<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 19, 1997
REGISTRATION NO. 333-
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- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
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 OF INCORPORATION) (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
P.O. BOX 524
ST. LOUIS, MO 63166-0524
(314) 425-2525
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------
JON W. BILSTROM, ESQ.
GENERAL COUNSEL AND SECRETARY
MERCANTILE BANCORPORATION INC.
P.O. BOX 524
ST. LOUIS, MO 63166-0524
(314) 425-2525
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
---------------
COPIES TO:
JOHN Q. ARNOLD EDWARD D. HERLIHY, ESQ. THOMAS A. COLE, ESQ.
CHIEF FINANCIAL OFFICER WACHTELL, LIPTON, ROSEN & KATZ SIDLEY & AUSTIN
MERCANTILE BANCORPORATION INC. 51 WEST 52ND STREET ONE FIRST CHICAGO PLAZA
P.O. BOX 524. NEW YORK, NY 10019 CHICAGO, IL 60603
ST. LOUIS, MO 63166-0524 (212) 403-1000 (312) 853-7000
(314) 425-2525
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As promptly
as practicable after this Registration Statement becomes effective.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [_]
CALCULATION OF REGISTRATION FEE
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- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM
TITLE OF EACH CLASS OF SECURITIES TO BE OFFERING PRICE AGGREGATE AMOUNT OF
TO BE REGISTERED REGISTERED(2) PER SHARE(3) OFFERING PRICE(3) REGISTRATION FEE(4)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $5.00 par
value per share(1)..... 17,213,114 shares $56.26 $968,418,467 $293,460
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(1) Includes one attached Preferred Share Purchase Right per share.
(2) Based upon the maximum number of shares that may be issued upon
consummation of the merger described herein, and upon exercise of
securities exercisable for shares of Common Stock.
(3) Pursuant to Rule 457(f)(1) and 457(c), and solely for purposes of
calculating the registration fee, the proposed maximum aggregate offering
price is $968,418,467, which equals (x) the average of the high and low
sale prices of the common stock, without par value ("Bancshares Common
Stock"), of Bancshares, of $53.26 as reported on the New York Stock
Exchange on March 18, 1997, multiplied by (y) the total number of shares
of Bancshares Common Stock (including shares issuable pursuant to the
exercise of outstanding options to purchase Bancshares Common Stock) to be
cancelled in the merger (the "Merger") of Bancshares with and into a
subsidiary of MBI. The proposed maximum offering price per share is equal
to the proposed maximum aggregate offering price determined in the manner
described in the preceding sentence divided by the maximum number of
shares of MBI common stock, $5.00 par value per share, that could be
issued in the Merger.
(4) In accordance with Rule 457(b), the filing fee of $169,961 paid pursuant
to Section 14(g) of the Securities Exchange Act of 1934 and Rule 0-11
thereunder at the time of the filing of the Joint Proxy
Statement/Prospectus contained in this Registration Statement as
preliminary proxy materials of Mercantile Bancorporation Inc. ("MBI") and
Mark Twain Bancshares, Inc. ("Bancshares") has been credited to offset the
$293,460 registration fee that would otherwise be payable.
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>
Mercantile Mercantile Tower
Bancorporation St. Louis, MO 63166 [LOGO] MERCANTILE
Inc. 314-425-8158
MARCH 21, 1997
Dear Shareholders:
On behalf of the Board of Directors and management, I cordially invite you to
attend the 1997 Annual Meeting of Shareholders of Mercantile Bancorporation
Inc. ("MBI") to be held at 10:00 a.m., Central Daylight Time, on Thursday,
April 24, 1997, at Cervantes Convention Center at America's Center, Lecture
Hall, 701 Convention Plaza, St. Louis, Missouri (the "MBI Annual Meeting"). A
special card admitting you to the MBI Annual Meeting is attached to the proxy
card. Please detach and present it at the door when you arrive.
At the MBI Annual Meeting, you will be asked to consider and vote on a
proposal to approve and adopt an Agreement and Plan of Reorganization, dated
October 27, 1996, as amended (the "Merger Agreement"), providing for the merger
(the "Merger") of Mark Twain Bancshares, Inc. ("Bancshares") with and into
Ameribanc, Inc., a Missouri corporation and a wholly owned subsidiary of MBI. A
copy of the Merger Agreement is attached to the accompanying Joint Proxy
Statement/Prospectus as Annex A.
We have enclosed the following items relating to the MBI Annual Meeting and
the Merger:
1. Joint Proxy Statement/Prospectus;
2. Proxy card;
3. A return envelope pre-addressed to Harris Trust and Savings Bank, the
Transfer Agent, for the proxy card; and
4. MBI Annual Report on Form 10-K for the fiscal year ended December 31,
1996.
The Joint Proxy Statement/Prospectus and related proxy materials set forth,
or incorporate by reference, financial data and other important information
relating to MBI and Bancshares and describe the terms and conditions of the
proposed Merger. The Board of Directors requests that you review these
materials before completing the enclosed proxy card.
UBS Securities LLC, an investment banking firm, has issued its opinion to
your Board of Directors regarding the fairness, from a financial point of view,
of the Exchange Ratio in the Merger to the holders of MBI Common Stock. A copy
of the opinion is attached as Annex D to the Joint Proxy Statement/Prospectus.
YOUR BOARD OF DIRECTORS HAS DETERMINED THAT THE TERMS OF THE MERGER AGREEMENT
AND THE TRANSACTIONS CONTEMPLATED THEREBY ARE IN THE BEST INTERESTS OF MBI AND
ITS SHAREHOLDERS. ACCORDINGLY, THE BOARD OF DIRECTORS OF MBI UNANIMOUSLY
RECOMMENDS THAT MBI SHAREHOLDERS VOTE "FOR" THE APPROVAL AND ADOPTION OF THE
MERGER AGREEMENT.
At the MBI Annual Meeting, you will also be asked to consider and vote upon:
1. The election of three directors in Class III for terms of three years
expiring in 2000;
2. The election of one director in Class II for a term of two years
expiring in 1999;
<PAGE>
3. The amendment of the Restated Articles of Incorporation of MBI to
increase the authorized Common Stock from 100,000,000 shares to 200,000,000
shares and change the par value of the Common Stock from $5.00 per share to
$0.01 per share;
4. The adoption of the MBI Amended and Restated Stock Incentive Plan;
5. The adoption of the MBI Amended and Restated Executive Incentive
Compensation Plan; and
6. The transaction of such other business as may properly come before the
MBI Annual Meeting or any adjournment thereof.
THE BOARD OF DIRECTORS OF MBI RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" THE
PROPOSED SLATE OF DIRECTORS, "FOR" THE AMENDMENT TO MBI'S RESTATED ARTICLES OF
INCORPORATION, "FOR" THE ADOPTION OF THE MBI AMENDED AND RESTATED STOCK
INCENTIVE PLAN AND "FOR" THE ADOPTION OF THE MBI AMENDED AND RESTATED
EXECUTIVE INCENTIVE COMPENSATION PLAN.
It is important that your shares be represented at the MBI Annual Meeting,
whether or not you plan to attend the MBI Annual Meeting in person. Please
complete, sign and date the enclosed proxy card and return it to MBI in the
enclosed pre-addressed envelope which requires no postage if mailed within the
United States. If you later decide to attend the MBI Annual Meeting and vote
in person, or if you wish to revoke your proxy for any reason prior to the
vote at the MBI Annual Meeting, you may do so and your proxy will have no
further effect. You may revoke your proxy by delivering to Harris Trust and
Savings Bank a written notice of revocation bearing a later date than the
proxy, or any later dated proxy relating to the same shares, or by attending
the MBI Annual Meeting and voting in person. Attendance at the MBI Annual
Meeting will not in itself constitute the revocation of a proxy.
If your shares are currently held in the name of your broker, bank or other
nominee and you wish to attend the meeting, please provide proof of ownership
to obtain an admission ticket (e.g., a letter from your broker, bank or other
nominee indicating that you are the beneficial owner of MBI stock as of March
10, 1997, the record date). Please mail the request and proof of ownership to
Mercantile Bancorporation Inc., Attn: Investor Relations, P.O. Box 524, St.
Louis, Missouri 63166.
The Board of Directors and management of MBI appreciate your continued
support. If you need assistance in completing your proxy card or if you have
any questions about the Joint Proxy Statement/Prospectus, please feel free to
contact Jon W. Bilstrom at (314) 425-2525.
Sincerely,
/s/ Thomas H. Jacobsen
Thomas H. Jacobsen
Chairman of the Board,
President and Chief
Executive Officer
<PAGE>
MERCANTILE BANCORPORATION INC.
P.O. BOX 524
ST. LOUIS, MISSOURI 63166-0524
NOTICE OF MBI 1997 ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD
APRIL 24, 1997
To the Shareholders of Mercantile Bancorporation Inc.:
Notice is hereby given that the 1997 Annual Meeting of Shareholders of
Mercantile Bancorporation Inc., a Missouri corporation ("MBI"), will be held
at Cervantes Convention Center at America's Center, Lecture Hall, 701
Convention Plaza, St. Louis, Missouri, on Thursday, April 24, 1997, at 10:00
a.m., Central Daylight Time (the "MBI Annual Meeting"), for the following
purposes:
(1) To consider and vote on a proposal to approve and adopt the Agreement
and Plan of Reorganization, dated October 27, 1996, as amended (the "Merger
Agreement"), by and between MBI, Ameribanc, Inc., a Missouri corporation
and wholly owned subsidiary of MBI ("Merger Sub"), and Mark Twain
Bancshares, Inc., a Missouri corporation ("Bancshares"), pursuant to which,
among other things, (i) Bancshares will be merged (the "Merger") with and
into Merger Sub, with the result that the business and operations of
Bancshares will be continued through such wholly owned subsidiary, and (ii)
upon consummation of the Merger, each outstanding share of Bancshares
common stock, par value $1.25 per share ("Bancshares Common Stock"), other
than shares held by Bancshares, MBI or any of their respective wholly owned
subsidiaries, in each case other than in a fiduciary capacity or as a
result of debts previously contracted, all of which will be cancelled in
the Merger, and other than shares held by shareholders of Bancshares who
exercise their dissenters' rights under the Missouri General and Business
Corporation Law, will be converted into the right to receive .952 of a
share of MBI common stock, par value $5.00 per share ("MBI Common Stock"),
with cash in lieu of fractional shares, as set forth in detail in the
attached Joint Proxy Statement/Prospectus. A copy of the Merger Agreement
is set forth in Annex A to the accompanying Joint Proxy
Statement/Prospectus.
(2) To elect four directors in Class III for terms of three years
expiring in 2000;
(3) To elect one director in Class II for a term of two years expiring in
1999;
(4) To consider and vote on a proposal to amend the Restated Articles of
Incorporation of MBI (the "MBI Restated Articles") to increase the
authorized MBI Common Stock from 100,000,000 shares to 200,000,000 shares
and change the par value of MBI Common Stock from $5.00 per share to $0.01
per share;
(5) To consider and vote on a proposal to adopt the MBI Amended and
Restated Stock Incentive Plan;
(6) To consider and vote on a proposal to adopt the MBI Amended and
Restated Executive Incentive Compensation Plan; and
(7) The transaction of such other business as may properly come before
the MBI Annual Meeting or any adjournment thereof.
The record date for determining the holders of MBI Common Stock entitled to
receive notice of, and to vote at, the MBI Annual Meeting or any adjournment
or postponement thereof has been fixed as of the close of business on March
10, 1997. Approval by the MBI shareholders of the Merger Agreement requires
the affirmative vote of the holders of a majority of the shares of MBI Common
Stock voted at the MBI Annual Meeting, provided that the total votes cast
represents over 50% of the MBI Common Stock entitled to vote. The affirmative
vote of the holders of a majority of the outstanding shares entitled to vote
on the amendment to the MBI Restated Articles is required to take such action.
Adoption of the MBI Amended and Restated Stock
<PAGE>
Incentive Plan and the MBI Amended and Restated Executive Incentive
Compensation Plan requires the affirmative votes of the holders of a majority
of the shares of MBI Common Stock voted at the meeting, respectively. With
respect to the election of directors, cumulative voting, as required by MBI's
By-Laws, is applicable to the election of directors in Class III. Since only
one director is being elected in Class II, there will be no cumulative voting
in such election.
Information regarding the Merger and related matters and each of the
foregoing items is contained in the accompanying Joint Proxy
Statement/Prospectus and the annexes thereto, which are incorporated by
reference herein and form a part of this Notice.
WHETHER OR NOT YOU PLAN TO ATTEND THE MBI ANNUAL MEETING, PLEASE COMPLETE,
SIGN AND DATE THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED
ENVELOPE. THE PROXY MAY BE REVOKED AT ANY TIME PRIOR TO THE VOTE AT THE MBI
ANNUAL MEETING BY FOLLOWING THE PROCEDURES SET FORTH IN THE ACCOMPANYING JOINT
PROXY STATEMENT/PROSPECTUS.
THE BOARD OF DIRECTORS OF MBI HAS DETERMINED THAT THE TERMS OF THE MERGER
AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY ARE IN THE BEST INTERESTS
OF MBI AND ITS SHAREHOLDERS. ACCORDINGLY, THE BOARD OF DIRECTORS OF MBI
RECOMMENDS THAT MBI SHAREHOLDERS VOTE "FOR" THE APPROVAL AND ADOPTION OF THE
MERGER AGREEMENT, AS WELL AS "FOR" THE ELECTION OF EACH OF THE NOMINEES FOR
DIRECTOR NAMED HEREIN AND "FOR" EACH OF THE FOREGOING ADDITIONAL ACTIONS.
BY ORDER OF THE BOARD OF DIRECTORS
Jon W. Bilstrom
Secretary
St. Louis, Missouri
March 21, 1997
<PAGE>
[LOGO] MARK TWAIN BANKS
Mark Twain Bancshares, Inc.
8820 Ladue Road
St. Louis, Missouri 63124
Telephone: 314-727-1000
MARCH 21, 1997
Dear Shareholders:
On behalf of the Board of Directors and management, I cordially invite you
to attend a Special Meeting of Shareholders of Mark Twain Bancshares, Inc.
("Bancshares") to be held at 4:00 p.m., Central Daylight Time, on April 22,
1997, at the Auditorium of the Saint Louis Art Museum, Forest Park, St. Louis,
Missouri (the "Bancshares Special Meeting").
At this important meeting, you will be asked to consider and vote on a
proposal to approve and adopt an Agreement and Plan of Reorganization, dated
October 27, 1996, as amended (the "Merger Agreement"), providing for the
merger (the "Merger") of Bancshares with and into a wholly owned subsidiary of
Mercantile Bancorporation Inc. ("MBI"). A copy of the Merger Agreement is
attached to the accompanying Joint Proxy Statement/Prospectus as Annex A.
I have enclosed the following items relating to the Bancshares Special
Meeting and the Merger:
1. Joint Proxy Statement/Prospectus;
2. Proxy card;
3. A pre-addressed return envelope to Harris Trust and Savings Bank for
the proxy card; and
4. 1996 Annual Report to Shareholders.
The Joint Proxy Statement/Prospectus and related proxy materials set forth,
or incorporate by reference, financial data and other important information
relating to Bancshares and MBI and describe the terms and conditions of the
proposed Merger. The Board of Directors urges you to carefully review these
materials before completing the enclosed proxy card or attending the
Bancshares Special Meeting.
Morgan Stanley & Co. Incorporated, an investment banking firm, has issued
its opinion to your Board of Directors that, subject to the assumptions made,
matters considered and limitations on the review undertaken, the Exchange
Ratio pursuant to the Merger Agreement is fair from a financial point of view
to the holders of Bancshares Common Stock. A copy of the opinion is attached
as Annex E to the Joint Proxy Statement/Prospectus.
YOUR BOARD OF DIRECTORS HAS DETERMINED THAT THE TERMS OF THE MERGER
AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY ARE IN THE BEST INTERESTS
OF BANCSHARES AND ITS SHAREHOLDERS. ACCORDINGLY, THE BOARD OF DIRECTORS OF
BANCSHARES UNANIMOUSLY RECOMMENDS THAT BANCSHARES SHAREHOLDERS VOTE "FOR" THE
APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
APPROVAL OF THE MERGER AGREEMENT IS A CONDITION TO THE CONSUMMATION OF THE
MERGER. Accordingly, it is important that your shares be represented at the
Bancshares Special Meeting, whether or not you plan to attend the Bancshares
Special Meeting in person. Please complete, sign and date the
<PAGE>
enclosed proxy card and return it to Harris Trust and Savings Bank in the
enclosed pre-addressed envelope which requires no postage if mailed within the
United States. If you later decide to attend the Bancshares Special Meeting
and vote in person, or if you wish to revoke your proxy for any reason prior
to the vote at the Bancshares Special Meeting, you may do so and your proxy
will have no further effect. You may revoke your proxy by delivering to Harris
Trust and Savings Bank a written notice of revocation bearing a later date
than the proxy, or any later dated proxy relating to the same shares, or by
attending the Bancshares Special Meeting and voting in person. Attendance at
the Bancshares Special Meeting will not in itself constitute the revocation of
a proxy.
The Board of Directors and management of Bancshares appreciate your
continued support. If you need assistance in completing your proxy card or if
you have any questions about the Joint Proxy Statement/Prospectus, please feel
free to contact Carl A. Wattenberg, Jr. at (314) 727-1000.
Sincerely,
/s/ John P. Dubinsky
John P. Dubinsky
President and Chief Executive
Officer
<PAGE>
MARK TWAIN BANCSHARES, INC.
8820 LADUE ROAD
ST. LOUIS, MISSOURI 63124
NOTICE OF BANCSHARES SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD
APRIL 22, 1997
To the Shareholders of Mark Twain Bancshares, Inc.:
Notice is hereby given that a Special Meeting of Shareholders of Mark Twain
Bancshares, Inc., a Missouri corporation ("Bancshares"), will be held at the
Auditorium of the Saint Louis Art Museum, Forest Park, St. Louis, Missouri, on
April 22, 1997, at 4:00 p.m., Central Daylight Time (the "Bancshares Special
Meeting"), for the following purposes:
(1) To consider and vote on a proposal to approve and adopt the Agreement
and Plan of Reorganization, dated October 27, 1996, as amended (the "Merger
Agreement"), by and between Mercantile Bancorporation Inc., a Missouri
corporation ("MBI"), Ameribanc, Inc., a Missouri corporation and wholly
owned subsidiary of MBI ("Merger Sub"), and Bancshares, pursuant to which,
among other things, (i) Bancshares will be merged (the "Merger") with and
into Merger Sub, with the result that the business and operations of
Bancshares will be continued through such wholly owned subsidiary, and (ii)
upon consummation of the Merger, each outstanding share of Bancshares
common stock, par value $1.25 per share ("Bancshares Common Stock"), other
than shares held by Bancshares, MBI or any of their respective wholly owned
subsidiaries, in each case other than in a fiduciary capacity or as a
result of debts previously contracted, all of which will be cancelled in
the Merger, and other than shares held by shareholders of Bancshares who
exercise their dissenters' rights under the Missouri General and Business
Corporation Law, will be converted into the right to receive .952 of a
share of MBI common stock, par value $5.00 per share ("MBI Common Stock"),
with cash in lieu of fractional shares, as set forth in detail in the
attached Joint Proxy Statement/Prospectus.
(2) To transact such other business as may properly come before the
Bancshares Special Meeting or any adjournment or postponement thereof.
A copy of the Merger Agreement is set forth in Annex A to the accompanying
Joint Proxy Statement/Prospectus.
