PAGE> 102
COMPETITION
Based on total assets at September 30, 1994, First Federal is the
second largest savings institution headquartered in the State of Iowa.
First Federal faces substantial competition both in attracting deposits
and making real estate and other loans. Its most direct competition for
deposits has historically come from other savings institutions, commercial
banks and credit unions. Money market funds and full-service securities
brokerage firms also provide competition in this area. First Federal's
competition for loans comes principally from other savings institutions,
commercial banks, mortgage banking companies, credit unions and other
institutional lenders.
The primary factors in competing for loans are the efficiency and
quality of services provided to borrowers and real estate brokers and
the interest rates and loan fees charged. First Federal competes for
deposits by offering a variety of accounts at competitive rates through
its branch locations.
First Federal believes that its ability to continue to compete
effectively would be affected by increased competition from other
financial institutions for deposits and loans, including institutions
located outside the State of Iowa.
FIRREA restricts certain activities of savings institutions,
particularly in the lending and investment areas as well as in deposit-
gathering activities, in ways that could be viewed as restrictive on a
savings institution's competitive posture. FIRREA has also increased
the competition facing First Federal in several other ways. This
legislation has, for the first time, authorized bank holding companies
to acquire healthy savings institutions, subject to applicable standards
for regulatory approval. In addition, savings institutions and savings
and loan holding companies have authority to acquire ownership of
commercial banks, subject to regulatory approval, and FIRREA also
permits federal savings institutions to convert to the status of
national banks. The general effect of these structural changes can be
expected to increase competition for loans and deposits among adequately
capitalized savings institutions and commercial banks. However, First
Federal does not consider that the overall impact of FIRREA in these
areas is materially adverse to its competitive situation.
PERSONNEL
At September 30, 1994, Plains Spirit and its subsidiaries had 107
full-time and 22 part-time employees (118 full-time equivalents). The
employees are not represented by a collective bargaining unit. Plains
Spirit and its subsidiaries provide their employees with a comprehensive
program of benefits, some of which are on a contributory basis,
including comprehensive medical plans, life insurance, disability
insurance and a shared-contribution savings investment plan. Plains
Spirit and its subsidiaries consider their employee relations to be
excellent.
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<PAGE> 103
<TABLE>
PROPERTIES
The following table sets forth information regarding First Federal's
offices. The full service branch on Elmore Avenue, Davenport and the
loan production office are leased facilities. All other facilities are
owned by First Federal.
<CAPTION> NET BOOK VALUE AT
LOCATION DATE ACQUIRED SEPTEMBER 30, 1994
-------- ------------- ------------------
<S> <C> <C>
Main Office
131 West Third Street 1965 $2,158,000
Davenport, IA
Full Service Branch Offices:
---------------------------
4004 Northwest Boulevard 1968 274,000
Davenport, IA
2002 Spruce Hills Drive 1971 187,000
Bettendorf, IA
1800 Park Avenue 1988 558,000
Muscatine, IA
3680 Elmore Avenue 1993 149,000
Davenport, IA
Loan Production Office:
----------------------
4102 Blackhawk Road 1993 3,000
Rock Island, IL
</TABLE>
First Federal is also the owner of property at 53rd Street and Jersey
Ridge Road in Davenport, with a net book value of $156,000 at September
30, 1994.
First Federal's accounting, depositor and borrower customer
information and activities are maintained on an on-line basis with an
independent service bureau. The net book value of the data processing
and computer equipment utilized by First Federal as of September 30,
1994 was approximately $310,000.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
<TABLE>
The following table sets forth as of June 1, 1995 the number of
shares of Plains Spirit Common Stock beneficially owned and the
percentage of ownership of outstanding shares of Plains Spirit Common
Stock by (a) each director and certain executive officers of Plains
Spirit, (b) each person who is known by Plains Spirit to own
beneficially 5% or more of such stock and (c) all directors and
executive officers of Plains Spirit as a group:
- 97 -
<PAGE> 104
<CAPTION>
Shares Percent
Beneficially of
Name Owned Class
------------------------------------- ------------ -------
<S> <C> <C>
Peter B. Cannell & Co., Inc. 168,200<F1> 8.88
919 Third Avenue
New York, New York 10022
John C. Shenk, Jr. 10,629<F2> 0.56
Chairman of the Board
William L. Wilke 39,960<F2><F3> 2.10
President, Chief Executive Officer
and Director
Thomas G. Getz 27,726<F2><F4> 1.45
Vice Chairman of the Board
Thomas W. Priester 8,943<F2><F5> 0.47
Secretary and Director
J. Hobart Darbyshire 7,094<F2><F5> 0.37
Director
C. David Dick, O.D. 10,019<F2><F5> 0.53
Director
Thomas J. Lundeen 13,713<F2><F6> 0.72
Director
Mark J. Hoffschneider 24,637<F2><F7> 1.29
Senior Vice President, Lending<F6>
James D. Van Hyfte 24,971<F2><F8> 1.31
Senior Vice President, Operations<F7>
Donald J. Brewer 22,770<F2><F9> 1.19
Treasurer
All executive officers and directors 205,370<F10> 10.76
as a group (ten persons)
<FN>
- ------------------------------
<F1> As reported by Peter B. Cannell & Co., Inc. ("Cannell"), a
registered investment advisor, in its Schedule 13G for the year
ended December 31, 1994. Cannell reported sole voting and
dispositive power as to 168,200 shares and shared voting and
dispositive power as to no shares.
<F2> Includes shares held directly, including restricted shares, held in
retirement accounts, held by certain family members or held by
trusts of which the director or officer is a trustee or substantial
beneficiary, over which shares the respective directors or officers
may be deemed to have sole or shared voting or investment power.
<F3> Includes 10,400 shares which Mr. Wilke has the right to purchase
pursuant to stock options exercisable within 60 days.
<F4> Includes 1,242 shares which Mr. Getz has the right to purchase
pursuant to stock options exercisable within 60 days.
<F5> Includes 3,726 shares which the director has the right to purchase
pursuant to stock options exercisable within 60 days.
<F6> Includes 2,484 shares which Mr. Lundeen has the right to purchase
pursuant to stock options exercisable within 60 days.
<F7> Includes 8,920 shares which Mr. Hoffschneider has the right to
purchase pursuant to stock options exercisable within 60 days. Mr.
Hoffschneider is an officer of First Federal.
<F8> Includes 12,420 shares which Mr. Van Hyfte has the right to purchase
pursuant to stock options exercisable within 60 days. Mr. Van Hyfte
is an officer of First Federal.
<F9> Includes 11,670 shares which Mr. Brewer has the right to purchase
pursuant to stock options exercisable within 60 days.
<F10> Includes shares held directly, including restricted shares, held in
retirement accounts, held by certain family members or held by
trusts of which the director or officer is a trustee or substantial
beneficiary, over which shares the respective directors or officers
may be deemed to have sole or shared voting or investment power.
Also includes 58,314 shares which all directors and executive
officers as a group have the right to purchase pursuant to stock
options exercisable within 60 days.
</TABLE>
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<PAGE> 105
INFORMATION REGARDING MBI STOCK
-------------------------------
DESCRIPTION OF MBI COMMON STOCK AND ATTACHED PREFERRED SHARE PURCHASE RIGHTS
GENERAL. MBI has authorized 5,000,000 shares of MBI Preferred Stock,
no par value, and 100,000,000 shares of MBI Common Stock, $5.00 par
value. At March 31, 1995, on a restated basis, MBI had 14,806 shares
of MBI Preferred Stock issued and outstanding and 52,749,516 shares of MBI
Common Stock outstanding. Under Missouri law, MBI's Board of Directors
may generally approve the issuance of authorized shares of Preferred Stock
and Common Stock without shareholder 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 MBI Preferred
Stock. Except for the designation and reservation of Series A Junior
Participating Preferred Stock pursuant to MBI's Preferred Share Purchase
Rights Plan described below and, in connection with the acquisition of TCB on
May 1, 1995, the designation and issuance of (i) 5,306 shares of Series B-1
Preferred Stock and (ii) 9,500 shares of Series B-2 Preferred Stock, MBI's
Board of Directors has not acted to designate or issue any shares of MBI
Preferred Stock.
The existence of a substantial number of unissued and unreserved
shares of MBI Common Stock and undesignated shares of MBI Preferred
Stock may enable the Board of Directors to issue shares to such persons
and in such manner as may be deemed to have an anti-takeover effect.
DIVIDENDS. The holders of MBI Common Stock are entitled to share
ratably in dividends when, as and if declared by the 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 MBI Preferred Stock ranking superior as to
dividends to MBI Common Stock.
The Board of Directors of MBI intends to maintain its present policy
of paying quarterly cash dividends on 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 shareholders,
except that, in the election of directors, each shareholder has cumulative
voting rights which entitle each such shareholder to the number of votes
which equals the number of shares held by the shareholder multiplied by the
number of directors to be elected. All such 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 shareholders after the
satisfaction of its
- 99 -
<PAGE> 106
liabilities (or after adequate provision is made therefor) and after
preferences on any outstanding MBI Preferred Stock.
ASSESSMENT AND REDEMPTION. Shares of MBI Common Stock are and will
be, when issued, fully paid and nonassessable. Such shares do not have
any redemption provisions.
PREFERRED SHARE PURCHASE RIGHTS PLAN. One preferred share purchase
right (a "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
tenth day after public announcement 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 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 the Board. When exercisable, each Right will entitle
the holder to buy 1/100 of a share of MBI 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 shareholders
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 shareholders 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 shareholders.
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 shareholders 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 shares of
outstanding capital stock 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 approves 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 approves such
an amendment, alteration, change or repeal. Such provisions may be deemed
to have an anti-takeover effect.
- 100 -
<PAGE> 107
RESTRICTIONS ON RESALE OF MBI STOCK BY AFFILIATES
Under Rule 145 of the Securities Act, certain persons who receive
MBI Common Stock pursuant to the Merger and who are deemed to be
"affiliates" of Plains Spirit will be limited in their right to resell
the stock so received. The term "affiliate" is defined to include any
person who, directly or indirectly, controls, or is controlled by,
or is under common control with Plains Spirit at the time the Merger
is submitted to a vote of the shareholders of Plains Spirit. Each
affiliate of Plains Spirit (generally each director or executive
officer of Plains Spirit and each stockholder who beneficially owns a
substantial number of outstanding shares of Plains Spirit Common Stock)
who desires to resell the MBI Common Stock received in the Merger must
sell such stock either pursuant to an effective Registration Statement
or in accordance with an applicable exemption, such as the applicable
provisions of Rule 145(d) under the Securities Act.
Rule 145(d) provides that persons deemed to be affiliates may resell
their stock received in the Merger 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 Plains
Spirit may freely resell the stock received in the Merger without
limitation. After three years from the issuance of the stock, if such
person is 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
Plains Spirit 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 PLAINS SPIRIT
MBI is incorporated under the laws of the State of Missouri. Plains
Spirit is organized under the laws of the State of Delaware. The rights
of MBI's shareholders are governed by MBI's Restated Articles of
Incorporation and By-Laws and the Missouri Act. The rights of Plains
Spirit's stockholders are governed by Plains Spirit's Certificate of
Incorporation and By-Laws and by the Delaware Corporation Law. The
rights of Plains Spirit stockholders 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 stockholders, and, where applicable, the
differences between the rights of MBI shareholders and Plains Spirit
stockholders, are summarized below. The summary is qualified in its
entirety by reference to the Missouri Act, the Delaware Corporation Law,
the Restated Articles of Incorporation and the By-Laws of MBI and the
Certificate of Incorporation and By-laws of Plains Spirit.
PREFERRED SHARE PURCHASE RIGHTS PLAN. As described above under "-
Preferred Share Purchase Rights Plan," MBI Common Stock has attached
Rights, which may deter certain takeover proposals. Plains Spirit 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 shareholders of MBI to approve certain proposals. Under both MBI's
Restated Articles and By-Laws, removal by the shareholders 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 shareholders called for the election
of directors. Amendment by the shareholders 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 shares of capital stock entitled to vote, voting together as
a single class, unless such amendment has previously been expressly
approved by at least two-thirds of the Board of Directors. The Restated
Articles of MBI additionally provide that, in addition to any shareholder
vote required under the Missouri Act, 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
- 101 -
<PAGE> 108
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 (as defined in MBI's Restated Articles) on the other hand.
If, however, at least two-thirds of the Board of Directors of MBI
approve the Business Combination, such Business Combination shall
require only the vote of shareholders 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 two-
thirds of the Board of Directors.
To the extent that a potential acquiror's strategy depends on the
passage of proposals which require a supermajority vote of MBI's
shareholders, such provisions requiring a supermajority vote may have
the effect of discouraging takeover attempts that do not have Board
approval by making passage of such proposals more difficult. Plains
Spirit's Certificate of Incorporation includes provisions requiring a
supermajority vote of stockholders with respect to certain items, as
follows: the affirmative vote of 80% of the total outstanding shares of
Plains Spirit Common Stock is required to (i) amend or repeal certain
provisions of the Certificate of Incorporation of Plains Spirit relating
to (A) amendments of such certificate, (B) Plains Spirit's internal
affairs, (C) the structure of the board of directors, (D) amendments of
Plains Spirit's By-Laws, (E) the approval of certain business
combinations, (F) the approval of certain "greenmail" transactions and
(G) indemnification of directors; (ii) authorize, adopt or approve
certain actions, including the removal of directors (but only for
cause); (iii) adopt, amend or repeal any provision of the By-Laws of
Plains Spirit; and (iv) to adopt certain business combination or
"greenmail" transactions.
The business combinations which require an affirmative vote of 80% of
the outstanding shares of Plains Spirit Common Stock include the
following:
(i) any merger of consolidation of Plains Spirit or any
subsidiary with an "Interested Stockholder" or an "Affiliate" of an
Interested Stockholder (each as defined in Plains Spirit's
Certificate of Incorporation);
(ii) any sale, lease, exchange, mortgage, pledge, transfer or
other disposition to or with an Interested Stockholder or any
Affiliate of an Interested Stockholder of any assets of Plains Spirit
or any subsidiary having an aggregate fair market value equal to or
in excess of 25% or more of the combined assets of Plains Spirit and
its subsidiaries;
(iii) the issuance or transfer by Plains Spirit or any
subsidiary of any securities of Plains Spirit or any subsidiary to
any Interested Stockholder or any Affiliate of an Interested
Stockholder in exchange for cash, securities or other property having
an aggregate fair market value equal to or in excess of 25% or more
of the combined assets of Plains Spirit and its subsidiaries;
(iv) the adoption of any plan or proposal for the liquidation
or dissolution of Plains Spirit proposed by or on behalf of any
Interested Stockholder or any Affiliate of an Interested Stockholder;
or
- 102 -
<PAGE> 109
(v) any reclassification of securities, or recapitalization
of Plains Spirit, or any merger or consolidation of Plains Spirit with any
of its subsidiaries or any other transaction which has the effect of
increasing the proportionate share of the outstanding shares of any class
of equity or convertible securities of Plains Spirit or any subsidiary
which is directly or indirectly owned by any Interested Stockholder or any
Affiliate of an Interested Stockholder.
Such provisions are inapplicable if (i) with respect to a business
combination that does not involve any cash or other consideration being
received by the stockholders of Plains Spirit solely in their capacity
as stockholders of Plains Spirit, such business combination shall have
been approved by a majority of the disinterested directors of Plains
Spirit, or (ii) in the case of any other business combination (A) such
business combination shall have been approved by a majority of the
disinterested directors of Plains Spirit and (B) certain fair price
conditions set forth in Plains Spirit's Certificate of Incorporation are
met.
The "anti-greenmail" provisions of Plains Spirit's Certificate of
Incorporation require the approval of the holders of at least 80% of the
outstanding shares of Plains Spirit Common Stock not owned by an
Interested Person (as defined in Plains Spirit's Certificate of
Incorporation) for any direct or indirect purchase or other acquisition
of Plains Spirit Common Stock by Plains Spirit from such Interested
Person. Such provisions, however, are inapplicable to (i) self tender
offers, (ii) purchases pursuant to an open market repurchase program
approved by the disinterested members of the board of directors and
(iii) purchases approved by a majority of the board of directors,
including a majority of the disinterested directors, and made at a price
at or below the current market price per share of Plains Spirit Common
Stock.
VOTING FOR DIRECTORS. MBI's By-Laws provide for cumulative voting in
the election of directors. Cumulative voting entitles each shareholder
to cast an aggregate number of votes equal to the number of voting
shares held, multiplied by the number of directors to be elected. Each
shareholder may cast all 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. Plains Spirit's Articles of Incorporation and By-Laws
do not provide for cumulative voting. In contrast to cumulative voting,
under non-cumulative voting, holders of a majority of outstanding shares
of voting stock may elect the entire Board of Directors, thereby
precluding the election of any directors by the holders of less than a
majority of the outstanding shares of voting stock.
CLASSIFIED BOARD. As described under "- 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 diminishes the benefits of the
cumulative voting rights to minority shareholders. Plains Spirit also
has a classified Board of Directors with three classes of directors.
ACTION BY SHAREHOLDERS OR STOCKHOLDERS WITHOUT A MEETING. Under the
Missouri Act and the Delaware Corporation Law, written action of
stockholders is permitted unless the Articles or Certificate of
Incorporation or By-Laws of the corporation provide otherwise. MBI's
By-Laws provide that any action required to be taken at a meeting of the
shareholders, or any action which may be taken without a meeting if a
consent in writing, setting forth the action so taken, shall be signed
by all of the shareholders. Plains Spirit's Certificate of
Incorporation provides that Plains Spirit stockholders may take action
only at an annual or a special meeting of stockholders, and not by
written consent.
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ANTI-TAKEOVER STATUTES. The Missouri Act contains certain provisions
applicable to Missouri corporations such as MBI and Plains Spirit which
may be deemed to have an anti-takeover effect. Such provisions include
Missouri's business combination statute and the control share
acquisition statute.
The Missouri business combination statute protects domestic
corporations after hostile takeovers by prohibiting certain transactions
once an acquiror has gained control. 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,
pledges and similar dispositions of corporate assets or stock and
certain reclassifications and recapitalizations. 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. Business
Combinations may occur during such five-year period if: (i) prior to the
stock acquisition by the Interested Shareholder, the board of directors
approves the transaction in which the Interested Shareholder became an
Interested Shareholder 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; (ii) corporations which adopt provisions in their articles
of incorporation or bylaws expressly electing not to be covered by the
statute; and (iii) certain circumstances in which a shareholder
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, of the voting power of outstanding stock of such
corporation, must obtain shareholder approval for the purchase of the
"Control Shares." If approval is not given, the Acquiring Person's
shares lose the right to vote. The statute prohibits an Acquiring
Person from voting its 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. Shareholders 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 (such ranges are as set forth in the immediately
preceding paragraph) beyond the range for which the selling party
previously satisfied the provisions of the statute.
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Additionally, a corporation may exempt itself from application of the
statute by inserting a provision in its articles of incorporation or
bylaws 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 Delaware Corporation Law applicable to Plains Spirit contains a
business combination statute similar to that contained in the Missouri
Act. Like the Missouri business combination statute, the Delaware
business combination statute generally prohibits a domestic
corporation from engaging in mergers or other business combinations with
Interested Persons (as defined in the Delaware Corporation Law) for a
statutory time period. The prohibition can be avoided if the business
combination is approved by the board of directors prior to the date on
which the Interested Person acquires the requisite percentage of stock.
The Missouri Act imposes a longer prohibition period on transactions with
Interested Persons (five years) than the Delaware Corporation Law (three
years), thereby potentially increasing the period during which a hostile
takeover may be frustrated. In addition, the Delaware Corporation Law,
unlike its Missouri counterpart, does not apply if the Interested Person
obtains at least 85% of the corporation's voting stock upon consummation
of the transactions which resulted in the stockholder becoming an
Interested Person. Thus, a person acquiring at least 85% of the
corporation's voting stock could circumvent the defensive provisions of
the Delaware Corporation Law while being unable to do so under the
Missouri Act. The Delaware Corporation Law does not contain a control
share acquisition statute similar to that contained in the Missouri Act.
DISSENTERS' RIGHTS. Under Section 351.455 of the Missouri Act, a
shareholder of any corporation which is a 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 value of such shares. Under the Delaware Corporation
Law, stockholders of Plains Spirit are entitled to appraisal rights upon
the consolidation or merger of Plains Spirit which are similar but not
identical to those under the Missouri Act. Specifically, the
dissenters' rights provisions of the Missouri Act do not have an
exception from the dissenters' rights provisions in circumstances in
which the shareholder seeking to exercise such rights owns shares in a
widely held, publicly traded corporation and is to receive, or continue
to hold after the transaction under which such shareholder is seeking to
exercise dissenters' rights, shares of a widely held, publicly traded
corporation. In addition, the procedures and the filing deadlines
applicable to dissenters' rights under the Missouri Act are somewhat
different than those applicable in appraisal rights proceedings under
the Delaware Corporation Law.
SHAREHOLDERS' AND STOCKHOLDERS' RIGHT TO INSPECT. Under the Delaware
Corporation Law, any stockholder may inspect the corporation's stock
ledger, stockholder list and other books and records for any proper
purpose. A "proper purpose" is defined as a purpose reasonably related
to such person's interest as a stockholder. The Delaware Corporation
Law specifically provides that a stockholder may appoint an agent for
the purpose of examining the stock ledger, list of stockholders or other
books and records of the corporation. A stockholder may apply to the
Delaware Court of Chancery to compel inspection in the event the
stockholder's request to examine the books and records is refused. In
general, the stockholder has the burden of proving an improper purpose
where a stockholder requests to examine the stockholder ledger or
stockholder list. The right of stockholders to inspect under the
Missouri Act is generally similar to that of stockholders under the
Delaware Corporation Law. Neither the Missouri Act nor Missouri case
law, however, provides any specific guidance as to whether a shareholder
may appoint an agent for the purpose of examining books and records or
the extent to which a shareholder must have a "proper purpose."
Accordingly, in comparison with the Delaware Corporation Law, in a given
situation a Missouri shareholder may be provided with less guidance as
to the scope of his or her ability to inspect the books and records of
the corporation.
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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 two-thirds of the number
of directors then authorized under the By-Laws. Similarly to the
Missouri Act, the Delaware Corporation Law provides that a corporation
may fix the number of directors in its Certificate of Incorporation or
By-Laws. The Certificate of Incorporation of Plains Spirit provides that
the number of directors shall be fixed exclusively by the Board of
Directors of Plains Spirit pursuant to a resolution adopted by a
majority of the whole board. The Board of Directors of Plains Spirit
has fixed the number of directors at 7.
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 the Federal
Reserve Board. In addition, bank holding companies are generally
prohibited under the BHCA from engaging in nonbanking activities,
subject to certain exceptions.
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 general
economic conditions, management policies and the legislative and
governmental actions of various regulatory authorities, including the
Federal Reserve Board, the FDIC and the Comptroller of the
Currency (the "Comptroller"). 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 and certain of its nonbank subsidiaries can borrow or
otherwise obtain 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 capital stock and surplus.
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 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 agencies, for such year combined with its retained
net profits for the preceding two years. In addition, a national bank
or a state member bank may not pay a dividend in an amount greater than
its net profits then on hand. The payment of
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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 to, but not identical with,
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 shareholders' equity, certain non-cumulative 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. Bank holding companies are
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.
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 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.
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, banks 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
the 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. MBI
believes that these changes will not, if adopted, have a material effect
on its compliance with capital adequacy requirements.
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FDIC INSURANCE ASSESSMENTS
The subsidiary banks of MBI are subject to FDIC deposit insurance
assessments. The FDIC has adopted a risk-based premium schedule. Under
this schedule, the annual premiums initially range from $.23 to $.31 for
every $100 of deposits. 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
condition 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. See "- FIRREA and FDICIA."
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 BIF for banks and the SAIF for
savings associations. The law also requires the FDIC to set deposit
insurance assessments at such levels as will cause the BIF and the 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 the
low costs of resolving bank insolvencies in the last few years, the BIF
is expected to reach its designated reserve ratio in 1995. As a result,
the FDIC recently proposed to lower deposit insurance assessment rates
on banks by revising the range to $.04 to $.31 for every $100 of
deposits. However, the balance in the 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 this source. Accordingly, it
is likely that the SAIF rates will be significantly higher than the BIF
rates in the future. Since MBI has acquired substantial amounts of
SAIF-insured deposits during the years from 1989 to the present, and
will acquire additional SAIF-insured deposits upon the acquisition of
First Federal, it will be required to pay insurance assessments on these
acquired deposits at rates significantly higher than the rates charged
by the BIF until such time that the rates are equalized or the deposits
are converted from the SAIF to the BIF. The latter cannot occur until
the SAIF reaches the designated reserve ratio. MBI does not expect that
such additional deposit insurance costs will have a significant, adverse
effect on its earnings.
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 shareholders 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.
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FIRREA AND FDICIA
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. FDICIA
instituted certain changes to the supervisory process, including
provisions that mandate certain regulatory agency actions against
undercapitalized institutions within specified time limits. FDICIA
contains various other provisions that may affect the operations of
banks and savings institutions.
The prompt corrective action provision of FDICIA requires 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 based on the capital categorization, 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") may be: (i) subject to increased monitoring by the
appropriate federal banking regulator; (ii) required to submit an
acceptable capital restoration plan within 45 days; (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 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 FDIC and the Federal Reserve Board adopted capital-related
regulations under FDICIA. Under those regulations, a bank will be well
capitalized if it: (i) had a risk-based capital ratio of 10% or
greater; (ii) had a ratio of Tier 1 capital to risk-adjusted assets of
6% or greater; (iii) had a ratio of Tier 1 capital to adjusted total
assets of 5% or greater; and (iv) was 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 adequately capitalized if it was not "well
capitalized" and: (i) had a risk-based capital ratio of 8% or greater;
(ii) had a ratio of Tier 1 capital to risk-adjusted assets of 4% or
greater; and (iii) had 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 ratios of core capital to
adjusted total assets were 3% or greater).
FDICIA also makes 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 imposes 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.
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DEPOSITOR PREFERENCE STATUTE
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 Plains Spirit'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, including federal funds and letters of credit, as well as
any obligation to shareholders of such an institution in their capacity
as such.
THE INTERSTATE BANKING AND COMMUNITY DEVELOPMENT LEGISLATION
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 by permitting (i) 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) 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) banks to
establish new branches on an interstate basis provided that such action is
specifically authorized by the law of the host state, (iv) 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) 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.
The Riegle Community Development and Regulatory Improvement Act of
1994, also enacted in September 1994, is intended to (i) increase the
flow of loans to businesses in distressed communities by providing
incentives to lenders to provide credit within those communities, (ii)
remove impediments to the securitization of small business loans, (iii)
provide for a reduction in paperwork and to streamline bank regulation
through, for example, the coordination of examinations in a bank holding
company context, a reduction in the number of currency transaction
reports required and improvements to the National Flood Insurance Program
that include enabling lenders to force place flood insurance, and (iv)
increase the level of consumer protection provided to customers in
banking transactions. MBI believes that these provisions of the new law
will not have a material effect on its operation.
RELATIONSHIP WITH INDEPENDENT ACCOUNTANTS
-----------------------------------------
KPMG Peat Marwick LLP served as MBI's independent accountants for the
year ended December 31, 1994 and continues to serve in such capacity.
Services provided in connection with the audit function included
examination of the annual consolidated financial statements, review and
consultation regarding filings with the Securities and Exchange
Commission and other regulatory authorities and consultation on
financial accounting and reporting matters.
McGladrey & Pullen LLP served as Plains Spirit's independent
accountants for the year ended September 30, 1994 and continues
to serve in such capacity. Services provided in connection with
the audit function included examination of the annual consolidated
financial statements, review and
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consultation regarding filings with the Securities and Exchange
Commission and other regulatory authorities and consultation on
financial accounting and reporting matters. McGladrey & Pullen LLP
intends to have a representative present at the Special Meeting to
answer relevant questions regarding the Merger.
LEGAL MATTERS
-------------
Certain legal matters will be passed upon for MBI by Thompson &
Mitchell, St. Louis, Missouri and for Plains Spirit by Silver, Freedman
& Taff, L.L.P. (a limited liability partnership including professional
corporations), Washington, D.C.
EXPERTS
-------
The consolidated financial statements of Mercantile Bancorporation
Inc. 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 MBI's Annual Report on Form 10-K, and the supplemental
consolidated financial statements of Mercantile Bancorporation Inc. 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 reports of KPMG Peat Marwick LLP,
independent certified public accountants, incorporated by reference
herein, and upon the authority of said firm as experts in accounting and
auditing.
The consolidated financial statements of Plains Spirit Financial
Corporation as of September 30, 1994 and 1993 and for each of the years
in the three-year period ended September 30, 1994 have been included
herein in reliance upon the report of McGladrey & Pullen, LLP,
independent certified public accountants, whose report is included
herein, and upon the authority of such firm as experts in accounting and
auditing.
OTHER MATTERS
-------------
The Board of Directors of Plains Spirit, 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 Plains Spirit.
SHAREHOLDER PROPOSALS
---------------------
If the Merger is approved, the other conditions to the Merger are
satisfied and the Merger is consummated, stockholders of Plains Spirit
will become shareholders of MBI at the Effective Time. MBI shareholders
may submit to MBI proposals for formal consideration at the 1996 annual
meeting of MBI's shareholders and inclusion in MBI's proxy statement for
such meeting. All such proposals to be considered for inclusion in
MBI's Proxy Statement and proxy for the 1996 annual meeting 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.
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Plains Spirit will hold a 1996 Annual Meeting of Stockholders only if
the Merger is not consummated before the time of such meeting, which is
presently expected to be held in January 1996. In such event, any
stockholder who wishes to present a proposal for inclusion in the proxy
materials for the 1996 Annual Meeting of Stockholders must comply with
the rules and regulations of the Commission then in effect. As
disclosed in Plains Spirit's proxy statement for its 1995 Annual Meeting
of Stockholders, any such proposal must be received by Plains Spirit not
later than August 17, 1995.
- 112 -
<PAGE> 119
<TABLE>
CONSOLIDATED FINANCIAL STATEMENTS
INDEX
-----
<CAPTION>
Page
----
<S> <C>
INDEPENDENT AUDITOR'S REPORT F-1
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
MARCH 31, 1995 (UNAUDITED) AND
SEPTEMBER 30, 1994 AND 1993 F-2
CONSOLIDATED STATEMENTS OF INCOME FOR THE
SIX MONTHS ENDED MARCH 31, 1995 AND 1994
(UNAUDITED) AND FOR THE YEARS ENDED
SEPTEMBER 30, 1994, 1993 AND 1992 F-3
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS'
EQUITY FOR THE SIX MONTHS ENDED MARCH 31, 1995
(UNAUDITED) AND FOR THE YEARS ENDED
SEPTEMBER 30, 1994, 1993 AND 1992 F-4
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE
SIX MONTHS ENDED MARCH 31, 1995 AND 1994
(UNAUDITED) AND FOR THE YEARS ENDED
SEPTEMBER 30, 1994, 1993 AND 1992 F-5 to F-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-7 to F-29
</TABLE>
- 113 -
<PAGE> 120
[letterhead of McGladrey & Pullen, LLP]
Independent Auditor's Report
----------------------------
To the Board of Directors
Plains Spirit Financial Corporation
Davenport, Iowa
We have audited the accompanying consolidated statements of financial
condition of Plains Spirit Financial Corporation and subsidiaries as of
September 30, 1994 and 1993, and the related consolidated statements of
income, changes in stockholders' equity, and cash flows for each of the years
in the three-year period ended September 30, 1994. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Plains
Spirit Financial Corporation and subsidiaries as of September 30, 1994 and
1993, and the results of their operations and their cash flows for each of
the years in the three-year period ended September 30, 1994 in conformity
with generally accepted accounting principles.
As described in Note 1 to the consolidated financial statements, the
Company changed its method of accounting for investments in debt and equity
securities in 1994 and income taxes in 1993.
/s/ McGladrey & Pullen
Davenport, Iowa
November 7, 1994
F-1
<PAGE> 121
<TABLE>
PLAINS SPIRIT FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
MARCH 31, 1995 (UNAUDITED) AND
SEPTEMBER 30, 1994 AND 1993
(DOLLARS IN THOUSANDS)
<CAPTION>
September 30,
-------------------------
March 31, 1995 1994 1993
-------------- -------- --------
(Unaudited)
<S> <C> <C> <C>
ASSETS
Cash $ 2,731 $ 2,314 $ 4,174
Federal funds and others 4,050 1,400 1,489
Investment securities 123,294 125,590 60,248
Mortgage-backed securities 49,198 52,271 34,560
Loans receivable, net 258,162 234,674 210,088
Real estate loans held for sale 938 1,084 12,620
Accrued interest receivable 2,577 2,353 1,609
Real estate acquired in settlement of loans -- -- 6
Office premises and equipment, net 4,028 4,149 4,356
Purchased mortgage servicing rights 2,401 -- --
Prepaid expenses and other assets 4,252 4,631 2,784
-------- -------- --------
$451,631 $428,466 $331,934
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $271,459 $253,626 $249,834
Advances from Federal Home Loan Bank 114,000 112,750 22,500
Advance payments by borrowers for taxes and insurance 1,311 1,155 1,456
Liability for checks issued 4,098 3,747 550
Accrued expenses and other liabilities 4,387 4,011 3,642
-------- -------- --------
Total liabilities $395,255 $375,289 $277,982
-------- -------- --------
Stockholders' equity:
Serial preferred stock, par value $.01; authorized
1,000,000 shares; no shares issued and outstanding $ -- $ -- $ --
Common stock, par value $.01; authorized 5,000,000
shares; issued and outstanding March 31, 1995,
1,906,932 shares; issued and outstanding
September 30, 1994 and 1993, 1,881,990 and
1,964,332 shares, respectively 20 20 20
Additional paid-in capital 23,323 22,698 22,437
Retained earnings 34,557 32,861 31,495
Net unrealized holding (loss) for securities
classified as available for sale, net of tax (1,524) (2,402) --
-------- -------- --------
Total stockholders' equity $ 56,376 $ 53,177 $ 53,952
-------- -------- --------
$451,631 $428,466 $331,934
======== ======== ========
See Notes to Consolidated Financial Statements.