The record date for determining the holders of Bancshares Common Stock
entitled to receive notice of, and to vote at, the Bancshares Special Meeting
or any adjournment or postponement thereof has been fixed as of the close of
business on March 10, 1997. Approval by the Bancshares shareholders of the
Merger Agreement requires the affirmative vote of the holders of at least two-
thirds of the outstanding shares of Bancshares Common Stock entitled to vote
at the Bancshares Special Meeting.
Any holder of Bancshares Common Stock who (1) files with Bancshares prior to
the Bancshares Special Meeting a written objection to the Merger, (2) does not
vote in favor of the Merger, and (3) within 20 days after the Merger is
effected, makes written demand on the surviving corporation in the Merger for
payment of the fair value of the shares, shall be entitled to payment of the
fair value of the shareholder's shares of Bancshares Common Stock, under the
applicable provisions of Section 351.455 of the Missouri General and Business
Corporation Law, as set forth in Annex C to the attached Joint Proxy
Statement/Prospectus.
Information regarding the Merger and related matters is contained in the
accompanying Joint Proxy Statement/Prospectus and the annexes thereto, which
are incorporated by reference herein and form a part of this Notice.
<PAGE>
WHETHER OR NOT YOU PLAN TO ATTEND THE BANCSHARES SPECIAL MEETING, PLEASE
COMPLETE, SIGN AND DATE THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE
ENCLOSED ENVELOPE. THE PROXY MAY BE REVOKED AT ANY TIME PRIOR TO THE VOTE AT
THE BANCSHARES SPECIAL MEETING BY FOLLOWING THE PROCEDURES SET FORTH IN THE
ACCOMPANYING JOINT PROXY STATEMENT/PROSPECTUS.
THE BOARD OF DIRECTORS OF BANCSHARES HAS DETERMINED THAT THE TERMS OF THE
MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY ARE IN THE BEST
INTERESTS OF BANCSHARES AND ITS SHAREHOLDERS. ACCORDINGLY, THE BOARD OF
DIRECTORS OF BANCSHARES RECOMMENDS THAT BANCSHARES SHAREHOLDERS VOTE "FOR" THE
APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
BY ORDER OF THE BOARD OF DIRECTORS
Carl A. Wattenberg, Jr.
Corporate Secretary
St. Louis, Missouri
March 21, 1997
PLEASE DO NOT SEND ANY SHARE CERTIFICATES AT THIS TIME.
<PAGE>
JOINT PROXY STATEMENT
MERCANTILE BANCORPORATION INC. MARK TWAIN BANCSHARES, INC.
ANNUAL MEETING OF SHAREHOLDERS TO BE SPECIAL MEETING OF SHAREHOLDERS TO
HELD ON APRIL 24, 1997 BE HELD ON APRIL 22, 1997
---------------
MERCANTILE BANCORPORATION INC.
PROSPECTUS
---------------
This Prospectus of Mercantile Bancorporation Inc., a Missouri corporation
("MBI"), relates to up to 17,213,114 shares of common stock, par value $5.00
per share, and attached preferred share purchase rights (the "Rights"), of MBI
(such common stock and Rights are collectively referred to herein as "MBI
Common Stock") to be issued to the shareholders of Mark Twain Bancshares,
Inc., a Missouri corporation ("Bancshares"), upon consummation of the proposed
merger (the "Merger") of Bancshares with and into Ameribanc, Inc., a Missouri
corporation and a wholly owned subsidiary of MBI ("Merger Sub"). The Merger
will be consummated pursuant to the Agreement and Plan of Reorganization,
dated October 27, 1996, as amended, by and between MBI, Merger Sub and
Bancshares (the "Merger Agreement"), upon the terms and subject to the
conditions thereof. This Prospectus also serves as the Joint Proxy Statement
of MBI and Bancshares for use in connection with the solicitation of proxies
by the Board of Directors of MBI (the "MBI Board") and the Board of Directors
of Bancshares (the "Bancshares Board") to be used at the 1997 Annual Meeting
of Shareholders of MBI (the "MBI Annual Meeting") and at the Special Meeting
of Shareholders of Bancshares (the "Bancshares Special Meeting"),
respectively, to approve and adopt the Merger Agreement. The Merger Agreement
is attached as Annex A and is incorporated herein by reference.
Upon consummation of the Merger, among other things, each outstanding share
of Bancshares common stock, par value $1.25 per share ("Bancshares Common
Stock"), other than shares held by Bancshares, MBI or any of their respective
wholly owned subsidiaries, in each case, other than in a fiduciary capacity or
as a result of debts previously contracted, all of which will be cancelled in
the Merger, and other than shares held by shareholders of Bancshares who
exercise their dissenters' rights under the Missouri General and Business
Corporation Law (the "Missouri Law"), will be converted into the right to
receive .952 of a share of MBI Common Stock, with cash in lieu of fractional
shares. See "TERMS OF THE PROPOSED MERGER" and "DISSENTERS' RIGHTS OF
SHAREHOLDERS OF BANCSHARES."
(continued on next page)
THE SECURITIES TO BE ISSUED PURSUANT TO THIS JOINT PROXY
STATEMENT/PROSPECTUS HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION (THE "COMMISSION") OR ANY STATE
SECURITIES COMMISSION NOR HAS THE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS JOINT PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE SHARES OF MBI COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS,
DEPOSITS OR OTHER OBLIGATIONS OF ANY BANK OR SAVINGS ASSOCIATION AND
ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE
BANK INSURANCE FUND, THE SAVINGS ASSOCIATION INSURANCE FUND OR
ANY OTHER GOVERNMENTAL AGENCY.
---------------
THE DATE OF THIS JOINT PROXY STATEMENT/PROSPECTUS IS MARCH 19, 1997.
<PAGE>
(continued from previous page)
MBI Common Stock is listed on the New York Stock Exchange, Inc. (the "NYSE")
under the symbol "MTL." On October 25, 1996, the last full trading day before
public announcement of the Merger, the last sale price of MBI Common Stock was
$52 as reported on the NYSE Composite Tape. On March 18, 1997, the last sale
price of MBI Common Stock as reported on the NYSE Composite Tape was $56.50.
Bancshares Common Stock is listed on the NYSE under the symbol "MTB." On
October 25, 1996, the last sale price of Bancshares Common Stock was $42.375
as reported on the NYSE Composite Tape. On March 18, 1997, the last sale price
for Bancshares Common Stock as reported on the NYSE Composite Tape was
$53.250.
This Joint Proxy Statement/Prospectus, the Letter to MBI shareholders, the
Notice of MBI 1997 Annual Meeting of Shareholders, the form of proxy and the
MBI Annual Report on Form 10-K for the fiscal year ended December 31, 1996 are
first being mailed to the shareholders of MBI on or about March 21, 1997 and
this Joint Proxy Statement/Prospectus, the Letter to Bancshares shareholders,
the Notice of Bancshares Special Meeting of Shareholders, the form of proxy
and the Bancshares 1996 Annual Report to Shareholders are first being mailed
to the shareholders of Bancshares on or about March 21, 1997.
<PAGE>
AVAILABLE INFORMATION
Each of MBI and Bancshares is subject to the informational requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, files reports, proxy statements and other information
with the Commission. Such reports, proxy statements and other information
concerning either MBI or Bancshares can be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the Commission's
Regional Offices in New York (Suite 1300, Seven World Trade Center, New York,
New York 10048) and Chicago (Suite 1400, Citicorp Center, 500 West Madison
Street, Chicago, Illinois 60661). Copies of such material can also be obtained
from the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. The Commission maintains an
Internet web site that contains reports, proxy and information statements and
other information regarding issuers that file electronically with the
Commission. The address of the web site is http://www.sec.gov. MBI Common
Stock and Bancshares Common Stock are each listed on the NYSE, and such
reports, proxy statements and other information concerning MBI or Bancshares,
as the case may be, are available for inspection and copying at the offices of
the NYSE, 20 Broad Street, New York, New York 10005.
This Joint Proxy Statement/Prospectus does not contain all of the
information set forth in the Registration Statement on Form S-4 and exhibits
thereto (together with any amendments thereto, the "Registration Statement")
covering the securities offered hereby which has been filed by MBI with the
Commission under the Securities Act of 1933, as amended (the "Securities
Act"). As permitted by the rules and regulations of the Commission, this Joint
Proxy Statement/Prospectus omits certain information contained or incorporated
by reference in the Registration Statement. Reference is hereby made to the
Registration Statement for further information with respect to MBI and the
securities offered hereby. Such additional information may be obtained from
the Commission's principal office in Washington, D.C. Statements contained in
this Joint Proxy Statement/Prospectus or in any document incorporated by
reference in this Joint Proxy Statement/Prospectus provide a fair summary of
the contents of any contract or other document referenced herein or therein
but are not necessarily complete, and, in each instance, reference is made to
the copy of such contract or other document filed as an exhibit to the
Registration Statement or such other document, each such statement being
qualified in all respects by such reference.
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INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
THIS JOINT PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE
WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. COPIES OF THESE
DOCUMENTS (EXCLUDING EXHIBITS UNLESS SPECIFICALLY INCORPORATED BY REFERENCE
HEREIN OR IN SUCH DOCUMENTS) ARE AVAILABLE, WITHOUT CHARGE, TO ANY PERSON TO
WHOM THIS JOINT PROXY STATEMENT/PROSPECTUS IS DELIVERED UPON WRITTEN OR ORAL
REQUEST TO THE FOLLOWING:
MBI DOCUMENTS BANCSHARES DOCUMENTS
JON W. BILSTROM, ESQ. CARL A. WATTENBERG, JR.
GENERAL COUNSEL AND SECRETARY SENIOR VICE PRESIDENT,
MERCANTILE BANCORPORATION INC. SECRETARY AND GENERAL COUNSEL
P.O. BOX 524 MARK TWAIN BANCSHARES, INC.
ST. LOUIS, MISSOURI 63166-0524 8820 LADUE ROAD
(314) 425-2525 ST. LOUIS, MISSOURI 63124
(314) 727-1000
IN ORDER TO ENSURE TIMELY DELIVERY OF SUCH DOCUMENTS, A REQUEST MUST BE
RECEIVED WITH RESPECT TO MBI DOCUMENTS, NO LATER THAN APRIL 17, 1997, AND WITH
RESPECT TO BANCSHARES DOCUMENTS, NO LATER THAN APRIL 15, 1997.
The following documents filed with the Commission by MBI under the Exchange
Act are incorporated herein by reference (Commission File No. 1-11792):
(i) MBI's Annual Report on Form 10-K for the year ended December 31, 1996
(the "1996 MBI Form 10-K").
(ii) The description of MBI 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.
(iii) The description of the 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.
The following documents filed with the Commission by Bancshares under the
Exchange Act are incorporated herein by reference (Commission File No. 0-
04543):
(i) Bancshares' Annual Report on Form 10-K for the year ended December
31, 1996 (the "1996 Bancshares Form 10-K").
(ii) Bancshares' Current Report on Form 8-K, dated January 15, 1997.
All documents filed with the Commission by MBI or Bancshares pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this
Joint Proxy Statement/Prospectus and prior to the date of the MBI Annual
Meeting or Bancshares Special Meeting, as the case may be, shall be deemed to
be incorporated by reference herein and made a part hereof from the date any
such document is filed. The information relating to MBI and Bancshares
contained in this Joint Proxy Statement/Prospectus does not purport to be
complete and should be read together with the information in the documents
incorporated by reference herein. Any statement contained herein or in a
document incorporated or deemed to be incorporated herein by reference shall
be deemed to be modified or superseded for all purposes to the extent that a
statement contained herein or in any other subsequently filed document
incorporated or deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part
hereof.
ii
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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS JOINT PROXY STATEMENT/PROSPECTUS OR IN
THE DOCUMENTS INCORPORATED BY REFERENCE HEREIN AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY MBI OR BANCSHARES. THIS JOINT PROXY STATEMENT/PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO EXCHANGE OR SELL, OR A SOLICITATION OF AN OFFER TO
EXCHANGE OR BUY, ANY SECURITIES, OR THE SOLICITATION OF A PROXY, IN ANY
JURISDICTION IN WHICH, OR FROM ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH
OFFER, SOLICITATION OF AN OFFER OR PROXY SOLICITATION. THE INFORMATION
CONTAINED IN THIS JOINT PROXY STATEMENT/PROSPECTUS SPEAKS AS OF THE DATE
HEREOF UNLESS OTHERWISE SPECIFICALLY INDICATED. NEITHER THE DELIVERY OF THIS
JOINT PROXY STATEMENT/PROSPECTUS NOR ANY DISTRIBUTION OF THE SECURITIES TO
WHICH IT RELATES SHALL IMPLY OR CREATE AN IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF MBI OR BANCSHARES OR ANY OF THEIR RESPECTIVE
SUBSIDIARIES OR IN THE INFORMATION SET FORTH OR INCORPORATED BY REFERENCE
HEREIN SUBSEQUENT TO THE DATE HEREOF.
THIS JOINT PROXY STATEMENT/PROSPECTUS CONTAINS CERTAIN FORWARD-LOOKING
STATEMENTS WITH RESPECT TO THE FINANCIAL CONDITION, RESULTS OF OPERATIONS AND
BUSINESS OF MBI FOLLOWING THE CONSUMMATION OF THE MERGER, INCLUDING STATEMENTS
RELATING TO THE COST SAVINGS, REVENUE ENHANCEMENTS AND FUNDING ADVANTAGES THAT
ARE EXPECTED TO BE REALIZED FROM THE MERGER AND THE EXPECTED IMPACT OF THE
MERGER ON MBI'S FINANCIAL PERFORMANCE AND EARNINGS ESTIMATES FOR THE COMBINED
COMPANY. SEE "TERMS OF THE PROPOSED MERGER--BACKGROUND OF THE MERGER," "--
REASONS OF MBI FOR THE MERGER; MBI BOARD RECOMMENDATION," "--REASONS OF
BANCSHARES FOR THE MERGER; BANCSHARES BOARD RECOMMENDATION," "--OPINION OF
MBI'S FINANCIAL ADVISOR," "--OPINION OF BANCSHARES' FINANCIAL ADVISOR" AND
"PRO FORMA FINANCIAL INFORMATION." THESE FORWARD-LOOKING STATEMENTS INVOLVE
CERTAIN RISKS AND UNCERTAINTIES. FACTORS THAT MAY CAUSE ACTUAL RESULTS TO
DIFFER MATERIALLY FROM THOSE CONTEMPLATED BY SUCH FORWARD-LOOKING STATEMENTS
INCLUDE, AMONG OTHERS, THE FOLLOWING POSSIBILITIES: (1) EXPECTED COST SAVINGS
FROM THE MERGER CANNOT BE FULLY REALIZED; (2) DEPOSIT ATTRITION, CUSTOMER LOSS
OR REVENUE LOSS FOLLOWING THE MERGER; (3) COMPETITIVE PRESSURE IN THE BANKING
INDUSTRY INCREASES SIGNIFICANTLY; (4) COSTS OR DIFFICULTIES RELATED TO THE
INTEGRATION OF THE BUSINESSES OF MBI AND BANCSHARES ARE GREATER THAN EXPECTED;
(5) CHANGES IN THE INTEREST RATE ENVIRONMENT REDUCE MARGINS MORE THAN PLANNED;
(6) GENERAL ECONOMIC CONDITIONS, EITHER NATIONALLY OR REGIONALLY, ARE LESS
FAVORABLE THAN EXPECTED, RESULTING IN, AMONG OTHER THINGS, A DETERIORATION IN
CREDIT QUALITY; (7) THE IMPACT OF REGULATORY CHANGES IS OTHER THAN EXPECTED;
(8) CHANGES IN BUSINESS CONDITIONS AND INFLATION; AND (9) CHANGES IN THE
SECURITIES MARKETS. FURTHER INFORMATION ON OTHER FACTORS WHICH COULD AFFECT
THE FINANCIAL RESULTS OF MBI AFTER THE MERGER IS INCLUDED IN THE COMMISSION
FILINGS INCORPORATED BY REFERENCE HEREIN.
iii
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AVAILABLE INFORMATION...................................................... i
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE.......................... ii
SUMMARY INFORMATION........................................................ 1
Business of MBI.......................................................... 1
Business of Merger Sub................................................... 2
Business of Bancshares................................................... 2
MBI Annual Meeting....................................................... 2
Bancshares Special Meeting............................................... 3
The Proposed Merger...................................................... 3
Stock Option Agreement................................................... 4
Support Agreements....................................................... 4
Recommendations of Boards of Directors................................... 5
Opinion of MBI's Financial Advisor....................................... 5
Opinion of Bancshares' Financial Advisor................................. 5
Interests of Certain Persons in the Merger............................... 5
Fractional Shares........................................................ 6
Regulatory Approval...................................................... 6
Waiver and Amendment..................................................... 7
Accounting Treatment..................................................... 7
Bancshares Stock Options................................................. 7
Federal Income Tax Consequences in General............................... 7
Dissenters' Rights....................................................... 8
Certain Differences in the Rights of Shareholders........................ 8
Markets and Market Prices................................................ 8
Comparative Unaudited Per Share Data..................................... 9
Summary Financial Data................................................... 11
MBI ANNUAL MEETING......................................................... 14
General.................................................................. 14
Date, Time and Place..................................................... 14
MBI Record Date; Vote Required........................................... 14
Voting and Revocation of Proxies......................................... 15
Solicitation of Proxies.................................................. 16
BANCSHARES SPECIAL MEETING................................................. 17
General.................................................................. 17
Date, Time and Place..................................................... 17
Bancshares Record Date; Vote Required.................................... 17
Voting and Revocation of Proxies......................................... 17
Solicitation of Proxies.................................................. 18
TERMS OF THE PROPOSED MERGER............................................... 19
General Description of the Merger........................................ 19
Stock Option Agreement................................................... 20
Support Agreements....................................................... 21
Background of the Merger................................................. 22
Reasons of MBI for the Merger; MBI Board Recommendation.................. 24
Reasons of Bancshares for the Merger; Bancshares Board Recommendation.... 25
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Opinion of MBI's Financial Advisor..................................... 26
Opinion of Bancshares' Financial Advisor............................... 30
Interests of Certain Persons in the Merger............................. 34
Conditions of the Merger............................................... 38
Termination of the Merger Agreement.................................... 39
Closing and Effective Time............................................. 39
Surrender of Bancshares Stock Certificates and Receipt of MBI Common
Stock................................................................. 39
Fractional Shares...................................................... 41
Regulatory Approval.................................................... 41
Business Pending the Merger............................................ 42
Waiver and Amendment................................................... 44
Accounting Treatment................................................... 44
Management and Operations After the Merger............................. 45
Employee Benefits...................................................... 46
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER.................... 47
DISSENTERS' RIGHTS OF SHAREHOLDERS OF BANCSHARES......................... 49
PRO FORMA FINANCIAL INFORMATION.......................................... 51
Comparative Unaudited Per Share Data................................... 51
Pro Forma Combined Consolidated Financial Statements (Unaudited)....... 52
DESCRIPTION OF BANCSHARES................................................ 60
INFORMATION REGARDING MBI STOCK.......................................... 61
Description of MBI Common Stock and Attached Preferred Share Purchase
Rights................................................................ 61
Restrictions on Resale of MBI Capital Stock by Affiliates; Affiliate
Agreements............................................................ 62
Comparison of the Rights of Shareholders of MBI and Bancshares......... 63
SUPERVISION AND REGULATION............................................... 66
General................................................................ 66
Certain Transactions with Affiliates................................... 66
Payment of Dividends................................................... 66
Capital Adequacy....................................................... 67
Support of Subsidiary Banks............................................ 68
Liability of Commonly Controlled Institutions.......................... 68
FDIC Insurance......................................................... 69
Interstate Banking and Other Recent Legislation........................ 70
LEGAL MATTERS............................................................ 71
EXPERTS.................................................................. 71
OTHER MATTERS............................................................ 71
SHAREHOLDER PROPOSALS.................................................... 71
ANNEXES
Annex A-Agreement and Plan of Reorganization............................. A-1
Annex B-Stock Option Agreement........................................... B-1
Annex C-Dissenters' Rights Provisions under the Missouri General and
Business Corporation Law................................................ C-1
Annex D-Opinion of UBS Securities LLC, dated March 19, 1997.............. D-1
Annex E-Opinion of Morgan Stanley & Co. Incorporated, dated March 19,
1997.................................................................... E-1
</TABLE>
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AVAILABLE INFORMATION.................................................... i
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE........................ ii
SUMMARY INFORMATION...................................................... 1
Business of MBI........................................................ 1
Business of Merger Sub................................................. 2
Business of Bancshares................................................. 2
MBI Annual Meeting..................................................... 2
Bancshares Special Meeting............................................. 3
The Proposed Merger.................................................... 3
Stock Option Agreement................................................. 4
Support Agreements..................................................... 4
Recommendations of Boards of Directors................................. 5
Opinion of MBI's Financial Advisor..................................... 5
Opinion of Bancshares' Financial Advisor............................... 5
Interests of Certain Persons in the Merger............................. 5
Fractional Shares...................................................... 6
Regulatory Approval.................................................... 6
Waiver and Amendment................................................... 7
Accounting Treatment................................................... 7
Bancshares Stock Options............................................... 7
Federal Income Tax Consequences in General............................. 7
Dissenters' Rights..................................................... 8
Certain Differences in the Rights of Shareholders...................... 8
Markets and Market Prices.............................................. 8
Comparative Unaudited Per Share Data................................... 9
Summary Financial Data................................................. 11
MBI ANNUAL MEETING....................................................... 14
General................................................................ 14
Date, Time and Place................................................... 14
MBI Record Date; Vote Required......................................... 14
Voting and Revocation of Proxies....................................... 15
Solicitation of Proxies................................................ 16
Voting Securities and Principal Holders Thereof........................ 16-1
Board of Directors and Committees...................................... 16-2
Directors' Fees........................................................ 16-2
Beneficial Ownership of Stock by Management............................ 16-4
Compensation and Management Development Committee Report to
Shareholders Regarding Executive Compensation......................... 16-6
Compensation of Executive Officers..................................... 16-9
Long-Term Incentive Plans--Awards in Last Fiscal Year.................. 16-10
Employment Arrangements................................................ 16-10
Retirement Plans....................................................... 16-11
Comparison of Five-Year Cumulative Total Return Among MBI, S&P 500 and
KBW 50 Indices........................................................ 16-12
Interest of Management and Others in Certain Transactions.............. 16-12
Section 16(a) Beneficial Ownership Reporting Compliance................ 16-13
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iv
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Independent Auditors................................................... 16-13
BANCSHARES SPECIAL MEETING............................................... 17
General................................................................ 17
Date, Time and Place................................................... 17
Bancshares Record Date; Vote Required.................................. 17
Voting and Revocation of Proxies....................................... 17
Solicitation of Proxies................................................ 18
TERMS OF THE PROPOSED MERGER............................................. 19
General Description of the Merger...................................... 19
Stock Option Agreement................................................. 20
Support Agreements..................................................... 21
Background of the Merger............................................... 22
Reasons of MBI for the Merger; MBI Board Recommendation................ 24
Reasons of Bancshares for the Merger; Bancshares Board Recommendation.. 25
Opinion of MBI's Financial Advisor..................................... 26
Opinion of Bancshares' Financial Advisor............................... 30
Interests of Certain Persons in the Merger............................. 34
Conditions of the Merger............................................... 38
Termination of the Merger Agreement.................................... 39
Closing and Effective Time............................................. 39
Surrender of Bancshares Stock Certificates and Receipt of MBI Common
Stock................................................................. 39
Fractional Shares...................................................... 41
Regulatory Approval.................................................... 41
Business Pending the Merger............................................ 42
Waiver and Amendment................................................... 44
Accounting Treatment................................................... 44
Management and Operations After the Merger............................. 45
Employee Benefits...................................................... 46
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER.................... 47
DISSENTERS' RIGHTS OF SHAREHOLDERS OF BANCSHARES......................... 49
PRO FORMA FINANCIAL INFORMATION.......................................... 51
Comparative Unaudited Per Share Data................................... 51
Pro Forma Combined Consolidated Financial Statements (Unaudited)....... 52
DESCRIPTION OF BANCSHARES................................................ 60
INFORMATION REGARDING MBI STOCK.......................................... 61
Description of MBI Common Stock and Attached Preferred Share Purchase
Rights................................................................ 61
Restrictions on Resale of MBI Capital Stock by Affiliates; Affiliate
Agreements............................................................ 62
Comparison of the Rights of Shareholders of MBI and Bancshares......... 63
SUPERVISION AND REGULATION............................................... 66
General................................................................ 66
Certain Transactions with Affiliates................................... 66
Payment of Dividends................................................... 66
Capital Adequacy....................................................... 67
Support of Subsidiary Banks............................................ 68
Liability of Commonly Controlled Institutions.......................... 68
FDIC Insurance......................................................... 69
Interstate Banking and Other Recent Legislation........................ 70
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v
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LEGAL MATTERS............................................................. 71
EXPERTS................................................................... 71
OTHER MATTERS............................................................. 71
SHAREHOLDER PROPOSALS..................................................... 71
ELECTION OF MBI DIRECTORS; AMENDMENT TO MBI RESTATED ARTICLES OF INCORPO-
RATION; AND ADOPTION OF THE MBI AMENDED AND RESTATED STOCK INCENTIVE PLAN
AND THE MBI AMENDED AND RESTATED EXECUTIVE INCENTIVE COMPENSATION PLAN.... 72
Election of Directors................................................... 72
Proposal to Amend the Articles of Incorporation to Increase the
Authorized Number of Shares of MBI Common Stock and Change the Par
Value of MBI Common Stock.............................................. 73
Proposal to Adopt the MBI Amended and Restated Stock Incentive Plan..... 74
Proposal to Adopt the MBI Amended and Restated Executive Incentive
Compensation Plan...................................................... 77
</TABLE>
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ANNEXES
Annex A- Agreement and Plan of Reorganization...................................................... A-1
Annex B- Stock Option Agreement.................................................................... B-1
Annex C- Dissenters' Rights Provisions under the Missouri General and Business Corporation Law..... C-1
Annex D- Opinion of UBS Securities LLC, dated March 19, 1997....................................... D-1
Annex E- Opinion of Morgan Stanley & Co. Incorporated, dated March 19, 1997........................ E-1
Annex F- Resolution to Amend Restated Articles of Incorporation of Mercantile Bancorporation Inc... F-1
Annex G- Mercantile Bancorporation Inc. Amended and Restated Stock Incentive Plan.................. G-1
<CAPTION>
Annex H- Mercantile Bancorporation Inc. Amended and Restated Executive Incentive Compensation
Plan..................................................................................... H-1
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vi
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SUMMARY INFORMATION
THE FOLLOWING IS A SUMMARY OF CERTAIN TERMS OF THE MERGER AND RELATED
INFORMATION DISCUSSED ELSEWHERE IN THIS JOINT PROXY STATEMENT/PROSPECTUS AND IS
NOT INTENDED TO BE COMPLETE. IT IS QUALIFIED IN ALL RESPECTS BY THE MORE
DETAILED INFORMATION INCLUDED IN THIS JOINT PROXY STATEMENT/PROSPECTUS, THE
ACCOMPANYING ANNEXES AND THE DOCUMENTS INCORPORATED HEREIN BY REFERENCE. AS
USED IN THIS JOINT PROXY STATEMENT/PROSPECTUS, THE TERMS "MBI" AND "BANCSHARES"
REFER TO SUCH CORPORATIONS, RESPECTIVELY, AND, WHERE THE CONTEXT REQUIRES, SUCH
CORPORATIONS AND THEIR RESPECTIVE SUBSIDIARIES ON A CONSOLIDATED BASIS.
SHAREHOLDERS OF MBI AND BANCSHARES ARE URGED TO READ AND CONSIDER CAREFULLY ALL
OF THE INFORMATION CONTAINED OR INCORPORATED BY REFERENCE IN THIS JOINT PROXY
STATEMENT/PROSPECTUS AND THE ANNEXES TO THIS JOINT PROXY STATEMENT/PROSPECTUS.
ALL INFORMATION CONCERNING MBI INCLUDED IN THIS JOINT PROXY
STATEMENT/PROSPECTUS HAS BEEN FURNISHED BY MBI AND ALL INFORMATION CONCERNING
BANCSHARES INCLUDED IN THIS JOINT PROXY STATEMENT/PROSPECTUS HAS BEEN FURNISHED
BY BANCSHARES.
BUSINESS OF MBI
MBI, a Missouri corporation, was organized in 1970 and is a registered bank
holding company under the federal Bank Holding Company Act of 1956, as amended
(the "BHCA"). As of December 31, 1996, MBI owned, directly or indirectly, all
of the capital stock of Mercantile Bank National Association (formerly known as
Mercantile Bank of St. Louis National Association), 28 other commercial banks
and one federally chartered thrift which operate from over 400 locations
throughout Missouri, Illinois, Iowa, Arkansas and eastern Kansas. MBI's
services concentrate in three major lines of business--consumer, corporate, and
trust and investment advisory services. MBI also operates non-banking
subsidiaries that provide related financial services, including investment
management, brokerage services and asset-based lending. As of December 31,
1996, MBI reported, on a consolidated basis, total assets of $19.0 billion,
total deposits of $14.8 billion, total loans and leases of $12.8 billion and
shareholders' equity of $1.6 billion.
On August 23, 1996, MBI entered into an agreement to acquire Regional
Bancshares, Inc., an Illinois corporation and registered bank holding company
under the BHCA ("Regional"). This acquisition, which was consummated on March
5, 1997, will be accounted for under the purchase method of accounting. As of
December 31, 1996, Regional reported total assets of $181 million, total
deposits of $147 million, total loans and leases of $102 million and
shareholders' equity of $25 million.
On December 22, 1996, MBI entered into an agreement to acquire Roosevelt
Financial Group, Inc., a Delaware corporation, a registered bank holding
company under the BHCA and a registered unitary savings and loan holding
company under the Home Owner's Loan Act of 1933 ("Roosevelt"). This acquisition
will be accounted for under the purchase method of accounting and is expected
to be consummated in the third quarter of 1997. As of December 31, 1996,
Roosevelt reported total assets of $7.8 billion, total deposits of $5.3
billion, total loans and leases of $4.3 billion and stockholders' equity of
$497 million.
MBI's principal executive offices are located at One Mercantile Center, St.
Louis, Missouri 63101 and its telephone number is (314) 425-2525.
For additional information, see "--Summary Financial Data," "TERMS OF THE
PROPOSED MERGER," "INFORMATION REGARDING MBI STOCK," "SUPERVISION AND
REGULATION," "PRO FORMA FINANCIAL INFORMATION" and "INCORPORATION OF CERTAIN
INFORMATION BY REFERENCE."
<PAGE>
BUSINESS OF MERGER SUB
Merger Sub, a Missouri corporation which was organized in 1991, is a wholly
owned subsidiary of MBI and a registered bank holding company under the BHCA.
At December 31, 1996, Merger Sub owned all of the capital stock of Mercantile
Bank National Association, 28 other commercial banks and one federally
chartered thrift which operate from over 400 locations throughout Missouri,
Illinois, Arkansas, Iowa and eastern Kansas. Merger Sub will be the surviving
corporation after the Merger.
The principal executive offices of Merger Sub are located at One Mercantile
Center, St. Louis, Missouri 63101 and its telephone number is (314) 425-2525.
BUSINESS OF BANCSHARES
Bancshares, a Missouri corporation, was incorporated in 1967 and is the sixth
largest bank holding company in the state of Missouri. Bancshares operates 24
separate banking locations in the metropolitan St. Louis area (including four
in Illinois) through two banking subsidiaries, Mark Twain Bank and Mark Twain
Illinois Bank. Bancshares also operates 15 separate locations in the
metropolitan Kansas City bi-state area through another banking subsidiary, Mark
Twain Kansas City Bank, and 3 separate locations in the metropolitan
Springfield, Missouri area through another banking subsidiary, First City
National Bank. Bancshares subsidiaries also provide a variety of fixed income
investment products, complete brokerage services and a complete line of
personal trust, employee benefit plan, investment advisory and management, and
corporate trust services. As of December 31, 1996, Bancshares reported, on a
consolidated basis, total assets of $3.1 billion, total deposits of $2.6
billion, total loans of $2.2 billion and shareholders' equity of $312 million.
Bancshares' principal executive offices are located at 8820 Ladue Road, St.
Louis, Missouri 63124 and its telephone number is (314) 727-1000.
For additional information, see "TERMS OF THE PROPOSED MERGER," "DESCRIPTION
OF BANCSHARES," "SUPERVISION AND REGULATION," "PRO FORMA FINANCIAL INFORMATION"
and "INCORPORATION OF CERTAIN INFORMATION BY REFERENCE."
MBI ANNUAL MEETING
The MBI Annual Meeting will be held at Cervantes Convention Center at
America's Center, Lecture Hall, 701 Convention Plaza, St. Louis, Missouri, on
Thursday, April 24, 1997, at 10:00 a.m., Central Daylight Time, at which MBI
Annual Meeting the shareholders of MBI will consider and vote on proposals to
(i) approve and adopt the Merger Agreement and the transactions contemplated
thereby, including the Merger, (ii) elect three directors in Class III for
terms of three years expiring in 2000, (iii) elect one director in Class II for
a term of two years expiring in 1999, (iv) amend the Restated Articles of
Incorporation of MBI, as amended (the "MBI Restated Articles") to increase the
authorized MBI Common Stock from 100,000,000 shares to 200,000,000 shares and
change the par value of MBI Common Stock from $5.00 per share to $0.01 per
share, (v) adopt the MBI Amended and Restated Stock Incentive Plan, (vi) adopt
the MBI Amended and Restated Executive Incentive Compensation Plan, and (vii)
transact such other business as may properly come before the MBI Annual Meeting
or any adjournment thereof. Approval by the MBI shareholders of the Merger
Agreement requires the affirmative vote of the holders of a majority of the
shares of MBI Common Stock voted at the meeting, provided that the total votes
cast represents over 50% of the MBI Common Stock entitled to vote ("MBI
Shareholder Approval"). The affirmative vote of the holders of a majority of
the outstanding shares entitled to vote on the amendment to the MBI Restated
Articles is required to take such action. Adoption of the MBI Amended and
Restated Stock Incentive Plan and the MBI Amended and Restated Executive
Incentive Compensation Plan require the affirmative votes of the holders of a
majority of the shares of MBI Common Stock voted at the meeting, respectively.
With respect to the election of directors, cumulative voting, as required by
MBI's By-Laws, is applicable to the election of directors in Class III. Since
only one director is being elected in Class II, there will be no cumulative
voting in such election. Only holders of record of MBI Common Stock at
2
<PAGE>
the close of business on March 10, 1997 (the "MBI Record Date") will be
entitled to notice of, and to vote at, the MBI Annual Meeting. At such date,
there were 60,209,008 shares of MBI Common Stock outstanding held by
approximately 17,290 holders of record. See "MBI ANNUAL MEETING."
As of the MBI Record Date, directors and executive officers of MBI and
certain of their affiliates owned beneficially an aggregate of 5,922,212 shares
of MBI Common Stock, or approximately 9.8% of the shares entitled to vote at
the MBI Annual Meeting.
Any shareholder of MBI giving a proxy may revoke it at any time prior to the
vote at the MBI Annual Meeting. Shareholders of MBI wishing to revoke a proxy
prior to the vote may do so by delivering to MBI's stock transfer agent, Harris
Trust and Savings Bank, at P.O. Box 1878, Chicago, Illinois 60690-9312 by mail,
or 311 West Monroe Street, 11th Floor, Chicago, Illinois 60690-3504 by courier
or hand delivery, written notice of revocation bearing a later date than the
proxy or any later dated proxy relating to the same shares, or by attending the
MBI Annual Meeting and voting in person. Attendance at the MBI Annual Meeting
will not in itself constitute the revocation of a proxy.
BANCSHARES SPECIAL MEETING
The Bancshares Special Meeting will be held at the Auditorium of the Saint
Louis Art Museum, Forest Park, St. Louis, Missouri, on April 22, 1997, at 4:00
p.m., Central Daylight Time, at which Bancshares Special Meeting the
shareholders of Bancshares will consider and vote on a proposal to approve and
adopt the Merger Agreement and will transact such other business as may
properly come before the Bancshares Special Meeting or any adjournment or
postponement thereof. Approval by the Bancshares shareholders of the Merger
Agreement requires the affirmative vote of the holders of at least two-thirds
of the outstanding shares of Bancshares Common Stock entitled to vote at the
meeting ("Bancshares Shareholder Approval"). Only holders of record of
Bancshares Common Stock at the close of business on March 10, 1997 (the
"Bancshares Record Date") will be entitled to notice of, and to vote at, the
Bancshares Special Meeting. At such date, there were 16,850,789 shares of
Bancshares Common Stock outstanding held by approximately 2,500 holders of
record. See "BANCSHARES SPECIAL MEETING."
As of the Bancshares Record Date, directors and executive officers of
Bancshares and certain of their affiliates owned beneficially an aggregate of
3,454,639 shares of Bancshares Common Stock, or approximately 20.5% of the
shares entitled to vote at the Bancshares Special Meeting. Seven directors of
Bancshares, who as of the Bancshares Record Date beneficially owned in the
aggregate approximately 16.4% of the outstanding shares of Bancshares Common
Stock, have each agreed pursuant to a support agreement, dated October 27, 1996
(each, a "Support Agreement"), to vote all shares of Bancshares Common Stock
beneficially owned by such person, or over which such person has voting power
or control, to approve the Merger Agreement. All other Bancshares directors
have indicated their intention to vote their shares of Bancshares Common Stock
for the approval of the Merger Agreement. See "BANCSHARES SPECIAL MEETING" and
"TERMS OF THE PROPOSED MERGER--Support Agreements."
Any shareholder of Bancshares giving a proxy may revoke it at any time prior
to the vote at the Bancshares Special Meeting. Shareholders of Bancshares
wishing to revoke a proxy prior to the vote may do so by delivering to Harris
Trust and Savings Bank at P.O. Box A3504, Chicago, Illinois 60690-3504 by mail,
or 311 West Monroe Street, 11th Floor, Chicago, Illinois 60690-3504 by courier
or hand delivery, a written notice of revocation bearing a later date than the
proxy or any later dated proxy relating to the same shares, or by attending the
Bancshares Special Meeting and voting in person. Attendance at the Bancshares
Special Meeting will not in itself constitute the revocation of a proxy.
THE PROPOSED MERGER
Subject to the satisfaction of the terms and conditions set forth in the
Merger Agreement described below, Bancshares will merge with and into Merger
Sub. Upon consummation of the Merger, Bancshares' corporate
3
<PAGE>
existence will terminate, with Merger Sub continuing as the surviving
corporation, and each outstanding share of Bancshares Common Stock, other than
shares held by Bancshares, MBI or any of their respective wholly owned
subsidiaries, in each case, other than in a fiduciary capacity or as a result
of debts previously contracted, all of which will be cancelled in the Merger,
and other than shares held by shareholders of Bancshares who exercise their
dissenters' rights under the Missouri Law, will be converted into the right to
receive .952 (the "Exchange Ratio") of a share of MBI Common Stock, with cash
in lieu of fractional shares (together, the "Merger Consideration"). See "TERMS
OF THE PROPOSED MERGER" and "DISSENTERS' RIGHTS OF SHAREHOLDERS OF BANCSHARES."