</TABLE>
F-2
<PAGE> 122
<TABLE>
PLAINS SPIRIT FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
SIX MONTHS ENDED MARCH 31, 1995 AND 1994 (UNAUDITED)
AND YEARS ENDED SEPTEMBER 30, 1994, 1993 AND 1992
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<CAPTION>
Six Months
Ended
March 31, Years Ended September 30,
------------------------- -------------------------------------------
1995 1994 1994 1993 1992
---- ---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C> <C>
Interest income:
Interest on loans $ 9,906 $ 8,595 $17,377 $19,265 $21,066
Interest on mortgage-backed
securities 1,411 887 2,120 1,635 1,541
Interest and dividends on
investment securities 4,181 1,599 5,196 2,609 3,412
Other interest income 33 70 114 265 943
------- ------- ------- ------- -------
Total interest income $15,531 $11,151 $24,807 $23,774 $26,962
------- ------- ------- ------- -------
Interest expense:
Interest on deposits $ 5,658 $ 4,688 $ 9,485 $10,788 $15,444
Interest on advances from FHLB
and other borrowings 3,274 538 2,786 781 941
------- ------- ------- ------- -------
Total interest expense $ 8,932 $ 5,226 $12,271 $11,569 $16,385
------- ------- ------- ------- -------
Net interest income $ 6,599 $ 5,925 $12,536 $12,205 $10,577
Provision for possible loan losses 120 80 200 706 583
------- ------- ------- ------- -------
Net interest income after
provision for possible
loan losses $ 6,479 $ 5,845 $12,336 $11,499 $ 9,994
------- ------- ------- ------- -------
Other income (loss):
Loan fees and service charges $ 372 $ 820 $ 1,352 $ 1,403 $ 996
Servicing fees 307 230 515 254 86
Other fees and charges 190 172 324 264 198
Gain on sale of mortgage loans 34 780 734 1,477 477
Real estate operations, net (8) 6 (13) (15) (22)
Other income 212 164 335 375 161
------- ------- ------- ------- -------
$ 1,107 $ 2,172 $ 3,247 $ 3,758 $ 1,896
------- ------- ------- ------- -------
Other expenses:
Compensation and benefits $ 2,444 $ 2,630 $ 4,869 $ 4,656 $ 3,880
Occupancy 282 304 602 568 461
Furniture, equipment and data
processing 422 388 739 680 466
Federal insurance 312 304 607 623 598
Other loan expense 132 319 503 629 544
Other 628 645 1,432 1,374 1,462
------- ------- ------- ------- -------
4,220 4,590 $ 8,752 $ 8,530 $ 7,411
------- ------- ------- ------- -------
Income before income taxes $ 3,366 3,427 $ 6,831 $ 6,727 $ 4,479
Provision for income taxes 1,140 1,164 2,359 2,459 1,718
------- ------- ------- ------- -------
Earnings before cumulative effect of
change in accounting for income
taxes 2,226 2,263 4,472 4,268 2,761
Cumulative effect of change in
accounting for income taxes -- -- -- 405 --
------- ------- ------- ------- -------
Net income $ 2,226 $ 2,263 $ 4,472 $ 4,673 $ 2,761
======= ======= ======= ======= =======
Primary and fully diluted earnings
per share:
Earnings before cumulative effect
of change in accounting for
income taxes $ 1.12 $ 1.10 $ 2.21 $ 2.05 $ 1.34
Cumulative effect of change in
accounting for income taxes -- -- -- .19 --
------- ------- ------- ------- -------
Primary earnings per share $ 1.12 1.10 2.21 2.24 1.34
------- ------- ------- ------- -------
Fully diluted earnings per share $ 1.12 $ 1.10 $ 2.21 $ 2.24 $ 1.34
Dividends declared per share $ .28 .23 .49 .30 .10
See Notes to Consolidated Financial Statements.
</TABLE>
F-3
<PAGE> 123
<TABLE>
PLAINS SPIRIT FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
SIX MONTHS ENDED MARCH 31, 1995 (UNAUDITED)
AND YEARS ENDED SEPTEMBER 30, 1994, 1993 AND 1992
<CAPTION>
Net
Additional Unrealized
Common Paid-in Retained Holding
Stock Capital Earnings (Loss) Total
------- ---------- -------- ---------- -------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Balances, September 30, 1991 $ -- $ -- $27,947 $ -- $27,947
Net income -- -- 2,761 -- 2,761
Issuance of 2,070,000 shares of common stock 21 21,828 -- -- 21,849
Repurchase of 103,500 shares of common stock
(held as treasury stock) (1) -- (1,568) -- (1,569)
Dividends paid ($.10 per share) -- -- (204) -- (204)
------- ------- ------- ------- -------
Balances, September 30, 1992 $ 20 $21,828 $28,936 $ -- $50,784
Net income -- -- 4,673 -- 4,673
Issuance of 72,332 shares of common stock -- 609 -- -- 609
Repurchase of 74,500 shares of common
stock (held as treasury stock) -- -- (1,520) -- (1,520)
Dividends paid ($.30 per share) -- -- (594) -- (594)
------- ------- ------- ------- -------
Balances, September 30, 1993 $ 20 $22,437 $31,495 $ -- $53,952
Net income -- -- 4,472 -- 4,472
Issuance of 16,358 shares of common stock -- 315 -- -- 315
Repurchase of 98,700 shares of common stock
(held as treasury stock) -- -- (2,330) -- (2,330)
Dividends paid ($.49 per share) -- -- (947) -- (947)
Tax benefit of stock option exercise and
RRP distribution -- (54) 171 -- 117
Net unrealized holding (loss) for securities
classified as available for sale, net of tax -- -- -- (2,402) (2,402)
------- ------- ------- ------- -------
Balances, September 30, 1994 $ 20 $22,698 $32,861 $(2,402) $53,177
Net Income -- -- 2,226 -- 2,226
Issuance of 35,292 shares of common stock -- 413 -- -- 413
Dividends paid ($.28 per share) -- -- (530) -- (530)
Tax benefit of stock option exercise and
RRP distribution -- 212 -- -- 212
Net unrealized holding gain for securities
classified as available for sale, net of tax -- -- -- 878 878
------- ------- ------- ------- -------
Balances, March 31, 1995 (Unaudited) $ 20 $23,323 $34,557 $(1,524) $56,376
======= ======= ======= ======= =======
See Notes to Consolidated Financial Statements.
</TABLE>
F-4
<PAGE> 124
<TABLE>
PLAINS SPIRIT FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED MARCH 31, 1995 AND 1994 (UNAUDITED)
AND YEARS ENDED SEPTEMBER 30, 1994, 1993 AND 1992
(DOLLARS IN THOUSANDS)
<CAPTION>
Six Months
Ended
March 31, Years Ended September 30,
------------------------- ----------------------------------------------
1995 1994 1994 1993 1992
---- ---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES
Net income $ 2,226 $ 2,263 $ 4,472 $ 4,673 $ 2,761
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation 213 213 423 359 269
Provision for loan and real estate
owned losses 120 80 200 706 652
Amortization of premiums and
accretion of discounts on
investment and mortgage-backed
securities, net 301 667 1,038 693 122
Amortization of and decreases in
purchased mortgage servicing
rights 88 24 32 -- --
Income deferred 133 171 277 309 133
Amortization of deferred income (69) (189) (303) (193) (219)
Proceeds from mortgage loans sold 10,971 80,063 106,627 101,374 33,333
Mortgage loans purchased for
resale (2,603) (3,164) (10,250) (550) --
Mortgage loans originated for
resale (8,222) (74,457) (88,307) (104,841) (39,228)
(Gain)/loss on sale of mortgage loans (34) (780) (734) (1,477) (477)
Federal Home Loan Bank stock
dividends -- -- -- (166) (221)
Changes in assets and liabilities:
(Increase) decrease in accrued
interest receivable (224) (219) (744) 83 673
(Increase) in prepaid expenses
and other assets (254) (616) (239) (2,053) (101)
Increase (decrease) in accrued
expenses and other liabilities 376 (558) 369 (1,461) (23)
-------- -------- --------- --------- --------
Net cash provided by (used
in) operating activities $ 3,022 $ 3,498 $ 12,861 $ (2,544) $ (2,326)
-------- -------- --------- --------- --------
CASH FLOWS FROM INVESTING
ACTIVITIES
Proceeds from maturities of and
principal repayments on
investment securities:
Held to maturity $ 4,441 $ 31,019 $ 27,437 $ 32,890 $ 41,538
Available for sale 1,939 -- 21,811 -- --
Purchase of investment securities:
Held to maturity (3,328) (69,416) (76,294) (48,108) (26,939)
Available for sale -- -- (41,687) -- --
Principal repayments on mortgage-
backed securities 3,456 5,806 10,023 7,952 4,768
Purchase of mortgage-backed
securities -- (21,697) (25,119) (18,018) (10,756)
Purchase of mortgage loans (9,740) (1,755) (8,835) (1,200) (2,992)
Purchases of mortgage servicing
rights (2,417) (45) (104) -- --
Loan originations and principal
payment on loans, net (13,952) 11,687 (16,058) 23,399 (14,380)
Proceeds from sales of real estate
acquired in settlement of loans 22 37 139 275 387
Purchases of property and equipment (61) (180) (216) (518) (507)
-------- -------- --------- --------- --------
Net cash (used in) investing
activities $(19,640) $(44,544) $(108,903) $ (3,328) $ (8,881)
-------- -------- --------- --------- --------
See Notes to Consolidated Financial Statements
</TABLE>
F-5
<PAGE> 125
<TABLE>
PLAINS SPIRIT FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED MARCH 31, 1995 AND 1994 (UNAUDITED)
AND YEARS ENDED SEPTEMBER 30, 1994, 1993 AND 1992
(DOLLARS IN THOUSANDS)
<CAPTION>
Six Months
Ended
March 31, Years Ended September 30,
------------------------- ------------------------------------------------
1995 1994 1994 1993 1992
---- ---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM FINANCING
ACTIVITIES
Net increases in deposits $ 17,833 $ (1,352) $ 3,792 $ (16,798) $ (13,117)
Principal payments on reverse
repurchase agreements -- -- (7,933) -- (4,712)
Proceeds from reverse repurchase
agreements -- -- 7,933 -- --
Payment on advances from Federal
Home Loan Bank (233,300) (13,750) (217,350) (20,000) (2,000)
Proceeds from Federal Home Loan Bank
advances 234,550 56,000 307,600 29,500 7,000
Increase in liability for checks issued 351 145 3,197 550 --
Net (decrease) in advance payments by
borrowers for taxes and insurance 156 113 (301) (95) 668
Dividends paid to stockholders (531) (444) (947) (594) (204)
Net proceeds from issuance of common 432 609 21,849
stock 626 514 (2,330) (1,520) (1,569)
-------- -------- --------- --------- ---------
Repurchase of common stock
Net cash provided by (used in)
financing activities 19,685 41,226 94,093 (8,348) 7,915
-------- -------- --------- --------- ---------
Increase (decrease) in cash and cash
equivalents 3,067 180 (1,949) (14,220) (3,292)
Cash and cash equivalents:
Beginning 3,714 5,663 5,663 19,883 23,175
-------- -------- --------- --------- ---------
Ending $ 6,781 $ 5,843 $ 3,714 $ 5,663 $ 19,883
======== ======== ========= ========= =========
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION
Cash paid during the year for:
Interest $ 8,530 $ 4,965 $ 12,101 $ 12,180 $ 18,209
Income taxes 1,236 1,187 2,518 2,578 1,325
SUPPLEMENTAL SCHEDULE OF
NONCASH INVESTING
AND FINANCING ACTIVITIES
Transfers from loans to real estate
acquired through foreclosure 22 67 133 182 408
Loans originated from sale of real estate
acquired in settlement of loans -- -- 47 29 97
Securities available for sale adjustment,
net 878 (667) 2,402 -- --
Mortgage-backed securities received in
exchange for mortgage loans -- -- 4,200 -- --
See Notes to Consolidated Financial Statements.
</TABLE>
F-6
<PAGE> 126
PLAINS SPIRIT FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation:
The consolidated financial statements include the accounts of
Plains Spirit Financial Corporation (Company) and its wholly-owned
subsidiary, First Federal Savings Bank of Iowa and its subsidiary,
S & L Service Corporation (collectively the "Bank"). All material
intercompany accounts and transactions have been eliminated in
consolidation.
Investment securities and mortgage-backed securities:
1993 and prior
--------------
Investment and mortgage-backed securities held for investment
purposes are stated at cost, adjusted for amortization of premiums
and accretion of discounts by a method which approximates the
effective interest method.
1994
----
On May 31, 1993, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standard No. 115,
"Accounting for Certain Investments in Debt and Equity Securities"
(FAS 115) effective for fiscal years beginning after December 15,
1993. Early adoption is permitted under certain conditions. The
Company adopted FAS 115 with its fiscal year beginning October 1,
1993. FAS 115 addresses accounting and reporting for investments
in equity securities that have readily determinable fair values and
for all investments in debt securities. Such securities would be
classified as held for trading, available for sale or held to
maturity. Securities held to maturity are stated at cost, adjusted
for amortization of premiums and accretion of discounts by a method
which approximates the effective interest method. The Company has
adequate liquidity and capital, and it is management's intention,
to hold such assets to maturity. Securities held for trading would
be carried at fair value with the adjustment, if any, reflected in
the statement of income. Securities classified as available for
sale are carried at fair value, however, the adjustment is
reflected, net of income tax effect, in stockholders' equity.
Loans receivable:
Loans receivable are stated at unpaid principal balances, less
loans in process, net deferred loan-origination fees and discounts,
and allowances for loan losses.
Loan origination fees received in conjunction with the origination
or purchase of loans are deferred, along with certain specific
direct costs of originating loans. Net fees on fixed-rate loans
are amortized on a level-yield basis over the contractual lives of
the loans as an adjustment to yield. Net fees on adjustable-rate
loans are amortized by a method which approximates the effective
interest method. Unamortized fees are recognized upon early
repayment of the loans.
F-7
<PAGE> 127
PLAINS SPIRIT FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The allowance for loan losses is increased by charges to income and
decreased by loan charge-offs. Management's periodic evaluation
of the adequacy of the allowance is based on the Bank's past loan
loss experience, known and inherent risks in the portfolio, adverse
situations that may effect the borrower's ability to repay, the
estimated value of any underlying collateral and current economic
conditions.
Uncollected interest on loans which are 90 days past due is charged
off, or an allowance is established based on management's periodic
evaluation. The allowance is established by a charge to interest
income equal to all interest previously accrued, and income is
subsequently recognized only to the extent that cash payments are
received until, in management's judgment, the borrower's ability
to make periodic interest and principal payments is adequate to
permit the loan to be returned to accrual status.
Sales of loan originations:
As part of its management of assets and liabilities, the Bank
periodically sells whole and/or participating interests in real
estate loans. Loans which are expected to be sold prior to
maturity have been classified as held for sale in the statement of
financial condition and are recorded at the lower of aggregate cost
or market value by category. Gains or losses on such sales are
recognized at the time of settlement. Loans sold are adjusted for
any yield differential, servicing fees, and servicing cost
applicable to future years.
Real estate acquired in settlement of loans:
Real estate acquired in settlement of loans is initially recorded
at the lower of cost (loan value of real estate acquired in
settlement of loans plus incidental expenses) or fair value. Based
on periodic evaluations by management, the carrying values are
reduced when they exceed fair value. Costs relating to the
development and improvement of the property are capitalized,
whereas those relating to holding the property are expensed.
Office premises and equipment:
Office premises and equipment are stated at cost less accumulated
depreciation. The Company computes depreciation primarily by the
straight-line method over the estimated useful life of the assets.
Purchased mortgage servicing rights:
Purchased mortgage servicing rights (PMSR) represent the cost of
acquiring the right to service mortgage loans. These costs are
initially capitalized and subsequently amortized in proportion to,
and over the period of, estimated net loan servicing income. In
accordance with Statement of Financial Accounting Standard No. 65,
"Accounting for Certain Mortgage Banking Activities," the Bank
capitalizes PMSR in connection with mortgage loans purchased.
F-8
<PAGE> 128
PLAINS SPIRIT FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Deferred income taxes:
The Company files a consolidated federal income tax return with its
subsidiary. The Company's policy is to claim the maximum bad debt
deduction allowed for the Bank. For qualified loans, the
percentage of income method was used in the fiscal years ended
September 30, 1994, 1993 and 1992.
In February, 1992, the FASB issued Statement of Financial
Accounting Standard No. 109, "Accounting for Income Taxes" (FAS
109) effective for fiscal years beginning after December 15, 1992.
FAS 109 requires a change from the deferred method of accounting
for income taxes to the asset and liability method. Under the
asset and liability method, deferred tax assets and liabilities are
recognized for the estimated future tax consequences attributable
to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted tax
rates in effect for the year in which those temporary differences
are expected to be recovered or settled. Under FAS 109, the effect
on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment
date.
Pursuant to the deferred method, which was applicable for the 1992
and prior fiscal years, deferred income taxes were recognized for
income and expense items that were reported in different years for
financial reporting purposes and income tax purposes using the tax
rate applicable for the year of the calculation. Under the
deferred method, deferred taxes were not adjusted for subsequent
changes in tax rates.
Effective October 1, 1992, the Company adopted FAS 109 and has
reported the cumulative effect of that change in the method of
accounting for income taxes in the fiscal year 1993 consolidated
statement of income.
The Company and each of its subsidiaries are parties to a tax
sharing agreement which provides for calculation and payment by
each party of its allocation of the tax liability of the parties.
Cash and cash equivalents:
Cash and cash equivalents include cash and amounts due from
depository institutions including federal funds sold. For purposes
of the statement of cash flows, the Company considers all highly
liquid debt instruments with original maturities of less than three
months to be cash equivalents.
Federal Reserve Board regulations require savings institutions to
maintain noninterest-earning reserves against their transaction
accounts, and certain money market deposit accounts. At September
30, 1994 the reserve requirement amounted to $548,000 and was
exceeded by cash on hand.
F-9
<PAGE> 129
PLAINS SPIRIT FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Reclassifications:
Certain items in the financial statements as of and for the fiscal
years ended September 30, 1993 and 1992 have been reclassified,
with no effect on net income, to be consistent with the
classifications adopted for the year ended September 30, 1994.
NOTE 2. INVESTMENT SECURITIES
<TABLE>
Securities held to maturity as of September 30 1994:
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains (Losses) Value
--------- ---------- ---------- -----
(dollars in thousands)
<S> <C> <C> <C> <C>
CMOs with Agency
Collateral:
Fixed rate $31,142 $11 $ (779) $30,374
CMOs with non-Agency
Collateral:
Fixed rate 39,065 3 (1,641) 37,427
U.S. government agency 4,500 -- (114) 4,386
FHLB stock, at cost 5,638 -- -- 5,638
------- --- ------- -------
Total held for investment $80,345 $14 $(2,534) $77,825
======= === ======= =======
Securities available for sale as of September 30 1994:
CMOs with Agency Collateral:
Floating rate $ 6,939 $ 6 $ (183) $ 6,762
Fixed rate 21,619 -- (1,118) 20,501
CMOs with non-Agency
Collateral:
Fixed rate 19,331 -- (1,349) 17,982
------- --- ------- -------
Total available for sale $47,889 $ 6 $(2,650) $45,245
======= === ======= =======
</TABLE>
F-10
<PAGE> 130
PLAINS SPIRIT FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
Securities held as of September 30 1993:
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains (Losses) Value
--------- ---------- ---------- -----
(dollars in thousands)
<S> <C> <C> <C> <C>
CMOs with Agency Collateral:
Floating rate $ 14,441 $ 50 $ (110) $ 14,381
Fixed rate 30,955 338 (56) 31,237
CMOs with non-Agency
Collateral:
Fixed rate 10,083 130 -- 10,213
U.S. government agency 2,000 53 -- 2,053
FHLB stock, at cost 2,769 -- -- 2,769
-------- ----- ------ --------
Total $ 60,248 $ 571 $ (166) $ 60,653
======== ===== ====== ========
</TABLE>
The Bank has pledged $33,476,000 of collateralized mortgage
obligations as collateral for FHLB advances at September 30,
1994.
<TABLE>
Collateralized Mortgage Obligations at September 30, 1994
consisted of the following tranches:
<CAPTION>
Amortized Fair
Cost Value
--------- -----
(dollars in thousands)
<S> <C> <C>
Held to maturity:
Sequentials $24,520 $23,693
PAC 36,245 35,159
TAC 9,442 8,949
------- -------
Total $70,207 $67,801
======= =======
Available for sale:
Floaters $ 6,939 $ 6,761
Sequentials 11,591 10,822
PAC 23,797 22,451
TAC 5,562 5,211
------- -------
Total $47,889 $45,245
======= =======
</TABLE>
At dates reported there were no CMO investments of
principal-only, interest-only or residual classes.
F-11
<PAGE> 131
PLAINS SPIRIT FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
The following table sets forth the contractual maturities of
collateralized mortgage obligations and other interest-
earning investments as of September 30, 1994. Amounts shown
are amortized costs.
<CAPTION>
1 to 5 to Over
5 years 10 years 10 years Total
------- -------- -------- -----
(dollars in thousands)
<S> <C> <C> <C> <C>
CMOs $ 4,061 $ 3,099 $110,936 $118,096
Agencies 4,500 -- -- 4,500
------- ------- -------- --------
Total $ 8,561 $ 3,099 $110,936 $122,596
======= ======= ======== ========
</TABLE>
NOTE 3. MORTGAGE-BACKED SECURITIES
Mortgage-backed securities available for sale as of
September 30, 1994 are summarized as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains (Losses) Value
--------- ---------- ---------- -----
(dollars in thousands)
<S> <C> <C> <C> <C>
GNMA certificates $ 9,130 $ -- $ (212) $ 8,918
FHLMC certificates 13,597 45 (301) 13,341
FNMA certificates 30,839 5 (832) 30,012
-------- ----- ------- --------
$ 53,566 $ 50 $(1,345) $ 52,271
======== ===== ======= ========
Mortgage-backed securities held as of September 30, 1993 are
summarized as follows:
GNMA certificates $ 10,044 $ 347 $ -- $ 10,391
FHLMC certificates 12,427 229 (8) 12,648
FNMA certificates 12,089 208 (24) 12,273
-------- ----- ------- --------
$ 34,560 $ 784 $ (32) $ 35,312
======== ===== ======= ========
</TABLE>
At September 30, 1994 the Bank has pledged $29,803,000 of
mortgage-backed securities as collateral for FHLB advances.
F-12
<PAGE> 132
PLAINS SPIRIT FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
The following table sets forth the contractual maturities of
mortgage-backed securities held as of September 30, 1994.
Amounts shown are amortized costs.
<CAPTION>
1 to 3 to 6 to Over
3 Years 5 Years 20 Years 20 Years Total
------- ------- -------- -------- -----
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
FHLMC certificates $ 2,592 $ 544 $ 2,836 $ 7,625 $ 13,597
FNMA certificates -- -- 2,742 28,097 30,839
GNMA certificates -- -- -- 9,130 9,130
------- ----- ------- -------- --------
Total $ 2,592 $ 544 $ 5,578 $ 44,852 $ 53,566
======= ===== ======= ======== ========
</TABLE>
NOTE 4. LOANS
<TABLE>
Loans receivable which includes real estate loans held
for sale at September 30 are summarized as follows:
<CAPTION>
1994 1993
---- ----
(dollars in thousands)
<S> <C> <C>
First mortgage loans (principally
conventional), principal balances:
Secured by single family residences $186,134 $191,294
Secured by other properties 30,826 19,979
Construction loans 13,772 5,467
-------- --------
230,732 216,740
-------- --------
Consumer and other loans, principal
balances:
Home equity and second mortgage 7,938 5,322
Manufactured housing 2,626 3,880
Home improvement 595 972
Deposit account 569 523
Auto 79 16
Student 4 9
-------- --------
11,811 10,722
-------- --------
Less:
Loans in process (4,243) (2,312)
Deferred fees and discounts (639) (665)
Allowance for loan losses (1,903) (1,777)
-------- --------
$235,758 $222,708
======== ========
</TABLE>
F-13
<PAGE> 133
PLAINS SPIRIT FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Included in the portfolio at September 30, 1994 are
$130,019,000 of adjustable-rate loans ($92,175,000 at
September 30, 1993), which adjust to various indices,
subject to certain contractual limitations on
adjustments, at specified intervals.
<TABLE>
Activity in the allowance for loan losses is summarized
as follows for the years ended September 30:
<CAPTION>
1994 1993 1992
---- ---- ----
(dollars in thousands)
<S> <C> <C> <C>
Balance at beginning of year $1,777 $1,115 $ 773
Provision charged to income 200 706 583
Charge-offs (106) (57) (283)
Recoveries 32 13 42
------ ------ ------
Balance at end of year $1,903 $1,777 $1,115
====== ====== ======
</TABLE>
The balance of nonaccrual loans at September 30, 1994 and
1993 was approximately $3,118,000 and $6,440,000,
respectively.
Foregone interest income on these loans was $273,000,
$357,000 and $18,000 for the years ended September 30,
1994, 1993 and 1992, respectively.
Mortgage loans serviced for others are not included in
the accompanying consolidated statements of financial
condition. The unpaid principal balances of these loans
at September 30 are summarized as follows:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
(dollars in thousands)
<S> <C> <C> <C>
Mortgage loan portfolios serviced
for:
Federal Home Loan Mortgage Corporation $142,490 $109,481 $33,639
Federal National Mortgage Association 59,147 7,844 --
Other investors 4,913 6,839 8,797
-------- -------- -------
$206,550 $124,164 $42,436
======== ======== =======
Borrower's escrow balances on
mortgage loans serviced for others $ 557 $ 519 $ 186
======== ======== =======
</TABLE>
F-14
<PAGE> 134
PLAINS SPIRIT FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Bank offers mortgage and consumer loans to its officers,
directors and employees for the financing of their personal
residences and other personal purposes. These loans are
made in the ordinary course of business and are made on
substantially the same terms prevailing at the time as
comparable transactions with other customers. Management
does not believe these loans involve more than the normal
risk of collectibility or present other unfavorable
features.
<TABLE>
The following is a reconciliation of loans outstanding in
excess of $60,000 for executive officers and directors for
the years ended September 30:
<CAPTION>
1994 1993
---- ----
(dollars in thousands)
<S> <C> <C>
Balance at beginning of year $ 835 $ 721
New loans -- 518
Repayments (125) (404)
------- -------
Balance at end of year $ 710 $ 835
======= =======
</TABLE>
NOTE 5. ACCRUED INTEREST RECEIVABLE
<TABLE>
Accrued interest receivable at September 30 is summarized as
follows:
<CAPTION>
1994 1993
---- ----
(dollars in thousands)
<S> <C> <C>
Investment securities $ 766 $ 352
Mortgage-backed securities 261 163
Loans receivable 1,326 1,094
------- -------
$ 2,353 $ 1,609
======= =======
</TABLE>
NOTE 6. OFFICE PREMISES AND EQUIPMENT
<TABLE>
Office premises and equipment at September 30 are summarized as
follows:
<CAPTION>
1994 1993
---- ----
(dollars in thousands)
<S> <C> <C>
Land and buildings $ 5,687 $ 5,677
Furniture and equipment 1,464 1,319
------- -------
7,151 6,996
Less accumulated depreciation (3,002) (2,640)
------- -------
$ 4,149 $ 4,356
======= =======
</TABLE>
F-15
<PAGE> 135
PLAINS SPIRIT FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7. DEPOSITS
<TABLE>
Deposits at September 30 are summarized as follows:
<CAPTION>
1994 1993
--------------------- ---------------------
Weighted Weighted
Average Average
Amount Rate Amount Rate
------ -------- ------ --------
(dollars in thousands)
<S> <C> <C> <C> <C>
Demand accounts:
Non-interest bearing $ 4,326 0.00% $ 3,968 0.00%
Checking 13,568 2.25 14,861 2.25
Money market 41,744 2.83 42,113 3.10
Savings 18,951 2.47 26,258 3.00
-------- --------
Total demand 78,589 2.49% 87,200 2.78%
-------- --------
Certificates of deposit:
Within one year:
Six months $ 72,453 4.12 $ 78,847 3.99%
Others within one year 47,716 4.86 30,641 4.59
One year to two years 27,711 4.77 34,497 5.17
Two years to three years 14,085 5.04 8,871 5.01
Over three years 13,072 5.33 9,778 5.27
-------- --------
175,037 4.59 162,634 4.49
-------- --------
$253,626 3.94% $249,834 3.89%
======== ========
</TABLE>
The aggregate amount of jumbo certificates of deposit with
a minimum denomination of $100,000 was approximately
$5,082,000 and $7,644,000 at September 30, 1994 and 1993.
<TABLE>
At September 30, 1994, scheduled maturities of
certificates of deposit are as follows:
<CAPTION>
0.00- 4.00- 6.00- 8.00-
3.99% 5.99% 7.99% 9.99% Total
------ ------ ------ ------ -------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Quarter ending:
December 31, 1994 $ 20,416 $ 16,600 $ 1,419 $ 198 $ 38,633
March 31, 1995 18,439 13,126 2,059 196 33,820
June 30, 1995 4,487 16,143 3,873 134 24,637
September 30, 1995 953 21,547 505 74 23,079
December 31, 1995 250 6,381 575 0 7,206
March 31, 1996 6 6,509 81 34 6,630
June 30, 1996 0 4,473 1,131 1 5,605
September 30, 1996 0 8,262 8 0 8,270
December 31, 1996 0 2,773 8 0 2,781
March 31, 1997 0 4,737 11 0 4,748
June 30, 1997 0 2,787 36 0 2,823
September 30, 1997 0 3,732 1 0 3,733
Thereafter 0 12,836 220 16 13,072
-------- -------- -------- ------- --------
$ 44,551 $119,906 $ 9,927 $ 653 $175,037
======== ======== ======== ======= ========
</TABLE>
Eligible savings accounts are insured up to $100,000 by the
Federal Deposit Insurance Corporation (FDIC) through its
Savings Association Insurance Fund (SAIF).
F-16
<PAGE> 136
PLAINS SPIRIT FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
Interest expense on deposits for the years ended September
30 is summarized as follows:
<CAPTION>
1994 1993 1992
---- ---- ----
(dollars in thousands)
<S> <C> <C> <C>
Money market $ 652 $ 732 $ 901
Passbook savings 1,191 1,309 802
Checking 296 305 338
Certificates of deposit 7,346 8,442 13,403
------- -------- --------
$ 9,485 $ 10,788 $ 15,444
======= ======== ========
</TABLE>
NOTE 8. FEDERAL HOME LOAN BANK ADVANCES
<TABLE>
Scheduled maturities by interest rate at September 30, 1994 are as
follows:
<CAPTION>
4.00- 5.00- 6.00-
4.99% 5.99% 6.99% Total
----- ----- ----- -----
(dollars in thousands)
<S> <C> <C> <C> <C>
Within One Year $ 29,750 $ 40,400 $ -- $ 70,150
Over 1-2 Years 500 5,500 21,600 27,600
Over 2-3 Years 10,000 -- 5,000 15,000
-------- -------- -------- --------
$ 40,250 $ 45,900 $ 26,600 $112,750
======== ======== ======== ========
</TABLE>
Pursuant to collateral agreements with the Federal Home Loan
Bank (FHLB), $57,100,000 of advances are secured by all
stock in the FHLB and a blanket pledge on qualifying single-
family first mortgage loans and $55,650,000 of advances are
secured by a pool of mortgage-backed securities and
collateralized mortgage obligations with amortized cost of
$29,803,000 and $33,476,000, respectively.
<TABLE>
Interest expense on borrowed funds for the years ended
September 30 is summarized as follows:
<CAPTION>
1994 1993 1992
---- ---- ----
(dollars in thousands)
<S> <C> <C> <C>
Fixed-coupon dollar reverse repurchase and other
repurchase agreements $ 57 $ -- $ --
Advances from the FHLB 2,729 781 941
------- ------- -------
$ 2,786 $ 781 $ 941
======= ======= =======
</TABLE>
F-17
<PAGE> 137
PLAINS SPIRIT FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9. INCOME TAXES
The Company and Bank file consolidated federal income tax
returns on a fiscal-year basis. Under the existing
provisions of the Internal Revenue Code and similar
sections of the Iowa income tax law, the Bank is allowed
a special bad debt deduction based on a percentage of
taxable income (presently 8%) or on specified experience
formulas. For qualified loans, the percentage of income
method was used in the fiscal years ended September 30,
1994, 1993 and 1992.