Consummation of the Merger is subject to certain terms and conditions,
including, among other things, Bancshares Shareholder Approval, MBI Shareholder
Approval and receipt of all requisite regulatory approvals. See "TERMS OF THE
PROPOSED MERGER--Conditions of the Merger" and "--Regulatory Approval." The
Merger will be consummated and become effective on the date and at the time
(the "Effective Time") on which appropriate documents in respect of the Merger
are filed with the Missouri Secretary of State.
Unless the parties otherwise agree, the closing (the "Closing") of the Merger
shall take place at 10:00 A.M., local time, on the date (the "Closing Date") on
which the Effective Time of the Merger occurs, which shall be such date as MBI
shall notify Bancshares in writing but (i) not earlier than the receipt of MBI
Shareholder Approval, Bancshares Shareholder Approval and all requisite
regulatory approvals (the "Approval Date"), and (ii) not later than the first
business day of the first full calendar month commencing at least five business
days after the Approval Date. See "TERMS OF THE PROPOSED MERGER--Closing and
Effective Time."
The Merger Agreement may be terminated at any time prior to the Effective
Time by the mutual consent of the parties or by either party upon the
occurrence of certain events or if the Merger is not consummated by October 27,
1997. See "TERMS OF THE PROPOSED MERGER--Termination of the Merger Agreement."
STOCK OPTION AGREEMENT
In connection with the execution of the Merger Agreement, MBI and Bancshares
entered into the Stock Option Agreement, dated October 27, 1996 (the "Stock
Option Agreement"), pursuant to which Bancshares has issued MBI an option (the
"Option") to purchase up to 3,261,522 shares of Bancshares Common Stock (or
approximately 19.4% of the outstanding shares of Bancshares Common Stock as of
the Bancshares Record Date, without including any shares subject to or issued
pursuant to the Option) at an exercise price of $42.375 per share. The Option
is exercisable only upon the occurrence of certain events and provides MBI the
right, under certain circumstances, to require Bancshares to purchase for cash
the unexercised portion of the Option and all shares of Bancshares Common Stock
purchased by MBI pursuant thereto. The Option, which MBI required that
Bancshares grant as a condition to MBI's entering into the Merger Agreement,
might increase the likelihood of consummation of the Merger by discouraging
competing offers for Bancshares. Certain aspects of the Stock Option Agreement
may have the effect of discouraging persons who may now, or prior to the
Effective Time, be interested in acquiring all of or a significant interest in
Bancshares from considering or proposing such an acquisition, even if such
persons were prepared to offer to pay consideration to shareholders of
Bancshares which had a higher current market price than the shares of MBI
Common Stock to be received for each share of Bancshares Common Stock pursuant
to the Merger Agreement.
The Stock Option Agreement is attached hereto as Annex B to this Joint Proxy
Statement/Prospectus and is incorporated herein by reference. See "TERMS OF THE
PROPOSED MERGER--Stock Option Agreement."
SUPPORT AGREEMENTS
Concurrently with the execution of the Merger Agreement, seven directors of
Bancshares, who as of the Bancshares Record Date beneficially owned in the
aggregate approximately 16.4% of the outstanding shares of Bancshares Common
Stock (each, a "Supporting Stockholder" and together, the "Supporting
Stockholders"),
4
<PAGE>
executed separate Support Agreements with MBI pursuant to which each Supporting
Stockholder agreed, among other things, to vote all shares of Bancshares Common
Stock beneficially owned by the Supporting Stockholder to approve the Merger
Agreement and against any Alternative Transaction (as defined below). Each
Supporting Stockholder also thereby agreed, among other things, to not (i)
sell, agree to sell, or otherwise transfer or dispose of any shares of
Bancshares Common Stock owned by the Supporting Stockholder, other than
pursuant to the Merger, to an affiliate who agrees to comply with such Support
Agreement, or with MBI's prior written consent, or (ii) directly or indirectly,
solicit, initiate or encourage any inquiries or proposals from, discuss or
negotiate with, or provide any nonpublic information to, any person relating to
any sale of Bancshares, or any of its business, material assets, or capital
stock, or any business combination or similar transaction involving Bancshares
(each such transaction, an "Alternative Transaction"). Each Support Agreement
terminates upon termination of the Merger Agreement in accordance with its
terms. See "TERMS OF THE PROPOSED MERGER--Support Agreements."
RECOMMENDATIONS OF BOARDS OF DIRECTORS
EACH OF THE MBI BOARD AND THE BANCSHARES BOARD HAS UNANIMOUSLY APPROVED THE
MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY. EACH OF THE MBI
BOARD AND THE BANCSHARES BOARD BELIEVES THAT THE MERGER IS IN THE BEST
INTERESTS OF MBI AND BANCSHARES, RESPECTIVELY, AND THEIR RESPECTIVE
SHAREHOLDERS AND RECOMMENDS THAT SUCH SHAREHOLDERS VOTE "FOR" THE MATTERS TO BE
VOTED UPON BY SUCH SHAREHOLDERS IN CONNECTION WITH THE MERGER. For a discussion
of the factors considered by the MBI Board and the Bancshares Board in reaching
their respective conclusions, see "TERMS OF THE PROPOSED MERGER--Background of
the Merger," "--Reasons of MBI for the Merger; MBI Board Recommendation" and
"--Reasons of Bancshares for the Merger; Bancshares Board Recommendation."
OPINION OF MBI'S FINANCIAL ADVISOR
UBS Securities, LLC ("UBS Securities"), MBI's financial advisor, has
delivered its written opinions to the MBI Board stating that, as of October 27,
1996 and the date of this Joint Proxy Statement/Prospectus and based on the
matters set forth in such opinions, the Exchange Ratio is fair, from a
financial point of view, to the holders of MBI Common Stock. The full text of
the written opinion of UBS Securities dated the date of this Joint Proxy
Statement/Prospectus, which sets forth the assumptions made, the procedures
followed, the matters considered and the limits on the review undertaken by UBS
Securities, is attached as Annex D to this Joint Proxy Statement/Prospectus and
holders of MBI Common Stock are urged to read carefully the opinion in its
entirety. See "TERMS OF THE PROPOSED MERGER--Opinion of MBI's Financial
Advisor."
OPINION OF BANCSHARES' FINANCIAL ADVISOR
Morgan Stanley & Co. Incorporated ("Morgan Stanley"), Bancshares' financial
advisor, delivered its oral opinion to the Bancshares Board on October 25,
1996, which was confirmed in written opinions dated October 27, 1996 and the
date of this Joint Proxy Statement/Prospectus, to the effect that, as of the
respective dates of the opinions and based upon the procedures and subject to
the assumptions made, matters considered and limitations described therein, the
Exchange Ratio pursuant to the Merger Agreement is fair from a financial point
of view to the holders of Bancshares Common Stock. The full text of the written
opinion of Morgan Stanley dated the date of this Joint Proxy
Statement/Prospectus is attached as Annex E to this Joint Proxy
Statement/Prospectus and holders of Bancshares Common Stock are urged to read
carefully the opinion in its entirety. See "TERMS OF THE PROPOSED MERGER--
Opinion of Bancshares' Financial Advisor."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the Bancshares Board with respect to the
Merger, shareholders of Bancshares should be aware that certain members of
Bancshares' management have interests in the Merger that
5
<PAGE>
are in addition to their interests as shareholders of Bancshares generally. The
Bancshares Board was aware of such interests and considered them, among other
matters, in approving the Merger.
In connection with the proposed Merger, MBI has agreed to nominate Alvin J.
Siteman, Chairman of Bancshares, for election to the MBI Board for a three-year
term expiring in 2000. Mr. Siteman will be nominated to the MBI Board for
election as a Class III director promptly following the Effective Time. In
addition, MBI has executed employment agreements with Mr. Siteman, John P.
Dubinsky, President and Chief Executive Officer of Bancshares, and Peter F.
Benoist, Executive Vice President of Bancshares, which will replace existing
agreements each of such employees has with Bancshares. Under these employment
agreements, which take effect at the Effective Time of the Merger, Messrs.
Siteman, Dubinsky and Benoist would serve as Chairman, President and Chief
Executive Officer, and Executive Vice President, respectively, of MBI's St.
Louis banking affiliate. See "TERMS OF THE PROPOSED MERGER--Interests of
Certain Persons in the Merger--Employment Agreements."
In addition to the foregoing, (i) all options to purchase shares of
Bancshares Common Stock issued pursuant to Bancshares' stock option plans,
whether or not then exercisable, will accelerate at the time Bancshares'
shareholders approve the Merger in accordance with the terms of the stock
option plans and agreements under which they were granted and will be converted
into and become rights with respect to shares of MBI Common Stock at the
Effective Time; as of January 15, 1997, 49 present or current employees and
directors of Bancshares had, in the aggregate, 634,102 unvested Bancshares
stock options at an average exercise price of $39.04; (ii) 37 Bancshares
employees will be entitled to severance benefits in the maximum amount, in the
aggregate, of approximately $11,600,000 pursuant to standard form employment
agreements executed with Bancshares if (A) their employment is terminated
without cause by the employer (which is defined to include any successor to
Bancshares), or (B) they terminate their employment for cause in response to
certain actions by the employer affecting the employee's position, compensation
or geographic location; and (iii) the Merger Agreement provides that officers
and directors of Bancshares will be indemnified and held harmless by MBI to the
same extent such persons were indemnified and held harmless by Bancshares as of
the date of the Merger Agreement for all acts or omissions occurring at or
prior to the Effective Time, and MBI will provide a director and officer
insurance and indemnification policy covering officers and directors of
Bancshares for periods prior to the Effective Time. See "TERMS OF THE PROPOSED
MERGER--Interests of Certain Persons in the Merger--Stock Options," "--
Severance," "--Indemnification and Insurance," and "TERMS OF THE PROPOSED
MERGER--Employee Benefits."
FRACTIONAL SHARES
No fractional shares of MBI Common Stock will be issued to Bancshares
shareholders in connection with the Merger. Upon consummation of the Merger,
each former holder of Bancshares Common Stock who otherwise would have been
entitled to receive a fraction of a share of MBI Common Stock shall be entitled
to receive in lieu thereof cash, without interest, in an amount equal to the
holder's fractional share interest multiplied by the closing stock price of MBI
Common Stock on the last business day preceding the Effective Time. Cash
received by Bancshares shareholders in lieu of fractional shares may give rise
to taxable income. See "CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER."
REGULATORY APPROVAL
The Merger is subject to the prior approval of the Board of Governors of the
Federal Reserve System (the "Federal Reserve Board") under the BHCA. In
addition, the Merger is subject to the approval of or filings with the state
banking regulators of the states of Illinois and Missouri (collectively, the
"State Bank Regulators"). The Merger may not be consummated until expiration of
applicable waiting periods.
The Federal Reserve Board has approved the Merger, by letter dated January
22, 1997. Applications for the approval of the State Bank Regulators have been
filed, and the requisite approvals obtained. There can be no assurance that any
necessary regulatory approvals or actions will be received or taken or as to
the timing of such approvals or actions.
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<PAGE>
See "TERMS OF THE PROPOSED MERGER--Conditions of the Merger" and "--
Regulatory Approval."
WAIVER AND AMENDMENT
Any term, condition or provision of the Merger Agreement may be waived in
writing at any time by the party which is, or whose shareholders are, entitled
to the benefits thereof. The Merger Agreement may be amended by action taken by
or on behalf of the MBI Board and the Bancshares Board at any time before or
after Bancshares Shareholder Approval, including an amendment to change one or
more of the termination provisions set forth therein, by an instrument in
writing signed on behalf of each party; provided that after Bancshares
Shareholder Approval no such modification may alter or change the amount or
kind of consideration to be received by holders of Bancshares Common Stock in
the Merger.
ACCOUNTING TREATMENT
It is intended that the Merger will be accounted for under the pooling-of-
interests method of accounting. See "TERMS OF THE PROPOSED MERGER--Accounting
Treatment" and "--Conditions of the Merger."
BANCSHARES STOCK OPTIONS
At the Effective Time, all rights with respect to Bancshares Common Stock
pursuant to options (each a "Bancshares Stock Option") to acquire Bancshares
Common Stock issued under Bancshares' stock option plans ("Bancshares Stock
Plans") that are outstanding at the Effective Time, whether or not then
exercisable, will be converted into and become rights with respect to MBI
Common Stock, and MBI will assume each Bancshares Stock Option in accordance
with the terms of the Bancshares Stock Plan under which it was issued and the
stock option agreement by which it is evidenced. From and after the Effective
Time, (i) each Bancshares Stock Option assumed by MBI will be exercisable
solely for shares of MBI Common Stock, (ii) the number of shares of MBI Common
Stock subject to each Bancshares Stock Option will be equal to the number of
shares of Bancshares Common Stock subject to such Bancshares Stock Option
immediately prior to the Effective Time multiplied by the Exchange Ratio, and
(iii) the per share exercise price under each Bancshares Stock Option will be
adjusted by dividing the per share exercise price under such Bancshares Stock
Option by the Exchange Ratio and rounding down to the nearest cent; provided,
however, that the terms of each Bancshares Stock Option will, in accordance
with its terms, be subject to further adjustment as appropriate to reflect any
stock split, stock dividend, recapitalization or other similar transaction
subsequent to the Effective Time. It is intended that the foregoing assumption
of stock options be undertaken in a manner that will not constitute a
"modification" as defined in the Internal Revenue Code of 1986, as amended (the
"Code"), as to any Bancshares Stock Option that is an "incentive stock option."
The holder of a Bancshares Stock Option which is converted into an option with
respect to MBI Common Stock will not recognize gain or loss solely as a result
of such conversion. Certain tax consequences will arise, however, upon the
exercise of any such option that is a nonqualified stock option or the sale or
disposition of the shares acquired by exercise of any such option that is an
incentive stock option. See "CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE
MERGER."
Certain executive officers, including certain executive officers who are
directors, of Bancshares currently hold Bancshares Stock Options which will be
converted into rights with respect to MBI Common Stock as described above.
FEDERAL INCOME TAX CONSEQUENCES IN GENERAL
The Merger is intended to qualify as a reorganization under Section 368(a)(1)
of the Code. Wachtell, Lipton, Rosen & Katz, special counsel to MBI, and Sidley
& Austin, special counsel to Bancshares, have delivered their opinions to the
effect that, assuming the Merger occurs in accordance with the Merger
Agreement, and conditioned on the accuracy of certain representations made by
MBI, Bancshares and others, for federal income tax purposes, no gain or loss
will be recognized by Bancshares or Merger Sub as a result of the Merger and
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<PAGE>
Bancshares shareholders will recognize no gain or loss upon the conversion of
their Bancshares Common Stock into shares of MBI Common Stock pursuant to the
Merger, except with respect to cash received in lieu of any fractional shares
of MBI Common Stock. EACH BANCSHARES SHAREHOLDER IS URGED TO CONSULT SUCH
SHAREHOLDER'S OWN TAX ADVISOR TO DETERMINE THE SPECIFIC TAX CONSEQUENCES OF THE
MERGER TO SUCH SHAREHOLDER. See "CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE
MERGER."
DISSENTERS' RIGHTS
Under the Missouri Law, a holder of shares of Bancshares Common Stock may, in
lieu of the consideration such shareholder would otherwise receive in the
Merger, seek payment of the "fair value" of such shares and receive payment of
such fair value in cash if the Merger is consummated by following certain
procedures set forth in Section 351.455 of the Missouri Law, the text of which
is attached as Annex C to this Joint Proxy Statement/Prospectus. A holder of
shares of Bancshares Common Stock who receives such a payment might recognize
taxable income. See "CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER."
Failure to follow such procedures may result in a loss of such shareholder's
dissenters' rights. Any Bancshares shareholder returning a blank executed proxy
card will be deemed to have approved the Merger Agreement, thereby waiving any
such dissenters' rights. See "DISSENTERS' RIGHTS OF SHAREHOLDERS OF
BANCSHARES."
Holders of MBI Common Stock do not have dissenters' rights in connection with
the Merger.
CERTAIN DIFFERENCES IN THE RIGHTS OF SHAREHOLDERS
The rights of shareholders of Bancshares are currently governed by the
Missouri Law, the Bancshares Restated Articles of Incorporation and the
Bancshares By-laws. Upon consummation of the Merger, Bancshares shareholders
who receive MBI Common Stock in the Merger will become shareholders of MBI, and
their rights will be governed by the MBI Restated Articles and MBI's By-Laws,
and will continue to be governed by the Missouri Law. See "INFORMATION
REGARDING MBI STOCK--Comparison of the Rights of Shareholders of MBI and
Bancshares."
MARKETS AND MARKET PRICES
MBI Common Stock is currently listed on the NYSE under the symbol "MTL."
Prior to March 25, 1993, MBI's Common Stock was quoted on the NASDAQ National
Market ("NASDAQ/NM") under the symbol "MTRC." On October 25, 1996, the last
full trading day preceding public announcement of the Merger, the last sale
price of MBI Common Stock was $52 per share as reported on the NYSE Composite
Tape. The last sale price of MBI Common Stock on March 18, 1997, the most
recent practicable date prior to the mailing of this Joint Proxy
Statement/Prospectus, was $56.50 per share as reported on the NYSE Composite
Tape.
Bancshares Common Stock is currently listed on the NYSE under the symbol
"MTB." Prior to September 19, 1996, Bancshares Common Stock was quoted on the
NASDAQ/NM, under the symbol "MTWN." On October 25, 1996, the last full trading
day preceding public announcement of the Merger, the last sale price of
Bancshares Common Stock was $42.375 per share as reported on the NYSE Composite
Tape. The value of Bancshares Common Stock at October 25, 1996, on an
equivalent per share basis, was $49.50 (based upon the Exchange Ratio of .952).
The last sale price of Bancshares Common Stock on March 18, 1997, the most
recent practicable date prior to the mailing of this Joint Proxy
Statement/Prospectus, was $53.250 per share as reported on the NYSE Composite
Tape.
Shareholders are advised to obtain current market quotations for MBI Common
Stock and Bancshares Common Stock. There can be no assurance as to the market
price of MBI Common Stock or Bancshares
8
<PAGE>
Common Stock before, at, or, in the case of MBI Common Stock, after, the
Effective Time. The following table sets forth for the periods indicated the
high and low last sale prices (as reported on the NYSE Composite Tape or on the
NASDAQ/NM with respect to Bancshares Common Stock prior to September 19, 1996)
and per share cash dividend declared with respect to MBI Common Stock and
Bancshares Common Stock.
<TABLE>
<CAPTION>
MBI BANCSHARES
COMMON STOCK CASH COMMON STOCK CASH
--------------- DIVIDEND --------------- DIVIDEND
HIGH LOW DECLARED HIGH LOW DECLARED
------- ------- -------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
1994
First Quarter................. $34.125 $29.875 $.28 $30.000 $24.000 $.24
Second Quarter................ 38.125 31.125 .28 31.000 27.750 .24
Third Quarter................. 39.250 34.875 .28 29.000 27.000 .24
Fourth Quarter................ 36.875 29.500 .28 29.500 25.500 .24
1995
First Quarter................. $37.250 $31.250 $.33 $30.000 $26.000 $.27
Second Quarter................ 44.875 36.000 .33 32.750 29.625 .27
Third Quarter................. 47.000 41.625 .33 35.750 31.500 .27
Fourth Quarter................ 46.500 41.500 .33 39.500 32.750 .27
1996
First Quarter................. $46.500 $41.500 $.41 $39.750 $36.500 $.31
Second Quarter................ 47.875 43.500 .41 38.500 36.000 .31
Third Quarter................. 52.875 43.375 .41 42.625 35.250 .31
Fourth Quarter................ 54.000 49.000 .41 50.250 41.875 .31
1997
First Quarter
(through March 18, 1997)..... $59.375 $50.000 .43 $56.375 $47.500 .35
</TABLE>
MBI will apply for the listing on the NYSE of the shares of MBI Common Stock
to be issued in the Merger.