<TABLE>
Income tax expense for the years ended September 30 is
summarized as follows:
<CAPTION>
1994 1993 1992
---- ---- ----
(dollars in thousands)
<S> <C> <C> <C>
Currently payable $ 2,227 $ 2,668 $ 1,619
Deferred 132 (209) 99
------- ------- -------
$ 2,359 $ 2,459 $ 1,718
======= ======= =======
</TABLE>
The net deferred tax asset included the following major temporary
differences at September 30:
<TABLE>
<CAPTION>
1994 1993
---- ----
(dollars in thousands)
<S> <C> <C>
Change in tax accounting method for accrued
interest on savings deposit $ -- $ (43)
Federal Home Loan Bank stock dividends 363 363
Depreciation 80 99
Provision for loan losses (298) (461)
Delinquent interest reserve (106) (139)
Loan origination fees, FASB 91 (235) (196)
Deferred income (17) (59)
Deferred compensation (287) (196)
Unrealized (loss) on securities available for sale (1,536) --
-------- ------
$ (2,036) $ (632)
======== ======
</TABLE>
The net change in deferred income taxes is reflected in
the financial statements for the years ended September 30
as follows:
<TABLE>
<CAPTION>
1994 1993
---- ----
(dollars in thousands)
<S> <C> <C>
Provision for income taxes $ 132 $ (209)
Unrealized (loss) on securities available
for sale (1,536) --
-------- ------
$ (1,404) $ (209)
======== ======
</TABLE>
F-18
<PAGE> 138
PLAINS SPIRIT FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Retained earnings as of September 30, 1994 include
approximately $12,500,000 for which no provision for
income taxes has been made.
<TABLE>
The provision for income tax differed from the amounts
computed by applying the U.S. federal income tax rates to
income before income taxes as a result of the following:
<CAPTION>
1994 1993 1992
---- ---- ----
(dollars in thousands)
<S> <C> <C> <C>
Expected income tax expense at
federal tax rate $ 2,391 $ 2,287 $ 1,523
State income taxes, net of
federal income tax benefit 222 222 148
Other (254) (50) 47
------- ------- -------
Provision for income
taxes $ 2,359 $ 2,459 $ 1,718
======= ======= =======
</TABLE>
NOTE 10. EMPLOYEE BENEFITS
The Bank has adopted a qualified tax-exempt thrift plan
under Section 401(k) of the IRS Code (the 401(k) Plan).
All employees who have completed one year of employment,
during which they worked at least 1,000 hours, are
eligible to participate. Under the savings plan, an
eligible employee may defer up to 10% of current year's
compensation up to a maximum of $9,240. The Bank
currently provides a matching contribution up to a maximum
of 5% of the participant's salary. In addition, the Bank
may make, at the discretion of the Board of Directors,
additional year-end supplemental contributions based upon
the profit levels of the Bank. The Bank's contributions
to the 401(k) Plan in 1994, 1993 and 1992 were $233,000,
$200,000 and $142,000, respectively.
The Bank has a cash bonus program for officers of Vice
President and above. The award of a cash bonus is
predicated on achieving certain performance goals for the
Bank. The amount of the cash bonus varies by officer
category and is calculated as a percentage of income
before taxes and bonuses. The bonus expense for fiscal
years ended September 30, 1994, 1993 and 1992 was
$181,000, $186,000 and $104,000, respectively.
The Company established a Recognition and Retention Plan
(RRP) for key officers. Under the terms of the RRP,
awards may be granted in the form of shares of common
stock. The awards are subject to a vesting schedule over
a five year period on a ratable basis. Distribution of
vested awards are subject to certain conditions, one of
which is continued service. For the fiscal years ended
September 30, 1994 and 1993, vested awards, included in
compensation expense, totaled $127,000 and $207,000,
respectively.
F-19
<PAGE> 139
PLAINS SPIRIT FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company has also established a Stock Option and
Incentive Plan (Stock Option Plan). The Stock Option Plan
provides for up to 207,000 shares of common stock to be
issued to participants. Under the terms of the Stock
Option Plan, participants may include any employee of the
Company or the Bank selected by a Committee of the
Company's Board of Directors, each of whom shall be a
Disinterested Person. The option price of any options
granted may not be less than the fair market value of the
common stock on the date of the grant. There were no
grants of options during fiscal years ended September 30,
1994 and 1993.
<TABLE>
The following summarizes stock option transactions:
<CAPTION>
Number Exercise
of Shares Price
----------------------------------------------------------------------------
<S> <C> <C>
Balance, March 11, 1992 0 $0.00
Granted 201,618 $11.50 - $15.13
Exercised 0 $0.00
Forfeited 0 $0.00
----------------------------------------------------------------------------
Balance, September 30, 1992 201,618 $11.50 - $15.13
Granted 0 $0.00
Exercised (19,432) $11.50
Forfeited 0 $0.00
----------------------------------------------------------------------------
Balance, September 30, 1993 182,186 $11.50 - $15.13
Granted 0 $0.00
Exercised (16,358) $11.50
Forfeited 0 $0.00
----------------------------------------------------------------------------
Balance, September 30, 1994 165,828 $11.50 - $15.13
</TABLE>
NOTE 11. FINANCIAL INSTITUTIONS REFORM, RECOVERY
AND ENFORCEMENT ACT (FIRREA) OF 1989 AND
FEDERAL DEPOSIT INSURANCE CORPORATION IMPROVEMENT
ACT (FDICIA) OF 1991
FIRREA was signed into law on August 9, 1989; regulations for
savings institutions' minimum-capital requirements went into
effect on December 7, 1989. In addition to the capital
requirements, FIRREA includes provisions for changes in the
federal regulatory structure for institutions, including a
new deposit insurance system, increased deposit insurance
premiums, and restricted investment activities with respect
to non-investment-grade corporate debt and certain other
investments. FIRREA also increases the required ratio of
housing-related assets needed to qualify as a savings
institution. The regulations require institutions to have
minimum regulatory tangible capital equal to 1.5% of total
assets, 3% core capital ratio, and for December 31, 1990 a
7.2% risk-based capital ratio. The risk-based capital-ratio
requirement increased to 8% on December 31, 1992. At
September 30, 1994, the Bank exceeded all three of the
aforementioned capital requirements.
F-20
<PAGE> 140
PLAINS SPIRIT FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FDICIA, which was signed by the President on December 19,
1991, results in extensive changes to the federal banking
laws. The primary purpose of the law is to authorize
additional borrowings by the FDIC in order to provide funds
for the resolution of failing financial institutions. FDICIA
institutes certain changes to the supervisory process and
contains various provisions that may affect the operations of
depository institutions as the Bank.
NOTE 12. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET
RISK AND COMMITMENTS AND CONTINGENCIES
The Bank is also a party to financial instruments with off-
balance sheet risk including commitments to extend credit,
purchase and/or sale of loans and purchase of investment
securities. Management assesses the risk related to these
instruments for potential loss. At September 30, 1994 and
1993 the Bank had classified real estate loans as held for
sale in the amount of $1,084,000 and $12,620,000 (market
values of $1,096,000 and $13,005,000), respectively.
In the normal course of business, there are outstanding
various commitments and contingent liabilities, such as
commitments to disburse loan funds, which are not reflected
in the accompanying financial statements. The Bank does not
anticipate any material losses as a result of these
transactions.
In addition to undisbursed loan funds, outstanding mortgage
loan commitments at September 30, 1994, amounted to
$10,500,000 at interest rates ranging from 5.000% to 9.750%.
Within six months, the Bank assumes these loan commitments
will be disbursed. All loans have yields which approximate
the market rate at September 30, 1994. The Bank also has
outstanding master loan commitments to sell newly originated
mortgage loans of approximately $28,110,000 and commitments
to purchase newly originated mortgage loans of approximately
$2,530,000 at September 30, 1994.
NOTE 13. CONCENTRATION OF CREDIT RISK
The Bank generally originates single-family residential loans
within its primary lending area. The Bank's underwriting
policies require such loans to be made 80% or less loan-to-
value, based upon appraised values, unless private mortgage
insurance is obtained. These loans are collateralized by the
underlying properties. The Bank also originates consumer
loans which may be unsecured, may be secured by underlying
collateral or may be guaranteed.
NOTE 14. STOCKHOLDERS' EQUITY
At the time of conversion from a mutual to a stock savings
bank in March 1992, the Bank established a liquidation
account of $27,912,000. The liquidation account is
maintained for the benefit of eligible account holders who
continue to maintain their deposit account at the Bank after
the conversion. The liquidation account will be reduced
annually to the extent that
F-21
<PAGE> 141
PLAINS SPIRIT FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
eligible account holders have reduced their qualifying
deposits. Subsequent increases will not restore an eligible
account holder's interest in the liquidation account. Only in
the unlikely event of a complete liquidation of the Bank would
each eligible account holder be entitled to receive a
distribution from the liquidation account in an amount
proportionate to the current adjusted qualifying balances for
accounts then held. At September 30, 1994, the balance of the
liquidation account had been reduced to $3,980,000.
Regulations require the Company's subsidiary bank to meet
three separate statutory capital requirements. As of
September 30, 1994, they are a tangible capital requirement
of 1.50% and a core capital requirement of 3.00% of adjusted
total assets, as well as a risk-based capital requirement of
8.00% of risk-weighted assets.
<TABLE>
The following is a reconciliation of the Company's
consolidated stockholders' equity for financial reporting
purposes to the Bank's tangible, core and risk-based capital
available to meet its regulatory requirements:
<CAPTION>
1994 1993
---- ----
(dollars in thousands)
<S> <C> <C>
Plains Spirit Financial Corporation
stockholders' equity as reported in the
accompanying financial statements $ 53,177 $ 53,952
Less: Capitalization of parent company 14,707 11,868
Phase-out of investment in
nonincludable subsidiary 214 249
-------- --------
Tangible capital/Core capital 38,256 41,835
Plus: General loss reserves 1,731 1,581
Less: Assets required to be deducted 156 --
-------- --------
Risk-based capital $ 39,831 $ 43,416
======== ========
F-22
<PAGE> 142
PLAINS SPIRIT FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
</TABLE>
<TABLE>
The following presents the Bank's capital levels and ratios
relative to its minimum capital requirements as a percent of
regulatory assets for the category as of September 30:
<CAPTION>
1994 1993
------------------------- -----------------------
Percent Percent
Amount of Assets Amount of Assets
------ --------- ------ ---------
(dollars in thousands)
<S> <C> <C> <C> <C>
Tangible capital $ 38,256 8.93% $ 41,835 12.60%
Tangible capital requirements 6,416 1.50 4,972 1.50
-------- ----- -------- -----
Excess $31,840 7.43% $36,863 11.10%
======== ===== ======== =====
Core capital 38,256 8.93 41,835 12.60
Core capital requirement 12,832 3.00 9,944 3.00
-------- ----- -------- -----
Excess $25,424 5.93% $31,891 9.60%
======== ===== ======== =====
Risk-based capital 39,831 20.10 43,416 26.85
Risk-based capital requirement 15,851 8.00 12,933 8.00
-------- ----- -------- -----
Excess $23,980 12.10% $30,483 18.85%
======== ===== ======== =====
</TABLE>
Effective January 1, 1994, the Office of Thrift
Supervision (OTS) adopted a final rule that adds interest
rate risk to the risk-based capital requirement for thrift
institutions. Those institutions with a greater than
normal interest rate exposure must take a deduction from
the total capital available to meet their risk-based
capital requirement. That deduction is equal to one-half
of the difference between the institution's actual
measured exposure and the normal level of exposure. The
institution's actual measured interest rate risk is
expressed as the change that occurs in its net portfolio
value (NPV) as a result of a hypothetical 200 basis point
increase or decrease in interest rates (whichever leads to
a lower NPV) divided by the estimated economic value of
its assets. An above normal decline in NPV is one that
exceeds 2 percent of an institution's assets expressed in
terms of economic value. The OTS, through the use of its
computer model, will calculate changes in each
institution's NPV based on financial data the institution
submits in its Thrift Financial Report. OTS will then
advise each institution of its interest rate risk capital
requirement.
Effective October 13, 1994, the OTS waived the interest
rate risk capital deduction until OTS publishes the
process under which institutions may appeal such capital
deduction. The Bank believes it can currently meet its
risk-based capital requirement after taking into account
the expected new interest rate risk requirement.
Current regulations allow the Bank to pay dividends on its
stock if its regulatory capital would not thereby be
reduced below the amount then required for the
aforementioned liquidation
F-23
<PAGE> 143
PLAINS SPIRIT FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
account. Also capital distribution regulations limit the Bank's
ability to make capital distributions which include dividends,
stock redemptions, and repurchases, cash-out mergers, interest
payments on certain convertible debt and other transactions
charged to the capital account based on their capital level and
supervisory condition. Federal regulations also preclude any
repurchase of the stock of the Bank for three years after
conversion except for purchases of qualifying shares of a
director and repurchases pursuant to an offer made on a pro rata
basis to all stockholders and with prior approval of the OTS or
pursuant to an open-market stock repurchase program with certain
regulatory criteria.
The Bank is a tier one savings institution. A tier one
savings institution has pro forma capital ratios, after
any proposed capital distributions equal to or greater
than its fully phased in capital requirement. The Bank is
allowed, after advance notice to the OTS, to distribute up
to 100 percent of net income earned to the date of
distribution during the calendar year plus one-half of any
capital, in excess of its fully phased-in requirement,
that existed as of the beginning of the year. The Bank
may also pay dividends in excess of the above specified
limits upon notice to the OTS.
NOTE 15. EARNINGS PER SHARE
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
(dollars in thousands except per share data)
<S> <C> <C> <C>
Primary:
Earnings before cumulative effect of
accounting change $ 4,472 $ 4,268 $ 2,761
Cumulative effect of an accounting change -- 405 --
------- ------- -------
Net earnings applicable to common stock and common
stock equivalents $ 4,472 $ 4,673 $ 2,761
======= ======= =======
Average number of common shares outstanding 1,942 1,991 2,060
Common stock equivalents on stock options 85 95 --
------- ------- -------
Total 2,027 2,086 2,060
======= ======= =======
Primary earnings per common share:
Earnings before
cumulative effect of an accounting change $ 2.21 $ 2.05 $ 1.34
Cumulative effect of an accounting change -- .19 --
------- ------- -------
Primary earnings per share $ 2.21 $ 2.24 $ 1.34
======= ======= =======
Fully diluted earnings per share $ 2.21 $ 2.24 $ 1.34
======= ======= =======
</TABLE>
F-24
<PAGE> 144
PLAINS SPIRIT FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16. FAIR VALUES OF FINANCIAL INSTRUMENTS
<TABLE>
Fair value of the Bank's financial instruments are summarized as
follows:
<CAPTION>
Amortized Fair
Cost Value
--------- -----
(dollars in thousands)
<S> <C> <C>
At September 30, 1994:
Assets:
Cash and short-term investments $ 3,714 $ 3,714
Investment securities 128,234 123,070
Mortgage-backed securities 53,566 52,271
Loans receivable 234,674 222,968
Loans receivable available for sale 1,084 1,096
Liabilities:
Deposits:
Demand deposits and savings accounts 78,589 78,589
Certificate of deposit 175,037 174,843
FHLB advances 112,750 111,385
At September 30, 1993:
Assets:
Cash and short-term investments $ 5,663 $ 5,663
Investment securities 60,248 60,653
Mortgage-backed securities 34,560 35,312
Loans receivable 210,088 231,753
Loans receivable available for sale 12,620 13,005
Liabilities:
Deposits:
Demand deposits and savings accounts 87,186 87,186
Certificate of deposit 162,648 163,991
FHLB advances 22,500 22,780
</TABLE>
F-25
<PAGE> 145
PLAINS SPIRIT FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The fair value of cash and short-term investments
approximates the carrying value. The fair values of loans
receivable available for sale and loans receivable held in
portfolio are based on current market prices and market
assumptions for securities backed by similar loan types.
The fair values of investment and mortgage-backed
securities are based on the quoted market prices.
The fair value of demand deposits and savings accounts
approximates the carrying value. The fair value of
certificates of deposit is estimated using the Bank's
rates offered for deposits of like remaining terms as of
September 30, 1994. The fair value of FHLB advances is
estimated based on rates for borrowings with similar
remaining terms.
Off-balance items consists of loan commitments and
servicing rights. Loan commitments of $10,500,000 have
fair value approximately equal to aggregate loan
commitments. The Bank services $206,550,000 of loans for
third parties. The fair value of the servicing rights
approximates $3,025,000. The fair value of servicing
rights is based on comparable market value of similar loan
portfolios.
NOTE 17. PARENT ONLY CONDENSED FINANCIAL INFORMATION
<TABLE>
STATEMENTS OF FINANCIAL CONDITION
SEPTEMBER 30, 1994 AND 1993
<CAPTION>
1994 1993
-------- --------
(dollars in thousands)
ASSETS
<S> <C> <C>
Cash $ 14,091 $ 11,346
Investment in subsidiary 38,469 42,084
Accounts receivable and other assets 874 827
-------- --------
53,434 54,257
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accrued expense 257 305
-------- --------
Stockholders' equity:
Serial preferred stock, par value $.01; authorized
1,000,000 shares; no shares issued and outstanding -- --
Common stock, par value $.01; authorized 5,000,000
shares; issued and outstanding 1994, 1,881,990 shares;
1993, 1,964,332 20 20
Additional paid-in capital 22,698 22,437
Retained earnings 32,861 31,495
Net unrealized holding (loss) for securities
classified as available for sale, net of tax (2,402) --
-------- --------
Total stockholders' equity 53,177 53,952
-------- --------
$ 53,434 $ 54,257
======== ========
</TABLE>
F-26
<PAGE> 146
PLAINS SPIRIT FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
STATEMENTS OF INCOME
YEARS ENDED SEPTEMBER 30, 1994, 1993 AND 1992
<CAPTION>
1994 1993 1992
-------- -------- --------
(dollars in thousands)
<S> <C> <C> <C>
Income:
Interest income $ 355 $ 320 $ --
Other income 36 27 --
------- ------- -------
Total Income 391 347 --
------- ------- -------
Expenses:
Compensation and benefits 160 534 141
Other 276 233 73
------- ------- -------
Total expenses 436 767 214
------- ------- -------
(Loss) before income taxes and equity in
undistributed earnings of subsidiary (45) (420) (214)
Provision for income taxes (benefit) -- (168) (96)
------- ------- -------
(Loss) before equity in
undistributed earnings of subsidiary (45) (252) (118)
Equity in undistributed earnings of subsidiary 4,517 4,925 2,879
------- ------- -------
Net income $ 4,472 $ 4,673 $ 2,761
======= ======= =======
</TABLE>
F-27
<PAGE> 147
PLAINS SPIRIT FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
STATEMENTS OF CASH FLOW
YEARS ENDED SEPTEMBER 30, 1994, 1993 AND 1992
<CAPTION>
1994 1993 1992
-------- -------- --------
(dollars in thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 4,472 $ 4,673 $ 2,761
Adjustments to reconcile net income
to net cash provided by operating
activities:
Equity in undistributed earnings of subsidiary (4,517) (4,925) (2,879)
Depreciation 1 1 --
(Increase) in other assets (48) (732) (96)
Increase to accrued expenses (48) 131 174
-------- -------- --------
Net cash (used in)
operating activities (140) (852) (40)
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in subsidiary -- -- (40,005)
Dividends received from subsidiary 5,730 2,846 1,756
-------- -------- --------
Net cash provided by (used in) investing
activities 5,730 2,846 (38,249)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Contribution of capital -- -- 29,071
Dividends paid to stockholders (947) (594) (204)
Net proceeds from issuance of common stock 432 609 21,848
Repurchase of common stock (2,330) (1,520) (1,569)
-------- -------- --------
Net cash (used in) financing
activities (2,845) (1,505) 49,146
-------- -------- --------
Increase in cash and cash equivalents 2,745 489 10,857
Cash and cash equivalents:
Beginning 11,346 10,857 --
-------- -------- --------
Ending $ 14,091 $ 11,346 $ 10,857
======== ======== ========
</TABLE>
F-28
<PAGE> 148
PLAINS SPIRIT FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 18. SUPPLEMENTAL DATA (UNAUDITED)
The following table presents summarized data for each of the four
quarters in the years ended September 30, 1994, 1993 and 1992.
<TABLE>
<CAPTION>
Fourth Third Second First
------ ----- ------ -----
(dollars in thousands
except per share data)
<S> <C> <C> <C> <C>
1994
- ----
Total interest income $ 7,288 $ 6,368 $ 5,523 $ 5,628
Total interest expense 3,861 3,184 2,591 2,635
Net income 1,093 1,116 867 1,396
Earnings per share 0.56 0.55 0.42 0.68
1993
- ----
Total interest income 5,513 5,985 6,009 6,276
Total interest expense 2,729 2,812 2,833 3,195
Net income before cumulative
effect of an accounting change 982 1,099 1,068 1,119
Cumulative effect of an
accounting change -- -- -- 405
Net income 982 1,099 1,068 1,524
Earnings per share:
Earnings per share before cumulative
effect of an accounting change 0.48 0.53 0.50 0.54
Cumulative effect of an
accounting change -- -- -- 0.19
Net income 0.48 0.53 0.50 0.73
1992
- ----
Total interest income 6,701 6,789 6,628 6,844
Total interest expense 3,569 3,919 4,209 4,688
Net income 1,003 672 640 446
Earnings per share 0.49 0.32 0.31 0.22
</TABLE>
NOTE 19. QUARTERLY INFORMATION
In the opinion of management, the unaudited consolidated
financial statements for the Company as of March 31, 1995 and
1994 contain all adjustments (all of which were normal recurring
accruals) necessary for a fair presentation. The results of
operations for the interim periods are not necessarily indicative
of the results which may be expected for an entire year.
F-29
<PAGE> 149
===============================================================================
AGREEMENT AND PLAN OF MERGER
between
MERCANTILE BANCORPORATION INC. and
MERCANTILE BANCORPORATION INC. OF IOWA
as Buyers,
and
PLAINS SPIRIT FINANCIAL CORPORATION
as Seller
----------------------------
Dated December 23, 1994
===============================================================================
A
<PAGE> 150
<TABLE>
<CAPTION>
TABLE OF CONTENTS Page
<C> <S> <C>
ARTICLE I THE MERGER . . . . . . . . . . . . . . . . . . . . 2
1.01. The Merger . . . . . . . . . . . . . . . . . . . . 2
1.02. Closing. . . . . . . . . . . . . . . . . . . . . . 2
1.03. Effective Time . . . . . . . . . . . . . . . . . . 2
1.04. Additional Actions . . . . . . . . . . . . . . . . 3
1.05. Articles of Incorporation and Bylaws . . . . . . . 3
1.06. Boards of Directors and Officers . . . . . . . . . 4
1.07. Conversion of Securities . . . . . . . . . . . . . 4
1.08. Conversion Election Procedures.. . . . . . . . . . 6
1.09. Exchange Procedures. . . . . . . . . . . . . . . . 13
1.10. No Fractional Shares . . . . . . . . . . . . . . . 17
1.11. Closing of Stock Transfer Books. . . . . . . . . . 18
1.12. Anti-Dilution Adjustments. . . . . . . . . . . . . 18
1.13. Reservation of Right to Revise Transaction . . . . 18
ARTICLE II REPRESENTATIONS, WARRANTIES AND COVENANTS OF
SELLER. . . . . . . . . . . . . . . . . . . . . . . . . . . 19
2.01. Organization and Authority . . . . . . . . . . . . 19
2.02. Subsidiaries . . . . . . . . . . . . . . . . . . . 20
2.03. Capitalization . . . . . . . . . . . . . . . . . . 21
2.04. Authorization. . . . . . . . . . . . . . . . . . . 22
2.05. Seller Financial Statements. . . . . . . . . . . . 25
2.06. Seller Reports . . . . . . . . . . . . . . . . . . 25
2.07. Title to and Condition of Assets . . . . . . . . . 26
2.08. Real Property. . . . . . . . . . . . . . . . . . . 27
2.09. Taxes. . . . . . . . . . . . . . . . . . . . . . . 29
2.10. Material Adverse Change. . . . . . . . . . . . . . 31
2.11. Loans, Commitments and Contracts . . . . . . . . . 31
2.12. Absence of Defaults. . . . . . . . . . . . . . . . 36
2.13. Litigation and Other Proceedings . . . . . . . . . 37
2.14. Directors' and Officers' Insurance . . . . . . . . 38
2.15. Compliance with Laws . . . . . . . . . . . . . . . 38
2.16. Labor. . . . . . . . . . . . . . . . . . . . . . . 42
2.17. Material Interests of Certain Persons. . . . . . . 42
2.18. Allowance for Loan and Lease Losses; Non-
Performing Assets. . . . . . . . . . . . . . . . . 43
2.19. Employee Benefit Plans . . . . . . . . . . . . . . 44
2.20. Conduct of Seller to Date. . . . . . . . . . . . . 48
2.21. Absence of Undisclosed Liabilities . . . . . . . . 50
2.22. Proxy Statement, etc.. . . . . . . . . . . . . . . 51
2.23. Registration Obligations . . . . . . . . . . . . . 52
2.25. Brokers and Finders. . . . . . . . . . . . . . . . 52
2.26. Interest Rate Risk Management Instruments. . . . . 53
2.27. Accuracy of Information. . . . . . . . . . . . . . 53
ARTICLE III REPRESENTATIONS, WARRANTIES AND COVENANTS OF
BUYERS. . . . . . . . . . . . . . . . . . . . . . . . . . . 54
3.01. Organization and Authority . . . . . . . . . . . . 54
3.02. Capitalization of Mercantile . . . . . . . . . . . 54
3.03. Authorization. . . . . . . . . . . . . . . . . . . 57
A-i
<PAGE> 151
<CAPTION>
Page
----
<C> <S> <C>
3.04. Mercantile Financial Statements. . . . . . . . . . 59
3.05. Mercantile Reports . . . . . . . . . . . . . . . . 60
3.06. Material Adverse Change. . . . . . . . . . . . . . 60
3.07. Legal Proceedings or Other Adverse Facts . . . . . 61
3.08. Registration Statement, etc. . . . . . . . . . . . 61
3.09. Brokers and Finders. . . . . . . . . . . . . . . . 62
3.10. Accuracy of Information. . . . . . . . . . . . . . 62
3.11. Tax and Regulatory Matters . . . . . . . . . . . . 62
3.12. Compliance with Laws . . . . . . . . . . . . . . . 63
ARTICLE IV CONDUCT OF BUSINESSES PRIOR TO THE EFFECTIVE
TIME. . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
4.01. Conduct of Businesses Prior to the Effective
Time . . . . . . . . . . . . . . . . . . . . . . . 63
4.02. Forbearances of Seller . . . . . . . . . . . . . . 64
4.03. Forbearances of Buyers . . . . . . . . . . . . . . 69
ARTICLE V ADDITIONAL AGREEMENTS. . . . . . . . . . . . . . . 70
5.01. Access and Information . . . . . . . . . . . . . . 70
5.02. Registration Statement; Regulatory Matters . . . . 73
5.03. Stockholder Approval . . . . . . . . . . . . . . . 74
5.04. Current Information. . . . . . . . . . . . . . . . 74
5.05. Agreements of Affiliates . . . . . . . . . . . . . 75
5.06. Expenses . . . . . . . . . . . . . . . . . . . . . 76
5.07. Miscellaneous Agreements and Consents. . . . . . . 76
5.08. Employee Agreements and Benefits . . . . . . . . . 77
5.09. Employee Stock Options . . . . . . . . . . . . . . 78
5.10. Press Releases . . . . . . . . . . . . . . . . . . 80
5.11. State Takeover Statutes. . . . . . . . . . . . . . 80
5.12. Directors' and Officers' Indemnification . . . . . 80
5.13. Tax Opinion Certificates . . . . . . . . . . . . . 81
ARTICLE VI CONDITIONS . . . . . . . . . . . . . . . . . . . . 81
6.01. Conditions to Each Party's Obligation To Effect
the Merger . . . . . . . . . . . . . . . . . . . . 81
6.02. Conditions to Obligations of Seller To Effect
the Merger . . . . . . . . . . . . . . . . . . . . 82
6.03. Conditions to Obligations of Buyers To Effect
the Merger . . . . . . . . . . . . . . . . . . . . 84
ARTICLE VII TERMINATION, AMENDMENT AND WAIVER. . . . . . . . . 85
7.01. Termination. . . . . . . . . . . . . . . . . . . . 85
7.02. Effect of Termination. . . . . . . . . . . . . . . 88
7.03. Amendment. . . . . . . . . . . . . . . . . . . . . 88
7.04. Waiver . . . . . . . . . . . . . . . . . . . . . . 89
A-ii
<PAGE> 152
<CAPTION>
Page
----
<C> <S> <C>
ARTICLE VIII GENERAL PROVISIONS . . . . . . . . . . . . . . . . 89
8.01. Non-Survival of Representations, Warranties and
Agreements . . . . . . . . . . . . . . . . . . . . 89
8.02. Indemnification. . . . . . . . . . . . . . . . . . 90
8.03. No Assignment; Successors and Assigns. . . . . . . 91
8.04. No Implied Waiver. . . . . . . . . . . . . . . . . 91
8.05. Headings . . . . . . . . . . . . . . . . . . . . . 91
8.06. Entire Agreement . . . . . . . . . . . . . . . . . 91
8.07. Counterparts . . . . . . . . . . . . . . . . . . . 92
8.08. Notices. . . . . . . . . . . . . . . . . . . . . . 92
8.09. Severability . . . . . . . . . . . . . . . . . . . 94
8.10. Governing Law. . . . . . . . . . . . . . . . . . . 94
Exhibit A Stockholder Tax Certificate
Exhibit B Form of Affiliate Agreement
Exhibit C Officer/Director Tax Certificate
Exhibit D Form of Opinion of Counsel at Mercantile
Exhibit E Form of Opinion of Counsel of Seller
A-iii
<PAGE> 153
AGREEMENT AND PLAN OF MERGER
----------------------------
This AGREEMENT AND PLAN OF MERGER (this "Agreement") is
made and entered into on December 23, 1994 by and between
MERCANTILE BANCORPORATION INC., a Missouri corporation
("Mercantile"), MERCANTILE BANCORPORATION INC. OF IOWA, an Iowa
corporation ("Merger Sub" and, collectively with Mercantile, the
"Buyers") and PLAINS SPIRIT FINANCIAL CORPORATION, a Delaware
corporation ("Seller").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Merger Sub is a wholly owned subsidiary of
Mercantile, and each of Mercantile and Merger Sub is a registered
bank holding company under the Bank Holding Company Act of 1956, as
amended (the "BHCA"); and
WHEREAS, Seller is a registered savings and loan holding
company under the Home Owners' Loan Act, as amended (the "HOLA");
and
WHEREAS, the respective Boards of Directors of Seller and
Merger Sub and the Executive Committee of the Board of Directors of
Mercantile have approved the merger (the "Merger") of Seller with
and into Merger Sub pursuant to the terms and subject to the
conditions of this Agreement; and
WHEREAS, the parties desire to provide for certain
undertakings, conditions, representations, warranties and covenants
in connection with the transactions contemplated by this Agreement.
NOW THEREFORE, in consideration of the premises and the
representations, warranties and agreements herein contained, the
parties agree as follows:
A-1
<PAGE> 154
ARTICLE I
---------
THE MERGER
1.01. The Merger. (a) Subject to the terms and
----------
conditions of this Agreement, Seller shall be merged with and into
Merger Sub in accordance with Section 490.1106 of the Iowa Business
Corporation Act (the "Iowa Act") and the Delaware General
Corporation Law (the "DGCL") and the separate corporate existence
of Seller shall cease. Merger Sub shall be the surviving
corporation of the Merger (sometimes referred to herein as the
"Surviving Corporation") and shall continue to be governed by the
laws of the State of Iowa.
1.02. Closing. The closing (the "Closing") of the
-------
Merger shall take place at 10:00 a.m., local time, on the date that
the Effective Time (as defined in Section 1.03) occurs (the
"Closing Date"), or at such other time, and at such place, as
Buyers and Seller shall agree.
1.03. Effective Time. The Merger shall become
--------------
effective on the date and at the time (the "Effective Time") on
which a duly certified, executed and acknowledged copy of the
Articles of Merger in respect of the Merger is filed with the
Secretary of State of the State of Iowa in such form as required
by, and in accordance with, the relevant provisions of the Iowa
Act. Unless otherwise mutually agreed in writing by Buyers and
Seller, subject to the terms and conditions of this Agreement, the
Effective Time shall occur on such date as Buyers shall notify
Seller in writing (such notice to be at least five business days in
advance of the Effective Time) but (i) not earlier than the
A-2
<PAGE> 155
satisfaction of all conditions set forth in Section 6.01(a) and
6.01(b) (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. As soon as practicable
following the Effective Time, Buyers and Seller shall cause the
Articles of Merger to be delivered for filing and recordation with
appropriate state or local officials in the State of Delaware in
accordance with the DGCL.
1.04. Additional Actions. If, at any time after the
------------------
Effective Time, Buyers or the Surviving Corporation shall consider
or be advised that any further deeds, assignments or assurances or
any other acts are necessary or desirable to (a) vest, perfect or
confirm, of record or otherwise, in the Surviving Corporation its
right, title or interest in, to or under any of the rights,
properties or assets of Seller or Merger Sub or (b) otherwise carry
out the purposes of this Agreement, Seller and Merger Sub and each
of their respective officers and directors, shall be deemed to have
granted to the Surviving Corporation an irrevocable power of
attorney to execute and deliver all such deeds, assignments or
assurances and to do all acts necessary or desirable to vest,
perfect or confirm title and possession to such rights, properties
or assets in the Surviving Corporation and otherwise to carry out
the purposes of this Agreement, and the officers and directors of
the Surviving Corporation are authorized in the name of Seller or
otherwise to take any and all such action.
1.05. Articles of Incorporation and Bylaws. The
------------------------------------
Articles of Incorporation and Bylaws of Merger Sub in effect
A-3
<PAGE> 156
immediately prior to the Effective Time shall be the Articles of
Incorporation and Bylaws of the Surviving Corporation following the
Merger until otherwise amended or repealed.
1.06. Boards of Directors and Officers. At the
--------------------------------
Effective Time, the directors and officers of Merger Sub
immediately prior to the Effective Time shall be directors and
officers, respectively, of the Surviving Corporation following the
Merger and such directors and officers shall hold office in
accordance with the Surviving Corporation's Bylaws and applicable
law.
1.07. Conversion of Securities. At the Effective Time,
------------------------
by virtue of the Merger and without any action on the part of
Buyers, Seller or the holder of any of the following securities:
(a) Each share of the common stock, $1.00 par
value, of Merger Sub that is issued and outstanding immediately
prior to the Effective Time shall remain outstanding and shall be
unchanged after the Merger and shall thereafter constitute all of
the issued and outstanding capital stock of the Surviving
Corporation; and
(b) Subject to Sections 1.08(f) and 1.10
hereof, each share of the common stock, $0.01 par value ("Seller
Common Stock"), of Seller issued and outstanding immediately prior
to the Effective Time shall cease to be outstanding and each such
share shall be converted into and become the right to receive
either:
A-4
<PAGE> 157
(i) the right to receive an amount in
cash equal to $31.25 per share (the "Cash Distribution");
or
(ii) the right to receive such number of shares
(or fraction thereof) of common stock of Mercantile,
$5.00 par value, with associated "Rights" under the
"Rights Agreement" (as those terms are defined in Section
3.03 hereof) (collectively, Mercantile Common Stock"), as
shall equal the quotient of (A) the Cash Distribution and
(B) the Average Mercantile Stock Price (the "Stock
Distribution"),
as the holder thereof shall elect or be deemed to have elected as
provided in Section 1.08 of this Agreement (the aggregate of the
Cash Distributions and the Stock Distributions payable or issuable
pursuant to the Merger is sometimes hereinafter referred to as the
"Merger Consideration"); provided, however, that any shares of
-------- -------
Seller Common Stock held by Seller or any of its wholly owned
"Subsidiaries" (as defined in Rule 1-02 of Regulation S-X
promulgated by the Securities and Exchange Commission (the "SEC")),
or Buyers or any of their wholly owned Subsidiaries, in each case
other than in a fiduciary capacity or as a result of debts
previously contracted shall be cancelled and shall not be exchanged
for the Merger Consideration.
The "Average Mercantile Stock Price" means the average
(rounded to the nearest whole cent) of the closing stock price of
one share of Mercantile Common Stock on The New York Stock Exchange
("NYSE") -- Composite Transaction List for the ten (10) consecutive
A-5
<PAGE> 158
trading days ending on and including the date of the later of (i)
the approval of the Merger by the Federal Reserve Board or (ii) the
approval of the Merger by the Office of Thrift Supervision (the
"OTS"), or in the absence thereof, as reported in The Wall Street
---------------
Journal.
- -------
1.08. Conversion Election Procedures.
------------------------------
(a) Concurrently with the mailing of the
"Proxy Statement" (as defined in Section 2.22 of this Agreement,
including the prospectus contained in the "Registration Statement"
(also as defined in Section 2.22 of this Agreement)) to the
stockholders of Seller, Buyers shall cause the "Exchange Agent" (as
defined below) to mail to each holder of record of Seller Common
Stock a form of election (an "Election Form") on which such holder
shall make the election as provided for in Section 1.08(b) of this
Agreement. Each Election Form provided to a holder of 1% or more
of the Seller Common Stock shall incorporate a certificate
substantially in the form of Exhibit A hereto (the
"Certification"). Buyers shall cause an Election Form and other
appropriate materials for purposes of making the election provided
for in Section 1.08(b) of this Agreement to be sent to each holder
of Seller Common Stock who Seller advises Buyers has become a
holder after the record date of the special meeting of stockholders
called to vote upon this Agreement and the Merger. "Exchange
Agent" means KeyCorp Shareholders Services, Inc., or such other
bank or trust company or affiliate thereof selected by Buyers and
reasonably acceptable to Seller to effect the exchange of
A-6
<PAGE> 159
certificates formerly representing shares of Seller Common Stock
(the "Certificates") for the Merger Consideration.
(b) Each Election Form shall specify the
amount of Merger Consideration receivable for each share of Seller
Common Stock in the Cash Distribution and the Stock Distribution
and shall permit a holder to elect to receive, as provided in
Section 1.07 of this Agreement, (i) the Cash Distribution (in which
case, such holder's shares shall be deemed to be and shall be
referred to herein as "Cash Election Shares") or (ii) the Stock
Distribution (in which case, such holder's shares shall be deemed
to be and shall be referred to herein as "Stock Election Shares").
(c) Any shares of Seller Common Stock with
respect to which the holder thereof shall not, as of the "Election
Deadline" (as defined below), have made an election to receive
either the Cash Distribution or the Stock Distribution (such
holder's shares being deemed to be and shall be referred to herein
as "No Election Shares") by submission to the Exchange Agent of an
effective, properly completed Election Form shall be deemed to be
Cash Election Shares, except as set forth in Section 1.08(f) of
this Agreement. Any holder of 1% or more of the Seller Common
Stock (determined as of the Closing Date) that shall not, on or
before the Election Date, have delivered to the Exchange Agent a
properly executed Certification (or such other representations as
Thompson & Mitchell, in its sole discretion, shall deem acceptable)
shall be deemed to have made a timely election to receive the Cash
Distribution, and all shares of Seller Common Stock held by such
holder shall be deemed to be Cash Election Shares for all purposes
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<PAGE> 160
of this Agreement, including Section 1.08(f). (The parties
acknowledge that the foregoing sentence will preclude a holder that
acquires additional shares of Seller Common Stock and becomes a
holder of 1% or more of such shares after the Election Deadline
from receiving the Stock Distribution.) "Election Deadline" means
5:00 p.m., local time, on the date of the special meeting of
stockholders called to vote upon this Agreement and the Merger.
(d) For purposes of Section 1.08(f) of this
Agreement, any shares ("Option Shares") of Seller Common Stock that
are subject to outstanding "Seller Employee Stock Options" (as
defined below) shall be deemed to be Stock Election Shares and such
Option Shares shall not be subject to pro rata reduction, if
required, of the Stock Distribution issuable in conversion of Stock
Election Shares as set forth in Section 1.08(f) of this Agreement.
(e) Any election for purposes of Section
1.08(b) of this Agreement shall be effective only if the Exchange
Agent shall have received a properly completed Election Form by the
Election Deadline. Any Election Form may be revoked or changed by
the person submitting such Election Form or any other person to
whom the subject shares are subsequently transferred by written
notice by such person to the Exchange Agent provided such notice is
received by the Exchange Agent at or prior to the Election
Deadline. All Election Forms shall be deemed to be revoked if the
Exchange Agent is notified in writing by either Buyers or Seller
that this Agreement has been terminated in accordance with its
terms. The Exchange Agent shall have reasonable discretion to
determine when any election, modification or revocation is received
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and whether any such election, modification or revocation is
effective, consistent with the duty of the Exchange Agent to give
effect to such elections, modifications or revocations to the
maximum extent possible.
(f) As soon as practicable after the Election
Deadline, Buyers shall cause the Exchange Agent to allocate among
the holders of Seller Common Stock the rights to receive the Cash
Distribution or the Stock Distribution pursuant to the Merger as
follows:
(i) if the number of shares of
Mercantile Common Stock distributable in respect of the
Stock Election Shares is less than the "Stock Conversion
Number" (as defined below), then
(A) all Stock Election Shares
will be converted into the right to receive the
Stock Distribution, and
(B) all Cash Election Shares will
be converted into the right to receive the Cash
Distribution; provided, however, that if the
-------- -------
number of shares issuable to all holders of
Stock Election Shares is insufficient in the
reasonable judgment of Thompson & Mitchell to
allow it to render the opinion required by
Section 6.01(e) of this Agreement, then,
Thompson & Mitchell will advise the Exchange
Agent as soon as practicable on or after the
Closing Date as to the number of additional
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shares of Mercantile Common Stock that will be
required to be issued as Stock Distribution in
the Merger in order to allow Thompson & Mitchell
to render such opinion in its reasonable
judgment. Upon receipt of such advice, the
Exchange Agent shall:
(1) first, reallocate the Merger
Consideration payable to each holder of
No Election Shares pro rata (based upon
the number of No Election Shares owned by
such holder as compared with the total
number of No Election Shares owned by all
holders) such that the holders of No
Election Shares will receive the number
of shares of Mercantile Common Stock as
Stock Distributions which in the
aggregate will be equal to the number of
shares set forth in Thompson & Mitchell's
notice to the Exchange Agent and will
receive the balance of the Merger
Consideration due to them, if any, in
cash as Cash Distributions;
(2) if the reallocation set forth
in the immediately preceding paragraph is
not sufficient to allow the issuance of
the number of shares of Mercantile Common
Stock set forth in Thompson & Mitchell's
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notice to the Exchange Agent, then,
reallocate the Merger Consideration
payable to each holder of Cash Election
Shares, other than No Election Shares,
pro rata (based upon the number of Cash
Election Shares, other than No Election
Shares, owned by such holder as compared
with the total number of Cash Election
Shares, other than No Election Shares,
owned by all holder) such that the
holders of Cash Election Shares, other
than No Election Shares, will receive the
number of shares of Mercantile Common
Stock as Stock Distributions which in the
aggregate will be equal to the number of
shares set forth in the Thompson &
Mitchell notice to the Exchange Agent
less the shares of Mercantile Common
Stock issuable pursuant to the
immediately preceding paragraph and will
receive the balance of the Merger
Consideration, if any, due them as Cash
Distributions.
(ii) if the number of shares of
Mercantile Common Stock distributable in respect of the
Stock Election Shares is greater than the Stock
Conversion Number then:
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(A) all Cash Election Shares will
be converted into the right to receive the Cash
Distribution;
(B) the Exchange Agent will
reallocate the Merger Consideration payable to
each holder of Stock Election Shares, other than
Option Shares, pro rata (based upon the number
of Stock Election Shares, other than Option
Shares, owned by such holder, as compared with
the total number of Stock Election Shares, other
than Option Shares, owned by all holders) such
that the holders of the Stock Election Shares,
including holders of Option Shares, will receive
the number of shares of Mercantile Common Stock
as Stock Distributions which in the aggregate
will be equal to the Stock Conversion Number and
will receive the balance of the Merger
Consideration due to them in cash as Cash
Distributions.
"Stock Conversion Number" means 1,400,000 shares of Mercantile
Common Stock.
(g) The pro rata computations to be used by
the Exchange Agent shall be made by the Exchange Agent, in the
reasonable exercise of its discretion.
(h) Each separate entry on Seller's list of
stockholders shall be presumed to represent a separate and distinct
holder of record of Seller Common Stock. Shares held of record by
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a bank, trust company, broker, dealer or other recognized nominee
shall be deemed to be held by a single holder unless the nominee
advises the Exchange Agent otherwise, in which case, each
beneficial owner will be treated as a separate holder and either
directly or through such nominee may submit a separate Election
Form.
(i) Any provisions of the preceding paragraphs
of this Section 1.08 to the contrary notwithstanding, if a holder
of Seller Common Stock in two or more different names so certifies
in writing on or before the Election Deadline, such stockholder may
submit a single Election Form for all such shares subject to the
certification and shall be treated for purposes of this Section
1.08 as a single holder.
1.09. Exchange Procedures.
-------------------
(a) At the Effective Time, Mercantile shall
have granted the Exchange Agent the requisite power and authority
to effect for Buyers the issuance of the number of shares of
Mercantile Common Stock to be issued in the Merger and the payment
of the amount of cash to be paid in the Merger.
(b) As soon as practicable after the Effective
Time, the Exchange Agent shall mail to each holder of record of
shares of Seller Common Stock as of the Closing Date, a notice of
the consummation of the Merger and a form of letter of transmittal
pursuant to which each such holder shall transmit the Certificate
or Certificates or, in lieu thereof, such evidence of lost, stolen
or mutilated Certificate or Certificates and such surety bond or
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<PAGE> 166
other security as the Exchange Agent may reasonably require. Such
letters of transmittal shall specify that risk of loss and title to
the Certificate or Certificates shall pass only upon delivery of
such Certificate or Certificates to the Exchange Agent.
(c) Subject to Section 1.11, after the
Effective Time, each holder of a Certificate that surrenders such
Certificate or, in lieu thereof, the required documentation for a
lost, stolen or mutilated Certificate (the "Required
Documentation") to the Exchange Agent will, upon acceptance thereof
by the Exchange Agent, be entitled to a certificate or certificates
representing the stock component of the Merger Consideration and/or
a payment representing the cash component of the Merger
Consideration.
(d) The Exchange Agent shall accept
Certificates or, in lieu thereof, the Required Documentation upon
compliance with such reasonable terms and conditions as the
Exchange Agent may impose to effect an orderly exchange thereof in
accordance with customary exchange practices. Certificates shall
be appropriately endorsed or accompanied by such instruments of
transfer as the Exchange Agent may reasonably require. If the
tender of a Certificate or the Required Documentation is not in
compliance with such reasonable terms and conditions, the Exchange
Agent shall promptly return the Certificate or Required
Documentation with instructions as to how to comply with such terms
and conditions.
(e) Each outstanding Certificate shall until
duly surrendered to the Exchange Agent be deemed to evidence
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<PAGE> 167
ownership of the Merger Consideration into which the shares of
Seller Common Stock represented by such Certificate shall have been
converted pursuant to the Merger.
(f) After the Effective Time, holders of
Certificates shall cease to have rights with respect to the shares
of Seller Common Stock previously represented by such Certificates,
and such holder's sole rights shall be to exchange such
Certificates for the Merger Consideration issuable in the Merger.
After the Effective Time, there shall be no further transfer on the
records of Seller of Certificates, and if such Certificates are
presented to Seller for transfer, they shall be cancelled against
delivery of the Merger Consideration issuable or payable in the
Merger. Neither Buyer nor the Exchange Agent shall be obligated to
deliver the Merger Consideration to which any holder of Seller
Common Stock is entitled as a result of the Merger until such
holder surrenders the Certificates or furnishes the Required
Documentation as provided herein. No interest will be accrued or
paid on the cash component of the Merger Consideration. No
dividends or distributions declared after the Effective Time
(including any redemption by Mercantile of the Rights associated
therewith) on the Mercantile Common Stock representing the stock
component of the Merger Consideration will be remitted to any
person entitled to receive the Merger Consideration under this
Agreement until such person surrenders the Certificate or
Certificates or furnishes the Required Documentation, at which time
such dividends or distributions shall be remitted to such person,
without interest and less any taxes that may have been imposed
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thereon. Certificates surrendered for exchange by any person
constituting an "affiliate" of Seller for purposes of Rule 145 of
the Securities Act of 1933, as amended (the "Securities Act"),
shall not be exchanged for certificates representing Mercantile
Common Stock until Mercantile has received a written agreement from
such person as specified in Section 5.05. Neither the Exchange
Agent nor any party to this Agreement nor any affiliate thereof
shall be liable to any holder of shares of Seller Common Stock
represented by any Certificate for any Merger Consideration
issuable or payable in the Merger paid to a public official
pursuant to applicable abandoned property, escheat or similar laws.
Buyers and the Exchange Agent shall be entitled to rely upon the
stock transfer books of Seller to establish the identity of those
persons entitled to Merger Consideration, specified in this
Agreement, which books shall be conclusive with respect thereto.
In the event of a dispute with respect to ownership of the shares
of Seller Common Stock represented by any Certificate, Buyers and
the Exchange Agent shall 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. The Exchange Agent shall not be entitled to vote or
exercise any rights of ownership with respect to shares of
Mercantile Common Stock held by it pursuant to this Section 1.09
from time to time hereunder.
(g) No transfer taxes shall be payable by any
of the holders of Seller Common Stock in respect to the issuance of
certificates for Mercantile Common Stock and no expenses shall be
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<PAGE> 169
imposed on such holders in connection with the conversion at the
Effective Time of shares of Seller Common Stock into shares of
Mercantile Common Stock and the cash consideration pursuant to the
Merger and the delivery of such shares of Mercantile Common Stock
to the holders of Seller Common Stock, except that (i) if any
certificate evidencing Mercantile Common Stock is to be issued in
a name other than that in which the Certificate or Certificates
surrendered shall have been registered, it shall be a condition to
such issuance that the person requesting such issuance shall pay to
Buyers or the Exchange Agent any transfer taxes payable by reason
thereof or of any prior transfer of such surrendered Certificate or
Certificates or establish to the satisfaction of Buyers or the
Exchange Agent that such taxes have been paid or are not payable,
and (ii) nothing herein shall relieve any of the holders of Seller
Common Stock of any expenses associated with surrendering such
holder's Certificate or Certificates to the Exchange Agent after
the Effective Time.
1.10. No Fractional Shares. Notwithstanding any other
--------------------
provision of this Agreement, neither certificates nor scrip for
fractional shares of Mercantile Common Stock shall be issued in the
Merger. Each holder who otherwise would have been entitled to a
fraction of a share of Mercantile Common Stock shall receive in
lieu thereof cash (without interest) in an amount determined by
multiplying the fractional share interest to which such holder
would otherwise be entitled by the Average Mercantile Stock Price.
No such holder shall be entitled to dividends, voting rights or any
other rights in respect of any fractional share.
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<PAGE> 170
1.11. Closing of Stock Transfer Books. The stock
-------------------------------
transfer books of Seller shall be closed at the end of business on
the Business Day immediately preceding the Closing Date. In the
event of a transfer of ownership of Seller Common Stock which is
not registered in the transfer records prior to the closing of such
record books, the Merger Consideration issuable with respect to
such stock may be delivered to the transferee, if the Certificate
or Certificates representing such stock is presented to the
Exchange Agent accompanied by all documents required to evidence
and effect such transfer and all applicable stock transfer taxes
are paid.
1.12. Anti-Dilution Adjustments. If, between the date
-------------------------
of this Agreement and the Effective Time, Mercantile shall declare
a stock dividend, or make distributions upon, or subdivide, split
up, reclassify or combine Mercantile Common Stock or declare a
dividend or make a distribution on Mercantile Common Stock in any
security convertible into Mercantile Common Stock, appropriate and
proportional adjustment or adjustments will be made to the stock
component of the Merger Consideration such that the stock
component, as adjusted, shall result in the issuance of that number
of shares of Mercantile Common Stock or other securities as if the
declaration or payment of such dividend, distribution, subdivision,
split-up, reclassification or combination of such shares of
Mercantile Common Stock had a record or payment date therefor
immediately after the Effective Time.
1.13. Reservation of Right to Revise Transaction.
------------------------------------------
Buyers may at any time change the method of effecting the
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<PAGE> 171
acquisition of Seller by Buyers (including without limitation the
provisions of this Article I) if and to the extent Buyers deem such
change to be desirable, including without limitation to provide for
(i) a merger of Merger Sub with and into Seller, in which Seller is
the Surviving Corporation, or (ii) a merger of Seller directly into
Mercantile, in which Mercantile is the Surviving Corporation,
provided, however, that no such change shall (A) alter or change
- -------- -------
the amount or kind of the Merger Consideration, (B) adversely
affect the tax treatment to Seller stockholders as a result of
receiving the Merger Consideration or (C) materially impede or
delay receipt of any approval referred to in Section 6.01(b) or the
consummation of the transactions contemplated by this Agreement.
ARTICLE II
----------
REPRESENTATIONS, WARRANTIES AND COVENANTS OF SELLER
As an inducement to Buyers to enter into and perform
their respective obligations under this Agreement, and
notwithstanding any examination, inspection, audit or any other
investigation made by Buyers, Seller represents and warrants to and
covenants with Buyers as follows:
2.01. Organization and Authority. Seller is a
--------------------------
corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware, is duly qualified to do
business and is in good standing in all jurisdictions where its
ownership or leasing of property or the conduct of its business
requires it to be so qualified and has corporate power and
authority to own its properties and assets and to carry on its
business as it is now being conducted, except where the failure to
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<PAGE> 172
be so qualified would not have a material adverse effect on the
Condition (as defined below) of Seller and the Seller Subsidiaries
taken as a whole. Seller is registered as a savings and loan
holding company with the OTS under the HOLA. True and complete
copies of the Certificate of Incorporation and Bylaws of Seller and
of the Charter and Bylaws of First Federal Savings Bank of Iowa,
its wholly owned, federally-chartered stock savings bank ("Bank"),
each as in effect on the date of this Agreement, have been provided
to Buyers.
2.02. Subsidiaries.
------------
(a) Schedule 2.02 sets forth, a complete and
-------------
correct list of all of Seller's Subsidiaries (each a "Seller
Subsidiary" and collectively the "Seller Subsidiaries"), all
outstanding Equity Securities (as defined in Section 2.03) of each
of which, except as set forth on Schedule 2.02, are owned directly
-------------
or indirectly by Seller. Except as set forth on Schedule 2.02, all
-------------
of the outstanding shares of capital stock of the Seller
Subsidiaries owned directly or indirectly by Seller are validly
issued, fully paid and nonassessable and are owned free and clear
of any lien, claim, charge, option, encumbrance, agreement,
mortgage, pledge, security interest or restriction (a "Lien") with
respect thereto. Each of the Seller Subsidiaries is a corporation
or savings bank duly incorporated or organized and validly existing
under the laws of its jurisdiction of incorporation or
organization, and has corporate power and authority to own or lease
its properties and assets and to carry on its business as it is now
being conducted. Each of the Seller Subsidiaries is duly qualified
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<PAGE> 173
to do business in each jurisdiction where its ownership or leasing
of property or the conduct of its business requires it so to be
qualified, except where the failure to so qualify would not have a
material adverse effect on the financial condition, results of
operations or business (collectively, the "Condition") of Seller
and the Seller Subsidiaries, taken as a whole. Except as set forth
on Schedule 2.02, and except for shares of stock of the Federal
-------------
Home Loan Bank of Des Moines (the "FHL Bank"), neither Seller nor
any Seller Subsidiary owns beneficially, directly or indirectly,
any shares of any class of Equity Securities or similar interests
of any corporation, bank, business trust, association or
organization or any interest in a partnership or joint venture of
any kind.
(b) Bank is a stock savings bank chartered
under the HOLA. The deposits of Bank are insured up to applicable
limits by the Federal Deposit Insurance Corporation (the "FDIC")
through the Savings Association Insurance Fund ("SAIF"). Bank is
a member of the FHL Bank. Bank is a "domestic building and loan
association" as defined in Section 7701(a)(19) of the Internal
Revenue Code of 1986, as amended (the "Code").
2.03. Capitalization. The authorized capital stock of
--------------
Seller consists of (i) 5,000,000 shares of Seller Common Stock, of
which, as of November 30, 1994, 1,881,990 shares were issued and
outstanding (excluding 276,700 shares of Seller Common Stock held
as Treasury Shares) and (ii) 1,000,000 shares of Preferred Stock,
$0.01 par value, of which none were issued or outstanding as of
that date. As of November 30, 1994, Seller had reserved 269,100
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<PAGE> 174
shares of Seller Common stock for issuance under Seller's stock
option and incentive plans, a list of which is set forth on
Schedule 2.03 (the "Seller Stock Plans"), pursuant to which options
- -------------
("Seller Employee Stock Options") covering 165,828 shares of Seller
Common Stock were outstanding as of November 30, 1994. Since
November 30, 1994, no Equity Securities of Seller have been issued,
other than shares of Seller Common Stock which may have been issued
upon the exercise of Seller Employee Stock Options. "Equity
Securities" of an issuer means capital stock or other equity
securities of such issuer, options, warrants, scrip, rights to
subscribe to, calls or commitments of any character whatsoever
relating to, or securities or rights convertible into, shares of
any capital stock or other Equity Securities of such issuer, or
contracts, commitments, understandings or arrangements by which
such issuer is or may become bound to issue additional shares of
its capital stock or other Equity Securities of such issuer, or
options, warrants, scrip or rights to purchase, acquire, subscribe
to, calls on or commitments for any shares of its capital stock or
other Equity Securities. Except as set forth above, there are no
other Equity Securities of Seller outstanding. All of the issued
and outstanding shares of Seller Common Stock are validly issued,
fully paid, and nonassessable, and have not been issued in
violation of any preemptive right of any stockholder of Seller.
2.04. Authorization.
-------------
(a) Seller has the corporate power and
authority to enter into this Agreement and, subject to the approval
of this Agreement by the stockholders of Seller and Regulatory
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<PAGE> 175
Authorities, to carry out its obligations hereunder. The only
stockholder vote required for Seller to approve this Agreement is
the affirmative vote of the holders of a majority of the
outstanding shares of Seller Common Stock entitled to vote at a
meeting called for such purpose. The execution, delivery and
performance of this Agreement by Seller and the consummation by
Seller of the transactions contemplated hereby in accordance with
and subject to the terms of this Agreement have been duly
authorized by the Board of Directors of Seller. Subject to the
approval of Seller's stockholders and subject to the receipt of
such approvals of the Regulatory Authorities (as defined in Section
2.06) as may be required by statute or regulation, this Agreement
is a valid and binding obligation of Seller enforceable against
Seller in accordance with its terms.
(b) Neither the execution nor delivery nor
performance by Seller of this Agreement, nor the consummation by
Seller of the transactions contemplated hereby, nor compliance by
Seller with any of the provisions hereof, will (i) violate,
conflict with, or result in a breach of any provisions of, or
constitute a default (or an event which, with notice or lapse of
time or both, would constitute a default) under, or result in the
termination of, or accelerate the performance required by, or
result in a right of termination or acceleration of, or result in
the creation of, any Lien upon any of the properties or assets of
Seller or any of the Seller Subsidiaries under any of the terms,
conditions or provisions of (x) its articles or certificate of
incorporation or bylaws or (y) any note, bond, mortgage, indenture,
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<PAGE> 176
deed of trust, license, lease, agreement or other instrument or
obligation to which Seller or any of the Seller Subsidiaries is a
party or by which it may be bound, or to which Seller or any of the
Seller Subsidiaries or any of the properties or assets of Seller or
any of the Seller Subsidiaries may be subject, or (ii) subject to
compliance with the statutes and regulations referred to in
subsection (c) of this Section 2.04 violate any judgment, ruling,
order, writ, injunction, decree, statute, rule or regulation
applicable to Seller or any of the Seller Subsidiaries or any of
their respective properties or assets; other than violations,
conflicts, breaches, defaults, terminations, accelerations or Liens
which would not have a material adverse effect on the Condition of
Seller and the Seller Subsidiaries, taken as a whole.
(c) Other than in connection or in compliance
with the provisions of the Iowa Act and the DGCL, the Securities
Act of 1933 and the rules and regulations thereunder (the
"Securities Act"), the Securities Exchange Act of 1934 and the
rules and regulations thereunder (the "Exchange Act"), the
securities or blue sky laws of the various states or filings,
consents, reviews, authorizations, approvals or exemptions required
under the BHCA, the Federal Deposit Insurance Act, the HOLA and the
Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR
Act"), no notice to, filing with, exemption or review by, or
authorization, consent or approval of, any public body or authority
is necessary for the consummation by Seller of the transactions
contemplated by this Agreement.
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<PAGE> 177
2.05. Seller Financial Statements.
---------------------------
(a) Attached hereto as Schedule 2.05(a) is a
----------------
copy of the Seller's Annual Report on Form 10-K for the year ended
September 30, 1994.
(b) The financial statements contained in the
document referenced in Schedule 2.05(a) are referred to
----------------
collectively as the "Seller Financial Statements." The Seller
Financial Statements have been prepared in accordance with
generally accepted accounting principles ("GAAP") consistently
applied during the periods involved, and present fairly the
consolidated financial positions of Seller and the Seller
Subsidiaries, at the dates thereof and the consolidated results of
operations and cash flows of Seller and the Seller Subsidiaries for
the periods stated therein.
(c) Seller Subsidiaries have each prepared,
kept and maintained through the date hereof true, correct and
complete financial and other books and records of their affairs
which fairly reflect their respective financial conditions, results
of operations, assets and operations.
2.06. Seller Reports. Since January 1, 1991, each of
--------------
Seller and the Seller Subsidiaries has filed all material reports,
registrations and statements, together with any required amendments
thereto, that it was required to file with (i) the SEC, including,
but not limited to, Forms 10-K, Forms 10-Q, Forms 8-K and proxy
statements, (ii) OTS, (iii) the FHL Bank and the Federal Home Loan
Bank System (the "FHLBS"), (iv) the FDIC and (v) any other federal,
state, municipal, local or foreign government, securities, banking,
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<PAGE> 178
savings and loan, insurance and other governmental or regulatory
authority and the agencies and staffs thereof (the entities in the
foregoing clauses (i) through (v) being referred to herein
collectively as the "Regulatory Authorities" and individually as a
"Regulatory Authority"). All such reports and statements filed
with any such Regulatory Authority are collectively referred to
herein as the "Seller Reports." As of each of their respective
dates, the Seller Reports complied in all material respects with
all the rules and regulations promulgated by the applicable
Regulatory Authority. With respect to Seller Reports filed with
the SEC, such reports did not contain any untrue statement of a
material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made,
not misleading, and with respect to Seller Reports filed with other
Regulatory Authorities, there is no unresolved violation, criticism
or exception by any Regulatory Authority with respect to any report
or statement filed by, or any examinations of, Bank.
2.07. Title to and Condition of Assets.
--------------------------------
(a) Except as may be reflected in the Seller
Financial Statements or as set forth on Schedule 2.07(a) and with
----------------
the exception of all "Real Property" (which is the subject of
Section 2.08 hereof), Seller or the Seller Subsidiaries has, and at
the Closing Date will have, good and marketable title to its owned
properties and assets, including, without limitation, those
reflected in the Seller Financial Statements (except those disposed
of since the date thereof), free and clear of any Lien, except for
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<PAGE> 179
Liens for (i) taxes, assessments or other governmental charges not
yet delinquent and (ii) as set forth or described in the Seller
Financial Statements or any subsequent Seller financial statements
filed with the SEC or delivered to Buyers prior to the Effective
Time.
(b) No material properties or assets that are
reflected as owned by Seller or the Seller Subsidiaries in the
Seller Financial Statements as of September 30, 1994 have been
sold, leased, transferred, assigned or otherwise disposed of since
September 30, 1994, except in the ordinary course of business or as
set forth in Schedule 2.07(b) under the heading "Dispositions."
----------------
(c) All furniture, fixtures, vehicles,
machinery and equipment and computer software owned or used by
Seller or the Seller Subsidiaries, including any such items leased
as a lessee, (taken as a whole as to each of the foregoing with no
single item deemed to be of material importance) are in good
working order and free of known defects, subject only to normal
wear and tear. The operation by Seller or the Seller Subsidiaries
of such properties and assets is in compliance in all material
respects with all applicable laws, ordinances and rules and
regulations of any governmental authority having jurisdiction over
such use.
2.08. Real Property. Except as set forth in Schedule
-------------
2.08:
- ----
(a) The legal description, or address or plat
in the case of joint venture properties, of each parcel of real
property owned by Seller or any of the Seller Subsidiaries (other
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<PAGE> 180
than real property acquired in foreclosure or in lieu of
foreclosure in the course of the collection of loans and being held
by Seller or a Seller Subsidiary for disposition as required by
law) is set forth in Schedule 2.08(a) under the heading "Owned Real
----------------
Property" (such real property being herein referred to as the
"Owned Real Property"). The legal description, or address only for
Cub Store locations, of each parcel of real property leased by
Seller or any of the Seller Subsidiaries is also set forth in
Schedule 2.08(a) under the heading "Leased Real Property" (such
- ----------------
real property being herein referred to as the "Leased Real
Property"). Collectively, the Owned Real Property and the Leased
Real Property is herein referred to as the "Real Property."
(b) There is no pending dispute involving
Seller or any of the Seller Subsidiaries as to the title of or the
right to use any of the Real Property.
(c) Neither Seller nor any of the Seller
Subsidiaries has any interest in any other real property except
interests as a mortgagee, and except for any real property acquired
in foreclosure or in lieu of foreclosure and being held for
disposition as required by law.
(d) To the best knowledge of Seller, none of
the buildings, structures or other improvements located on the Real
Property encroaches upon or over any adjoining parcel of real
estate or any easement or right-of-way or "setback" line in any
material respect and all such buildings, structures and
improvements are in all material respects located and constructed
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in conformity with all applicable zoning ordinances and building
codes.
(e) None of the buildings, structures or
improvements located on the Owned Real Property are the subject of
any official complaint or notice by any governmental authority of
violation of any applicable zoning ordinance or building code and
there is no zoning ordinance, building code, use or occupancy
restriction or condemnation action or proceeding pending, or, to
the best knowledge of Seller, threatened, with respect to any such
building, structure or improvement. To the best knowledge of
Seller, the Owned Real Property is in generally good condition,
ordinary wear and tear excepted, and has been maintained in
accordance with reasonable and prudent business practices
applicable to like facilities.
(f) Except as may be reflected in the Seller
Financial Statements or with respect to such easements, Liens,
defects or encumbrances as do not individually or in the aggregate
materially adversely affect the use or value of the parcel of Owned
Real Property, Seller and the Seller Subsidiaries have, and at the
Closing Date will have, good and marketable title to their
respective Owned Real Properties.