The MBI Board intends to maintain its present policy of paying quarterly cash
dividends on the MBI Common Stock when justified by the financial condition of
MBI and its subsidiaries. The declaration and amount of future dividends will
depend on circumstances existing at the time, including MBI's earnings,
financial condition and capital requirements as well as regulatory limitations,
note and indenture provisions and such other factors as the MBI Board may deem
relevant. See "INFORMATION REGARDING MBI STOCK--Description of MBI Common Stock
and Attached Preferred Share Purchase Rights--Dividends."
Pursuant to the Merger Agreement, Bancshares has agreed that, during the
period from the date of the Merger Agreement to the Effective Time, Bancshares
will not declare, set aside or pay any dividends or other distributions on the
Bancshares Common Stock, except that Bancshares may declare and pay regular
quarterly cash dividends on the Bancshares Common Stock (i) in respect of the
quarterly period ended on March 31, 1997 of not more than $.35 per share; and
(ii) in respect of each quarterly period thereafter of not more than the
greater of (A) .952 times the regular quarterly dividend on a share of MBI
Common Stock paid or payable during such quarterly period or (B) $.35, in each
case per share; provided that Bancshares may not declare or pay any dividends
on Bancshares Common Stock for any period in which its shareholders will be
entitled to receive any regular quarterly dividend on the shares of MBI Common
Stock to be issued in the Merger.
COMPARATIVE UNAUDITED PER SHARE DATA
The following table sets forth for the periods indicated selected historical
per share data of MBI and Bancshares and the corresponding pro forma and pro
forma equivalent per share amounts giving effect to the proposed Merger, and
the proposed acquisitions of Regional and Roosevelt (together, the "Other
Acquisitions"). The data presented is based upon the consolidated financial
statements and related notes of MBI and the
9
<PAGE>
consolidated financial statements and related notes of Bancshares included in
this Joint Proxy Statement/Prospectus or in documents incorporated herein by
reference, financial statements of Regional and Roosevelt prepared by their
respective managements and furnished to MBI 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 Joint Proxy
Statement/Prospectus. See "PRO FORMA FINANCIAL INFORMATION."
MBI and Bancshares expect that the combined company will achieve substantial
benefits from the Merger including operating cost savings and revenue
enhancements. However, the unaudited pro forma comparative per share data does
not reflect any direct costs, potential savings or revenue enhancements which
are expected to result from the consolidation of operations of MBI, Bancshares
and the Other Acquisitions, and therefore does not purport to be indicative of
the results of future operations.
The comparative per share data presented herein is based on and derived from,
and should be read in conjunction with, the historical consolidated financial
statements and the related notes thereto of Bancshares, both of which are
incorporated by reference herein. See "AVAILABLE INFORMATION," "INCORPORATION
OF CERTAIN DOCUMENTS BY REFERENCE" and "PRO FORMA FINANCIAL INFORMATION--Pro
Forma Combined Consolidated Financial Information (Unaudited)." Pro forma
amounts are not necessarily indicative of results of operations or the combined
financial position that would have resulted had the Merger and the Other
Acquisitions been consummated at the beginning of the periods indicated. All
adjustments consisting of only normal recurring adjustments necessary for a
fair statement of results of interim periods have been included.
<TABLE>
<CAPTION>
MBI/ MBI/
BANCSHARES BANCSHARES MBI/ALL ENTITIES MBI/ALL ENTITIES
MBI BANCSHARES PRO FORMA PRO FORMA PRO FORMA PRO FORMA
REPORTED REPORTED COMBINED(1) EQUIVALENT(2) COMBINED(3) EQUIVALENT(2)
-------- ---------- ----------- ------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Book Value per Common
Share:
December 31, 1996(1),
(4)................... $26.52 $ 18.68 $24.28 $23.11 $26.18 $24.92
Cash Dividends Declared
per Common Share:
Year ended December 31,
1996.................. $ 1.64 $ 1.24 $ 1.64 $ 1.56 $ 1.64 $ 1.56
Year ended December 31,
1995.................. 1.32 1.08 1.32 1.26 -- --
Year ended December 31,
1994.................. 1.12 .96 1.12 1.07 -- --
Earnings Before
Extraordinary Items per
Common Share:
Year ended December 31,
1996.................. $ 3.10 $ 3.23 $ 3.14 $ 2.99 $ 2.14 $ 2.04
Year ended December 31,
1995.................. 3.74 2.93 3.59 3.42 -- --
Year ended December 31,
1994.................. 3.19 2.54 3.07 2.92 -- --
Market Price per Common
Share:
October 25, 1996(5).... $52.00 $42.375 -- $49.50(6) -- --
March 18, 1997(5)...... 56.50 53,250 -- -- -- --
</TABLE>
- --------
(1) Includes the effect of pro forma adjustments for Bancshares as appropriate.
See "PRO FORMA FINANCIAL INFORMATION."
(2) Based upon the pro forma combined per share amounts multiplied by the
Exchange Ratio applicable to one share of Bancshares Common Stock. See "PRO
FORMA FINANCIAL INFORMATION."
(3) Includes the effect of pro forma adjustments for Bancshares and the Other
Acquisitions. See "PRO FORMA FINANCIAL INFORMATION."
(footnotes continued on following page)
10
<PAGE>
(4) Based upon the following number of shares outstanding as of December 31,
1996:
<TABLE>
<S> <C>
Shares of MBI Common Stock, as reported....................... 61,604,723
Aggregate number of shares of MBI Common Stock to be issued in
the Merger................................................... 17,213,114
----------
MBI/Bancshares Pro Forma Combined............................. 78,817,837
Shares of MBI Common Stock for Roosevelt, net of treasury
shares....................................................... 6,000,000
----------
MBI/All Entities Pro Forma Combined........................... 84,817,837
==========
</TABLE>
(5) The market values of MBI Common Stock and Bancshares Common Stock were
determined as of the last trading day preceding the public announcement of
the Merger and as of the most recent practicable date prior to the mailing
of this Joint Proxy Statement/Prospectus based on the last sales price as
reported on the NYSE Composite Tape.
(6) This amount represents MBI's Market Price per Common Share multiplied by
the Exchange Ratio applicable to one share of Bancshares Common Stock.
SUMMARY FINANCIAL DATA
The following tables set forth for the periods indicated certain summary
historical consolidated financial information for MBI and Bancshares.
The historical balance sheet data and income statement data included in the
summary financial data for the periods indicated are derived from financial
statements of MBI and Bancshares as of and for such periods. These data include
all adjustments which are, in the opinion of the respective managements of MBI
and Bancshares, necessary to present a fair statement of the results of these
periods and all such adjustments are of a normal recurring nature. Results for
interim periods are not necessarily indicative of results for the entire year.
The following information should be read in conjunction with the consolidated
financial statements of MBI and Bancshares, and the related notes thereto,
included in documents incorporated herein by reference and in conjunction with
the unaudited pro forma combined consolidated financial information, including
notes thereto, appearing elsewhere in this Joint Proxy Statement/Prospectus.
See "INCORPORATION OF CERTAIN INFORMATION BY REFERENCE" and "PRO FORMA
FINANCIAL INFORMATION."
11
<PAGE>
MERCANTILE BANCORPORATION INC.
SUMMARY FINANCIAL DATA
<TABLE>
<CAPTION>
ALL ENTITIES
PRO FORMA
COMBINED
CONSOLIDATED AS OF OR FOR THE
AS OF AND FOR THE YEAR ENDED DECEMBER 31,
YEAR ENDED ----------------------------------------------------------
DECEMBER 31, 1996 1996 1995 1994 1993 1992
----------------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
PER COMMON SHARE DATA
Net income before
extraordinary
items(1).............. $ 2.14 $ 3.10 $ 3.74 $ 3.19 $ 2.79 $ 2.41
Dividends declared..... 1.64 1.64 1.32 1.12 .99 .93
Book value at period
end................... 26.18 26.52 26.04 23.32 21.59 19.44
Average common shares
outstanding
(thousands)........... 83,557 61,875 61,884 59,757 58,751 55,050
EARNINGS (THOUSANDS)
Interest income........ $2,186,141 $1,325,381 $1,293,944 $1,118,069 $1,094,611 $1,139,807
Interest expense....... 1,235,461 622,992 620,534 450,950 444,573 549,642
---------- ---------- ---------- ---------- ---------- ----------
Net interest income.... 950,680 702,389 673,410 667,119 650,038 590,165
Provision for possible
loan losses........... 74,378 71,014 36,530 43,265 64,302 79,551
Other income........... 300,906 295,968 273,653 236,561 245,589 224,456
Other expense.......... 886,099 637,307 553,748 555,176 570,182 529,645
Income taxes........... 112,122 98,089 124,109 113,165 96,074 69,681
---------- ---------- ---------- ---------- ---------- ----------
Net income before
extraordinary items... $ 178,987 $ 191,947 $ 232,676 $ 192,074 $ 165,069 $ 135,744
========== ========== ========== ========== ========== ==========
ENDING BALANCE SHEET
(MILLIONS)
Total assets........... $ 30,313 $ 18,987 $ 17,928 $ 16,724 $ 16,293 $ 16,033
Earning assets......... 27,700 17,137 16,264 15,427 14,980 14,678
Investment
securities............ 7,971 4,039 4,211 4,280 4,670 4,632
Loans and leases, net
of unearned income.... 19,374 12,773 11,731 10,904 9,809 9,570
Deposits............... 22,825 14,820 13,714 12,865 13,243 13,260
Long-term debt......... 1,646 303 326 330 316 336
Shareholders' equity... 2,221 1,634 1,640 1,409 1,295 1,143
Reserve for possible
loan losses........... 265 197 202 216 206 199
SELECTED RATIOS
Return on average
assets................ .58% 1.06% 1.33% 1.17% 1.03% .89%
Return on average
equity................ 8.02 11.90 15.14 14.06 13.46 12.76
Net interest rate
margin(2)............. 3.41 4.30 4.28 4.53 4.52 4.33
Equity to assets....... 7.20 8.61 9.15 8.42 7.95 7.13
Reserve for possible
loan losses to:
Outstanding loans.... 1.33 1.54 1.72 1.98 2.10 2.08
Non-performing
loans............... 304.87 313.02 245.18 583.17 290.02 154.17
Dividend payout
ratio................. 76.64 52.90 35.29 35.11 35.48 38.59
</TABLE>
- --------
(1) Based on weighted average common shares outstanding.
(2) Taxable-equivalent basis. Includes a pro forma 1996 tax-equivalent
adjustment of $16,331,000, and actual tax-equivalent adjustments of
$15,142,000, $16,570,000, $16,616,000, $17,147,000 and $16,204,000 for
1996, 1995, 1994, 1993 and 1992, respectively. These adjustments are based
upon a Federal tax rate of 35% for all years except 1992, when a Federal
tax rate of 34% was used.
12
<PAGE>
MARK TWAIN BANCSHARES, INC.
SUMMARY FINANCIAL DATA
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
AS OF OR FOR THE
YEAR ENDED DECEMBER 31,
----------------------------------------------------------
1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Primary earnings per
share................ $ 3.23 $ 2.93 $ 2.54 $ 2.24 $ 1.91
Fully diluted earnings
per share............ $ 3.18 $ 2.85 $ 2.48 $ 2.17 $ 1.84
Common dividends
declared............. $ 1.24 $ 1.08 $ 0.96 $ 0.81 $ 0.68
Common dividend payout
ratio................ 38.39% 36.86% 37.80% 36.17% 35.52%
Book value per share.. $ 18.68 $ 17.09 $ 14.65 $ 13.63 $ 12.20
Fully diluted book
value per share...... $ 18.66 $ 17.05 $ 14.68 $ 13.71 $ 12.39
EARNINGS
Interest income....... $ 229,641 $ 223,173 $ 194,613 $ 175,628 $ 177,267
Interest expense...... 101,920 94,932 70,592 63,896 79,195
---------- ---------- ---------- ---------- ----------
Net interest income... 127,721 128,241 124,021 111,732 98,072
Provision for loan
losses............... 2,002 5,003 5,526 6,282 8,687
---------- ---------- ---------- ---------- ----------
Net interest income
after provision...... 125,719 123,238 118,495 105,450 89,385
Non-interest income... 39,807 36,786 35,500 43,996 37,090
Non-interest expense.. 81,812 86,522 90,282 95,649 84,040
---------- ---------- ---------- ---------- ----------
Income before taxes... 83,714 73,502 63,713 53,797 42,435
Applicable income
taxes................ 30,446 25,789 22,731 18,694 14,092
---------- ---------- ---------- ---------- ----------
Net income............ $ 53,268 $ 47,713 $ 40,982 $ 35,103 $ 28,343
========== ========== ========== ========== ==========
AVERAGES FOR THE PERIOD
Total assets.......... $2,971,225 $2,766,634 $2,645,508 $2,484,696 $2,341,473
Earning assets........ 2,784,222 2,571,745 2,460,554 2,289,298 2,168,834
Total loans........... 2,031,127 1,916,374 1,748,639 1,626,068 1,563,903
Total deposits........ 2,381,533 2,282,771 2,199,501 2,089,102 1,989,108
Long-term debt........ 5,175 19,666 23,144 26,358 28,613
Shareholders' equity.. 282,777 255,433 223,972 197,401 167,556
Net interest margin... 4.63% 5.03% 5.10% 4.94% 4.60%
AT PERIOD END
Total assets.......... $3,133,265 $2,968,231 $2,688,716 $2,595,451 $2,376,312
Earning assets........ 2,916,083 2,731,663 2,492,839 2,407,669 2,167,852
Total loans........... 2,177,915 1,971,939 1,860,155 1,716,394 1,541,083
Total deposits........ 2,594,912 2,457,392 2,272,057 2,191,913 2,034,404
Long-term debt........ 2,036 18,490 20,389 24,696 28,822
Shareholders' equity.. 311,624 275,906 234,049 214,994 179,046
RETURN ON
Average assets........ 1.79% 1.72% 1.55% 1.41% 1.21%
Shareholders' equity.. 18.84% 18.68% 18.30% 17.78% 16.92%
Realized Shareholders'
equity............... 18.66% 18.41% 17.93% 17.78% 16.92%
SELECTED RATIOS
Average shareholders'
equity to average
assets............... 9.52% 9.23% 8.47% 7.94% 7.16%
Average shareholders'
equity to average
loans................ 13.92% 13.33% 12.81% 12.14% 10.71%
Period-end
shareholders' equity
to period-end
assets............... 9.95% 9.30% 8.70% 8.28% 7.53%
Period-end
shareholders' equity
to period-end loans.. 14.31% 13.99% 12.58% 12.53% 11.62%
Long-term debt to
total shareholders'
equity............... 0.65% 6.70% 8.71% 11.49% 16.10%
Efficiency ratio...... 48.56% 52.15% 56.23% 61.19% 62.03%
</TABLE>
13
<PAGE>
MBI ANNUAL MEETING
GENERAL
This Joint Proxy Statement/Prospectus is being furnished to holders of MBI
Common Stock in connection with the solicitation of proxies by the MBI Board
for use at the MBI Annual Meeting and any adjournment or postponement thereof
at which the shareholders of MBI will consider and vote on proposals to (i)
approve and adopt the Merger Agreement and the transactions contemplated
thereby, including the Merger, (ii) elect three directors in Class III for
terms of three years expiring in 2000, (iii) elect one director in Class II
for a term of two years expiring in 1999, (iv) amend the MBI Restated Articles
to increase the authorized MBI Common Stock from 100,000,000 shares to
200,000,000 shares and change the par value of MBI Common Stock from $5.00 per
share to $0.01 per share, (v) adopt the MBI Amended and Restated Stock
Incentive Plan, (vi) adopt the MBI Amended and Restated Executive Incentive
Compensation Plan, and (vii) transact such other business as may properly come
before the MBI Annual Meeting or any adjournment thereof.
Additional information with respect to the election of directors, the
amendments to the MBI Restated Articles, the MBI Amended and Restated Stock
Incentive Plan and the MBI Amended and Restated Executive Incentive
Compensation Plan is set forth in the section entitled "ELECTION OF MBI
DIRECTORS; AMENDMENT TO MBI RESTATED ARTICLES OF INCORPORATION; AND ADOPTION
OF THE MBI AMENDED AND RESTATED STOCK INCENTIVE PLAN AND THE MBI AMENDED AND
RESTATED EXECUTIVE INCENTIVE COMPENSATION PLAN" which is included in the Joint
Proxy Statement/ Prospectus to be delivered to MBI shareholders only.
Each copy of this Joint Proxy Statement/Prospectus is accompanied by a
Letter to MBI shareholders, the Notice of MBI 1997 Annual Meeting of
Shareholders, a proxy card, a self-addressed return envelope to Harris Trust
and Savings Bank for the proxy card and the MBI Annual Report on Form 10-K for
the fiscal year ended December 31, 1996.
This Joint Proxy Statement/Prospectus is also furnished by MBI to each
holder of Bancshares Common Stock as a Prospectus in connection with the
issuance by MBI of shares of MBI Common Stock to Bancshares shareholders upon
the consummation of the Merger. This Joint Proxy Statement/Prospectus, the
Letter to MBI shareholders, the Notice of MBI 1997 Annual Meeting, the form of
proxy and the MBI Annual Report on Form 10-K for the fiscal year ended
December 31, 1996 are first being mailed to shareholders of MBI on or about
March 21, 1997.
THE MBI BOARD UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" APPROVAL
AND ADOPTION OF THE MERGER AGREEMENT AND THE CONSUMMATION OF THE TRANSACTIONS
CONTEMPLATED THEREBY, INCLUDING THE MERGER, AS WELL AS "FOR" THE ELECTION OF
EACH OF THE NOMINEES FOR DIRECTOR NAMED HEREIN AND "FOR" EACH OF THE FOREGOING
ADDITIONAL ACTIONS.
DATE, TIME AND PLACE
The MBI Annual Meeting will be held at Cervantes Convention Center at
America's Center, Lecture Hall, 701 Convention Plaza, St. Louis, Missouri, on
Thursday, April 24, 1997, at 10:00 a.m., Central Daylight Time.
MBI RECORD DATE; VOTE REQUIRED
The MBI Board has fixed March 10, 1997 as the MBI Record Date for
determination of shareholders of MBI entitled to notice of and to vote at the
MBI Annual Meeting. Accordingly, only holders of record of MBI Common Stock at
the close of business on March 10, 1997 will be entitled to notice of, and to
vote at, the MBI Annual Meeting. At the MBI Record Date, there were 60,209,008
shares of MBI Common Stock outstanding and entitled to vote which were held by
approximately 17,290 holders of record. Each such share is entitled to one
vote on each matter properly brought before the MBI Annual Meeting. The
affirmative vote of the holders
14
<PAGE>
of a majority of the shares of MBI Common Stock voted at the meeting, provided
the total votes cast represents over 50% of the MBI Common Stock entitled to
vote, is required to approve the Merger Agreement.