2.09. Taxes. Seller and each Seller Subsidiary have
-----
timely filed or will timely (including extensions) file all
material tax returns required to be filed at or prior to the
Closing Date ("Seller Returns"). Each of Seller and the Seller
Subsidiaries has paid, or set up adequate reserves on the Seller
Financial Statements for the payment of, all taxes required to be
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paid in respect of the periods covered by such returns and has set
up adequate reserves on the most recent Seller Financial Statements
for the payment of all taxes anticipated to be payable in respect
of all periods up to and including the latest period covered by
such Seller Financial Statements. Neither Seller nor any Seller
Subsidiary has any liability material to the Condition of Seller
and the Seller Subsidiaries, taken as a whole, for any such taxes
in excess of the amounts so paid or reserves so established and no
material deficiencies for any tax, assessment or governmental
charge have been proposed, asserted or assessed (tentatively or
definitely) against any of Seller or any of the Seller Subsidiaries
which would not be covered by existing reserves. Except as set
forth in Schedule 2.09, neither Seller nor any of the Seller
-------------
Subsidiaries is delinquent in the payment of any tax, assessment or
governmental charge, nor has it requested any extension of time
within which to file any tax returns in respect of any fiscal year
which have not since been filed and no requests for waivers of the
time to assess any tax are pending. The most recent federal and
state income tax returns of Seller and the Seller Subsidiaries to
have been audited by the Internal Revenue Service (the "IRS") or
appropriate state tax authorities are the returns for 1982 which
audits have been completed and settled. There is no deficiency or
refund litigation or, to the best of Seller's knowledge, matter in
controversy with respect to Seller Returns. Except as set forth on
Schedule 2.09, neither Seller nor any of the Seller Subsidiaries
- -------------
has extended or waived any statute of limitations on the assessment
of any tax due that is currently in effect.
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2.10. Material Adverse Change. Since September 30,
-----------------------
1994, there has been no material adverse change in the Condition of
Seller and the Seller Subsidiaries, taken as a whole, except as may
have resulted or may result from changes to laws and regulations,
GAAP or regulatory accounting principles, or interpretations
thereof, or changes in economic conditions, including interest
rates, applicable to thrift institutions generally.
2.11. Loans, Commitments and Contracts.
--------------------------------
(a) Schedule 2.11(a) contains a complete and
----------------
accurate listing as of the date hereof of all contracts entered
into with respect to deposits of $500,000 or more, by account or
other identifying number, and all loan agreements and commitments,
notes, security agreements, repurchase agreements, bankers'
acceptances, outstanding letters of credit and commitments to issue
letters of credit, participation agreements, and other documents
relating to or involving extensions of credit and other commitments
to extend credit by Seller or any of the Seller Subsidiaries with
respect to any one entity or related group of entities in excess of
$500,000, to which any of the foregoing is a party or by which it
is bound, by account or other identifying number, and, where
applicable, such other information as shall be necessary to
identify any related group of entities.
(b) Except for the contracts and agreements
required to be listed on Schedule 2.11(a) and except as set forth
----------------
in Schedule 2.11(b) or any other Schedule to this Agreement, as of
----------------
the date hereof neither Seller nor any of the Seller Subsidiaries
is a party to or is bound by any:
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(i) agreement, contract, arrangement,
understanding or commitment with any labor union;
(ii) franchise or license agreement;
(iii) written employment, severance or
termination pay, agency, consulting or similar agreement
or commitment in respect of personal services;
(iv) any material agreement, arrangement
or commitment (A) not made in the ordinary course of
business, or (B) pursuant to which Seller or any of the
Seller Subsidiaries is or may become obligated to invest
in or contribute to any Seller Subsidiary other than
pursuant to Seller Employee Plans (as that term is
defined in Section 2.19 hereof) and agreements relating
to joint ventures or partnerships set forth in Schedule
--------
2.02, true and complete copies of which have been
----
furnished to Buyers;
(v) any agreement, indenture or other
instrument not disclosed in the Seller Financial
Statements relating to the borrowing of money by Seller
or any of the Seller Subsidiaries or the guarantee by
Seller or any of the Seller Subsidiaries of any such
obligation (other than trade payables or instruments
related to transactions entered into in the ordinary
course of business by Seller or any of the Seller
Subsidiaries, such as deposits, Fed Funds borrowings, FHL
Bank advances and repurchase and reverse repurchase
agreements), other than such agreements, indentures or
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<PAGE> 185
instruments providing for annual payments of less than
$50,000;
(vi) any contract containing covenants
which limit the ability of Seller or any of the Seller
Subsidiaries to compete in any line of business or with
any person or which involves any restrictions on the
geographical area in which, or method by which, Seller or
any of the Seller Subsidiaries may carry on their
respective businesses (other that as may be required by
law or any applicable Regulatory Authority);
(vii) any other contract or agreement
which is a "material contract" within the meaning of Item
601(b)(10) of Regulation S-K as promulgated by the SEC to
be performed after the date of this Agreement that has
not been filed or incorporated by reference in the Seller
Reports;
(viii) any lease with annual rental
payments aggregating $50,000 or more;
(ix) loans or other obligations payable
or owing to any officer, director or employee except (A)
salaries, wages and directors' fees incurred and accrued
in the ordinary course of business and (B) obligations
due in respect of any depository accounts maintained by
any of the foregoing at the Seller Subsidiaries in the
ordinary course of business;
(x) loans or debts payable or owing by
any executive officer or director of Seller or any of the
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<PAGE> 186
Seller Subsidiaries or any other person or entity deemed
an "executive officer" or a "related interest" of any of
the foregoing, as such terms are defined in Regulation O
of the Federal Reserve Board;
(xi) other agreement, contract,
arrangement, understanding or commitment involving an
obligation by Seller or any of the Seller Subsidiaries of
more than $50,000 and extending beyond six months from
the date hereof that cannot be cancelled without cost or
penalty upon notice of 30 days or less, other than
contracts entered into in respect of deposits, loan
agreements, and commitments, notes, security agreements,
repurchase and reverse repurchase agreements, bankers'
acceptances, outstanding letters of credit and
commitments to issue letters of credit, participation
agreements and other documents relating to transactions
entered into by Seller or any of the Seller Subsidiaries
in the ordinary course of business and not involving
extensions of credit with respect to any one entity or
related group of entities in excess of $250,000.
(c) Seller and/or the Seller Subsidiaries
carry property, liability, products liability and other insurance
coverage as set forth in Schedule 2.11(c) under the heading
----------------
"Insurance."
(d) True, correct and complete copies of the
agreements, contracts, leases, insurance policies and other
documents referred to in Schedules 2.11 (a), (b) and (c) have been
-------------------------------
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<PAGE> 187
or shall be furnished or made available to Buyers at the offices of
Seller.
(e) To the best knowledge of Seller, each of
the agreements, contracts, leases, insurance policies and other
documents referred to in Schedules 2.11 (a), (b) and (c) is a
-------------------------------
valid, binding and enforceable obligation of the parties sought to
be bound thereby, except as the enforceability thereof against the
parties thereto (other than Seller or any of the Seller
Subsidiaries) may be limited by bankruptcy, insolvency,
reorganization, moratorium and other laws now or hereafter in
effect relating to the enforcement of creditors' rights generally,
and except that equitable principles may limit the right to obtain
specific performance or other equitable remedies.
(f) Schedule 2.11(f) under the heading "Loans"
----------------
contains a true, correct and complete listing, as of the date of
this Agreement, by account or other identifying number, of (i) all
loans in excess of $100,000 of the Seller or any of the Seller
Subsidiaries which have been accelerated during the past twelve
months, (ii) all loan commitments or lines of credit of Seller and
any of the Seller Subsidiaries in excess of $100,000 which have
been terminated by Seller or any of the Seller Subsidiaries during
the past twelve months by reason of default or adverse developments
in the condition of the borrower or other events or circumstances
affecting the credit of the borrower, (iii) all loans, lines of
credit and loan commitments in excess of $100,000 as to which
Seller or any of the Seller Subsidiaries has given written notice
of its intent to terminate during the past twelve months, (iv) with
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<PAGE> 188
respect to all loans in excess of $100,000 all notification letters
and other written communications from Seller or any of the Seller
Subsidiaries to any of their respective borrowers, customers or
other parties during the past twelve months wherein Seller or any
of the Seller Subsidiaries has requested or demanded that actions
be taken to correct existing defaults or facts or circumstances
which may become defaults, (v) each borrower, customer, or other
party which has notified Seller or any of the Seller Subsidiaries
during the past twelve months of, or has asserted against Seller or
any of the Seller Subsidiaries, in writing, any "lender liability"
or similar claim, and, to the best knowledge of Seller, each
borrower, customer or other party which has given Seller or any of
the Seller Subsidiaries any oral notification of, or orally
asserted against Seller or any of the Seller Subsidiaries, any such
claim, and (vi) all loans in excess of $100,000 (A) that are
contractually past due 90 days or more in the payment of principal
and/or interest, (B) that are on non-accrual status, (C) where a
reasonable doubt exists as to the timely future collectibility of
principal and/or interest, whether or not interest is still
accruing or the loan is less than 90 days past due, (D) the
interest rate terms have been reduced and/or the maturity dates
have been extended subsequent to the agreement under which the loan
was originally created due to concerns regarding the borrower's
ability to pay in accordance with such initial terms, or (E) where
a specific reserve allocation exists in connection therewith.
2.12. Absence of Defaults. Neither Seller nor any of
-------------------
the Seller Subsidiaries is in violation of its charter documents or
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<PAGE> 189
bylaws or in default under any material agreement, commitment,
arrangement, lease, insurance policy, or other instrument, whether
entered into in the ordinary course of business or otherwise and
whether written or oral, and there has not occurred any event that,
with the lapse of time or giving of notice or both, would
constitute such a default, except, in all cases, where such default
would not have a material adverse effect on the Condition of Seller
and the Seller Subsidiaries, taken as a whole.
2.13. Litigation and Other Proceedings. Except as set
--------------------------------
forth on Schedule 2.13, neither Seller nor any of the Seller
-------------
Subsidiaries is a party to any pending or, to the best knowledge of
Seller, threatened claim, action, suit, investigation or
proceeding, or is subject to any order, judgment or decree, except
for matters which, in the aggregate, will not have, or reasonably
could not be expected to have, a material adverse effect on the
Condition of Seller and the Seller Subsidiaries, taken as a whole,
or which purports or seeks to enjoin or restrain the transactions
contemplated by this Agreement. Without limiting the generality of
the foregoing, there are no actions, suits or proceedings pending
or, to the best knowledge of Seller, threatened against Seller or
any of the Seller Subsidiaries or any of their respective officers
or directors by any stockholder of Seller or any of the Seller
Subsidiaries (or any former stockholder of Seller or any of the
Seller Subsidiaries) or involving claims under the Securities Act,
the Exchange Act, the Community Reinvestment Act of 1977, as
amended, or the fair lending laws.
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<PAGE> 190
2.14. Directors' and Officers' Insurance. Each of
----------------------------------
Seller and the Seller Subsidiaries has taken or will take all
requisite action (including without limitation the making of claims
and the giving of notices) pursuant to its directors' and officers'
liability insurance policy or policies in order to preserve all
rights thereunder with respect to all matters (other than matters
arising in connection with this Agreement and the transactions
contemplated hereby) occurring prior to the Effective Time that are
known to Seller, except for such matters which, individually or in
the aggregate, will not have and reasonably could not be expected
to have a material adverse effect on the Condition of Seller and
the Seller Subsidiaries, taken as a whole. Set forth on Schedule
--------
2.14 is a list of all insurance policies maintained by or for the
- ----
benefit of Seller or its Subsidiaries as of the date hereof for
their directors, officers, employees or agents.
2.15. Compliance with Laws.
--------------------
(a) To the best knowledge of Seller, Seller and
each of the Seller Subsidiaries have all permits, licenses,
authorizations, orders and approvals of, and have made all filings,
applications and registrations with, all Regulatory Authorities
that are required in order to permit them to own or lease their
respective properties and assets and to carry on their respective
businesses as presently conducted; all such permits, licenses,
certificates of authority, orders and approvals are in full force
and effect and no suspension or cancellation of any of them is
threatened; and all such filings, applications and registrations
are current; in each case except for permits, licenses,
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<PAGE> 191
authorizations, orders, approvals, filings, applications and
registrations the failure to have (or have made) would not have a
material adverse effect on the Condition of Seller and the Seller
Subsidiaries, taken as a whole.
(b) (i) To the best knowledge of Seller, each
of Seller and the Seller Subsidiaries has complied with all laws,
regulations and orders (including without limitation zoning
ordinances, building codes, the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"), and securities, tax,
environmental, civil rights, and occupational health and safety
laws and regulations and including without limitation in the case
of any Seller Subsidiary that is a bank or savings association,
banking organization, banking corporation or trust company, all
statutes, rules, regulations and policy statements pertaining to
the conduct of a banking, deposit-taking, lending or related
business, or to the exercise of trust powers) and governing
instruments applicable to it and to the conduct of its business,
except where such failure to comply would not have a material
adverse effect on the Condition of Seller and the Seller
Subsidiaries, taken as a whole, and (ii) neither Seller nor any of
the Seller Subsidiaries is in default under, and no event has
occurred which, with the lapse of time or notice or both, could
result in the default under, the terms of any judgment, order,
writ, decree, permit, or license of any Regulatory Authority or
court, whether federal, state, municipal, or local and whether at
law or in equity, except where such default would not have a
material adverse effect on the Condition of Seller and the Seller
A-39
<PAGE> 192
Subsidiaries, taken as a whole. To the best knowledge of Seller,
except as set forth in Schedule 2.15, neither Seller nor any of the
-------------
Seller Subsidiaries is subject to or reasonably likely to incur a
liability as a result of its ownership, operation, or use of any
Property (as defined below) of Seller (whether directly or, to the
best knowledge of Seller, as a consequence of such Property being
part of the investment portfolio of Seller or any of the Seller
Subsidiaries) (A) that is contaminated by or contains any hazardous
waste, toxic substance, or related materials, including without
limitation asbestos, PCBs, pesticides, herbicides, and any other
substance or waste that is hazardous to human health or the
environment (collectively, a "Toxic Substance"), or (B) on which
any Toxic Substance has been stored, disposed of, placed, or used
in the construction thereof; and which, in each case, reasonably
could be expected to have a material adverse effect on the
Condition of Seller and the Seller Subsidiaries, taken as a whole.
"Property" shall include all property (real or personal, tangible
or intangible) owned or controlled by Seller or any of the Seller
Subsidiaries, including without limitation property under
foreclosure, property held by Seller or any of the Seller
Subsidiaries in its capacity as a trustee and property in which any
venture capital or similar unit of Seller or any of the Seller
Subsidiaries has an interest. No claim, action, suit or proceeding
is pending against Seller or any of the Seller Subsidiaries
relating to Property of Seller or any of the Seller Subsidiaries
before any court or other Regulatory Authority or arbitration
tribunal relating to Toxic Substances, pollution or the
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<PAGE> 193
environment, and there is no outstanding judgment, order, writ,
injunction, decree or award against or affecting Seller or any of
the Seller Subsidiaries with respect to the same. Except for
statutory or regulatory restrictions of general application, no
Regulatory Authority has placed any restriction on the business of
Seller or any of the Seller Subsidiaries which reasonably could be
expected to have a material adverse effect on the Condition of
Seller and the Seller Subsidiaries, taken as a whole.
(c) Since December 31, 1991, neither Seller
nor any of the Seller Subsidiaries has received any notification or
communication which has not been resolved from any Regulatory
Authority (i) asserting that any Seller or any of the Seller
Subsidiaries is not in substantial compliance with any of the
statutes, regulations or ordinances that such Regulatory Authority
enforces, except with respect to matters which (A) are set forth on
Schedule 2.15(c) or in any writing previously furnished to Buyers
- ----------------
and (B) reasonably could not be expected to have a material adverse
effect on the Condition of Seller and the Seller Subsidiaries,
taken as a whole, (ii) threatening to revoke any license,
franchise, permit or governmental authorization that is material to
the Condition of Seller and the Seller Subsidiaries, taken as a
whole, including without limitation such company's status as an
insured depository institution under the Federal Deposit Insurance
Act, (iii) requiring or threatening to require Seller or any of the
Seller Subsidiaries, or indicating that Seller or any of the Seller
Subsidiaries may be required, to enter into a cease and desist
order, agreement or memorandum of understanding or any other
A-41
<PAGE> 194
agreement restricting or limiting or purporting to direct, restrict
or limit in any manner the operations of Seller or any of the
Seller Subsidiaries, including without limitation any restriction
on the payment of dividends. No such cease and desist order,
agreement or memorandum of understanding or other agreement is
currently in effect.
(d) Neither Seller nor any of the Seller
Subsidiaries is required by Section 32 of the Federal Deposit
Insurance Act to give prior notice to any federal banking agency of
the proposed addition of an individual to its board of directors or
the employment of an individual as a senior executive officer.
2.16. Labor. No work stoppage involving Seller or any
-----
of the Seller Subsidiaries is pending or, to the best knowledge of
Seller, threatened. Neither Seller nor any of the Seller
Subsidiaries is involved in, or, to the best knowledge of Seller,
threatened with or affected by, any labor dispute, arbitration,
lawsuit or administrative proceeding which reasonably could be
expected to have a material adverse affect on the Condition of
Seller and the Seller Subsidiaries, taken as a whole. None of the
employees of Seller or the Seller Subsidiaries are represented by
any labor union or any collective bargaining organization.
2.17. Material Interests of Certain Persons. Except as
-------------------------------------
set forth in Seller's Proxy Statement for its 1994 Annual Meeting
of Stockholders, to the best knowledge of Seller, no officer or
director of Seller or any Subsidiary of Seller, or any "associate"
(as such term is defined in Rule 14a-1 under the Exchange Act) of
any such officer or director, has any interest in any contract or
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<PAGE> 195
property (real or personal, tangible or intangible), used in, or
pertaining to the business of, Seller or any of the Seller
Subsidiaries, which in the case of Seller is required to be
disclosed by Item 404 of Regulation S-K promulgated by the SEC or
in the case of any of the Seller Subsidiaries would be required to
be so disclosed if such Seller Subsidiary had a class of securities
registered under Section 12 of the Exchange Act.
2.18. Allowance for Loan and Lease Losses; Non-
-----------------------------------------
Performing Assets.
- -----------------
(a) Except as set forth in Schedule 2.18(a):
----------------
(i) all of the accounts, notes, and other receivables which are
reflected in the Seller Financial Statements as of September 30,
1994 were acquired in the ordinary course of business and, to the
best knowledge of Seller, as of September 30, 1994, were
collectible in full in the ordinary course of business, except for
possible loan and lease losses which are adequately provided for in
the allowance for loan and lease losses in such Seller Financial
Statements and (ii) the collection experience of Seller and the
Seller Subsidiaries since September 30, 1994 to the date hereof has
not been materially adverse to the credit and collection experience
of the Seller and the Seller Subsidiaries, taken as a whole, in the
year ended September 30, 1994.
(b) The allowances for loan losses contained
in the Seller Financial Statements were established in accordance
with the past practices and experiences of Seller and the Seller
Subsidiaries, and the allowance for loan and lease losses shown on
the consolidated condensed balance sheet of Seller and the Seller
A-43
<PAGE> 196
Subsidiaries as of September 30, 1994 contained in the most recent
Seller Form 10-K were adequate in all material respects under the
requirements of GAAP to provide for possible losses on loans and
leases (including without limitation accrued interest receivable)
and credit commitments (including without limitation stand-by
letters of credit) as of the date of such balance sheet.
(c) Schedule 2.18(c) sets forth as of the date
----------------
of this Agreement all assets classified as real estate acquired
through foreclosure, including in-substance foreclosed real estate
("Non-Performing Assets").
(d) The aggregate amount of all loans and
leases described in Section 2.11(f)(vi) (regardless of dollar
amount) and all Non-Performing Assets pursuant to Section 2.18(c)
do not exceed one and one-half percent (1.5%) of (i) the gross
amounts of all loans and leases on the books of Seller and the
Seller Subsidiaries, taken as a whole, plus (ii) the aggregate book
value of all Non-Performing Assets.
2.19. Employee Benefit Plans.
----------------------
(a) Schedule 2.19(a) lists all pension,
----------------
retirement, supplemental retirement, stock option, stock purchase,
stock ownership, savings, stock appreciation right, profit sharing,
deferred compensation, consulting, bonus, medical, disability,
workers' compensation, vacation, group insurance, severance and
other employee benefit, incentive and welfare policies, contracts,
plans and arrangements, and all trust agreements related thereto,
maintained by or contributed to by Seller or any of the Seller
Subsidiaries in respect of any of the present or former directors,
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<PAGE> 197
officers, or other employees of and/or consultants to Seller or any
of the Seller Subsidiaries (collectively, "Seller Employee Plans").
Seller has furnished Buyers with the following documents with
respect to each Seller Employee Plan: (i) a true and complete copy
of all written documents comprising such Seller Employee Plan
(including amendments and individual agreements relating thereto)
or, if there is no such written document, an accurate and complete
description of the Seller Employee Plan; (ii) the most recently
filed Form 5500 or Form 5500-C (including all schedules thereto),
if applicable; (iii) the most recent financial statements and
actuarial reports, if any; (iv) the summary plan description
currently in effect and all material modifications thereof, if any;
and (v) the most recent IRS determination letter, if any. Without
limiting the generality of the foregoing, Seller has furnished
Buyers with true and complete copies of each form of stock option
grant or stock option agreement that is outstanding under any stock
option plan of Seller or any of the Seller Subsidiaries.
(b) To the best knowledge of Seller, all
Seller Employee Plans have been maintained and operated in all
material respects in accordance with their terms and the
requirements of all applicable statutes, orders, rules and final
regulations, including without limitation, to the extent
applicable, the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), and the Code. All contributions required to be
made to Seller Employee Plans have been made.
(c) With respect to each of the Seller
Employee Plans which is a pension plan (as defined in Section 3(2)
A-45
<PAGE> 198
of ERISA) (the "Pension Plans"): (i) each Pension Plan which is
intended to be "qualified" within the meaning of Section 401(a) of
the Code has been determined to be so qualified by the IRS and, to
the knowledge of Seller, such determination letter may still be
relied upon, and each related trust is exempt from taxation under
Section 501(a) of the Code; (ii) the present value of all benefits
vested and all benefits accrued under each Pension Plan which is
subject to Title IV of ERISA did not, in each case, as of the last
applicable annual valuation date (as indicated on Schedule
--------
2.19(a)), exceed the value of the assets of the Pension Plan
- -------
allocable to such vested or accrued benefits; (iii) to the best
knowledge of Seller, there has been no "prohibited transaction," as
such term is defined in Section 4975 of the Code or Section 406 of
ERISA, which could subject any Pension Plan or associated trust,
or, to the best knowledge of Seller, the Seller or any of the
Seller Subsidiaries, to any tax or penalty; (iv) except as set
forth in Schedule 2.19(c), no Pension Plan or any trust created
----------------
thereunder has been terminated, nor to the best knowledge of Seller
have there been any "reportable events" with respect to any Pension
Plan, as that term is defined in Section 4043 of ERISA since
January 1, 1987; and (v) no Pension Plan or any trust created
thereunder has incurred any "accumulated funding deficiency", as
such term is defined in Section 302 of ERISA (whether or not
waived). Except as set forth in Schedule 2.19(c), no Pension Plan
----------------
is a "multiemployer plan" as that term is defined in Section 3(37)
of ERISA.
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<PAGE> 199
(d) Except as set forth on Schedule 2.19(d),
----------------
neither Seller nor any of the Seller Subsidiaries has any liability
for any post-retirement health, medical or similar benefit of any
kind whatsoever, except as required by statute or regulation.
(e) Neither Seller nor any of the Seller
Subsidiaries has any material liability under ERISA or the Code as
a result of its being a member of a group described in Sections
414(b), (c), (m) or (o) of the Code.
(f) Except as set forth on Schedule 2.19(f),
----------------
neither the execution nor delivery of this Agreement, nor the
consummation of any of the transactions contemplated hereby, will
(i) result in any payment (including without limitation severance,
unemployment compensation or golden parachute payment) becoming due
to any director or employee of Seller or any of the Seller
Subsidiaries from any of such entities, (ii) increase any benefit
otherwise payable under any of the Seller Employee Plans or (iii)
result in the acceleration of the time of payment of any such
benefit. Except as provided in the Plains Spirit Financial
Corporation 1991 Stock Option and Incentive Plan, no holder of an
option to acquire stock of Seller has or will have at any time
through the Effective Time the right to receive any cash or other
payment (other than the issuance of stock of Seller) in exchange
for or with respect to all or any portion of such option. Seller
shall use its best efforts to insure that no amounts paid or
payable by Seller, the Seller Subsidiaries or Buyers to or with
respect to any employee or former employee of Seller or any of the
Seller Subsidiaries will fail to be deductible for federal income
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tax purposes by reason of Section 280G of the Code. No Seller
Employee Stock Option has an associated "Additional Option Right"
or similar "reload" feature.
2.20. Conduct of Seller to Date. From and after
-------------------------
September 30, 1994 through the date of this Agreement, except as
set forth on Schedule 2.20 or in the Seller Financial Statements:
-------------
(i) Seller and the Seller Subsidiaries have conducted their
respective businesses in the ordinary and usual course consistent
with past practices; (ii) neither Seller nor any of the Seller
Subsidiaries has issued, sold, granted, conferred or awarded any of
its Equity Securities (except shares of Seller Common Stock upon
exercise of Seller Employee Stock Options), or any corporate debt
securities which would be classified under GAAP as long-term debt
on the balance sheets of Seller or the Seller Subsidiaries; (iii)
Seller has not effected any stock split or adjusted, combined,
reclassified or otherwise changed its capitalization; (iv) Seller
has not declared, set aside or paid any dividend (other than its
regular quarterly dividends) or other distribution in respect of
its capital stock, or purchased, redeemed, retired, repurchased, or
exchanged, or otherwise acquired or disposed of, directly or
indirectly, any of its Equity Securities, whether pursuant to the
terms of such Equity Securities or otherwise; (v) neither Seller
nor any of the Seller Subsidiaries has incurred any obligation or
liability (absolute or contingent), except liabilities incurred in
the ordinary course of business, or subjected to Lien any of its
assets or properties other than in the ordinary course of business
consistent with past practice; (vi) neither Seller nor any of the
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Seller Subsidiaries has discharged or satisfied any Lien or paid
any obligation or liability (absolute or contingent), other than in
the ordinary course of business; (vii) neither Seller nor any of
the Seller Subsidiaries has sold, assigned, transferred, leased,
exchanged, or otherwise disposed of any of its properties or assets
other than for a fair consideration in the ordinary course of
business; (viii) except as required by contract or law, neither
Seller nor any of the Seller Subsidiaries has (A) increased the
rate of compensation of, or paid any bonus to, any of its
directors, officers, or other employees, except in accordance with
existing policy, (B) entered into any new, or amended or
supplemented any existing, employment, management, consulting,
deferred compensation, severance, or other similar contract, (C)
entered into, terminated, or substantially modified any of the
Seller Employee Plans or (D) agreed to do any of the foregoing;
(ix) neither Seller nor any Seller Subsidiary has suffered any
material damage, destruction, or loss, whether as the result of
fire, explosion, earthquake, accident, casualty, labor trouble,
requisition, or taking of property by any Regulatory Authority,
flood, windstorm, embargo, riot, act of God or the enemy, or other
casualty or event, and whether or not covered by insurance; (x)
neither Seller nor any of the Seller Subsidiaries has cancelled or
compromised any debt, except for debts charged off or compromised
in accordance with the past practice of Seller and the Seller
Subsidiaries, and (xi) neither Seller nor any of the Seller
Subsidiaries has entered into any material transaction, contract or
commitment outside the ordinary course of its business.
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2.21. Absence of Undisclosed Liabilities. Except as
----------------------------------
disclosed in Schedule 2.21 or in any other Schedule to this
-------------
Agreement:
(a) As of the date of this Agreement, neither
Seller nor any of the Seller Subsidiaries has any debts,
liabilities or obligations equal to or exceeding $10,000,
individually or $25,000 in the aggregate, whether accrued,
absolute, contingent or otherwise and whether due or to become due,
which are required to be reflected in Seller's Financial Statements
or the notes thereto in accordance with GAAP except:
(i) liabilities and obligations
reflected on the Seller Financial Statements;
(ii) operating leases reflected on
Schedule 2.11; and
-------------
(iii) debts, liabilities or obligations
incurred since September 30, 1994 in the ordinary and
usual course of their respective businesses, none of
which are for breach of contract, breach of warranty,
torts, infringements or lawsuits and none of which have
a material adverse effect on the Condition of the Seller
and the Seller Subsidiaries, taken as a whole.
(b) To the best knowledge of the Seller,
neither Seller nor any of the Seller Subsidiaries was as of
September 30, 1994 and since such date to the date hereof has
become a party to, any contract or agreement which affected,
affects or may reasonably be expected to affect, materially and
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adversely, the Condition of the Seller and the Seller Subsidiaries,
taken as a whole.
2.22. Proxy Statement, etc. None of the information
---------------------
regarding Seller or any of the Seller Subsidiaries to be supplied
by Seller for inclusion or included in (i) the Registration
Statement on Form S-4 to be filed with the SEC by Mercantile for
the purpose of registering the shares of Mercantile Common Stock to
be exchanged for shares of Seller Common Stock pursuant to the
provisions of this Agreement (the "Registration Statement"), (ii)
the Proxy Statement to be mailed to Seller's stockholders in
connection with the meeting to be called to consider the Merger
(the "Proxy Statement") or (iii) any other documents to be filed
with any Regulatory Authority in connection with the transactions
contemplated hereby will, at the respective times such documents
are filed with any Regulatory Authority and, in the case of the
Registration Statement, when it becomes effective and, with respect
to the Proxy Statement, when mailed, be false or misleading with
respect to any material fact, or omit to state any material fact
necessary in order to make the statements therein not misleading
or, in the case of the Proxy Statement or any amendment thereof or
supplement thereto, at the time of the meeting of Seller's
stockholders referred to in Section 5.03, be false or misleading
with respect to any material fact, or omit to state any material
fact necessary to correct any statement in any earlier
communication with respect to the solicitation of any proxy for
such meeting. All documents which Seller or any of the Seller
Subsidiaries is responsible for filing with any Regulatory
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Authority in connection with the Merger will comply as to form in
all material respects with the provisions of applicable law.
2.23. Registration Obligations. Except as set forth on
------------------------
Schedule 2.23, neither Seller nor any of the Seller Subsidiaries is
- -------------
under any obligation, contingent or otherwise, which will survive
the Effective Time by reason of any agreement to register any
transaction involving any of its securities under the Securities
Act.
2.24. Tax and Regulatory Matters. Neither Seller nor
--------------------------
any of the Seller Subsidiaries has taken or agreed to take any
action or has any knowledge of any fact or circumstance that would
(i) prevent the transactions contemplated hereby from qualifying as
a reorganization within the meaning of Section 368 of the Code or
(ii) materially impede or delay receipt of any approval referred to
in Section 6.01(b) or the consummation of the transactions
contemplated by this Agreement.
2.25. Brokers and Finders. Except for Kaplan
-------------------
Associates Inc., neither Seller nor any of the Seller Subsidiaries
nor any of their respective officers, directors or employees has
employed any broker or finder or incurred any liability for any
financial advisory fees, brokerage fees, commissions or finder's
fees, and no broker or finder has acted directly or indirectly for
Seller or any of the Seller Subsidiaries in connection with this
Agreement or the transactions contemplated hereby.
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2.26. Interest Rate Risk Management Instruments.
-----------------------------------------
(a) Set forth on Schedule 2.26(a) is a list as
----------------
of the date hereof of all interest rate swaps, caps, floors and
option agreements and other interest rate risk management
arrangements to which Seller or any of the Seller Subsidiaries is
a party or by which any of their properties or assets may be bound.
(b) All such interest rate swaps, caps, floors
and option agreements and other interest rate risk management
arrangements to which Seller or any of the Seller Subsidiaries is
a party or by which any of their properties or assets may be bound
were entered into in the ordinary course of business and, to the
best knowledge of Seller, in accordance with prudent banking
practice and applicable rules, regulations and policies of
Regulatory Authorities and with counterparties believed to be
financially responsible at the time and are legal, valid and
binding obligations and are in full force and effect. Seller and
each of the Seller Subsidiaries has duly performed in all material
respects all of its obligations thereunder to the extent that such
obligations to perform have accrued, and to the best knowledge of
Seller, there are no material breaches, violations or defaults or
allegations or assertions of such by any party thereunder.
2.27. Accuracy of Information. The statements
-----------------------
contained in this Agreement, the Schedules and any other written
document executed and delivered by or on behalf of Seller pursuant
to the terms of this Agreement are true and correct as of the date
hereof or as of the date delivered in all material respects, and
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such statements and documents do not omit any material fact
necessary to make the statements contained therein not misleading.
ARTICLE III
-----------
REPRESENTATIONS, WARRANTIES AND COVENANTS OF BUYERS
As an inducement to Seller to enter into and perform its
obligations under this Agreement, and notwithstanding any
examination, inspection, audit or other investigation made by
Seller, Buyers jointly and severally represent and warrant to and
covenant with Seller as follows:
3.01. Organization and Authority. Buyer and Merger Sub
--------------------------
are each corporations duly organized, validly existing and in good
standing under the laws of the State of Missouri and the State of
Iowa, respectively, are each qualified to do business and are each
in good standing in all jurisdictions where its ownership or
leasing of property or the conduct of its business requires it to
be so qualified and has corporate power and authority to own its
properties and assets and to carry on its business as it is now
being conducted, except where the failure to be so qualified would
not have a material adverse effect on the Condition of Mercantile
and its Subsidiaries, taken as a whole. Each of Mercantile and
Merger Sub is registered as a bank holding company with the Board
of Governors of the Federal Reserve System (the "Federal Reserve
Board") under the BHCA. True and complete copies of the Articles
of Incorporation and Bylaws of Mercantile and Merger Sub, each in
effect on the date of this Agreement, have been provided to Seller.
3.02. Capitalization of Mercantile. The authorized
----------------------------
capital stock of Mercantile consists of (i) 100,000,000 shares of
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Mercantile Common Stock, of which, as of November 30, 1994,
43,290,784 shares were issued and outstanding (including 93,500
shares repurchased since such date and placed in Treasury) and (ii)
5,000,000 shares of preferred stock, no par value ("Mercantile
Preferred Stock"), issuable in series, of which none are issued or
outstanding. Mercantile has designated 1,000,000 shares of
Mercantile Preferred Stock as "Series A Junior Participating
Preferred Stock" and has reserved such shares under a Rights
Agreement dated May 23, 1988 (the "Mercantile Rights Agreement"),
between Mercantile and Mercantile Bank of St. Louis National
Association, as Rights Agent. As of December 15, 1994, Mercantile
had reserved (i) 4,721,246 shares of Mercantile Common Stock for
issuance upon the exercise of options ("Mercantile Employee Stock
Options") under the Mercantile stock option and incentive plans;
(ii) 970,000 shares of Mercantile Common Stock for issuance upon
the acquisition of Wedge Bank pursuant to the Agreement and Plan of
Reorganization dated as of July 6, 1994 between Mercantile,
Mercantile Bancorporation of Illinois Inc., Wedge Bank and The
Wedge Holding Company; (iii) 1,731,142 shares of Mercantile Common
Stock for issuance upon the acquisition of UNSL Financial Corp.
("UNSL") pursuant to the Agreement and Plan of Reorganization dated
July 12, 1994 between Mercantile, Ameribanc, Inc. ("Ameribanc") and
UNSL; (iv) 2,625,533 shares of Mercantile Common Stock for issuance
upon the acquisition of Central Mortgage Bancshares, Inc. ("CMB")
pursuant to the Amended and Restated Agreement and Plan of
Reorganization dated November 1, 1994 by and between Mercantile,
Ameribanc and CMB; (v) 4,750,000 shares of Mercantile Common Stock
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for issuance upon the acquisition of TCBankshares, Inc. ("TCB")
pursuant to the Agreement and Plan of Reorganization dated
December 2, 1994 by and between Mercantile and TCB; and (vi)
351,101 shares of Mercantile Common Stock for issuance upon
conversion of Mercantile's 8% Subordinated Capital Convertible
Notes due 1995 (the "Convertible Notes"). In connection with the
TCB transaction, Mercantile will authorize the issuance of 5,306
shares of Preferred Stock, Series B-1, no par value, and 9,500
shares of Preferred Stock, Series B-2, no par value, in addition to
the Mercantile Common Stock as aforesaid. From November 30, 1994
through the date of this Agreement, no Equity Securities of
Mercantile have been issued excluding any shares of Mercantile
Common Stock which may have been issued upon exercise of Mercantile
Employee Stock Options or conversion of the Convertible Notes.
Mercantile continually evaluates possible
acquisitions and may prior to the Effective Time enter into one or
more agreements providing for, and may consummate, the acquisition
by it of another bank, association, bank holding company, savings
and loan holding company or other company (or the assets thereof)
for consideration that may include Equity Securities. In addition,
prior to the Effective Time, Mercantile may, depending on market
conditions and other factors, otherwise determine to issue equity,
equity-linked or other securities for financing purposes.
Notwithstanding the foregoing, Mercantile will not take any action
that would (i) prevent the transactions contemplated hereby from
qualifying as a reorganization within the meaning of Section 368 of
the Code or (ii) materially impede or delay receipt of any approval
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referred to in Section 6.01(b) or the consummation of the
transactions contemplated by this Agreement. Except as set forth
above and except for securities to be issued in connection with
Mercantile's pending acquisitions of Wedge, UNSL, CMB and TCB, and
except pursuant to the Mercantile Rights Agreement, there are no
other Equity Securities of Mercantile outstanding. All of the
issued and outstanding shares of Mercantile Common Stock are
validly issued, fully paid, and nonassessable, and have not been
issued in violation of any preemptive right of any shareholder of
Mercantile. At the Effective Time, the Mercantile Common Stock to
be issued in the Merger will be duly authorized, validly issued,
fully paid and nonassessable, and will not be issued in violation
of any preemptive right of any shareholder of Mercantile.
3.03. Authorization.
-------------
(a) Mercantile and Merger Sub each have the
corporate power and authority to enter into this Agreement and to
carry out their respective obligations hereunder. The execution,
delivery and performance of this Agreement by Mercantile and Merger
Sub and the consummation by Mercantile and Merger Sub of the
transactions contemplated hereby have been duly authorized by all
requisite corporate action of Mercantile and Merger Sub. Subject
to the receipt of such approvals of the Regulatory Authorities as
may be required by statute or regulation, this Agreement is a valid
and binding obligation of Mercantile and Merger Sub enforceable
against each in accordance with its terms.
(b) Neither the execution, delivery and
performance by Mercantile and Merger Sub of this Agreement, nor the
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consummation by Mercantile and Merger Sub of the transactions
contemplated hereby, nor compliance by Mercantile and Merger Sub
with any of the provisions hereof, will (i) violate, conflict with
or result in a breach of any provisions of, or constitute a default
(or an event which, with notice or lapse of time or both, would
constitute a default) or result in the termination of, or
accelerate the performance required by, or result in a right of
termination or acceleration of, or result in the creation of, any
Lien upon any of the properties or assets of Mercantile or Merger
Sub under any of the terms, conditions or provisions of (x) their
respective Articles of Incorporation or Bylaws, or (y) any material
note, bond, mortgage, indenture, deed of trust, license, lease,
agreement or other instrument or obligation to which Mercantile or
Merger Sub is a party or by which they may be bound, or to which
Mercantile or Merger Sub or any of their respective properties or
assets may be subject, or (ii) subject to compliance with the
statutes and regulations referred to in subsection (c) of this
Section 3.03, to the best knowledge of Buyers, violate any
judgment, ruling, order, writ, injunction, decree, statute, rule or
regulation applicable to Mercantile or Merger Sub or any of their
respective properties or assets; other than violations, conflicts,
breaches, defaults, terminations, accelerations or Liens which
would not have a material adverse effect on the Condition of
Mercantile and its Subsidiaries, taken as a whole.
(c) Other than in connection with or in
compliance with the provisions of the Iowa Act and the DGCL, the
Securities Act, the Exchange Act, the securities or blue sky laws
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of the various states or filings, consents, reviews,
authorizations, approvals or exemptions required under the BHCA,
the Federal Deposit Insurance Act, the HOLA and the HSR Act, or any
required approvals of any other Regulatory Authority, no notice to,
filing with, exemption or review by, or authorization, consent or
approval of, any public body or authority is necessary for the
consummation by Mercantile and Merger Sub of the transactions
contemplated by this Agreement.
3.04. Mercantile Financial Statements. The
-------------------------------
supplemental consolidated and parent company only balance sheets of
Mercantile and its Subsidiaries as of December 31, 1993, 1992 and
1991 and related supplemental consolidated and parent company only
statements of income, changes in shareholders' equity and cash
flows for each of the three years in the three-year period ended
December 31, 1993, together with the notes thereto, audited by KPMG
Peat Marwick LLP and included in Mercantile's current report on
Form 8-K dated June 17, 1994 as filed with the SEC, and the
unaudited consolidated balance sheets of Mercantile and its
Subsidiaries as of September 30, 1994 and the related unaudited
consolidated statements of income and cash flows for the periods
ended September 30, 1994 and 1993 included in the quarterly report
on Form 10-Q as filed with the SEC (collectively, the "Mercantile
Financial Statements"), have been prepared in accordance with GAAP,
present fairly the consolidated financial position of Mercantile
and its Subsidiaries at the dates and the consolidated results of
operations, changes in shareholders' equity and cash flows of
Mercantile and its Subsidiaries for the periods stated therein and
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are derived from the books and records of Mercantile and its
Subsidiaries, which are complete and accurate in all material
respects and have been maintained in accordance with good business
practices. Neither Mercantile nor any of its Subsidiaries has any
material contingent liabilities that are not described in the
Mercantile Financial Statements.
3.05. Mercantile Reports. Since January 1, 1991, each
------------------
of Mercantile and its Subsidiaries has filed all reports,
registrations and statements, together with any required
amendments thereto, that it was required to file with any
Regulatory Authority. All such reports and statements filed with
any such Regulatory Authority are collectively referred to herein
as the "Mercantile Reports." As of its respective date, each
Mercantile Report complied in all material respects with all the
rules and regulations promulgated by the applicable Regulatory
Authority and did not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein
or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading.
3.06. Material Adverse Change. Since September 30,
-----------------------
1994, there has been no material adverse change in the Condition of
Mercantile and its Subsidiaries, taken as a whole, except as may
have resulted or may result from changes to laws and regulations,
or interpretations thereto, or changes in economic conditions,
including interest rates, applicable to depository institutions
generally.
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3.07. Legal Proceedings or Other Adverse Facts. There
----------------------------------------
is no legal action or other governmental proceeding or
investigation pending or, to the best knowledge of Buyers,
threatened against Mercantile or any of its Subsidiaries that could
prevent or adversely affect in a material manner or seeks to
prohibit the consummation of the transactions contemplated herein,
nor is Mercantile or any of its Subsidiaries subject to any order
of a court or governmental authority having any such effect. To
the best knowledge of Buyers, there is no other fact that could
prevent or adversely affect the consummation of the transactions
contemplated herein.
3.08. Registration Statement, etc. None of the
----------------------------
information regarding Mercantile or any of its Subsidiaries to be
supplied by Buyers for inclusion or included in (i) the
Registration Statement, (ii) the Proxy Statement, or (iii) any
other documents to be filed with any Regulatory Authority in
connection with the transactions contemplated hereby will, at the
respective times such documents are filed with any Regulatory
Authority and, in the case of the Registration Statement, when it
becomes effective and, with respect to the Proxy Statement, when
mailed, be false or misleading with respect to any material fact,
or omit to state any material fact necessary in order to make the
statements therein not misleading or, in the case of the Proxy
Statement or any amendment thereof or supplement thereto, at the
time of the meeting of stockholders referred to in Section 5.03, be
false or misleading with respect to any material fact, or omit to
state any material fact necessary to correct any statement in any
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earlier communication with respect to the solicitation of any proxy
for such meeting. All documents which Mercantile or Merger Sub are
responsible for filing with any Regulatory Authority in connection
with the Merger will comply as to form in all material respects
with the provisions of applicable law.
3.09. Brokers and Finders. Neither Mercantile, Merger
-------------------
Sub nor any of their respective officers, directors or employees
has employed any broker or finder or incurred any liability for any
financial advisory fees, brokerage fees, commissions or finder's
fees, and no broker or finder has acted directly or indirectly for
Mercantile or Merger Sub in connection with this Agreement or the
transactions contemplated hereby.
3.10. Accuracy of Information. The statements
-----------------------
contained in this Agreement, the Schedules and in any other written
document executed and delivered by or on behalf of Buyers pursuant
to the terms of this Agreement are true and correct in all material
respects, and such statements and documents do not omit any
material fact necessary to make the statements contained herein or
therein not misleading.
3.11. Tax and Regulatory Matters. Neither Mercantile
--------------------------
nor any of its Subsidiaries has taken or agreed to take any action
or has any knowledge of any fact or circumstance that would (i)
prevent the transactions contemplated hereby from qualifying as a
reorganization within the meaning of Section 368 of the Code or
(ii) materially impede or delay receipt of any approval referred to
in Section 6.01(b) or the consummation of the transactions
contemplated by this Agreement.
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3.12. Compliance with Laws. To the best knowledge of
--------------------
Mercantile, Mercantile and each of its Subsidiaries have all
permits, licenses, authorizations, orders and approvals of, and
have made all filings, applications and registrations with, all
Regulatory Authorities that are required in order to permit them to
own or lease their respective properties and assets and to carry on
their respective businesses as presently conducted; all such
permits, licenses, certificates of authority, orders and approvals
are in full force and effect and no suspension or cancellation of
any of them is threatened; and all such filings, applications and
registrations are current; in each case except for permits,
licenses, authorizations, orders, approvals, filings, applications
and registrations the failure to have (or have made) would not have
a material adverse effect on the Condition of Mercantile and its
Subsidiaries, taken as a whole.
ARTICLE IV
----------
CONDUCT OF BUSINESSES PRIOR TO THE EFFECTIVE TIME
4.01. Conduct of Businesses Prior to the Effective
--------------------------------------------
Time. During the period from the date of this Agreement to the
- ----
Effective Time, Seller shall, and shall cause each of the Seller
Subsidiaries to, conduct their respective businesses according to
the ordinary and usual course consistent with past practices and
shall, and shall cause each such Subsidiary 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.
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<PAGE> 216
4.02. Forbearances of Seller. Except as set forth in
----------------------
Schedule 4.02 and except to the extent required by law, regulation
- -------------
or Regulatory Authority, or with the prior written consent of
Buyers, during the period from the date of this Agreement to the
Effective Time, Seller shall not and shall not permit any of the
Seller Subsidiaries to:
(a) declare, set aside or pay any dividends or
other distributions, directly or indirectly, in respect of its
capital stock (other than dividends from any of the Seller
Subsidiaries to Seller or to another of the Seller Subsidiaries),
except that Seller may declare and pay regular quarterly cash
dividends of not more than $0.14 per share on the Seller Common
Stock, provided that Seller shall not declare or pay its regular
--------
quarterly dividend for any quarter in which Seller stockholders
will be entitled to receive a regular quarterly dividend on the
shares of Mercantile Common Stock to be issued in the Merger;
(b) enter into or amend any employment,
severance or similar agreement or arrangement with any director or
officer or employee, or materially modify any of the Seller
Employee Plans or grant any salary or wage increase or materially
increase any employee benefit (including incentive or bonus
payments), except (i) normal individual increases in compensation
to employees consistent with past practice, (ii) as required by law
or contract and (iii) such increases of which Seller notifies
Buyers in writing and which Buyers do not disapprove within 10 days
of the receipt of such notice;
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(c) authorize, recommend, propose or announce
an intention to authorize, so 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;
(d) propose or adopt any amendments to its
articles of incorporation, association or other charter document or
bylaws;
(e) issue, sell, grant, confer or award any of
its Equity Securities (except shares of Seller Common Stock issued
upon exercise of Seller Employee Stock Options outstanding on the
date of this Agreement) or effect any stock split or adjust,
combine, reclassify or otherwise change its capitalization as it
existed on the date of this Agreement;
(f) 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;
(g) (i) without first consulting with
Mercantile, 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 $250,000 or in any amount which, when
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aggregated with any and all loans or credit commitments of Seller
and its Subsidiaries to such person or entity, would be in excess
of $500,000, provided no such consultation shall be required in
--------
respect of single-family residential loans or credits not exceeding
$500,000 that are saleable in recognized secondary markets pursuant
to Seller's lending policies as in effect on the date hereof; (ii)
without first obtaining the written consent of Mercantile, Lend to
any person or entity in an amount in excess of $500,000 or in any
amount which, or when aggregated with any and all loans or credit
commitments of Seller and its Subsidiaries to such person or
entity, would be in excess of $1,000,000; (iii) Lend to any person
other than in accordance with lending policies as in effect on the
date hereof, provided that in the case of clauses (i) and (iii)
--------
Seller or any of the Seller Subsidiaries may make any such loan in
the event (A) Seller or any Seller Subsidiary has delivered to
Buyers or their designated representative a notice of its intention
to make such loan and such information as Buyers or their
designated representative may reasonably require in respect thereof
and (B) Buyers or their 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 Buyers or their designated representative of the notice
of intention and information as aforesaid; or (iv) 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 Seller or any of the Seller Subsidiaries (except
those denoted "pass" thereon), in an amount in excess of $100,000;
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provided, however, that nothing in this paragraph shall prohibit
- -------- -------
Seller or any Seller Subsidiary from honoring any contractual
obligation in existence on the date of this Agreement or, with
respect to loans described in clause (i) above, making such loans
after consulting with Buyers;
(h) directly or indirectly (including through
its officers, directors, employees or other representatives) (i)
initiate, solicit or encourage any discussions, inquiries or
proposals with any third party (other than Buyers) relating to the
disposition of any significant portion of the business or assets of
Seller or any of the Seller Subsidiaries or the acquisition of
Equity Securities of Seller or any of the Seller Subsidiaries or
the merger of Seller or any of the Seller Subsidiaries with any
person (other than Buyers) or any similar transaction (each such
transaction being referred to herein as an "Acquisition
Transaction"), or (ii) provide any such person with information or
assistance or negotiate with any such person with respect to an
Acquisition Transaction, and Seller shall promptly notify Buyers
orally of all the relevant details relating to all inquiries,
indications of interest and proposals which it may receive with
respect to any Acquisition Transaction;
(i) take any action that would (A) materially
impede or delay the consummation of the transactions contemplated
by this Agreement or the ability of Buyers or Seller to obtain any
approval of any Regulatory Authority required for the transactions
contemplated by this Agreement or to perform its covenants and
agreements under this Agreement or (B) prevent or impede the
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transactions contemplated hereby from qualifying as a
reorganization within the meaning of Section 368 of the Code;
(j) other than in the ordinary course of
business consistent with past practice, incur any indebtedness for
borrowed money or assume, guarantee, endorse or otherwise as an
accommodation become responsible or liable for the obligations of
any other individual, corporation or other entity;
(k) materially restructure or change its
investment securities portfolio, through purchases, sales or
otherwise, or the manner in which the portfolio is classified or
reported, or execute individual investment transactions of greater
than $1,000,000 for U.S. Treasury Securities and $500,000 for all
other investment instruments, provided that for purposes of this
--------
Subsection (k), such consent shall not be unreasonably withheld;
(l) agree in writing or otherwise to take any
of the foregoing actions or engage in any activity, enter into any
transaction or intentionally take or omit to take any other act
which would make any of the representations and warranties in
Article II of this 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; or
(m) enter into, increase or renew any loan or
credit commitment (including standby letters of credit) to any
executive officer or director of Seller or any of the Seller
Subsidiaries, any Seller stockholder, or any entity controlled,
directly or indirectly, by any of the foregoing or engage in any
transaction with any of the foregoing which is of the type or
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nature sought to be regulated in 12 U.S.C. 371c and 12 U.S.C. 371c-
1, without first obtaining the prior written consent of Buyers,
which consent shall not be unreasonably withheld. For purposes of
this subsection (m), "control" shall have the meaning associated
with that tern under 12 U.S.C. 371c.
4.03. Forbearances of Buyers. During the period from
----------------------
the date of this Agreement to the Closing Date, Buyers shall not,
and shall not permit any of their respective subsidiaries to,
without the prior written consent of Seller, agree in writing or
otherwise engage in any activity, enter into any transaction or
take or omit to take any other action:
(a) that would (i) materially impede or delay
the consummation of the transactions contemplated by this Agreement
or the ability of Buyers or Seller to obtain any approval of any
Regulatory Authority required for the transactions contemplated by
this Agreement or to perform its covenants and agreements under
this Agreement or (ii) prevent the transactions contemplated hereby
from qualifying as a reorganization within the meaning of Section
368 of the Code; or
(b) which would make any of the
representations and warranties of Article III of this 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 action.
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ARTICLE V
---------
ADDITIONAL AGREEMENTS
5.01. Access and Information.
----------------------
(a) Buyers and Seller shall each afford to the
other, and to the other's accountants, counsel and other
representatives, full access during normal business hours, during
the period prior to the Effective Time, to all their respective
properties, books, contracts, commitments and records and, during
such period, each shall furnish promptly to the other (i) a copy of
each report, schedule and other document filed or received by it
during such period pursuant to the requirements of federal and
state securities laws and (ii) all other information concerning its
business, properties and personnel as the other may reasonably
request. Each party shall, and shall cause its advisors and
representatives to, (A) hold confidential all information obtained
in connection with any transaction contemplated hereby with respect
to the other party and its Subsidiaries which is not otherwise
public knowledge, (B) in the event of a termination of this
Agreement, return all documents (including copies thereof) obtained
hereunder from the other party or any of its Subsidiaries to them
and (C) use their respective best efforts to cause all of such
party's confidential information obtained pursuant to this
Agreement or in connection with the negotiation of this Agreement
to be treated as confidential and not use, or knowingly permit
others to use, any such information unless such information becomes
generally available to the public.
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(b) Buyers shall promptly following the date
of this Agreement, commence its review of Seller and the Seller
Subsidiaries and their respective operations, business affairs,
prospects and financial condition, including, without limitation,
those matters which are the subject of the Seller's representations
and warranties (the "Due Diligence Review"). Buyers shall conclude
such review by not later than January 27, 1995 (the "Due Diligence
Review Period"), but the pendency of such Due Diligence Review
shall not delay Mercantile's obligation pursuant to Section 5.02 of
this Agreement to file a Registration Statement with the SEC and
all other necessary applications and filings with the appropriate
Regulatory Authorities. Buyers shall advise Seller of any
situation, event, circumstance or other matter which first comes to
the attention of Buyers during the Due Diligence Review which could
potentially result in the termination of this Agreement by Buyer
pursuant to Section 7.01(d) hereof, or, if applicable, of notice to
Seller as promptly as possible of the absence of any perceived
impediment to the consummation of the Merger. Notwithstanding
anything hereinabove contained or implied to the contrary, the Due
Diligence Review shall not limit, restrict or preclude Buyers, at
any time or from time to time thereafter, from conducting further
such reviews or from exercising any rights available to it
hereunder as a result of the existence or occurrence prior to the
Due Diligence Period of any event or condition which was not
detected in the Due Diligence Review by Buyers and which
constitutes a breach of any representation, warranty or agreement
of Seller under this Agreement.
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(c) Seller shall promptly following the date
of this Agreement, commence its review of Mercantile and its
Subsidiaries and their respective operations, business affairs,
prospects and financial condition, including, without limitation,
those matters which are the subject of the Buyers' representations
and warranties (the "Seller Due Diligence Review"). Seller shall
conclude such review by not later than January 27, 1995 (the
"Seller Due Diligence Review Period"), but the pendency of such
Seller Due Diligence Review shall not delay Mercantile's obligation
pursuant to Section 5.02 of this Agreement to file a Registration
Statement with the SEC and all other necessary applications and
filings with the appropriate Regulatory Authorities. Seller shall
advise Mercantile of any situation, event, circumstance or other
matter which first comes to the attention of Seller during the
Seller Due Diligence Review which could potentially result in the
termination of this Agreement by Seller pursuant to Section 7.01(e)
hereof, or, if applicable, of notice to Mercantile as promptly as
possible of the absence of any perceived impediment to the
consummation of the Merger. Notwithstanding anything hereinabove
contained or implied to the contrary, the Seller Due Diligence
Review shall not limit, restrict or preclude Seller, at any time or
from time to time thereafter, from conducting further such reviews
or from exercising any rights available to it hereunder as a result
of the existence or occurrence prior to the Seller Due Diligence
Period of any event or condition which was not detected in the
Seller Due Diligence Review by Seller and which constitutes a
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breach of any representation, warranty or agreement of Buyers under
this Agreement.
5.02. Registration Statement; Regulatory Matters.
------------------------------------------
(a) Mercantile and Seller shall jointly
prepare and Mercantile shall file with the SEC as soon as is
reasonably practicable the Registration Statement (or the
equivalent in the form of preliminary proxy materials) with respect
to the shares of Mercantile Common Stock to be issued in the
Merger. Mercantile shall prepare and, subject to the review and
consent of Seller with respect to matters relating to Seller, use
its best efforts to file as soon as is reasonably practicable an
application for approval of the Merger with the Federal Reserve
Board and the OTS and shall use its best efforts to cause the
Registration Statement to become effective. Mercantile shall also
take any action required to be taken under any applicable state
blue sky or securities laws in connection with the issuance of such
shares, and Seller and the Seller Subsidiaries shall furnish
Mercantile all information concerning Seller and the Seller
Subsidiaries and the stockholders thereof as Mercantile may
reasonably request in connection with any such action.
(b) Seller and Buyers shall cooperate and use
their respective best efforts to prepare all documentation, to
effect all filings and to obtain all permits, consents, approvals
and authorizations of all third parties and Regulatory Authorities
necessary to consummate the transactions contemplated by this
Agreement (including any requisite approval of the OTS under 12
C.F.R. Section 563b.3(i)) and, as and if directed by Mercantile, to
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consummate such other transactions by and among Mercantile's
Subsidiaries and the Seller Subsidiaries concurrently with or
following the Effective Time, provided that such actions do not
--------
(i) materially impede or delay the receipt of any approval referred
to in Section 6.01(b) or the consummation of the transactions
contemplated by this Agreement or (ii) result in Bank ceasing to
continue as a separate stand-alone entity.
5.03. Stockholder Approval. Seller shall call a
--------------------
meeting of its stockholders to be held as soon as practicable for
the purpose of voting upon the Merger. In connection with such
meetings, Mercantile and Seller shall jointly prepare the Proxy
Statement (which shall be part of the Registration Statement to be
filed with the SEC by Mercantile) and mail the same to the
stockholders of Seller. The Board of Directors of Seller shall
submit for approval of Seller's stockholders the matters to be
voted upon at such meeting. The Board of Directors of Seller
hereby does and, subject to its fiduciary duties, upon written
advice of counsel to Seller, which counsel shall be reasonably
acceptable to Mercantile, will recommend this Agreement and the
transactions contemplated hereby to stockholders of Seller and use
its reasonable best efforts to obtain any vote of Seller's
stockholders necessary for the approval and adoption of this
Agreement.
5.04. Current Information. During the period from the
-------------------
date of this Agreement to the Effective Time, each party shall
promptly furnish the other with copies of all monthly and other
interim financial statements as the same become available and shall
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cause one or more of its designated representatives to confer on a
regular and frequent basis with representatives of the other party.
Each party shall promptly notify the other party of the following
events immediately upon learning of the occurrence thereof,
describing the same and, if applicable, the steps being taken by
the affected party with respect thereto: (a) an event which would
cause any representation or warranty of such party or any Schedule,
statement, report, notice, certificate or other writing furnished
by such party to be untrue or misleading in any material respect,
(b) any material adverse change in its business, financial
condition or results of operations, (c) the issuance or
commencement of any governmental complaint, investigation or
hearing (or any communication indicating that the same may be
contemplated), or (d) the institution or threat of material
litigation involving such party, and shall keep the other party
fully informed of such events.
5.05. Agreements of Affiliates. Set forth as Schedule
------------------------ --------
5.05 is a list (which includes individual and beneficial ownership)
- ----
of all persons whom Seller believes to be "affiliates" of Seller
for purposes of Rule 145 under the Securities Act. Seller shall
use its best efforts to cause each person who is identified as an
"affiliate" to deliver to Mercantile, as of the date hereof, or as
soon as practicable hereafter, a written agreement in substantially
the form set forth as Exhibit B to this Agreement providing that
---------
each such person will agree not to sell, pledge, transfer or
otherwise dispose of any shares of Mercantile Common Stock to be
received by such person in the Merger except in compliance with the
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applicable provisions of the Securities Act. Prior to the
Effective Time, and via letter, Seller shall amend and supplement
Schedule 5.05 and use its best efforts to cause each additional
- -------------
person who is identified as an "affiliate" to execute a written
agreement as set forth in this Section 5.05.
5.06. Expenses. Each party hereto shall bear its own
--------
expenses incident to preparing, entering into and carrying out this
Agreement and to consummating the Merger, provided, however, that
-------- -------
Buyers shall pay all printing and mailing expenses and filing fees
associated with the Registration Statement, the Proxy Statement and
regulatory applications.
5.07. Miscellaneous Agreements and Consents. Subject
-------------------------------------
to the terms and conditions herein provided, each of the parties
hereto agrees to use its respective best efforts to take, or cause
to be taken, all action, and to do, or cause to be done, all things
necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the transactions
contemplated by this Agreement as expeditiously as possible,
including without limitation using its respective best efforts to
lift or rescind any injunction or restraining order or other order
adversely affecting the ability of the parties to consummate the
transactions contemplated hereby. Each party shall, and shall
cause each of its respective subsidiaries to, use its best efforts
to obtain consents of all third parties and Regulatory Authorities
necessary or, in the opinion of Buyers, desirable for the
consummation of the transactions contemplated by this Agreement.
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5.08. Employee Agreements and Benefits.
--------------------------------
(a) Following the Effective Time, Buyers shall
cause the Surviving Corporation to honor in accordance with their
terms all employment, severance and other compensation contracts
set forth on Schedule 5.08 between Seller, any of the Seller
-------------
Subsidiaries, and any current or former director, officer, employee
or agent thereof, and all provisions for vested benefits or other
vested amounts earned or accrued through the Effective Time under
the Seller Employee Plans.
(b) Except as provided in Section 5.09, the
provisions of the Seller 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 Seller or any of the
Seller Subsidiaries shall be deleted and terminated as of the
Effective Time, and Seller shall ensure that following the
Effective Time no holder of Seller Employee Stock Options or any
participant in any Seller Stock Plan shall have any right
thereunder to acquire any securities of Seller or any of the Seller
Subsidiaries.
(c) Except as set forth in Section 5.08(b)
hereof, the Seller Employee Plans shall not be terminated by reason
of the Merger but shall continue thereafter as plans of the
Surviving Corporation until such time as the employees of the
Seller and the Seller Subsidiaries are integrated into Mercantile's
employee benefit plans that are available to other employees of
Mercantile and its Subsidiaries, subject to the terms and
conditions specified in such plans and to such changes therein as
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may be necessary to reflect the consummation of the Merger.
Mercantile shall take such steps as are necessary or required to
integrate the employees of Seller and the Seller Subsidiaries in
Mercantile's employee benefit plans available to other employees of
Mercantile and its Subsidiaries as soon as practicable after the
Effective Time, with (i) full credit for prior service with Seller
or any of the Seller Subsidiaries 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.
5.09. Employee Stock Options.
----------------------
(a) At the Effective Time, all rights with
respect to Seller Common Stock pursuant to Seller Employee Stock
Options that are outstanding at the Effective Time, whether or not
then exercisable, shall be converted into and become rights with
respect to Mercantile Common Stock, and Mercantile shall assume all
Seller Employee Stock Options in accordance with the terms of the
Seller Stock Plan under which it was issued and the Seller Employee
Stock Option Agreement by which it is evidenced. From and after
the Effective Time, (i) each Seller Employee Stock Option assumed
by Mercantile shall be exercised solely for shares of Mercantile
Common Stock, (ii) the number of shares of Mercantile Common Stock
subject to each Seller Employee Stock Option shall be equal to the
number of shares of Seller Common Stock subject to such Seller
Employee Stock Option immediately prior to the Effective Time
multiplied by the quotient determined pursuant to Section
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1.07(b)(ii) and (iii) the per share exercise price under each
Seller Employee Stock Option shall be adjusted by dividing the per
share exercise price under such Seller Employee Stock Option by the
quotient determined pursuant to Section 1.07(b)(ii) and rounding
down to the nearest cent; provided, however, that the terms of each
-------- -------
Seller Employee Stock Option shall, 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 and shall be subject
to the additional optionee rights specified in Section 13 of
Seller's 1991 Stock Option and Incentive Plan. It is intended that
the foregoing assumption shall be undertaken in a manner that will
not constitute a "modification" as defined in the Code, as to any
Seller Employee Stock Option that is an "incentive stock option" as
defined under the Code.
(b) The shares of Mercantile Common Stock
covered by the stock options to be issued pursuant to Section
5.09(a) shall be covered by an effective registration statement
filed on Form S-8 with the SEC and shall be duly authorized,
validly issued and in compliance with all applicable federal and
state securities laws, fully paid and nonassessable and not subject
to or in violation of any preemptive rights. Mercantile shall at
and after the Effective Time have reserved sufficient shares of
Mercantile Common Stock for issuance with respect to such options.
Mercantile shall also take any action required to be taken under
any applicable state blue sky or securities laws in connection with
the issuance of such shares.
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5.10. Press Releases. Except as may be required by
--------------
law, Seller and Mercantile shall consult and agree with each other
as to the form and substance of any proposed press release relating
to this Agreement or any of the transactions contemplated hereby.
5.11. State Takeover Statutes. Seller will take all
-----------------------
steps necessary to exempt the transactions contemplated by this
Agreement and any agreement contemplated hereby from, and if
necessary challenge the validity of, any applicable state takeover
law.