The affirmative vote of the holders of a majority of the outstanding shares
of MBI Common Stock entitled to vote on the amendment to the MBI Restated
Articles is required to take such action. Adoption of the MBI Amended and
Restated Stock Incentive Plan and the MBI Amended and Restated Executive
Incentive Compensation Plan requires the affirmative votes of the holders of a
majority of the shares of MBI Common Stock voted at the meeting, respectively.
With respect to the election of directors, cumulative voting, as required by
MBI's By-Laws, is applicable to elections of directors. In the election of
Class III directors, this means that a shareholder is entitled to cast as many
votes as shall equal the number of shares of MBI Common Stock owned multiplied
by three, the number of directors in Class III to be elected at the MBI Annual
Meeting. A shareholder may cast all votes for a single candidate or may
distribute them among two or more candidates as the shareholder may decide.
Each duly executed proxy in the form enclosed will be voted equally for all
nominees as listed on such proxy, unless otherwise directed in the proxy. If a
shareholder gives a proxy in the form enclosed but withholds authority to vote
for one or more of the nominees listed on the proxy, the number of votes
represented by such shareholder's proxy shall be divided equally, to the extent
practicable without creating fractional votes, among the remaining nominees.
Since only one director will be elected to Class II at the MBI Annual Meeting,
cumulative voting will not be applicable in such election.
As of the MBI Record Date, directors and executive officers of MBI and
certain of their affiliates owned beneficially an aggregate of 5,922,212 shares
of MBI Common Stock, or approximately 9.8% of the shares entitled to vote at
the MBI Annual Meeting.
VOTING AND REVOCATION OF PROXIES
Shares of MBI Common Stock entitled to vote and which are represented at the
MBI Annual Meeting by a properly executed proxy received prior to the vote at
the MBI Annual Meeting will be voted at such MBI Annual 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 MBI SHAREHOLDER RETURNING A BLANK
EXECUTED PROXY CARD WILL BE DEEMED TO HAVE VOTED "FOR" APPROVAL AND ADOPTION OF
THE MERGER AGREEMENT AND THE CONSUMMATION OF THE TRANSACTIONS CONTEMPLATED
THEREBY, INCLUDING THE MERGER, "FOR" THE ELECTION OF EACH OF THE NOMINEES FOR
DIRECTOR NAMED HEREIN AND "FOR" THE ADDITIONAL PROPOSALS REFERRED TO HEREIN.
Shares subject to abstentions will be treated as shares that are present at
the MBI Annual Meeting for purposes of determining the presence of a quorum and
as voted for the purposes of determining the base number of shares voted on any
of the proposals. If a broker or other nominee holder indicates on the proxy
card that it does not have discretionary authority to vote the shares it holds
of record on the proposal, those shares will not be treated as shares that are
present at the MBI Annual Meeting for purposes of determining the presence of a
quorum and will not be considered as voted for purposes of determining the
approval of shareholders on any of the proposals. Since the approval of the
Merger Agreement requires the affirmative vote of the holders of a majority of
the shares of MBI Common Stock voted at the MBI Annual Meeting, provided that
the total votes cast represents over 50% of the MBI Common Stock entitled to
vote, abstentions will be counted as votes cast against the Merger Agreement
and, assuming the 50%-vote threshold is otherwise satisfied, broker non-votes
will have no effect on whether the Merger Agreement is approved. In addition,
the amendment of the MBI Restated Articles requires the affirmative vote of a
majority of the outstanding shares of MBI Common Stock; therefore, abstentions
and broker non-votes will have the effect of a vote against the amendment. The
respective votes required to adopt the MBI Amended and Restated Stock Incentive
Plan and the MBI Amended and Restated Executive Incentive Compensation Plan are
a majority of the shares voted at the meeting; thus similarly to the vote on
the approval of the Merger Agreement, abstentions will be counted as a vote
against the proposal and broker non-votes will have no effect.
15
<PAGE>
Any shareholder of MBI giving a proxy may revoke it at any time prior to the
vote at the MBI Annual Meeting. Shareholders of MBI wishing to revoke a proxy
prior to the vote may do so by delivering to Harris Trust and Savings Bank, at
P.O. Box 1878, Chicago, Illinois 60690-9312 by mail, or 311 West Monroe
Street, 11th Floor, Chicago, Illinois 60690-3504 by courier or hand delivery,
a written notice of revocation bearing a later date than the proxy or any
later dated proxy relating to the same shares, or by attending the MBI Annual
Meeting and voting in person. Attendance at the MBI Annual Meeting will not in
itself constitute the revocation of a proxy.
The MBI Board is not currently aware of any business to be brought before
the MBI Annual Meeting other than that described herein. If, however, other
matters are properly brought before such MBI Annual Meeting, or any
adjournment or postponement thereof, the persons appointed as proxies will
have discretionary authority to vote the shares represented by duly executed
proxies in accordance with their discretion and judgment as to the best
interest of MBI.
SOLICITATION OF PROXIES
MBI will bear its own costs of soliciting proxies. Solicitation will be by
mail, and directors and officers of MBI and its subsidiaries may solicit
proxies personally, by telephone or other means, but such persons will not be
specially compensated for such services. MBI has retained Morrow & Co. to
assist in the solicitation of proxies on its behalf for a fee of approximately
$7,500 plus reimbursement of expenses.
HOLDERS OF MBI COMMON STOCK ARE REQUESTED TO COMPLETE, DATE AND SIGN THE
ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE.
16
<PAGE>
BANCSHARES SPECIAL MEETING
GENERAL
This Joint Proxy Statement/Prospectus is being furnished to holders of
Bancshares Common Stock in connection with the solicitation of proxies by the
Bancshares Board for use at the Bancshares Special Meeting and any adjournment
or postponement thereof at which the shareholders of Bancshares will consider
and vote on a proposal to approve and adopt the Merger Agreement and will
transact such other business as may properly come before the Bancshares
Special Meeting or any adjournment or postponement thereof. Each copy of this
Joint Proxy Statement/Prospectus is accompanied by a Letter to Bancshares
shareholders, the Notice of Bancshares Special Meeting of Shareholders, a
proxy card and a self-addressed return envelope to Bancshares for the proxy
card.
This Joint Proxy Statement/Prospectus is also furnished by MBI to each
holder of Bancshares Common Stock as a Prospectus in connection with the
issuance by MBI of shares of MBI Common Stock to Bancshares shareholders upon
the consummation of the Merger. This Joint Proxy Statement/Prospectus, the
Letter to Bancshares shareholders, the Notice of Bancshares Special Meeting
and the form of proxy are first being mailed to shareholders of Bancshares on
or about March , 1997.
DATE, TIME AND PLACE
The Bancshares Special Meeting will be held at the Auditorium of the Saint
Louis Art Museum, Forest Park, St. Louis, Missouri, on April 22, 1997, at 4:00
p.m., Central Daylight Time.
It is expected that representatives of Ernst & Young LLP ("Ernst & Young"),
Bancshares' independent public accountants, will be present at the Bancshares
Special Meeting. Such representatives will have the opportunity to make a
statement if they desire to do so and are expected to be available to respond
to appropriate questions.
BANCSHARES RECORD DATE; VOTE REQUIRED
The Bancshares Board has fixed March 10, 1997 as the Bancshares Record Date
for determination of shareholders of Bancshares entitled to notice of and to
vote at the Special Meeting. Accordingly, only holders of record of Bancshares
Common Stock at the close of business on March 10, 1997 will be entitled to
notice of, and to vote at, the Bancshares Special Meeting. At the Bancshares
Record Date, there were 16,850,789 shares of Bancshares Common Stock
outstanding and entitled to vote which were held by approximately 2,500
holders of record. Each such share is entitled to one vote on each matter
properly brought before the Bancshares Special Meeting. The affirmative vote
of the holders of at least two-thirds of the outstanding shares of Bancshares
Common Stock entitled to vote at the meeting is required to approve the Merger
Agreement.
As of the Bancshares Record Date, directors and executive officers of
Bancshares and certain of their affiliates owned beneficially an aggregate of
3,454,639 shares of Bancshares Common Stock, or approximately 20.5% of the
shares entitled to vote at the Bancshares Special Meeting. The Supporting
Stockholders, consisting of seven directors, who as of the Bancshares Record
Date beneficially owned in the aggregate approximately 16.4% of the
outstanding shares of Bancshares Common Stock, have each agreed pursuant to a
Support Agreement to vote all shares of Bancshares Common Stock beneficially
owned by such person, or over which such person has voting power or control,
to approve the Merger Agreement. All other Bancshares directors have indicated
their intention to vote their shares of Bancshares Common Stock for the
approval of the Merger Agreement.
VOTING AND REVOCATION OF PROXIES
Shares of Bancshares Common Stock entitled to vote and which are represented
at the Bancshares Special Meeting by a properly executed proxy received prior
to the vote at the Bancshares Special Meeting will be voted
17
<PAGE>
at such Bancshares 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 BANCSHARES SHAREHOLDER RETURNING A BLANK EXECUTED PROXY CARD WILL BE
DEEMED TO HAVE VOTED "FOR" APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
Failure to return a properly executed proxy card or to vote in person at the
Bancshares Special Meeting will have the practical effect of a vote against the
Merger Agreement.
Shares subject to abstentions will be treated as shares that are present at
the Bancshares Special Meeting for purposes of determining the presence of a
quorum. If a broker or other nominee holder indicates on the proxy card that it
does not have discretionary authority to vote the shares it holds of record on
the proposal, those shares will not be treated as shares that are present at
the Bancshares Special Meeting for purposes of determining the presence of a
quorum and will not be considered as voted for purposes of determining the
approval of shareholders on the proposal. Since the approval of the Merger
Agreement requires the affirmative vote of the holders of at least two-thirds
of the outstanding shares of Bancshares Common Stock, abstentions and broker
non-votes will have the same effect as a vote against the approval of the
Merger Agreement.
Any shareholder of Bancshares giving a proxy may revoke it at any time prior
to the vote at the Bancshares Special Meeting. Shareholders of Bancshares
wishing to revoke a proxy prior to the vote may do so by delivering to Harris
Trust and Savings Bank, at P.O. Box 1878, Chicago, Illinois 60690-9312 by mail,
or 311 West Monroe Street, 11th Floor, Chicago, Illinois 60690-3504 by courier
or hand delivery, a written notice of revocation bearing a later date than the
proxy or any later dated proxy relating to the same shares, or by attending the
Bancshares Special Meeting and voting in person. Attendance at the Bancshares
Special Meeting will not in itself constitute the revocation of a proxy.
The Bancshares Board is not currently aware of any business to be brought
before the Bancshares Special Meeting other than that described herein. If,
however, other matters are properly brought before such Bancshares Special
Meeting, or any adjournment or postponement thereof, the persons appointed as
proxies will have discretionary authority to vote the shares represented by
duly executed proxies in accordance with their discretion and judgment as to
the best interest of Bancshares.
SOLICITATION OF PROXIES
Bancshares will bear its own costs of soliciting proxies. Proxies will
initially be solicited by mail, but directors, officers and selected other
employees of Bancshares may also solicit proxies in person or by telephone,
telegram or other means of communication. Directors, officers and any other
employees of Bancshares who solicit proxies will not be specially compensated
for such services, but may be reimbursed for reasonable out-of-pocket expenses
in connection with such solicitation. Bancshares has retained Corporate
Investor Communications, Inc. at an estimated cost of $4,000, plus
reimbursement of expenses, to assist in its solicitation of proxies from
brokers, nominees, institutions and individuals. Brokerage houses, nominees,
fiduciaries, and other custodians will be requested to forward proxy materials
to beneficial owners and will be reimbursed for their reasonable expenses
incurred in connection therewith.
HOLDERS OF BANCSHARES COMMON STOCK ARE REQUESTED TO COMPLETE, DATE AND SIGN
THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE.
18
<PAGE>
TERMS OF THE PROPOSED MERGER
THE FOLLOWING SUMMARY OF CERTAIN TERMS AND PROVISIONS OF THE MERGER
AGREEMENT IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE MERGER AGREEMENT,
WHICH IS INCORPORATED HEREIN BY REFERENCE AND IS INCLUDED AS ANNEX A TO THIS
JOINT PROXY STATEMENT/PROSPECTUS.
GENERAL DESCRIPTION OF THE MERGER
The Merger Agreement provides that Bancshares will merge at the Effective
Time with and into Merger Sub, subject to MBI Shareholder Approval and
Bancshares Shareholder Approval and the satisfaction or waiver of the other
conditions to the Merger. Upon consummation of the Merger, Bancshares'
corporate existence will terminate, with Merger Sub continuing as the
surviving corporation, and each share of Bancshares Common Stock, other than
shares held by Bancshares, MBI or any of their respective wholly owned
subsidiaries, in each case other than in a fiduciary capacity or as a result
of debts previously contracted, all of which will be cancelled in the Merger,
and other than shares held by shareholders of Bancshares who exercise their
dissenters' rights under the Missouri Law, will be converted into the right to
receive .952 of a share of MBI Common Stock, with cash in lieu of fractional
shares. The value of MBI Common Stock to be issued pursuant to the Merger may
fluctuate prior to and following the Effective Time. It is currently
anticipated that the Effective Time will occur shortly after the later of the
dates of the MBI Annual Meeting and Bancshares Special Meeting, assuming the
Merger Agreement is approved at such meetings.
The amount and nature of the Merger Consideration was established through
arms'-length negotiations between MBI and Bancshares, 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 "--Reasons of MBI for the Merger; MBI Board Recommendation" and "--Reasons
of Bancshares for the Merger; Bancshares Board Recommendation." The fact that
the consideration is payable in shares of MBI Common Stock reflects the
potential for change in the value of the MBI Common Stock and the desire to
have the favorable tax consequences of a reorganization for federal income tax
purposes. See "CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER."
NO ASSURANCE CAN BE GIVEN THAT THE CURRENT FAIR MARKET VALUE OF MBI COMMON
STOCK WILL BE EQUIVALENT TO THE FAIR MARKET VALUE OF MBI COMMON STOCK ON THE
DATE SUCH STOCK IS RECEIVED BY A BANCSHARES SHAREHOLDER OR AT ANY OTHER TIME.
THE FAIR MARKET VALUE OF MBI COMMON STOCK RECEIVED BY A BANCSHARES SHAREHOLDER
MAY BE GREATER OR LESS THAN THE CURRENT FAIR MARKET VALUE OF MBI COMMON STOCK
DUE TO NUMEROUS MARKET FACTORS.
Following the Effective Time, each shareholder of Bancshares will be
required to submit to Harris Trust and Savings Bank, which has been appointed
as exchange agent in the Merger (the "Exchange Agent"), a properly executed
letter of transmittal and surrender to the Exchange Agent the stock
certificate(s) formerly representing the shares of Bancshares Common Stock in
order to obtain issuance of a new stock certificate evidencing the shares of
MBI Common Stock to which such shareholder is entitled. No dividends or other
distributions will be paid to a former Bancshares shareholder with respect to
shares of MBI Common Stock until such person surrenders the certificates
formerly representing shares of Bancshares Common Stock, or documentation
acceptable to the Exchange Agent in lieu of lost or destroyed certificates, at
which time such dividends will be remitted to such person, without interest
and less any taxes that may have been imposed thereon. See "--Surrender of
Bancshares Stock Certificates and Receipt of MBI Common Stock." No fractional
shares of MBI Common Stock will be issued in the Merger, but cash will be paid
in lieu of such fractional shares, such cash amount being determined by
multiplying the holder's fractional share interest by the closing stock price
of MBI Common Stock on the NYSE Composite Tape as reported in The Wall Street
Journal (or in the absence thereof, by any other authoritative source) on the
last business day preceding the Effective Time. See""--Fractional Shares." The
shares of MBI Common Stock to be issued pursuant to the Merger will be freely
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transferable except by certain shareholders of Bancshares who are deemed to be
"affiliates" (as such term is defined under the Securities Act) of Bancshares.
The shares of MBI Common Stock issued to such affiliates will be restricted in
their transferability in accordance with the rules and regulations promulgated
by the Commission and pursuant to agreements entered into with MBI. See
"INFORMATION REGARDING MBI STOCK--Restrictions on Resale of MBI Capital Stock
by Affiliates; Affiliate Agreements."
STOCK OPTION AGREEMENT
In connection with the execution of the Merger Agreement, MBI and Bancshares
entered into the Stock Option Agreement pursuant to which Bancshares has
issued MBI an Option to purchase up to 3,261,522 shares of Bancshares Common
Stock (or approximately 19.4% of the outstanding shares of Bancshares Common
Stock as of the Bancshares Record Date, without including any shares subject
to or issued pursuant to the Option) at an exercise price of $42.375 per
share. The Option is exercisable (after receipt of the required regulatory
approvals) only upon the occurrence of one of the following events: (i)
Bancshares or any of its subsidiaries, without having received prior written
consent from MBI, shall have entered into, authorized, recommended, proposed
or publicly announced its intention to enter into, authorize, recommend, or
propose, an agreement, arrangement or understanding with any person (other
than MBI or any of its subsidiaries) to (A) effect a merger or consolidation
or similar transaction involving Bancshares or any of its subsidiaries, (B)
purchase, lease or otherwise acquire all or a substantial portion of
Bancshares or any of its subsidiaries that constitute a Significant Subsidiary
(as defined in Rule 1-02 of Regulation S-X promulgated by the Commission) or
(C) purchase or otherwise acquire (including by way of merger, consolidation,
share exchange or similar transaction) Beneficial Ownership (as defined in
Rule 13d-3 under the Exchange Act) of securities representing 10% or more of
the voting power of Bancshares or any of its subsidiaries; (ii) any person
(other than MBI or any subsidiary of MBI, or Bancshares or any subsidiary of
Bancshares in a fiduciary capacity) shall have acquired, after the date of the
Stock Option Agreement, Beneficial Ownership or the right to acquire
Beneficial Ownership of 10% or more of the voting power of Bancshares; (iii)
the Bancshares Board shall have withdrawn or modified in a manner adverse to
MBI the recommendation of the Bancshares Board with respect to the Merger
Agreement, in each case, after an Extension Event (as defined below); or (iv)
the holders of Bancshares Common Stock shall not have approved the Merger
Agreement at the Bancshares Special Meeting, or such Bancshares Special
Meeting shall not have been held or shall have been cancelled prior to
termination of the Merger Agreement in accordance with its terms, in each case
after an Extension Event (each of the above-described events is referred to
herein as a "Purchase Event"). No Purchase Event has occurred as of the date
of this Joint Proxy Statement/Prospectus.
The Option terminates (i) on the earliest to occur of (A) the Effective Time
of the Merger, (B) 12 months following the termination of the Merger Agreement
by MBI in the event of a material breach by Bancshares of the Merger Agreement
which is not cured within 30 days of written notice thereof, and (C) the
termination of the Merger Agreement (1) by mutual consent of MBI and
Bancshares, (2) after October 27, 1997, by a party not then in material breach
of the Merger Agreement, (3) by either party if (x) the Federal Reserve Board
has denied approval of the Merger and such denial has become final and
nonappealable or (y) shareholders of Bancshares or MBI shall not have approved
the Merger Agreement at their respective Meetings, or (4) by Bancshares in the
event of a material breach by MBI of the Merger Agreement which is not cured
within 30 days of written notice thereof, provided that, for purposes of
subclause (C), if such termination follows an Extension Event (as defined
below), the Option will not terminate until 12 months following such
termination, or (ii) if the Option cannot be exercised on such day because of
any injunction, order or similar restraint issued by a court of competent
jurisdiction, on the 30th business day after such injunction, order or
restraint shall have been dissolved or when such injunction, order or
restraint shall have become permanent and no longer subject to appeal, as the
case may be. An "Extension Event" is defined in the Stock Option Agreement as
any of: (i) a Purchase Event of the type specified in clauses (i) and (ii) in
the preceding paragraph; (ii) any person (other than MBI or any of its
subsidiaries) shall have "commenced" (as such term is defined in Rule 14d-2
under the Exchange Act), or shall have filed a registration statement under
the Securities Act with respect to, a tender offer or exchange offer to
purchase shares of Bancshares Common Stock such that, upon consummation of
such offer, such person would have Beneficial Ownership (as defined in Rule
13d-3 under the Exchange Act) or the right to acquire Beneficial
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Ownership of 10% or more of the voting power of Bancshares; or (iii) any
person (other than MBI or any subsidiary of MBI, or Bancshares or any
subsidiary of Bancshares in a fiduciary capacity) shall have publicly
announced its willingness, or shall have publicly announced a proposal, or
publicly disclosed an intention to make a proposal, (A) to make an offer
described in clause (ii) of this sentence or (B) to engage in a transaction
described in clause (i) of this sentence.
The Stock Option Agreement further provides that, to the extent not
terminated pursuant to its terms, from and after the date of a Put Event (as
defined below) until 13 months immediately thereafter (the "Repurchase
Period"), MBI will be entitled to require Bancshares to repurchase for cash
the Option from MBI together with all (but not less than all) shares of
Bancshares Common Stock purchased by MBI pursuant thereto, at a price equal to
the sum of: (i) the exercise price paid by MBI for any shares of Bancshares
Common Stock acquired pursuant to the Option; (ii) the difference between (A)
the "Market/Tender Offer Price" for shares of Bancshares Common Stock (defined
as the higher of (1) the highest price per share at which a tender or exchange
offer has been made for shares of Bancshares Common Stock or (2) the highest
closing mean of the "bid" and the "ask" price per share of Bancshares Common
Stock reported by the NYSE Composite Tape for any day within that portion of
the Repurchase Period which precedes the date MBI gives notice of the required
repurchase) and (B) the exercise price, multiplied by the number of shares of
Bancshares Common Stock with respect to which the Option has not been
exercised, but only if the Market/Tender Offer Price is greater than such
exercise price; and (iii) the difference between the Market/Tender Offer Price
and the exercise price paid by MBI for any shares of Bancshares Common Stock
purchased pursuant to the exercise of the Option, multiplied by the number of
shares so purchased, but only if the Market/Tender Offer Price is greater than
such exercise price. A "Put Event" is deemed to have occurred (i) upon the
consummation of any merger, consolidation or any similar transaction involving
Bancshares or any purchase, lease or other acquisition of all or a substantial
portion of the assets of Bancshares, or (ii) upon the acquisition by any
person of Beneficial Ownership of 50% or more of the then outstanding shares
of Bancshares Common Stock, provided that no such event shall constitute a Put
Event unless a Purchase Event shall have occurred prior to expiration or
termination of the Option.
The Option, which MBI required that Bancshares grant as a condition to MBI's
entering into the Merger Agreement, might increase the likelihood of
consummation of the Merger by discouraging competing offers for Bancshares.
Certain aspects of the Stock Option Agreement may have the effect of
discouraging persons who may now, or prior to the Effective Time, be
interested in acquiring all of or a significant interest in Bancshares from
considering or proposing such an acquisition, even if such persons were
prepared to offer to pay consideration to shareholders of Bancshares which had
a higher current market price than the shares of MBI Common Stock to be
received for each share of Bancshares Common Stock pursuant to the Merger
Agreement.
The foregoing is a summary of the material provisions of the Stock Option
Agreement, a copy of which is attached as Annex B to this Joint Proxy
Statement/Prospectus. This summary is qualified in its entirety by reference
to the Stock Option Agreement which is incorporated herein by this reference.
SUPPORT AGREEMENTS
Concurrently with the execution of the Merger Agreement, the Supporting
Stockholders, who, as of the Bancshares Record Date, beneficially owned in the
aggregate approximately 16.4% of the outstanding shares of Bancshares Common
Stock, executed separate Support Agreements with MBI pursuant to which each
Supporting Stockholder agreed, among other things, that: (i) Supporting
Stockholder will not sell, agree to sell, or otherwise transfer or dispose of
any shares of Bancshares Common Stock owned by the Supporting Stockholder,
other than (A) pursuant to the Merger, (B) to an affiliate who agrees to
comply with the terms of the Support Agreement, or (C) with MBI's prior
written consent; (ii) all of the shares of Bancshares Common Stock
beneficially owned by Supporting Stockholder at the record date for any
meeting of shareholders of Bancshares called to consider and vote to approve
the Merger Agreement and/or the transactions contemplated thereby will be
voted by the Supporting Stockholder to approve the Merger Agreement and voted
against any Alternative Transaction; and (iii) Supporting Stockholder will
not, directly or indirectly, solicit, initiate or encourage any inquiries or
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proposals from, discuss or negotiate with, or provide any nonpublic
information to, any person relating to an Alternative Transaction. The Support
Agreements further provide that nothing in such Support Agreements preclude
the Supporting Stockholders from discharging their fiduciary duties as
directors. Each Support Agreement terminates upon termination of the Merger
Agreement in accordance with its terms.
Each Supporting Stockholder and the number of shares of Bancshares Common
Stock beneficially owned by such Supporting Stockholder over which he has
voting power or control as of the Bancshares Record Date are as follows: Peter
F. Benoist (76,805 shares); John P. Dubinsky (215,236 shares); Jack Deutsch
(142,507 shares); Henry J. Givens, Jr. (600 shares); B.D. Hunter (20,238
shares); James J. Murphy, Jr. (19,512 shares); and Alvin J. Siteman (2,282,984
shares).
The foregoing is a summary of the material provisions of the Support
Agreement. See "AVAILABLE INFORMATION." This summary is qualified in its
entirety by reference to the Support Agreement which is incorporated herein by
reference.
BACKGROUND OF THE MERGER
From time to time, Bancshares has studied the possibility of a strategic
business combination which would enhance the ability of Bancshares to compete
in the increasingly consolidated financial institutions industry. In early
1995, the Bancshares Board engaged special outside counsel to help it evaluate
legal aspects of such potential consolidation and subsequently, on June 6,
1995, Bancshares retained Morgan Stanley to advise it in connection with
consideration by Bancshares of various possible mergers and business
combinations.
For a number of years, the possibility of a strategic alliance with MBI had
been discussed internally at Bancshares. In February of 1996, Thomas H.
Jacobsen, Chairman of the Board, President and Chief Executive Officer of MBI,
and Alvin J. Siteman, Chairman of Bancshares, met to discuss a possible
combination of Bancshares and MBI at Mr. Jacobsen's suggestion. The focus of
such meeting was on each company's operations and strategic philosophy, and
did not involve a discussion of price or other significant terms of a merger
or similar transaction.
On October 16, 1996, Messrs. Siteman and Jacobsen met again to discuss a
possible combination of Bancshares and MBI. At this meeting, Mr. Jacobsen
indicated that MBI was interested in pursuing a possible transaction with
Bancshares, including a possible merger. In addition to discussing strategic
benefits which might be realized by the combined entities as a result of a
combination, Messrs. Siteman and Jacobsen began preliminary discussions about
the exchange ratio at which a merger might be effected and the potential
benefits of a combination to the shareholders of the two companies. There was
general agreement that an all stock pooling transaction would be the best
means of pursuing a combination of the two companies and no other forms of
consideration were discussed. Messrs. Siteman and Jacobsen noted that a
combination of Bancshares and MBI would position MBI as a leader in middle
market banking and strengthen MBI's presence in major Missouri markets and
create potential synergies through significant cost savings and revenue
opportunities. See "--Management and Operations After the Merger."
On October 18, Mr. Jacobsen and John P. Dubinsky, President and Chief
Executive Officer of Bancshares, met to discuss the possible combination. The
meeting focused on the management and organizational issues of the proposed
merger.
Contemporaneous with the meetings of October 16th and 18th, Messrs. Siteman
and Dubinsky had further discussions with Morgan Stanley about MBI and about
the merger and acquisition climate in the banking industry at such time. Over
the next few days, Messrs. Siteman and Dubinsky also discussed the possibility
of a business combination with MBI with certain non-management members of the
Bancshares Board.
Between October 18 and October 23, 1996, various meetings and telephone
conversations were held among senior representatives of Bancshares and MBI, as
well as each party's outside legal and financial advisors, for the purpose of
conducting due diligence and discussing the structure and terms of the
proposed merger
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transaction. Both parties executed customary confidentiality agreements on
October 21, 1996, in order to facilitate continued discussions and due
diligence on a confidential basis. From the time of its engagement by MBI on
October 18, 1996, UBS Securities advised MBI with respect to issues under
negotiation, such as managment issues and valuation, and assisted in the due
diligence process, but did not participate in negotiations relating to the
Exchange Ratio.
On October 23, 1996, Mr. Jacobsen and certain other members of MBI's senior
management group briefed the Executive Committee of the MBI Board (the "MBI
Executive Committee") about the discussions with Bancshares. After the MBI
Executive Committee discussed and considered the proposed terms of a merger
transaction and the benefits to MBI and its shareholders of a combination with
Bancshares, it authorized MBI's management to negotiate and consummate a
transaction involving a merger of Bancshares with MBI.
On October 24, 1996, Messrs. Jacobsen, Siteman and Dubinsky met again to
further discuss a potential combination of the two companies, including
potential synergies which might be realized by the combined organizations
after a combination, as well as the benefits of a combination to the
shareholders, customers, employees and communities of the two corporations.
The potential synergies that the parties discussed included the significant
cost savings and revenue enhancements that could be achieved by the combined
company as well as the low-risk integration of the two companies. See "--
Management and Operations After the Merger."
Beginning on October 24, 1996, representatives of Bancshares and MBI and
their respective outside legal and financial advisors met in St. Louis to
negotiate the terms of the Merger, including to review and negotiate a
definitive agreement and a stock option agreement pursuant to which Bancshares
would grant to MBI the right to purchase up to 19.9% of Bancshares' common
stock under certain specified conditions.
On the afternoon of October 25, 1996, Bancshares held a special meeting of
the Bancshares Board. The directors were updated on the negotiations with MBI
(with certain directors having been informed of the discussions over the prior
week) and of the results of management's due diligence. Mr. Dubinsky and
outside legal counsel for Bancshares reviewed the proposed terms of the Merger
Agreement and the Stock Option Agreement with the Bancshares Board. Morgan
Stanley made a presentation outlining its financial analysis of the
transaction and gave its oral opinion that, subject to the assumptions made,
matters considered and limitations on the review undertaken, the Exchange
Ratio pursuant to the Merger Agreement would be fair from a financial point of
view to the holders of Bancshares Common Stock. In response to questions from
members of the Bancshares Board, Morgan Stanley reported on its participation
in Bancshares' due diligence investigation of MBI. At the end of the meeting,
the Bancshares Board authorized Bancshares' management to continue negotiating
the proposed Merger with MBI.
Negotiations between representatives of MBI, Bancshares, and each of their
respective outside legal and financial advisors, continued through the evening
of October 25, 1996 and October 26, 1996 and the morning of October 27, 1996.
On the afternoon of October 27, 1996, the Bancshares Board held another
special meeting. At the meeting, the Bancshares Board received an update on
the status of the Merger negotiations from Bancshares' senior management and
outside legal counsel. Morgan Stanley answered questions raised by members of
the Bancshares Board regarding the proposed exchange ratio and related
provisions of the Merger Agreement and delivered its written opinion that,
subject to the assumptions made, matters considered and limitations on the
review undertaken, the Exchange Ratio pursuant to the Merger Agreement was
fair from a financial point of view to the holders of Bancshares Common Stock.
After discussion, the Bancshares Board approved the Merger Agreement and the
Stock Option Agreement and authorized the Merger. Following the meeting, the
Merger Agreement and Stock Option Agreement were executed and delivered by
MBI, Bancshares and Merger Sub. The Merger was publicly announced prior to the
opening of trading on the NYSE on October 28, 1996.
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REASONS OF MBI FOR THE MERGER; MBI BOARD RECOMMENDATION
In reaching its determination to approve the Merger Agreement and the
transactions contemplated thereby, the MBI Board considered a number of
factors, including, without limitation, the following:
(i) (1) The rapid consolidation, increasing nationwide competition in the
financial services industry and the need to anticipate and best position
MBI in light of industry trends, (2) the positive impact that a combination
of MBI and Bancshares would have on MBI's ability to compete effectively
with other bank holding companies and other financial services providers in
the key metropolitan areas of Kansas City and St. Louis, (3) Bancshares'
franchise, especially its leading market position in the mid-level
commercial market, and the difficulties MBI would encounter attempting to
obtain a similar position in such market by means other than the Merger.
(ii) The financial condition, results of operations and business
operations and prospects of Bancshares, as well as the results of MBI's due
diligence review of Bancshares. In that regard, the MBI Board considered
its belief that Bancshares is a high performing, quality franchise with a
respected and capable management team, and a compatible approach to
customer service, credit quality and shareholder value.
(iii) The financial terms of the Merger (see "--General Description of
the Merger") and the effect of such terms on MBI's shareholders, and its
determination that such terms were consistent with MBI's long-term strategy
of enhancing shareholder value with external expansion through selective
acquisitions.
(iv) The opportunities created by the Merger to leverage MBI's
infrastructure, technology, products, marketing, and lines of business
through Bancshares' established distribution network, and the possibility
of achieving significant cost savings and operating efficiencies through
among other things the elimination of duplicate efforts. Although no
assurances could be given that any particular level of cost synergies would
be achieved, the managements of MBI and Bancshares had identified potential
synergies in the form of estimated pre-tax cost savings of $7.5 million in
1997, $16.7 million in 1998 and $20.6 million commencing in 1999. See "--
Management and Operations After the Merger."
(v) The expectation that the Merger will provide revenue growth
opportunities based on the combined company's leadership in the majority of
its markets, its broad product line and sales productivity, its delivery
channels and its brand name.
(vi) The nonfinancial terms of the Merger Agreement and related
agreements including the agreements with certain members of management of
Bancshares (see "--Interests of Certain Persons in the Merger") and the
Stock Option Agreement (see "--Stock Option Agreement").
(vii) Its belief that the Merger would enhance shareholder value by,
among other things, expanding MBI's mid-level commercial operations
relative to other businesses; diversifying the combined company's customer
base, revenue stream, loan portfolio and funding sources; and reduce the
combined company's exposure to business sector risk and operational risk.
(viii) The likelihood that the merger would receive requisite regulatory
approvals (see "--Regulatory Approval").
In addition, in recommending approval of the Merger Agreement and the Merger
by the MBI shareholders, the MBI Board considered the opinion of UBS
Securities (including the assumptions and financial information relied upon by
UBS Securities in arriving at such opinion) that, as of the date of the Merger
Agreement, the Exchange Ratio is fair from a financial point of view to the
holders of MBI Common Stock (see "--Opinion of MBI's Financial Advisor"). UBS
Securities was not requested to, nor did it, render an opinion as to the
fairness of the Exchange Ratio prior to the meeting of the MBI Executive
Committee at which the Merger was approved.
In recommending approval of the Merger Agreement and the Merger by the MBI
shareholders in this Joint Proxy Statement/Prospectus, the MBI Board has also
considered the fact that on December 22, 1996, MBI entered into an agreement
to acquire Roosevelt. In this regard, the MBI Board considered the potential
financial benefits associated with the acquisition of Roosevelt as discussed
under "--Management and Operations After
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the Merger," the benefits associated with Roosevelt's mortgage banking
operations and the fact that the transaction was expected to be accretive to
earnings beginning in 1997.
The foregoing discussion of the information and factors considered by the
MBI Board is not intended to be exhaustive but includes all material factors
considered by the MBI Board. In reaching its determination to approve the
Merger, the MBI Board did not assign any relative or specific weights to the
foregoing factors, and individual directors may have given differing weights
to differing factors. After deliberating with respect to the Merger and other
transactions contemplated by the Merger Agreement, and considering the matters
discussed above, the MBI Board unanimously approved the Merger Agreement and
the transactions contemplated thereby as being in the best interest of MBI and
its shareholders.
BASED ON THE FOREGOING, THE MBI BOARD UNANIMOUSLY RECOMMENDS THAT MBI
SHAREHOLDERS VOTE "FOR" THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED
THEREBY.
REASONS OF BANCSHARES FOR THE MERGER; BANCSHARES BOARD RECOMMENDATION
The Bancshares Board has determined that the terms of the proposed Merger
are fair to, and in the best interests of, Bancshares and its shareholders.
Accordingly, the Bancshares Board unanimously approved the Merger Agreement
and recommends that the shareholders of Bancshares vote "FOR" approval of the
Merger Agreement.
In reaching its determination, the Bancshares Board consulted with legal
counsel with respect to the legal duties of the Bancshares Board, regulatory
matters, tax matters and the Merger Agreement, Stock Option Agreement and
issues related thereto. The Bancshares Board also consulted with Morgan
Stanley, its financial advisors, with respect to the financial aspects and
fairness of the proposed Merger to shareholders of Bancshares. The Bancshares
Board considered a number of factors, which included:
(i) Information concerning the business, earnings, operations, financial
condition, prospects, capital levels and asset quality of MBI and
Bancshares, both individually and on a combined basis, including but not
limited to, information with respect to the companies' respective recent
and historic stock and earnings performance. The Bancshares Board
considered the detailed financial analyses, pro forma and other information
with respect to MBI and Bancshares presented to the Bancshares Board by
Morgan Stanley, as well as the Bancshares Board's own knowledge of MBI,
Bancshares and their respective businesses;
(ii) The current and prospective competitive and regulatory environments
in which Bancshares operates, including significant recent consolidations
within Bancshares' principal markets and the potential impact on Bancshares
of recent legislation which increased the potential for further
consolidation within the state of Missouri;
(iii) The advantages to Bancshares, in light of the foregoing
consolidation within its markets, of combining with a large, St. Louis-
based financial institution, thereby enabling the shareholders of
Bancshares to become shareholders of a larger combined entity having
greater resources to compete in Bancshares' principal markets than
Bancshares would have on a stand-alone basis;
(iv) The complementary strengths of Bancshares and of MBI, and the
opportunities for greater efficiencies and cost savings by the combined
entity;
(v) The Bancshares Board's review of the strategic options available to
Bancshares;
(vi) The financial advice provided by Morgan Stanley and the opinion of
Morgan Stanley that the Exchange Ratio pursuant to the Merger Agreement is
fair from a financial point of view to the holders of Bancshares Common
Stock;
(vii) The terms, conditions and course of negotiations relating to the
Merger Agreement;
(viii) The availability of dissenters' rights;
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(ix) The terms, conditions and course of negotiations relating to, as
well as the legal, accounting and other consequences of, the stock option
granted to MBI under the Stock Option Agreement, as well as the fact that
MBI required the stock option as a condition to entering into the Merger
Agreement;
(x) The expectation that the Merger will generally be a tax-free
transaction to Bancshares and its shareholders for federal income tax
purposes. See "CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER;"
(xi) The likelihood that the proposed Merger would be consummated;
(xii) The recommendations of Bancshares' management with respect to the
proposed Merger (which recommendations were considered in light of certain
interests of management in the proposed Merger; see "--Interests of Certain
Persons in the Merger"); and
(xiii) The effect of the proposed Merger on the employees of Bancshares
as well as its effect on Bancshares' customers and the communities in which
Bancshares operates.
The Bancshares Board believes that the proposed Merger will benefit
shareholders of Bancshares by affording them the opportunity to participate in
the future growth of a larger and more diversified bank holding company having
greater financial resources, competitive strengths and business opportunities
than would be possible for Bancshares as a stand alone entity.