5.12. Directors' and Officers' Indemnification.
----------------------------------------
Mercantile agrees that the Merger shall not affect or diminish any
of the duties and obligations of indemnification of the Seller or
any of the Seller Subsidiaries existing as of the Effective Time in
favor of employees, agents, directors or officers of Seller or any
of the Seller Subsidiaries arising by virtue of its Articles of
Incorporation, Charter or Bylaws in the form in effect at the date
of this Agreement or arising by operation of law or arising by
virtue of any contract, resolution or other agreement or document
existing at the date of this Agreement, and such duties and
obligations shall continue in full force and effect for so long as
they would (but for the Merger) otherwise survive and continue in
full force and effect. To the extent that Seller's existing
directors' and officers' liability insurance policy would provide
coverage for any action or omission occurring prior to the
Effective Time, Seller agrees to give proper notice to the
insurance carrier and to Mercantile of a potential claim thereunder
so as to preserve Seller's rights to such insurance coverage.
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Mercantile represents that the directors' and officers' liability
insurance policy maintained by it provides for coverage of "prior
acts" for directors and officers of entities acquired by Mercantile
including Seller and the Seller Subsidiaries on and after the
Effective Time.
5.13. Tax Opinion Certificates. Seller shall cause
------------------------
such of its executive officers and/or directors as may reasonably
requested by Thompson & Mitchell to timely execute and deliver to
Thompson & Mitchell certificates substantially in the form of
Exhibit C hereto.
- ---------
ARTICLE VI
----------
CONDITIONS
6.01. Conditions to Each Party's Obligation To Effect
-----------------------------------------------
the Merger. The respective obligations of each party to effect the
- ----------
Merger shall be subject to the fulfillment or waiver at or prior to
the Effective Time of the following conditions:
(a) This Agreement shall have received the
requisite approval of stockholders of Seller at the meeting of
stockholders called pursuant to Section 5.03 of this Agreement.
(b) All requisite approvals of this Agreement
and the transactions contemplated hereby shall have been received
from the Regulatory Authorities, and all waiting periods after such
approvals required by law or regulation have been satisfied.
(c) The Registration Statement shall have been
declared effective and shall not be subject to a stop order or any
threatened stop order.
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(d) Neither Seller nor Buyers 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.
(e) Each of Buyers and Seller shall have
received from Thompson & Mitchell an opinion (which opinion shall
not have been withdrawn at or prior to the Effective Time)
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 Code and that no gain or loss will be
recognized by the stockholders of Seller to the extent they receive
Mercantile Common Stock in exchange for shares of Seller Common
Stock.
6.02. Conditions to Obligations of Seller To Effect the
-------------------------------------------------
Merger. The obligations of Seller to effect the Merger shall be
- ------
subject to the fulfillment or waiver at or prior to the Effective
Time of the following additional conditions:
(a) Representations and Warranties. The
------------------------------
representations and warranties of Buyers set forth in Article III
of this Agreement shall be true and correct in all material
respects as of the date of this Agreement and as of the Effective
Time (as though made on and as of the Effective Time except (i) to
the extent such representations and warranties are by their express
provisions made as of a specified date, (ii) where the facts which
caused the failure of any representation or warranty to be so true
and correct have not resulted, and are not likely to result, in a
material adverse effect on the Condition of Mercantile and its
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Subsidiaries taken as a whole (for purposes hereof changes to laws
and regulations, generally accepted or regulatory accounting
principles, or interpretations thereof, or changes in economic
conditions, including interest rates applicable to commercial
banking institutions generally shall not be taken into account) and
(iii) for the effect of transactions contemplated by this
Agreement) and Seller shall have received a certificate of the Vice
Chairman of Mercantile, signing solely in his capacity as an
officer of Mercantile, to that effect.
(b) Performance of Obligations. Buyers shall
--------------------------
have performed in all material respects all obligations required to
be performed by it under this Agreement prior to the Effective
Time, and Seller shall have received a certificate of the Vice
Chairman of Mercantile, signing solely in his capacity as an
officer of Mercantile, to that effect.
(c) Permits, Authorizations, etc. Buyers
-----------------------------
shall have obtained any and all material permits, authorizations,
consents, waivers and approvals required for the lawful
consummation of the Merger.
(d) No Material Adverse Change. Since the
--------------------------
date of this Agreement, there shall have been no material adverse
change to the Condition of Mercantile and its Subsidiaries, taken
as a whole, except as may have resulted from changes to laws and
regulations, generally accepted or regulatory accounting
principles, or interpretations thereof, or changes in economic
conditions, including interest rates, applicable to commercial
banking institutions generally.
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(e) Opinion of Counsel. Mercantile shall have
------------------
delivered to Seller an opinion of Mercantile's counsel dated as of
the Closing Date or a mutually agreeable earlier date in
substantially the form set forth as Exhibit D to this Agreement.
---------
6.03. Conditions to Obligations of Buyers To Effect the
-------------------------------------------------
Merger. The obligations of Buyers to effect the Merger shall be
- ------
subject to the fulfillment or waiver at or prior to the Effective
Time of the following additional conditions:
(a) Representations and Warranties. The
------------------------------
representations and warranties of Seller set forth in Article II of
this Agreement shall be true and correct in all material respects
as of the date of this Agreement and as of the Effective Time (as
though made on and as of the Effective Time except (i) to the
extent such representations and warranties are by their express
provisions made as of a specific date, (ii) where the facts which
caused the failure of any representation or warranty to be so true
and correct have not resulted, and are not likely to result, in a
material adverse effect on the Condition of Seller and its
Subsidiaries taken as a whole (for purposes hereof changes to laws
and regulations, generally accepted or regulatory accounting
principles, or interpretations thereof, or changes in economic
conditions, including interest rates applicable to thrift
institutions generally shall not be taken into account) and (iii)
for the effect of transactions contemplated by this Agreement) and
Buyers shall have received a certificate of the President and the
Chief Financial Officer of Seller, acting solely in their
capacities as officers of Seller, to that effect.
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(b) Performance of Obligations. Seller shall
--------------------------
have performed in all material respects all obligations required to
be performed by it under this Agreement prior to the Effective
Time, and Buyers shall have received a certificate of the President
and the Chief Financial Officer of Seller acting solely in their
capacities as officers of Seller, to that effect.
(c) Permits, Authorizations, etc. Seller
-----------------------------
shall have obtained any and all material permits, authorizations,
consents, waivers and approvals required for the lawful
consummation by it of the Merger.
(d) No Material Adverse Change. Since the
--------------------------
date of this Agreement, there shall have been no material adverse
change to the Condition of Seller and the Seller Subsidiaries,
taken as a whole, except as may have resulted from changes to laws
and regulations, generally accepted or regulatory accounting
principles, or interpretations thereof, or changes in economic
conditions, including interest rates, applicable to thrift
institutions generally.
(e) Opinion of Counsel. Seller shall have
------------------
delivered to Buyers an opinion of Seller's counsel dated as of the
Closing Date or a mutually agreeable earlier date in substantially
the form set forth as Exhibit E to this Agreement.
---------
ARTICLE VII
-----------
TERMINATION, AMENDMENT AND WAIVER
7.01. Termination. This Agreement may be terminated at
-----------
any time prior to the Effective Time, whether before or after
approval by Seller stockholders:
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(a) by mutual consent by the Executive
Committee of the Board of Directors of Mercantile and by the
respective Boards of Directors of Seller and Merger Sub;
(b) by the Executive Committee of the Board of
Directors of Mercantile or the respective Boards of Directors of
either Seller or Merger Sub at any time after December 31, 1995 if
the Merger shall not theretofore have been consummated (provided
that the terminating party is not then in material breach of any
representation, warranty, covenant or other agreement contained
herein);
(c) by the Executive Committee of the Board of
Directors of Mercantile or the respective Boards of Directors of
either Seller or Merger Sub if (i) the Federal Reserve Board or the
OTS has denied approval of the Merger and such denial has become
final and nonappealable or (ii) stockholders of Seller shall not
have approved this Agreement at the meeting referred to in Section
5.03;
(d) by the Executive Committee of the Board of
Directors of Mercantile or the Board of Directors of Merger Sub in
the event (i) any situation, event, circumstance or other matter
shall come to the attention of Mercantile or Merger Sub during the
course of the Due Diligence Review conducted pursuant to Section
5.01(b) hereof which Mercantile or Merger Sub shall, in a good
faith exercise of its reasonable discretion, believe either (A) to
be inconsistent in any material and adverse respect with any of the
representations or warranties of Seller, (B) to be of such
significance as to materially and adversely affect the Condition of
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Seller and the Seller Subsidiaries, taken as a whole, or (C) to
deviate materially and adversely from Seller's financial statements
for the year ended September 30, 1994, and (ii) Mercantile or
Merger Sub notifies Seller of such matters within five (5) business
days after the end of the Due Diligence Review Period and such
matters are not capable of being cured or have not been cured
within thirty (30) days after written notice thereof to Seller; or
(e) by the Board of Directors of Seller in the
event (i) any situation, event, circumstance or other matter shall
come to the attention of Seller during the course of the Seller Due
Diligence Review conducted pursuant to Section 5.01(c) hereof which
Seller shall, in a good faith exercise of its reasonable
discretion, believe either (A) to be inconsistent in any material
and adverse respect with any of the representations or warranties
of Buyers, (B) to be of such significance as to materially and
adversely affect the Condition of Mercantile and its Subsidiaries,
taken as a whole, or (C) to deviate materially and adversely from
Mercantile's financial statements for the year ended December 31,
1993, and (ii) Seller notifies Mercantile of such matters within
five (5) business days after the end of the Seller Due Diligence
Review Period and such matters are not capable of being cured or
have not been cured within thirty (30) days after written notice
thereof to Mercantile; or
(f) by the Executive Committee of the Board of
Directors of Mercantile or the Board of Directors of Merger Sub, on
the one hand, or by the Board of Directors of Seller, on the other
hand, in the event of a breach by the other party to this Agreement
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of any representation, warranty or agreement contained herein, or
in the Stock Option Agreement of even date herewith between
Mercantile and Seller, which breach is not cured within 30 days
after written notice thereof is given to the breaching party by the
non-breaching party or is not waived by the non-breaching party
during such period.
7.02. Effect of Termination. In the event of
---------------------
termination of this Agreement as provided in Section 7.01 hereof,
this Agreement shall forthwith become void and there shall be no
liability on the part of Buyers or Seller or their respective
officers or directors except as set forth in the second sentence of
Section 5.01(a) and in Sections 5.06 and 8.02, and except that no
termination of this Agreement pursuant to Section 7.01(f) shall
relieve the breaching party of any liability to the non-breaching
party hereto arising from the intentional, deliberate and willful
non-performance of any covenant contained herein, after giving
notice to such breaching party and an opportunity to cure as set
forth in Section 7.01(e).
7.03. Amendment. This Agreement and the Schedules
---------
hereto may be amended by the parties hereto, by action taken by or
on behalf of the Executive Committee of the Board of Directors of
Mercantile and the respective Boards of Directors of Merger Sub or
Seller, at any time before or after approval of this Agreement by
the stockholders of Seller; provided, however, that (a) after any
-------- -------
such approval by the stockholders of Seller no such modification
shall (i) alter or change the amount or kind of Merger
Consideration to be received by holders of Seller Common Stock as
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provided in this Agreement or (ii) adversely affect the tax
treatment to Seller stockholders as a result of the Merger
Consideration and (b) before the submission of this Agreement for
approval by the stockholders of Seller, Buyers may make such
amendments as are permitted by Section 1.13 and Seller's Board of
Directors shall approve those amendments specified in this clause
(b). This Agreement may not be amended except by an instrument in
writing signed on behalf of each of Buyers and Seller.
7.04. Waiver. Any term, condition or provision of this
------
Agreement may be waived in writing at any time by the party which
is, or whose stockholders are, entitled to the benefits thereof.
ARTICLE VIII
------------
GENERAL PROVISIONS
8.01. Non-Survival of Representations, Warranties and
-----------------------------------------------
Agreements. No investigation by the parties hereto made heretofore
- ----------
or hereafter shall affect the representations and warranties of the
parties which are contained herein and each such representation and
warranty shall survive such investigation. Except as set forth
below in this Section 8.01, all representations, warranties and
agreements in this Agreement of Buyers and Seller or in any
instrument delivered by Buyers or Seller pursuant to or in
connection with this Agreement shall expire at the Effective Time
or upon termination of this Agreement in accordance with its terms.
In the event of consummation of the Merger, the agreements
contained in or referred to in Sections 5.02(b), 5.07, 5.08, 5.09
and 5.12 shall survive the Effective Time. In the event of
termination of this Agreement in accordance with its terms, the
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agreements contained in or referred to in the second sentence of
Section 5.01, Section 5.06, Section 7.02 and Section 8.02 shall
survive such termination.
8.02. Indemnification. Buyers and Seller (hereinafter,
---------------
in such capacity being referred to as the "Indemnifying Party")
agree to indemnify and hold harmless each other and their officers,
directors and controlling persons (each such other party being
hereinafter referred to, individually and/or collectively, as the
"Indemnified Party") against any and all losses, claims, damages or
liabilities, joint or several, to which the Indemnified Party may
become subject under the Securities Act, the Exchange Act or other
federal or state law or regulation, at common law or otherwise,
insofar as such losses, claims, damages or liabilities (or actions
in respect thereof): (a) arise primarily out of any information
furnished to the Indemnified Party by the Indemnifying Party or are
based primarily upon any untrue statement or alleged untrue
statement of a material fact contained in the Registration
Statement as originally filed or in any amendment thereof, or in
the Proxy Statement, or in any amendment thereof or supplement
thereto, and provided for inclusion thereof by the Indemnifying
Party or (b) arise primarily out of or are based primarily upon the
omission or alleged omission by the Indemnifying Party to state
therein a material fact required to be stated therein or necessary
to make the statements made therein not misleading, and agrees to
reimburse each such Indemnified Party, as incurred, for any legal
or other expenses reasonably incurred by them in connection with
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investigating or defending any such loss, claim, damage, liability
or action.
8.03. No Assignment; Successors and Assigns. This
-------------------------------------
Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns, but
neither this Agreement nor any right or obligation set forth in any
provision hereof may be transferred or assigned by any party hereto
without the prior written consent of the other party, and any
purported transfer or assignment in violation of this Section 8.03
shall be void and of no effect. There shall not be any third party
beneficiaries of any provisions hereof except for Sections 1.09,
5.08, 5.09, 5.12 and 8.02, which may be enforced against Buyers or
Seller by the parties therein identified.
8.04. No Implied Waiver. No failure or delay on the
-----------------
part of either party hereto to exercise any right, power or
privilege hereunder or under any instrument executed pursuant
hereto shall operate as a waiver nor shall any single or partial
exercise of any right, power or privilege preclude any other or
further exercise thereof or the exercise of any other right, power
or privilege.
8.05. Headings. Article, section, subsection and
--------
paragraph titles, captions and headings herein are inserted only as
a matter of convenience and for reference, and in no way define,
limit, extend or describe the scope of this Agreement or the intent
or meaning of any provision hereof.
8.06. Entire Agreement. This Agreement and the
----------------
Exhibits, Appendices and Schedules hereto constitute the entire
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agreement between the parties with respect to the subject matter
hereof, supersede all prior negotiations, representations,
warranties, commitments, offers, letters of interest or intent,
proposal letters, contracts, writings or other agreements or
understandings with respect thereto. No waiver, and no
modification or amendment of any provision of this Agreement shall
be effective unless specifically made in writing and duly signed by
all parties thereto.
The parties acknowledge that the Schedules referenced in
Article II are not included with this Agreement as of the date of
this Agreement. Seller shall provide such Schedules to Buyers by
not later than ten business days after the date of this Agreement
for review and consideration. The obligations on the part of
Buyers under this Agreement are expressly conditioned upon, and
subject to, acceptance by Buyers not later than the end of the
fifth business day after the date of the actual delivery of the
Schedules to Buyers of the form and substance of the Schedules, in
each case in the reasonable discretion of Buyers.
8.07. Counterparts. This Agreement may be executed in
------------
one or more counterparts, and any party to this Agreement may
executed and deliver this Agreement by executing and delivering any
of such counterparts, each of which when executed and delivered
shall be deemed to be an original and all of which taken together
shall constitute one and the same instrument.
8.08. Notices. All notices and other communications
-------
hereunder shall be in writing and shall be deemed to be duly
received (i) on the date given if delivered personally or (ii) upon
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confirmation of receipt, if by facsimile transmission or (iii) on
the date received if mailed by registered or certified mail (return
receipt requested), to the parties at the following addresses (or
at such other address for a party as shall be specified by like
notice):
(i) if to Buyers:
Mercantile Bancorporation Inc.
Mercantile Tower
P.O. Box 524
St. Louis, Missouri 63166-0524
Attention: Ralph W. Babb, Jr.
Vice Chairman
Telecopy: (314) 425-8108
Copies to:
Jon W. Bilstrom, Esq.
General Counsel
Mercantile Bancorporation Inc.
Mercantile Tower
P.O. Box 524
St. Louis, Missouri 63166-0524
Telecopy: (314) 425-1386
and
Thompson & Mitchell
One Mercantile Center
St. Louis, Missouri 63101
Attention: Robert M. LaRose, Esq.
Telecopy: (314) 342-1717
(ii) if to Seller:
Plains Spirit Financial Corporation
131 West Third Street
Davenport, Iowa 52801-1497
Attention: William L. Wilke
President
Telecopy: (319) 326-0538
Copies to:
Silver, Freedman & Taff
1100 New York Avenue, Suite 700
Washington, D.C. 20005-3934
Attention: David B. Myatt, Esq.
Barry P. Taff, Esq.
Telecopy: (202) 682-0354
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8.09. Severability. Any term, provision, covenant or
------------
restriction contained in this Agreement held by a court or a
Regulatory Authority of competent jurisdiction to be invalid, void
or unenforceable, shall be ineffective to the extent of such
invalidity, voidness or unenforceability, but neither the remaining
terms, provisions, covenants or restrictions contained in this
Agreement nor the validity or enforceability thereof in any other
jurisdiction shall be affected or impaired thereby. Any term,
provision, covenant or restriction contained in this Agreement that
is so found to be so broad as to be unenforceable shall be
interpreted to be as broad as is enforceable.
8.10. Governing Law. This Agreement shall be governed
-------------
by and controlled as to validity, enforcement, interpretation,
effect and in all other respects by the internal laws of the State
of Missouri applicable to contracts made in such state, except as
otherwise specifically provided herein or as required by the DGCL.
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IN WITNESS WHEREOF, Buyer and Seller have caused this
Agreement to be signed and, by such signature, acknowledged by
their respective officers thereunto duly authorized, and such
signatures to be attested to by their respective officers thereunto
duly authorized, all as of the date first
"BUYERS"
MERCANTILE BANCORPORATION INC.
By: /s/ Ralph W. Babb, Jr.
---------------------------------------
Ralph W. Babb, Jr.
Vice Chairman
MERCANTILE BANCORPORATION INC.
OF IOWA
By: /s/ Ralph W. Babb, Jr.
---------------------------------------
Ralph W. Babb, Jr.
Chairman
"SELLER"
PLAINS SPIRIT FINANCIAL
CORPORATION
By: /s/ William L. Wilke
---------------------------------------
William L. Wilke
President and Chief
Executive Officer
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<PAGE> 248
ANNEX B
-------
Following is the text of the statutory appraisal right as set
forth in Section 262 of The General Corporation Law of the State
of Delaware.
Section 262. APPRAISAL RIGHTS
(a) Any stockholder of a corporation of this State who
holds shares of stock on the date of the making of a demand
pursuant to subsection (d) of this section with respect to such
shares, who continuously holds such shares through the effective
date of the merger or consolidation, who has otherwise complied
with subsection (d) of this section and who has neither voted in
favor of the merger or consolidation nor consented thereto in
writing pursuant to Section 228 of this title shall be entitled
to an appraisal by the Court of Chancery of the fair value of his
shares of stock under the circumstances described in subsections
(b) and (c) of this section. As used in this section, the word
"stockholder" means a holder of record of stock in a stock
corporation and also a member of record of a non-stock
corporation; the words "stock" and "share" mean and include what
is ordinarily meant by those words and also membership or
membership interest of a member of a non-stock corporation; and
the words "depository receipt" mean a receipt or other instrument
issued by a depository representing an interest in one or more
shares, or fractions thereof, solely of stock of a corporation,
which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of
any class or series of stock of a constituent corporation in a
merger or consolidation to be effected pursuant to Sections 251,
252, 254, 257, 258, 263 or 264 of this title:
(1) Provided, however, that no appraisal rights under
this section shall be available for the shares of any class or
series of stock, which stock, or depository receipts in respect
thereof, at the record date fixed to determine the stockholders
entitled to receive notice of and to vote at the meeting of
stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities
exchange or designated as a national market system on an
interdealer quotation system by the National Association of
Securities Dealers, Inc., or (ii) held of record by more than
2,000 holders; and further provided that no appraisal rights
shall be available for any shares of stock of the constituent
corporation surviving a merger if the merger did not require for
its approval the vote of the holders of the surviving corporation
as provided in subsection (f) of Section 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection,
appraisal rights under this section shall be available for the
shares of any class or series of stock of a constituent
corporation if the holders thereof are required by the terms of
an agreement of merger or consolidation pursuant to Sections
251, 252, 254, 257, 258 263 and 264 of this title to accept for
such stock anything except:
a. Shares of stock of the corporation surviving
or resulting from such merger or consolidation, or
depository receipts in respect thereof;
b. Shares of stock of any other corporation, or
depository receipts in respect thereof, which shares of
stock or depository receipts at the effective date of
the merger or consolidation will be either listed on a
national securities exchange or designated as a
national market system security on an interdealer
quotation system by the National Association of
Securities Dealers, Inc., or held of record by more
than 2,000 holders;
c. Cash in lieu of fractional shares or
fractional depository receipts described in the
foregoing subparagraphs a. and b. of this paragraph; or
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d. Any combination of the shares of stock,
depository receipts and cash in lieu of fractional
shares or fractional depository receipts described in
the foregoing subparagraphs a., b. and c. of this
paragraph.
(3) In the event all of the stock of a subsidiary
Delaware corporation party to a merger effected under Section
253 of this title is not owned by the parent corporation
immediately prior to the merger, appraisal rights shall be
available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of
incorporation that appraisal rights under this section shall be
available for the shares of any class or series of its stock as a
result of an amendment to its certificate of incorporation, any
merger or consolidation in which the corporation is a constituent
corporation or the sale of all or substantially all of the assets
of the corporation. If the certificate of incorporation contains
such a provision, the procedures of this section, including those
set forth in subsections (d) and (e) of this section, shall apply
as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which
appraisal rights are provided under this section is to be
submitted for approval at a meeting of stockholders, the
corporation, not less than 20 days prior to the meeting, shall
notify each of its stockholders who was such on the record date
for such meeting with respect to shares for which appraisal
rights are available pursuant to subsections (b) or (c) hereof
that appraisal rights are available for any or all of the shares
of the constituent corporations, and shall include in such notice
a copy of this section. Each stockholder electing to demand the
appraisal of his shares shall deliver to the corporation, before
the taking of the vote on the merger or consolidation, a written
demand for appraisal of his shares. Such demand will be
sufficient if it reasonably informs the corporation of the
identity of the stockholder and that the stockholder intends
thereby to demand the appraisal of his shares. A proxy or vote
against the merger or consolidation shall not constitute such a
demand. A stockholder electing to take such action must do so by
a separate written demand as herein provided. Within 10 days
after the effective date of such merger or consolidation, the
surviving or resulting corporation shall notify each stockholder
of each constituent corporation who has complied with the
provisions of this subsection and has not voted in favor of or
consented to the merger or consolidation of the date that the
merger or consolidation has become effective; or
(2) If the merger or consolidation was approved
pursuant to Section 228 or Section 253 of this title, the
surviving or resulting corporation, either before the effective
date of the merger or consolidation or within 10 days thereafter,
shall notify each of the stockholders entitled to appraisal
rights of the effective date of the merger or consolidation and
that appraisal rights are available for any or all of the shares
of the constituent corporation, and shall include in such notice
a copy of this section. The notice shall be sent by certified or
registered mail, return receipt requested, addressed to the
stockholder at his address as it appears on the records of the
corporation. Any stockholder entitled to appraisal rights may,
within 20 days after the date of mailing of the notice, demand in
writing from the surviving or resulting corporation the appraisal
of his shares. Such demand will be sufficient if it reasonably
informs the corporation of the identity of the stockholder and
that the stockholder intends thereby to demand the appraisal of
his shares.
(e) Within 120 days after the effective date of the merger
or consolidation, the surviving or resulting corporation or any
stockholder who has complied with subsections (a) and (d) hereof
and who is otherwise entitled to appraisal rights, may file a
petition in the Court of Chancery demanding a determination of
the value of the stock of all such stockholders. Notwithstanding
the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have
the right to withdraw his demand for appraisal and to accept the
terms offered upon the merger or consolidation. Within 120 days after
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the effective date of the merger or consolidation, any stockholder who has
complied with the requirements of subsections (a) and (d) hereof, upon
written request, shall be entitled to receive from the corporation
surviving the merger or resulting from the consolidation a statement
setting forth the aggregate number of shares not voted in favor of the
merger or consolidation and with respect to which demands for appraisal
have been received and the aggregate number of holders of such
shares. Such written statement shall be mailed to the
stockholder within 10 days after his written request for such a
statement is received by the surviving or resulting corporation
or within 10 days after expiration of the period for delivery of
demands for appraisal under subsection (d) hereof, whichever is
later.
(f) Upon the filing of any such petition by a stockholder,
service of a copy thereof shall be made upon the surviving or
resulting corporation, which shall within 20 days after such
service file in the office of the Register in Chancery in which
the petition was filed a duly verified list containing the names
and addresses of all stockholders who have demanded payment for
their shares and with whom agreements as to the value of their
shares have not been reached by the surviving or resulting
corporation. If the petition shall be filed by the surviving or
resulting corporation, the petition shall be accompanied by such
a duly verified list. The Register in Chancery, if so ordered by
the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the
surviving or resulting corporation and to the stockholders shown
on the list at the addresses therein stated. Such notice shall
also be given by one or more publications at least 1 week before
the day of the hearing, in a newspaper of general circulation
published in the City of Wilmington, Delaware or such publication
as the Court deems advisable. The forms of the notices by mail
and by publication shall be approved by the Court, and the costs
thereof shall be borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall
determine the stockholders who have complied with this section
and who have become entitled to appraisal rights. The Court may
require the stockholders who have demanded an appraisal for their
shares and who hold stock represented by certificates to submit
their certificates of stock to the Register in Chancery for
notation thereon of the pendency of the appraisal proceedings;
and if any stockholder fails to comply with such direction, the
Court may dismiss the proceedings as to such stockholder.
(h) After determining the stockholders entitled to an
appraisal, the Court shall appraise the shares, determining their
fair value exclusive of any element of value arising from the
accomplishment or expectation of the merger or consolidation,
together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such
fair value, the Court shall take into account all relevant
factors. In determining the fair rate of interest, the Court may
consider all relevant factors, including the rate of interest
which the surviving or resulting corporation would have had to
pay to borrow money during the pendency of the proceeding. Upon
application by the surviving or resulting corporation or by any
stockholder entitled to participate in the appraisal proceeding,
the Court may, in its discretion, permit discovery or other
pretrial proceedings and may proceed to trial upon the appraisal
prior to the final determination of the stockholder entitled to
an appraisal. Any stockholder whose name appears on the list
filed by the surviving or resulting corporation pursuant to
subsection (f) of this section and who has submitted his
certificates of stock to the Register in Chancery, if such is
required, may participate fully in all proceedings until it is
finally determined that he is not entitled to appraisal rights
under this section.
(i) The Court shall direct the payment of the fair value of
the shares, together with interest, if any, by the surviving or
resulting corporation to the stockholders entitled thereto.
Interest may be simple or compound, as the Court may direct.
Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of
holders of shares represented by certificates upon the surrender
to the corporation of the certificates representing such stock.
The Court's decree may be enforced as other
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<PAGE> 251
decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any other
state.
(j) The costs of the proceeding may be determined by the
Court and taxed upon the parties as the Court deems equitable in
the circumstances. Upon application of a stockholder, the Court
may order all or a portion of the expenses incurred by any
stockholder in connection with the appraisal proceeding,
including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the
value of all of the shares entitled to an appraisal.
(k) From and after the effective date of the merger or
consolidation, no stockholder who has demanded his appraisal
rights as provided in subsection (d) of this section shall be
entitled to vote such stock for any purpose or to receive payment
of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of
record at a date which is prior to the effective date of the
merger or consolidation); provided, however, that if no petition
for an appraisal shall be filed within the time provided in
subsection (e) of this section, or if such stockholder shall
deliver to the surviving or resulting corporation a written
withdrawal of his demand for an appraisal and an acceptance of
the merger or consolidation, either within 60 days after the
effective date of the merger or consolidation as provided in
subsection (e) of this section or thereafter with the written
approval of the corporation, then the right of such stockholder
to an appraisal shall cease. Notwithstanding the foregoing, no
appraisal proceeding in the Court of Chancery shall be dismissed
as to any stockholder without the approval of the Court, and such
approval may be conditioned upon such terms as the Court deems
just.
(l) The shares of the surviving or resulting corporation to
which the shares of such objecting stockholders would have been
converted had they assented to the merger or consolidation shall
have the status of authorized and unissued shares of the
surviving or resulting corporation.
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ANNEX C
-------
[Letterhead of Kaplan Associates, Inc.]
June 7, 1995
Board of Directors
Plains Spirit Financial Corporation
131 West Third Street
Davenport, Iowa 52801-1497
Members of the Board:
You have requested our opinion as to the fairness from a
financial point of view to the holders of the issued and
outstanding shares of common stock ("Plains Spirit Common
Stock"), par value $0.01 per share, of Plains Spirit Financial
Corporation ("Plains Spirit") of the "Merger Consideration" (as
defined hereinbelow) to be received for the issued and
outstanding shares of Plains Spirit Common Stock pursuant to the
Agreement and Plan of Merger (the "Agreement"), dated December
23, 1994, between Mercantile Bancorporation Inc. ("Mercantile")
and Mercantile Bancorporation Inc. of Iowa ("Merger Sub" and
collectively with Mercantile, "MBI"), and Plains Spirit providing
for the merger (the "Merger") of Plains Spirit with and into
Merger Sub. Such Merger shall qualify as a tax-free
reorganization and, for financial reporting purposes, will be
accounted for by MBI under the purchase method.
Pursuant to the Agreement, each share of Plains Spirit Common
Stock shall be converted into and become the right to receive either
(i) an amount in cash equal to $31.25 per share (the "Cash
Distribution"); or (ii) such number of shares (or fraction
thereof) of common stock of Mercantile $5.00 par value, with
associated rights ("Rights") under the "Rights Agreement" (as such
terms are defined in Section 3.03 of the Agreement)
(collectively, "Mercantile Common Stock"), as shall equal the
quotient of (A) the Cash Distribution and (B) the "Average
Mercantile Stock Price" (as defined in Section 1.07 of the
Agreement) (the "Stock Distribution") as the holder thereof shall
elect or be deemed to have elected as provided in Section 1.08 of
the Agreement (the aggregate of the Cash Distributions and Stock
Distributions payable or issuable pursuant to the Merger is
referred to herein as the "Merger Consideration"). Except as
otherwise provided in the Agreement, the maximum number of shares
of Mercantile Common Stock issuable by Mercantile pursuant to the
aggregate Stock Distributions described above is 1,400,000.
As a condition to Mercantile's entering into the Agreement and
in consideration thereof, Plains Spirit and Mercantile have
entered into a Stock Option Agreement (the "Option Agreement")
pursuant to which Plains Spirit has granted to Mercantile, on the
terms and conditions set forth in the Option Agreement, an option
entitling Mercantile to purchase up to 374,516 shares of Plains
Spirit Common Stock as of the date of execution of the Option
Agreement at a cash price per share for Plains Spirit Common
Stock of $24.00.
As a further condition to Mercantile's entering into the
Agreement and in consideration thereof, certain directors and
stockholders of Plains Spirit have entered into Voting
Agreements, dated as of the date of the Agreement. Pursuant to such
Voting Agreements, the respective directors and stockholders
agreed to vote all of the shares of Plains Spirit Common Stock
they now own or thereafter acquire, in favor of the Merger at the
meeting of stockholders of Plains Spirit to be called for
purposes of approving the Merger, and to not
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<PAGE> 253
Board of Directors
Plains Spirit Financial Corporation
June 7, 1995
vote any such shares of Plains Spirit Common Stock in favor of any other merger or
sale of all or substantially all the assets of Plains Spirit to any party
other than Mercantile or its affiliates.
Kaplan Associates, Inc. ("Kaplan Associates") is a financial
advisory and consulting firm that specializes in the commercial
banking, thrift and mortgage banking industries. As part of our
financial advisory and consulting services, we are regularly
engaged in the independent valuation of securities in connection
with initial public offerings, private placements, merger and
acquisition transactions and recapitalizations. Kaplan
Associates is familiar with Plains Spirit, having acted as its
financial advisor in connection with, and having participated in,
the negotiations leading to the Agreement.
In arriving at the opinion set forth below, we have, among
other things:
1. Reviewed Plains Spirit's Annual Reports, Forms
10-K and related financial information for the three
fiscal years ended September 30, 1994 and quarterly
reports as filed on Form 10-Q for each of the first
three fiscal quarters for the two years ended September
30, 1994 and for the quarters ended December 31, 1994 and
March 31, 1995;
2. Reviewed Mercantile's Annual Reports, Forms 10-K
and related financial information for the five
fiscal years ended December 31, 1994 and quarterly
reports as filed on Form 10-Q for each of the first
three fiscal quarters for the two years ended December
31, 1994 and the quarter ended March 31, 1995;
3. Reviewed the various other bank and thrift acquisitions
that Mercantile has recently completed or has pending,
including the acquisition of Wedge Bank (approximately
$209.7 million in assets), the acquisition of UNSL
Financial Corp. (approximately $440.4 million in assets),
the acquisition of Central Mortgage Bancshares, Inc.
(approximately $629.1 million in assets), the
acquisition of TCBankshares, Inc. (approximately $1.3
billion in assets), the acquisition of Southwest Bancshares,
Inc. (approximately $174.1 million in assets) and the
acquisition of AmeriFirst Bancorporation, Inc. (approximately
$164.1 million in assets);
4. Conducted discussions with members of senior
management of Plains Spirit and Mercantile
concerning their respective financial conditions,
businesses, assets, financial forecasts and
prospects;
5. Reviewed the historical common stock price
performance of Plains Spirit and Mercantile on a
daily, weekly and monthly basis;
6. Reviewed the historical common stock trading
volume of Plains Spirit and Mercantile;
7. Compared the results of operations of Plains
Spirit and Mercantile with those of certain
companies that we deemed relevant;
8. Analyzed the relative contribution of Plains
Spirit to certain financial attributes of
Mercantile, including, among other things, its
assets, liabilities, equity and forecasted net
income;
C-2
<PAGE> 254
Board of Directors
Plains Spirit Financial Corporation
June 7, 1995
9. Reviewed the Agreement and Stock Option Agreement
and compared the proposed financial terms of the
transaction contemplated by the Agreement with the
financial terms of certain other transactions that
we deemed to be relevant;
10. Reviewed and evaluated other prior solicitations
of interest in Plains Spirit; and
11. Reviewed such other financial studies and analyses
and performed such other investigations and took
into account our experience in other transactions,
knowledge of the commercial banking and thrift
industries and general experience in securities
valuations and our assessment of general economic,
market and financial conditions and such other
matters as we deemed necessary.
In rendering this opinion, we have, with your consent, assumed
and relied, without independent verification, upon the accuracy
and completeness, in all material respects, of the financial and
other information and the representations provided to us by
Plains Spirit and Mercantile. We have also relied upon the
management of Plains Spirit as to the reasonableness and
achievability of the financial and operating forecasts (and the
assumptions and bases therefor) provided to us. In that regard,
we have assumed with consent that such forecasts, including
without limitation, projections regarding underperforming and
nonperforming assets, net charge-offs and the adequacy of
reserves, reflect the best currently available estimates and
judgments of Plains Spirit's management and that such projections
and forecasts will be realized in the amounts and in the time
periods currently estimated by the management of Plains Spirit.
In addition, with your consent, we have not made an
independent evaluation or appraisal of the assets of Plains
Spirit or Mercantile or any of their subsidiaries, nor have we been
furnished with any such evaluations or appraisals. We have also
assumed that there has been no material change in Plains Spirit's
or Mercantile's assets, financial condition, results of
operation, business or prospects since the date of the last
financial statements made available to us by Plains Spirit and
Mercantile, respectively. We have relied on advice of counsel to
Plains Spirit as to all legal matters with respect to Plains
Spirit, Mercantile, the Board of Directors, the Merger, the
Agreement and the Option Agreement. This opinion is necessarily
based upon economic, market, monetary and other conditions as
they exist and can be evaluated at this time.
As compensation for the financial advisory services provided
to Plains Spirit in connection with the Merger, including
providing this opinion, Plains Spirit agreed to pay Kaplan
Associates the fees and reimburse the expenses set forth in the
engagement letter dated November 29, 1993 between Plains Spirit
and Kaplan Associates. This opinion is furnished pursuant to
such engagement letter and, except as provided therein, may not
be used or referred to by Plains Spirit, or quoted or disclosed
to any person in any manner without our prior written consent.
C-3
<PAGE> 255
Board of Directors
Plains Spirit Financial Corporation
June 7, 1995
Based upon and subject to the foregoing, and based upon
such other matters as we considered relevant, we are of the
opinion that, as of the date hereof, the Merger Consideration
to be paid by Mercantile pursuant to the terms of the Agreement is
fair to the stockholders of Plains Spirit from a financial point
of view.
Sincerely,
KAPLAN ASSOCIATES, INC.
C-4
<PAGE> 256
PROXY PLAINS SPIRIT FINANCIAL CORPORATION
SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD JULY 6, 1995
The undersigned hereby appoints the Board of Directors of Plains
Spirit Financial Corporation (the "Company"), with full powers of
substitution, to act as attorneys and proxies for the undersigned
to vote all shares of capital stock of the Company which the
undersigned is entitled to vote at the Special Meeting of
Stockholders (the "Meeting") to be held at the main office of the
Company, 131 West Third Street, Davenport, Iowa, on July 6, 1995 at
1:30 p.m., and at any and all adjournments and postponements
thereof.
THIS PROXY WILL BE VOTED AS DIRECTED, BUT IF NO INSTRUCTIONS ARE
SPECIFIED, THIS PROXY WILL BE VOTED FOR THE MERGER AGREEMENT. IF
ANY OTHER BUSINESS IS PRESENTED AT THE MEETING, THIS PROXY WILL
BE VOTED BY THOSE NAMED IN THIS PROXY IN THEIR BEST JUDGMENT. AT
THE PRESENT TIME, THE BOARD OF DIRECTORS KNOWS OF NO OTHER
BUSINESS TO BE PRESENTED AT THE MEETING.
(Continued and to be signed on reverse side)
The Board of Directors recommends a vote "FOR" the Merger
Agreement.
Adoption and approval of the Agreement and Plan of
Merger, dated as of December 23, 1994 (the "Merger
Agreement"), and each of the transactions contemplated
thereby, pursuant to which Plains Spirit will be merged
with and into a wholly owned subsidiary of Mercantile
Bancorporation Inc. ("MBI") and whereby, upon
consummation of the merger, all shares of Plains Spirit
Common Stock (other than shares held by holders of
Plains Spirit Common Stock who perfect their appraisal
rights) will be converted into either (i) the right to
receive an amount in cash equal to $31.25 per share or
(ii) the right to receive such number of shares (or
fraction thereof) of MBI Common Stock, $5.00 par value,
as determined by the election procedures and exchange
ratio set forth in detail in the accompanying Proxy
Statement/Prospectus, and subject to certain
adjustments as provided in the Merger Agreement.
/ / FOR / / AGAINST / / ABSTAIN
In their discretion, the proxies are authorized to vote on any
other business that may properly come before the Meeting or any
adjournment or postponement thereof.
"PLEASE MARK INSIDE BLUE BLOXES SO
THAT DATA PROCESSING EQUIPMENT
WILL RECORD YOUR VOTES"
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
Should the undersigned be present and elect to vote at the
Meeting or at any adjournments or postponements thereof, and
after notification to the Secretary of the Company at the Meeting
of the Stockholder's decision to terminate this proxy, then the
power of such attorneys or proxies shall be deemed terminated and
of no further force and effect. This proxy may also be revoked
by filing a written notice of revocation with the Secretary of
the Company or by duly executing a proxy bearing a later date.
The undersigned acknowledges receipt, from the Company, prior to
the execution of this proxy, of notice of the Meeting and a Proxy
Statement/Prospectus dated June 7, 1995.
Dated:---------------------------------------, 1995
- ---------------------------------------------------
Signature of Stockholder
- ---------------------------------------------------
Signature of Stockholder
Please sign exactly as your name(s) appear(s) to the left. When
signing as attorney, executor, administrator, trustee or
guardian, please give your full title. If share are held
jointly, each holder should sign.
PLEASE COMPLETE, DATE, SIGN AND MAIL THIS PROXY PROMPTLY IN THE
ENCLOSED POSTAGE-PAID ENVELOPE.
<PAGE> 257
ELECTION FORM FOR USE BY STOCKHOLDERS OF
PLAINS SPIRIT FINANCIAL CORPORATION
KeyCorp Shareholder Services, Inc.
Reorganization Department
P.O. Box 6777
Cleveland, Ohio 44101-9388
Gentlemen:
Pursuant to the terms of the Agreement and Plan of Merger (the
"Merger Agreement") by and among Plains Spirit Financial
Corporation ("Plains Spirit"), Mercantile Bancorporation Inc.
("Mercantile") and Mercantile Bancorporation Inc. of Iowa, a
wholly owned subsidiary of Mercantile, the undersigned
stockholder(s) of Plains Spirit elects the following alternative
as to the category of consideration that the undersigned elects
to receive in conversion of his or her shares of Plains Spirit
Common Stock upon consummation of the merger:
[CHECK ONLY ONE OF THE BOXES TO INDICATE YOUR ELECTION]
/ / (i) STOCK ELECTION - such number of shares of Mercantile Common
Stock in an amount per share of Plains Spirit Common Stock
equal to the quotient obtained by dividing $31.25 by
the Average Mercantile Stock Price. The "Average Mercantile
Stock Price" means the average (rounded to the nearest
whole cent) of the closing stock price of one share of
Mercantile Common Stock on The New York Stock Exchange -
Composite Transaction List for the ten consecutive trading
days ending on and including the date of the later of (i)
the approval of the merger by the Board of Governors of the
Federal Reserve System or (ii) the approval of the merger
by the Office of Thrift Supervision.
/ / (ii) CASH ELECTION - a cash payment in an amount equal to
$31.25 per share of Plains Spirit Common Stock.
The undersigned acknowledges that the deadline for filing this
Election Form with KeyCorp Shareholder Services, Inc. is by 5:00 p.m.,
Central Daylight Time, on July 6, 1995, the day of the Special Meeting
of Stockholders of Plains Spirit called to consider and vote upon
the Merger Agreement. Any stockholder who fails to deliver the
Election Form to KeyCorp Shareholder Services, Inc. by the deadline
will be deemed to have elected the Cash Election but will be treated
differently than other stockholders who have made a Cash Election by
filing this Election Form. In addition, any holder of 1% or more of
the Plains Spirit Common Stock that shall not have delivered to
KeyCorp Shareholder Services, Inc., on or before 5:00 p.m., Central
Daylight Time, on July 6, 1995, in properly executed form, the
accompanying certification regarding certain tax matters, shall
be deemed to have made a timely Cash Election. The undersigned
further acknowledges that the election to receive the indicated
category of consideration is subject to the limitations on the
issuance of not more than 1,400,000 shares of Mercantile Common
Stock and not less than the number of shares of Mercantile Common
Stock necessary for the merger to quality as a tax-deferred
reorganization for those stockholders who receive shares of
Mercantile Common Stock in exchange for their shares of Plains
Spirit Common Stock. See the section of the accompanying Proxy
Statement entitled "TERMS OF THE PROPOSED MERGER -- General
Description of the Merger" for a description of the situations in
which the Exchange Agent may be required to pay to stockholders
consideration other than from the elected category of
consideration and the priorities governing such adjustments.
Prior to 5:00 p.m., Central Daylight Time, on July 6, 1995,
the undersigned may, at any time or from time to time, change his or
her election by filing a new Election Form with KeyCorp Shareholder
Services, Inc.
Stockholders who have questions regarding the election
process, and/or the tax consequences associated with such election
process, should consult, at their own expense, their own tax,
legal and investment advisors.
Dated: ---------------, 1995
- ----------------------------------------------------------
Signature of Stockholder
- ----------------------------------------------------------
Signature of Stockholder
(To be signed by the holder(s) of record exactly as the name(s)
of such holder(s) appears on the stock certificate. When signing
as an attorney, executor, administrator, trustee or guardian,
please give full title. All joint owners must sign.)
PLEASE RETURN TO KEYCORP SHAREHOLDER SERVICES, INC. USING
THE ENCLOSED, PRE-PAID, PRE-ADDRESSED ENVELOPE.
<PAGE> 258
[Plains Spirit Letterhead]
June 7, 1995
Dear Fellow Stockholder:
In connection with the acquisition (the "Merger") of Plains
Spirit Financial Corporation, a Delaware corporation ("Plains
Spirit"), by Mercantile Bancorporation Inc., a Missouri
corporation ("MBI"), Thompson & Mitchell, special counsel for
MBI, has been requested to deliver a legal opinion, based upon
certain representations that it receives from Plains Spirit, MBI
and holders of 1% or more of Plains Spirit common stock who make
a valid election to receive shares of MBI common stock as
consideration in the Merger, to the effect that the acquisition
will constitute a tax-free reorganization for federal income tax
purposes with respect to shares of MBI common stock received in
the Merger. It is intended that Plains Spirit stockholders who
exchange their shares of Plains Spirit common stock solely for
shares of MBI common stock will not recognize any gain or loss
for federal income tax purposes. However, any cash received by a
Plains Spirit stockholder in lieu of any fractional share
interest or as cash consideration may give rise to taxable
income.
Attached is a copy of a certificate which addresses your
present plans and intentions concerning any MBI common stock you
may acquire as a result of the proposed transaction. EACH HOLDER
OF 1% OR MORE OF PLAINS SPIRIT COMMON STOCK WHO ELECTS TO RECEIVE
SHARES OF MBI COMMON STOCK IN EXCHANGE FOR HIS OR HER SHARES OF
PLAINS SPIRIT COMMON STOCK IN THE MERGER MUST EXECUTE AND RETURN
----
A PROPERLY EXECUTED CERTIFICATE TO KEYCORP SHAREHOLDER SERVICES,
INC., REORGANIZATION DEPARTMENT, P.O. BOX 6777, CLEVELAND, OHIO
44101-9388, BY 5:00 P.M., CENTRAL DAYLIGHT TIME, ON JULY 6, 1995. ANY
SUCH HOLDER OF PLAINS SPIRIT COMMON STOCK WHO FAILS TO EXECUTE AND
RETURN A CERTIFICATE TO KEYCORP SHAREHOLDER SERVICES, INC. BY 5:00
P.M., CENTRAL DAYLIGHT TIME, ON JULY 6, 1995, WILL BE DEEMED TO HAVE
MADE AN ELECTION TO RECEIVE THE CASH CONSIDERATION IN THE MERGER.
This Certificate, which will be delivered to Thompson & Mitchell
by KeyCorp Shareholder Services, Inc., will be relied on by Thompson
& Mitchell when it gives the legal opinion described above. Please
note that the third paragraph of the certificate contains an
agreement to notify Thompson & Mitchell if your plans or intentions
change after the certificate is executed.
Please read the certificate carefully. If you are able
truthfully to make the statements contained in the certificate,
please sign and date the certificate and return it to KeyCorp
Shareholder Services, Inc. by 5:00 p.m., Central Daylight Time,
on July 6, 1995.
If you have any questions regarding the enclosed certificate,
please do not hesitate to call me. However, due to the
individual nature of federal income tax consequences,
stockholders are urged to consult their own tax advisor to
determine the specific tax consequences of the proposed
transaction to them. More detailed information is provided in
the accompanying Proxy Statement/Prospectus.
Sincerely,
WILLIAM L. WILKE
President and Chief Executive Officer
<PAGE> 259
STOCKHOLDER CERTIFICATE
OF 1% OR MORE HOLDER OF
PLAINS SPIRIT COMMON STOCK
--------------------------
The undersigned stockholder of Plains Spirit Financial
Corporation, a Delaware corporation ("Plains Spirit"),
- -----------------------------, a holder of --------- shares of
Plains Spirit common stock, par value $0.01 per share ("Plains
Spirit Common Stock"), HEREBY CERTIFIES that (a) I am familiar
with the terms and conditions of the Agreement and Plan of Merger
by and among Mercantile Bancorporation Inc., a Missouri
corporation ("MBI"), Mercantile Bancorporation Inc. of Iowa, an
Iowa corporation ("MBI Iowa"), and Plains Spirit dated December
23, 1994, and (b) I am aware that (i) this Certificate will be
relied on by Thompson & Mitchell, counsel for MBI, in rendering
its opinion to Plains Spirit that the merger of Plains Spirit
with and into MBI Iowa (the "Merger") will constitute a
reorganization within the meaning of section 368(a)(1)(A) of the
Internal Revenue Code of 1986, as amended, and (ii) the
representations and undertaking recited herein will survive the
Merger.
The undersigned HEREBY FURTHER CERTIFIES that the undersigned
has no plan, intention or arrangement (including any option or
pledge) to sell, exchange or otherwise dispose of any of the MBI
common stock, par value $5.00 per share ("MBI Common Stock"), to
be received in the Merger, with the exception of any fractional
share of MBI Common Stock to be exchanged for cash pursuant to
the Merger.
The undersigned HEREBY AGREES to immediately communicate in
writing to Thompson & Mitchell at One Mercantile Center, Suite
3300, St. Louis, Missouri 63101, to the attention of Charles H.
Binger, any information that could indicate (i) any of the
foregoing representations was inaccurate when made, or (ii) any
of the foregoing representations would be inaccurate if it were
made immediately before the Merger.
IN WITNESS WHEREOF, the undersigned has executed this
certificate, or caused this certificate to be executed by its
duly authorized representative, this ----- day of
- ---------------, 1995.
------------------------------
<PAGE> 260
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
------------------------------------------
Item 20. Indemnification of Officers and Directors
- ---------------------------------------------------
Sections 351.355(1) and (2) of The General and Business
Corporation Law of the State of Missouri provide that a
corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or
completed action, suit or proceeding by reason of the fact that
he is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other
enterprise, against expenses, judgments, fines and amounts paid
in settlement actually and reasonably incurred by him in
connection with such action, suit or proceeding if he acted in
good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation and, with
respect to any criminal action or proceeding, had no reasonable
cause to believe his conduct was unlawful, except that, in the
case of an action or suit by or in the right of the corporation,
the corporation may not indemnify such persons against judgments
and fines and no person shall be indemnified as to any claim,
issue or matter as to which such person shall have been adjudged
to be liable for negligence or misconduct in the performance of
his duty to the corporation, unless and only to the extent that
the court in which the action or suit was brought determines upon
application that such person is fairly and reasonably entitled to
indemnity for proper expenses. Section 351.355(3) provides that,
to the extent that a director, officer, employee or agent of the
corporation has been successful in the defense of any such
action, suit or proceeding or any claim, issue or matter therein,
he shall be indemnified against expenses, including attorneys'
fees, actually and reasonably incurred in connection with such
action, suit or proceeding. Section 351.355(7) provides that a
corporation may provide additional indemnification to any person
indemnifiable under subsection (1) or (2), provided such
additional indemnification is authorized by the corporation's
articles of incorporation or an amendment thereto or by a
shareholder-approved bylaw or agreement, and provided further
that no person shall thereby be indemnified against conduct which
was finally adjudged to have been knowingly fraudulent,
deliberately dishonest or willful misconduct or which involved an
accounting for profits pursuant to Section 16(b) of the
Securities Exchange Act of 1934.
Article 12 of the Restated Articles of Incorporation of the
Registrant provides that the Registrant shall extend to its
directors and executive officers the indemnification specified in
subsections (1) and (2) and the additional indemnification
authorized in subsection (7) and that it may extend to other
officers, employees and agents such indemnification and
additional indemnification.
Pursuant to directors' and officers' liability insurance
policies, with total annual limits of $30,000,000, the
Registrant's directors and officers are insured, subject to the
limits, retention, exceptions and other terms and conditions of
such policy, against liability for any actual or alleged error,
misstatement, misleading statement, act or omission, or neglect
or breach of duty by the directors or officers of the Registrant,
individually or collectively, or any matter claimed against them
solely by reason of their being directors or officers of the
Registrant.
II-1
<PAGE> 261
Item 21. Exhibits and Financial Statement Schedules
- ----------------------------------------------------
A. Exhibits. See Exhibit Index.
---------
B. Financial Statement Schedules. Not Applicable.
------------------------------
C. Opinion of Financial Advisor. See Annex C to the Proxy
----------------------------- -------
Statement/Prospectus.
Item 22. Undertakings
- ----------------------
(1) Insofar as indemnification for liabilities arising under
the Securities Act of 1933 may be permitted to directors,
officers and controlling persons of the Registrant pursuant to
the foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the
Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in
the Act and will be governed by the final adjudication of such
issue.
(2) The undersigned Registrant hereby undertakes that, for
purposes of determining any liability under the Securities Act of
1933, each filing of the Registrant's annual report pursuant to
Section 13(a) or Section 15(d) of the Securities Exchange Act of
1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities
Exchange Act of 1934) that is incorporated by reference in the
Registration Statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(3) The undersigned Registrant hereby undertakes as follows:
that prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this
Registration Statement, by any person or party who is deemed to
be an underwriter within the meaning of Rule 145(c), the issuer
undertakes that such reoffering prospectus will contain the
information called for by the applicable registration form with
respect to reofferings by persons who may be deemed underwriters,
in addition to the information called for by the other Items of
the applicable form.
(4) The Registrant undertakes that every prospectus (i) that
is filed pursuant to paragraph (3) immediately preceding, or
(ii) that purports to meet the requirements of section 10(a)(3)
of the Act and is used in connection with an offering of
securities subject to Rule 415 (Section 230.415 of this chapter),
will be filed as a part of an amendment to the Registration
Statement and will not be used until such amendment is effective,
and that, for purposes of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall
be deemed to be a new registration statement relating to the
securities offering therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering
thereof.
(5) The undersigned Registrant hereby undertakes to respond to
requests for information that is incorporated by reference into
the prospectus pursuant to Item 4, 10(b), 11 or 13 of this Form,
within one business day of receipt of such request and to send the
incorporated documents by first class mail or other
II-2
<PAGE> 262
equally prompt means. This includes information contained in the
documents filed subsequent to the effective date of the Registration
Statement through the date of responding to the request.
(6) The undersigned Registrant hereby undertakes to supply by
means of a post-effective amendment all information concerning a
transaction, and the company being acquired involved therein,
that was not the subject of and included in the Registration
Statement when it became effective.
(7) The undersigned Registrant hereby undertakes:
(a) To file during any period in which offers and sales
are being made, a post-effective amendment to this
Registration Statement:
(i) To include any prospectus required by
Section 10(a)(3) of the Securities Act of
1933;
(ii) To reflect in the prospectus any facts or
events arising after the effective date of
the Registration Statement (or the most
recent post-effective amendment thereof),
which individually or in the aggregate,
represent a fundamental change in the
information set forth in the Registration
Statement;
(iii) To include any material information with
respect to the plan of distribution not
previously disclosed in the Registration
Statement or any material change to such
information in the Registration Statement.
(b) That for the purpose of determining any liability
under the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and
the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(c) To remove from registration by means of a
post-effective amendment any of the securities being
registered which remain unsold at the termination of the
offering.
II-3
<PAGE> 263
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933,
the Registrant has duly caused this Amendment No. 1 to the
Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of St. Louis,
State of Missouri, on June 5, 1995.
MERCANTILE BANCORPORATION INC.
By /s/ Thomas H. Jacobsen
-------------------------------------------
Thomas H. Jacobsen
Chairman of the Board, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933,
this Registration Statement has been signed by the following
persons in the capacities and on the date indicated.
</TABLE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<C> <S> <C>
/s/ Thomas H. Jacobsen
- ---------------------------------------- Chairman of the Board, June 5, 1995
Thomas H. Jacobsen President, Chief Executive
Principal Executive Officer Officer and Director
/s/ W. Randolph Adams
- ---------------------------------------- Senior Executive Vice President and June 5, 1995
W. Randolph Adams Chief Financial Officer
Principal Financial Officer
/s/ Michael T. Normile
- ---------------------------------------- Senior Vice President - Finance June 5, 1995
Michael T. Normile and Control
Principal Accounting Officer
<F*>
- ---------------------------------------- Director June 5, 1995
Richard P. Conerly
<F*>
- ---------------------------------------- Director June 5, 1995
Harry M. Cornell, Jr.
<F*>
- ---------------------------------------- Director June 5, 1995
Earl K. Dille
II-4
<PAGE> 264
<CAPTION>
Signature Title Date
--------- ----- ----
<C> <S> <C>
<F*>
- ---------------------------------------- Director June 5, 1995
J. Cliff Eason
<F*>
- ---------------------------------------- Director June 5, 1995
Bernard A. Edison
<F*>
- ---------------------------------------- Director June 5, 1995
William A. Hall
<F*>
- ---------------------------------------- Director June 5, 1995
Thomas A. Hays
<F*>
- ---------------------------------------- Director June 5, 1995
William G. Heckman
- ---------------------------------------- Director June ___, 1995
Frank Lyon, Jr.
<F*>
- ---------------------------------------- Director June 5, 1995
James B. Malloy
<F*>
- ---------------------------------------- Director June 5, 1995
Charles H. Price II
<F*>
- ---------------------------------------- Director June 5, 1995
Harvey Saligman
<F*>
- ---------------------------------------- Director June 5, 1995
Craig D. Schnuck
<F*>
- ---------------------------------------- Director June 5, 1995
Robert W. Staley
<F*>
- ---------------------------------------- Director June 5, 1995
Robert L. Stark
II-5
<PAGE> 265
<CAPTION>
Signature Title Date
--------- ----- ----
<C> <S> <C>
<F*>
- ---------------------------------------- Director June 5, 1995
Patrick T. Stokes
<F*>
- ---------------------------------------- Director June 5, 1995
Francis A. Stroble
<F*>
- ---------------------------------------- Director June 5, 1995
Joseph G. Werner
<F*>
- ---------------------------------------- Director June 5, 1995
John A. Wright
<FN>
<F*>By /s/ Thomas H. Jacobsen
----------------------------------------
Thomas H. Jacobsen, Attorney-in-fact
Thomas H. Jacobsen, by signing his name hereto, does sign this document
on behalf of the persons named above, pursuant to a power of attorney
duly executed by such persons, contained on the signature pages to the
original filing of this Registration Statement, which was filed on
April 6, 1995.
</TABLE>
II-6
<PAGE> 266
<TABLE>
EXHIBIT INDEX
<CAPTION>
Exhibit
Number Description Page
- ------- ----------- ----
<C> <S> <C>
2.1 Agreement and Plan of Merger dated as of December 23, 1994 by
and among MBI, MBII and Plains Spirit (included as Annex A to
-------
this Registration Statement).<F**>
2.2 Stock Option Agreement dated as of December 23, 1994 by and
between MBI and Plains Spirit.<F*>
2.3 Form of Voting Agreement dated as of December 23, 1994 by and
between MBI and each of the directors of Plains Spirit.<F*>
3.1 MBI's Restated Articles of Incorporation, as amended and
currently in effect, filed as Exhibit 3.1 to MBI's Registration
Statement No. 33-63196, are incorporated herein by reference.<F*>
3.2 MBI's By-Laws, as amended and currently in effect, filed as
Exhibit 3.2 to MBI's Registration Statement No. 33-57489, are
incorporated herein by reference.<F*>
4.1 Form of Indenture Regarding Subordinated Securities between MBI
and The First National Bank of Chicago, Trustee, filed as
Exhibit 4.1 to MBI's Report on Form 8-K dated September 24,
1992, is incorporated herein by reference.<F*>
4.2 Rights Agreement dated as of May 23, 1988 between MBI and
Mercantile Bank, as Rights Agent (including as exhibits thereto
the form of Certificate of Designation, Preferences and Rights
of Series A Junior Participating Preferred Stock and the form
of Right Certificate), filed as Exhibits 1 and 2 to MBI's
Registration Statement No. 0-6045 on Form 8-A, dated May 24,
1988, is incorporated herein by reference.<F*>
4.3 Certificate of Designation, Preferences, and Relative Rights,
Qualifications, Limitations and Restrictions of the Series B-1
Preferred Stock of MBI, filed as Exhibit 4-1 to MBI's Report
on Form 10-Q for the quarter ended March 31, 1995 (File
No. 1-11792), is incorporated herein by reference.<F*>
4.4 Certificate of Designation, Preferences, and Relative Rights,
Qualifications, Limitations and Restrictions of the Series B-2
Preferred Stock of MBI, filed as Exhibit 4-2 to MBI's Report
on Form 10-Q for the quarter ended March 31, 1995 (File
No. 1-11792), is incorporated herein by reference.<F*>
5.1 Opinion of Thompson & Mitchell as to the legality of the
securities being registered.<F*>
8.1 Opinion of Thompson & Mitchell regarding certain tax matters in
the Merger.<F*>
II-7
<PAGE> 267
<CAPTION>
Exhibit
Number Description Page
- ------- ----------- ----
<C> <S> <C>
10.1 The Mercantile Bancorporation Inc. 1987 Stock
Option Plan, as amended, filed as Exhibit 10-
3 to MBI's Report on Form 10-K for the year
ended December 31, 1989 (File No. 1-11792),
is incorporated herein by reference.<F*>
10.2 The Mercantile Bancorporation Inc. Amended and
Restated Retirement Plan for Directors,
filed as Exhibit 10 to MBI's Report on Form
10-Q for the quarter ended March 31, 1995
(File No. 1-11792), is incorporated herein by
reference.<F*>
10.3 The Mercantile Bancorporation Inc. Executive
Incentive Compensation Plan, filed as
Appendix C to MBI's definitive Proxy
Statement for the 1994 Annual Meeting of
Shareholders is incorporated herein by
reference.<F*>
10.4 The Mercantile Bancorporation Inc. Employee
Stock Purchase Plan, filed as Exhibit 10-7 to
MBI's Report on Form 10-K for the year ended
December 31, 1989 (File No. 1-11792), is
incorporated herein by reference.<F*>
10.5 The Mercantile Bancorporation Inc. 1991
Employee Incentive Plan, filed as Exhibit 10-
7 to MBI's Report on Form 10-K for the year
ended December 31, 1990 (File No. 1-11792),
is incorporated herein by reference.<F*>
10.6 Amendment Number One to the Mercantile
Bancorporation Inc. 1991 Employee Incentive
Plan, filed as Exhibit 10-6 to MBI's Report
on Form 10-K for the year ended December 31,
1994, is incorporated herein by reference.<F*>
10.7 The Mercantile Bancorporation Inc. 1994 Stock
Incentive Plan, filed as Appendix B to MBI's
definitive Proxy Statement for the 1994
Annual Meeting of Shareholders, is
incorporated herein by reference.<F*>
10.8 The Mercantile Bancorporation Inc. 1994 Stock
Incentive Plan for Non-Employee Directors,
filed as Appendix E to MBI's definitive Proxy
Statement for the 1994 Annual Meeting of
Shareholders, is incorporated herein by
reference.<F*>
10.9 The Mercantile Bancorporation Inc. Voluntary
Deferred Compensation Plan, filed as Appendix
D to MBI's definitive Proxy Statement for the
1994 Annual Meeting of Shareholders, is
incorporated herein by reference.<F*>
10.10 Form of Employment Agreement for Thomas H.
Jacobsen, as amended, filed as Exhibit 10-8
to MBI's Report on Form 10-K for the year
ended December 31, 1989 (File No. 1-11792),
is incorporated herein by reference.<F*>
10.11 Form of Employment Agreement for Ralph W.
Babb, Jr., John W. McClure, W. Randolph
Adams, John Q. Arnold and Certain Other
Executive Officers, as amended, filed as
Exhibit 10-9 to MBI's Report on Form 10-K for
the year ended December 31, 1989 (File No. 1-
11792), is incorporated herein by reference.<F*>
II-8
<PAGE> 268
<CAPTION>
Exhibit
Number Description Page
- ------- ----------- ----
<C> <S> <C>
10.12 Form of Change of Control Employment
Agreement for Ralph W. Babb, Jr., John W.
McClure, W. Randolph Adams, John Q. Arnold
and Certain Other Executive Officers, filed
as Exhibit 10-10 to MBI's Report on Form 10-K
for the year ended December 31, 1989 (File
No. 1-11792), is incorporated herein by
reference.<F*>
10.13 Agreement and Plan of Reorganization dated
August 17, 1993, by and among MBI and United
Postal Bancorp, Inc., filed as Exhibit 2.1 to
MBI's Registration Statement No. 33-50981, is
incorporated herein by reference.<F*>
10.14 Amended and Restated Agreement and Plan of
Reorganization dated as of December 2, 1994
by and among MBI and TCBankshares, Inc.,
filed as Exhibit 2.1 to MBI's Report on Form
8-K dated December 21, 1994, is incorporated
herein by reference.<F*>
10.15 The Mercantile Bancorporation Inc.
Supplemental Retirement Plan, filed as
Exhibit 10-12 to MBI's Report on Form 10-K
for the year ended December 31, 1992 (File
No. 1-11792), is incorporated herein by
reference.<F*>
23.1 Consent of KPMG Peat Marwick LLP with regard to use of its
reports on MBI's financial statements.<F**>
23.2 Consent of McGladrey & Pullen, LLP with regard to the use of its
report on Plains Spirit's financial statements.<F**>
23.3 Consent of Thompson & Mitchell (included in Exhibit 5.1).<F*>
23.4 Consent of Kaplan Associates, Inc.<F*>
24.1 Power of Attorney (included on signature page to the original
filing of this Registration Statement, which was filed on
April 6, 1995).<F*>
- -----------------------
<FN>
<F*> previously filed
<F**> filed herewith
</TABLE>
II-9
<PAGE> 1
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT
The Board of Directors and Stockholders
Mercantile Bancorporation Inc.:
We consent to the use of our reports incorporated herein by reference
and to the reference to our firm under the heading "Experts" in the
prospectus.
/s/ KPMG Peat Marwick LLP
St. Louis, Missouri
June 6, 1995
<PAGE> 1
Exhibit 23.2
INDEPENDENT AUDITOR'S CONSENT
To The Board of Directors
Plains Spirit Financial Corporation
We consent to the use of our report included herein and to the reference
to our Firm under the heading "Experts" in the prospectus.
/s/ McGladrey & Pullen, LLP
Davenport, Iowa
June 5, 1995