In addition, in recommending approval of the Merger Agreement and the Merger
by the Bancshares shareholders in this Joint Proxy Statement/Prospectus, the
Bancshares Board considered the fact that on December 22, 1996, MBI entered
into an agreement to acquire Roosevelt.
In view of the wide variety of factors considered in connection with its
evaluation of the proposed Merger, the Bancshares Board did not find it
practicable to, and did not, quantify or otherwise attempt to assign relative
weights to the specific factors considered in reaching its determination. In
addition, individual members of the Bancshares Board may have given different
weights to different factors.
OPINION OF MBI'S FINANCIAL ADVISOR
UBS Securities has rendered its written opinions to the MBI Board that, as
of October 27, 1996 and the date of this Joint Proxy Statement/Prospectus, the
Exchange Ratio in the Merger was fair, from a financial point of view, to the
holders of MBI Common Stock. UBS Securities was retained by the MBI Board to
express an opinion as to the fairness, from a financial point of view, to the
holders of MBI Common Stock of the Exchange Ratio. UBS Securities did not
address MBI's underlying business decision to proceed with the Merger and did
not make any recommendation to the MBI Board or to the shareholders of MBI
with respect to any approval of the Merger.
The full text of the opinion of UBS Securities, dated the date of this Joint
Proxy Statement/Prospectus, which sets forth, among other things, assumptions
made, procedures followed, matters considered and limits on the review
undertaken by UBS Securities, is attached as Annex D to this Joint Proxy
Statement/Prospectus. Holders of MBI Common Stock are urged to read the
opinion in its entirety. UBS SECURITIES' OPINION IS DIRECTED ONLY TO THE
EXCHANGE RATIO IN THE MERGER AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY
MBI SHAREHOLDER AS TO HOW SUCH SHAREHOLDER SHOULD VOTE AT THE MBI ANNUAL
MEETING. The summary set forth in this Joint Proxy Statement/Prospectus of the
opinion of UBS Securities is qualified in its entirety by reference to the
full text of the opinion attached hereto as Annex D. The opinion attached
hereto as Annex D is substantially the same as the opinion dated October 27,
1996, although in conducting its review and analysis of the Merger in
connection with the opinion dated the date of this Joint Proxy
Statement/Prospectus, UBS Securities took into account the Roosevelt
transaction, which was agreed to subsequent to October 27, 1996.
In arriving at its opinions, UBS Securities reviewed: (i) the Merger
Agreement and the Stock Option Agreement; (ii) the Annual Reports to
Shareholders and Annual Reports on Form 10-K for the three years ended
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December 31, 1995 of MBI and Bancshares; (iii) certain interim reports on Form
8-K and Quarterly Reports on Form 10-Q of MBI and Bancshares filed subsequent
to January 1, 1996, including the March 11, 1996 MBI Form 8-K; (iv) certain
other financial information concerning the businesses and operation of MBI and
Bancshares furnished to UBS Securities by MBI and Bancshares, including
certain internal financial analyses, pro forma financial statements giving
effect to the Merger prepared by the senior management of MBI and forecasts
for MBI and Bancshares prepared by the senior management of MBI; (v) certain
publicly available information concerning trading of, and the trading market
for, the MBI Common Stock and the Bancshares Common Stock; and (vi) certain
publicly available information with respect to banks and bank holding
companies and the nature and terms of certain other transactions that UBS
Securities considered relevant to its inquiry. In arriving at this opinion
date the date of this Joint Proxy Statement/Prospectus, UBS Securities also
reviewed, among other things: (i) the Agreement and Plan of Reorganization,
dated December 22, 1996, by and between MBI and Roosevelt, and the Stock
Option Agreement, dated December 22, 1996, between MBI and Roosevelt; (ii) the
Annual Reports to Shareholders, the Annual Reports on Form 10-K for the year
ended December 31, 1996 of MBI and Bancshares and the Annual Reports on Form
10-K for the three years ended December 31, 1996 for Roosevelt; and (iii)
certain other financial information concerning the business and operations of
MBI, Bancshares and Roosevelt furnished to UBS Securities by MBI and
Bancshares, including certain internal financial analyses, pro forma financial
statements giving effect to the acquisition of Roosevelt and the Merger
prepared by the senior management of MBI and forecasts for MBI, Roosevelt and
Bancshares prepared by the senior management of MBI. UBS Securities also held
discussions with senior management of MBI and Bancshares regarding the past
and current business operations, regulatory relations, financial condition and
future prospects of their respective companies and such other matters as UBS
Securities deemed relevant to its inquiry. No limitations were imposed by MBI
with respect to the investigations made or the procedures followed by UBS
Securities in rendering its opinion.
In conducting its review and arriving at its opinions, as contemplated under
the terms of its engagement by MBI, UBS Securities relied, without independent
investigation, upon the accuracy and completeness of all financial and other
information provided to it or publicly available, and did not assume any
responsibility in any respect for the accuracy, completeness or reasonableness
of, or any obligation to verify, the same or to conduct any appraisal of
assets. Without limiting the generality of the foregoing, UBS Securities
relied upon the management of MBI as to the reasonableness of the pro forma
financial statements (including the underlying assumptions, the adjustments
giving effect thereto and the allocation of such adjustments) and the
reasonableness and achievability of the financial and operating forecasts and
projections (and the assumptions and bases therefor) provided to UBS
Securities, and UBS Securities assumed that such forecasts and projections
reflected the best currently available estimates and judgments of the
management of MBI and that such forecasts and projections would be realized in
the amounts and in the time periods estimated by the management of MBI. UBS
Securities also assumed, without independent verification, that the aggregate
allowances for credit losses for MBI, Bancshares and Roosevelt were adequate
to cover such losses. In rendering its opinion, UBS Securities did not make or
obtain any evaluations or appraisals of the property of MBI, Bancshares or
Roosevelt, nor did UBS Securities examine any individual loan files.
UBS Securities also considered such financial and other factors as it deemed
appropriate under the circumstances and 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 valuation and its
knowledge of the banking industry generally. UBS Securities' opinions were
necessarily based upon economic, market and other conditions as they existed
and could be evaluated on the date thereof and the information made available
to UBS Securities through the date thereof.
In connection with rendering its opinions to the MBI Board, UBS Securities
performed a variety of financial analyses which are summarized below. UBS
Securities believes that its analyses must be considered as a whole and that
selecting portions of its analyses and the factors considered by it, without
consideration of all factors and analyses, could create a misleading view of
the analyses and the processes underlying UBS Securities' opinions. UBS
Securities arrived at its opinions based on the results of all the analyses it
undertook assessed as a
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whole, and it did not draw conclusions from or with regard to any one method
of analysis. The preparation of a fairness opinion is a complex process
involving subjective judgments, and is not necessarily susceptible to partial
analyses or summary description. With respect to the comparable company
analysis and bank merger transaction analysis summarized below, no public
company utilized as a comparison is identical to MBI, Bancshares or Roosevelt,
and such analyses necessarily involve complex considerations and judgments
concerning the differences in financial and operating characteristics of the
companies and other factors that could affect the acquisition or public
trading values of the companies concerned. The earnings forecasts and
projections furnished by the senior management of MBI contained in or
underlying UBS Securities' analyses are not necessarily indicative of future
results or values, which may be significantly more or less favorable than such
forecasts and projections. None of MBI, Bancshares or Roosevelt publicly
discloses internal management estimates of the type provided to UBS Securities
in connection with its review of the financial terms of the Merger. The
estimates were based on numerous variables and assumptions that are inherently
uncertain, including without limitation factors related to general economic
and competitive conditions. Estimates of values of companies or assets do not
purport to be appraisals or necessarily reflect the prices at which companies
or their securities actually may be sold. None of the analyses performed by
UBS Securities was assigned a greater significance by UBS Securities than any
other.
The following is a brief summary of the analyses performed by UBS Securities
in connection with its opinion dated October 27, 1996:
(a) Analysis of Comparable Acquisition Transactions. UBS Securities
analyzed 13 other commercial bank acquisition transactions involving
consideration to shareholders of $500 million to $1.5 billion over the
period from 1993 through 1996. The transactions analyzed were: Bank of New
York/National Community Banks; NationsBank Corp./MNC Financial Inc.;
Marshall & Ilsley/Valley Bancorp; Banc One Corporation/Liberty National
Bancorp; National Westminster/Citizens First Bancorp; First Bank
System/Metropolitan Financial; Boatmen's Bancshares/Worthen Banking Corp.;
First Union Corp./Coral Gables Fedcorp; Banc One Corporation/Premier
Bancorp; Boatmen's Bancshares/Fourth Financial; UJB Financial/Summit
Bancorp; Regions Financial/First National Bancorp and Crestar
Financial/Citizens Bancorp. This analysis, which was based on publicly
announced book values and earnings per share for the 12 months preceding
the announcement of the relevant transaction and the consensus of publicly
available First Call earnings per share estimates for the 12 months
following the announcement of the relevant transaction, showed that the
Exchange Ratio represented a premium to the closing price of the Bancshares
Common Stock one day prior to announcement of the Merger of 17.1%, compared
to a high premium to market of 58.9%, a median premium to market of 12.8%
and a low premium to market of 8.9%. This analysis also showed that the
Exchange Ratio represented a multiple of: (i) 2.80x Bancshares' reported
book value per share, compared to a high multiple of 2.60x, a median
multiple of 2.07x and a low multiple of 1.39x; (ii) 2.86x Bancshares'
tangible book value per share, compared to a high multiple of 2.60x, a
median multiple of 2.07x and a low multiple of 1.39x; (iii) 16.7x
Bancshares' latest 12 months fully diluted normalized earnings per share,
compared to a high multiple of 34.0x, a median multiple of 16.1x and a low
multiple of 9.7x; and (iv) 14.2x Bancshares' projected next 12 months fully
diluted earnings per share, compared to a high multiple of 24.7x, a median
multiple of 15.1x and a low multiple of 9.7x. UBS Securities recognized
that no transaction reviewed was identical to the Merger and that,
accordingly, any analysis of comparable transactions necessarily involves
complex considerations and judgments concerning differences in financial
and operating characteristics of the parties to the transactions being
compared.
(b) Selected Comparable Publicly Traded Commercial Banks Analysis. UBS
Securities analyzed certain market data for the MBI Common Stock and the
Bancshares Common Stock, and compared such data to similar data for the 11
other bank holding companies comprising the Midwestern Bank Index, an index
of selected bank holding companies located in the states of Arkansas,
Illinois, Indiana, Iowa, Kansas, Michigan, Minnesota, Nebraska, Ohio,
Oklahoma and Wisconsin with market capitalizations between $500 million and
$1.5 billion (Commerce Bankshares, Inc., Provident Bancorp, Inc.,
FirstMerit Corporation, First Commercial Corporation, Old National Bancorp,
Magna Group, Inc., UMB Financial Corporation, Associated Banc-Corp., First
Michigan Bank Corp., CNB Bancshares, Inc. and BOK Financial
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Corporation). This analysis showed, among other things, that Bancshares'
market price represented a multiple of 13.2x estimated 1996 fully diluted
earnings per share and 11.8x estimated 1997 earnings per share, compared to
median multiples for the Midwestern Bank Index of 13.2x and 12.2x,
respectively. Earnings estimates for MBI, Bancshares and the Midwestern
Bank Index were based on First Call estimates as of October 24, 1996. This
analysis also showed that the market price of the Bancshares Common Stock
on the day prior to the announcement of the Merger represented a multiple
of 2.52x book value and 2.63x tangible book value, compared to median
multiples for the Midwestern Bank Index of 1.95x and 2.06x, respectively.
The forecasts and projections furnished to UBS Securities for MBI and
Bancshares were prepared by the managements of MBI and Bancshares,
respectively. As a matter of policy, MBI and Bancshares do not publicly
disclose internal management forecasts, projections, or estimates of the
type furnished to UBS Securities in connection with its analysis of the
Merger, and such forecasts, projections and estimates were not prepared
with a view towards public disclosure. These forecasts, projections and
estimates were based on numerous variables and assumptions which are
inherently uncertain and which may not be within the control of management
including, without limitation, general economic, regulatory and competitive
conditions. Accordingly, actual results could vary materially from those
set forth in such forecasts, projections and estimates.
(c) Pooling Acquisition Analysis. UBS Securities analyzed certain
financial aspects of the Merger on a pooling of interests basis. In
performing these analyses, UBS Securities noted that the Exchange Ratio,
based on closing market prices for the MBI Common Stock and the Bancshares
Common Stock on the day prior to the announcement of the Merger resulted in
an assumed purchase price of $49.62 per share of Bancshares Common Stock,
compared to a market price of $42.38 per share, resulting in a premium to
market of 17.1% and a total purchase price of $855.3 million. UBS
Securities also noted that on a pro forma basis, current shareholders of
MBI would own 78.6%, and current shareholders of Bancshares would own
21.4%, of the combined equity. For purposes of these pooling acquisition
analyses, UBS Securities relied on certain key assumptions furnished by
senior management of MBI and Bancshares, including forecasts and
projections for MBI and Bancshares for 1997, 1998 and 1999, the amount of
assumed cost savings to be realized after the Merger, the amount of
restructuring charges to be incurred, projected growth in tangible assets
and core earnings for MBI and MBI's cost of capital. These assumptions were
based on numerous variables and assumptions that are inherently uncertain,
including without limitation factors related to general economic, market
and competitive conditions. Accordingly, actual results could vary
significantly from those set forth in such assumptions. Based on these
assumptions, and utilizing a range of discount rates for MBI, UBS
Securities performed an economic discounted cash flow analysis of
Bancshares at different terminal value multiples of Bancshares' projected
cash flow for the year 2006, which economic discounted cash flow analysis
showed present values ranging from $1,225.7 million to $1,735.6 million.
Based on these assumptions, UBS Securities' pooling acquisition analysis of
the Merger from MBI's perspective showed that the Merger, compared to
continued operation of MBI on a stand-alone basis, would result in earnings
per share dilution of 1.0% in 1997 and accretion of 1.0% and 2.0% in 1998
and 1999, respectively. In addition, based on these assumptions, UBS
Securities computed pro forma pooling earnings per share for the combined
entity of $4.22, $4.67 and $5.13 for 1997, 1998 and 1999, respectively,
compared to earnings per share for MBI on a stand-alone basis of $4.26,
$4.63 and $5.02. Based on the estimates provided by MBI's management, UBS
Securities calculated year-end tangible common equity ratios for the
combined entity in a pooling transaction of 8.32%, 8.79% and 9.26% for
1997, 1998 and 1999, respectively, compared to tangible common equity
ratios for MBI on a stand-alone basis of 8.14%, 8.55% and 8.96%.
The MBI Board retained UBS Securities based upon the recognized experience
and expertise of UBS Securities' financial institutions group. UBS Securities
is an internationally recognized investment banking and advisory firm. UBS
Securities, as part of its investment banking and advisory business, is
continually engaged in the valuation of businesses and securities in
connection with mergers and acquisitions, negotiated underwritings,
competitive biddings, secondary distributions of listed and unlisted
securities, private placements and valuations
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for estate, corporate and other purposes. MBI selected UBS Securities as its
financial adviser because of its reputation and because of its substantial
experience in transactions such as the Merger. In the ordinary course of
business, UBS Securities actively trades the equity securities of Bancshares
and MBI for its own account and for the accounts of its customers and,
accordingly, at any time may hold a long or short position in such securities.
MBI and UBS Securities have entered into a letter agreement, dated October
18, 1996 (the "UBS Engagement Letter"), relating to the services to be
provided by UBS Securities in connection with the Merger. MBI has agreed to
pay UBS Securities' fees as follows: (i) $50,000, payable at the signing of
the letter agreement; (ii) $750,000, payable at the mailing of this Joint
Proxy Statement/Prospectus; and (iii) $2,125,000 (less any fees paid under the
preceding clauses (i) and (ii)), contingent upon and payable at the closing of
the Merger. In the UBS Engagement Letter, MBI also has agreed to reimburse UBS
Securities for the reasonable fees and disbursements of UBS Securities'
counsel and all of UBS Securities' reasonable travel and other out-of-pocket
expenses. Pursuant to an additional letter agreement dated October 18, 1996,
MBI also has agreed to indemnify UBS Securities against certain liabilities,
including liabilities under the federal securities laws.
UBS Securities in the past from time to time has provided financial advisory
and investment banking services to MBI, for which services UBS Securities has
received customary fees. In addition, UBS Securities is acting as financial
advisor to MBI in connection with the Roosevelt transaction, for which
services UBS Securities will receive customary fees.
OPINION OF BANCSHARES' FINANCIAL ADVISOR
Bancshares retained Morgan Stanley to act as Bancshares' financial advisor
in connection with the Merger and related matters based upon its
qualifications, expertise and reputation, as well as Morgan Stanley's prior
investment banking relationship and familiarity with Bancshares. At the
October 25, 1996 meeting of the Bancshares Board, Morgan Stanley delivered an
oral opinion to the Bancshares Board that, as of such date and subject to
certain considerations set forth in the written opinion of Morgan Stanley
dated October 27, 1996, the Exchange Ratio pursuant to the Merger Agreement
was fair from a financial point of view to the holders of Bancshares Common
Stock. Morgan Stanley subsequently confirmed its October 27, 1996 opinion by
delivery to the Bancshares Board of a written opinion dated as of the date of
this Joint Proxy Statement/Prospectus.
THE FULL TEXT OF MORGAN STANLEY'S OPINION, DATED AS OF THE DATE OF THIS
JOINT PROXY STATEMENT/ PROSPECTUS, WHICH SETS FORTH, AMONG OTHER THINGS,
ASSUMPTIONS MADE, PROCEDURES FOLLOWED, MATTERS CONSIDERED, AND LIMITATIONS ON
THE REVIEW UNDERTAKEN, IS ATTACHED AS ANNEX E TO THIS JOINT PROXY
STATEMENT/PROSPECTUS. BANCSHARES SHAREHOLDERS ARE URGED TO, AND SHOULD, READ
THE MORGAN STANLEY OPINION CAREFULLY AND IN ITS ENTIRETY. MORGAN STANLEY'S
OPINION IS DIRECTED TO THE BANCSHARES BOARD AND THE FAIRNESS OF THE EXCHANGE
RATIO IN THE MERGER AGREEMENT FROM A FINANCIAL POINT OF VIEW TO THE HOLDERS OF
BANCSHARES COMMON STOCK, AND IT DOES NOT ADDRESS ANY OTHER ASPECT OF THE
MERGER NOR DOES IT CONSTITUTE A RECOMMENDATION TO ANY HOLDER OF BANCSHARES
COMMON STOCK AS TO HOW TO VOTE AT THE BANCSHARES SPECIAL MEETING. THE SUMMARY
OF THE OPINION OF MORGAN STANLEY SET FORTH IN THIS JOINT PROXY
STATEMENT/PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL
TEXT OF SUCH OPINION.
In connection with rendering its written opinion dated as of the date of
this Joint Proxy Statement/Prospectus, Morgan Stanley: (i) reviewed certain
publicly available financial statements and other information of Bancshares
and MBI, respectively; (ii) reviewed certain internal financial statements and
other financial and operating data concerning Bancshares and MBI prepared by
the managements of Bancshares and MBI, respectively; (iii) analyzed certain
financial projections of Bancshares and MBI prepared by the managements of
Bancshares and MBI, respectively; (iv) discussed the past and current
operations and financial condition and the prospects of Bancshares and MBI
with senior executives of Bancshares and MBI, respectively; (v) analyzed the
pro forma impact of the Merger on the combined company's earnings per share,
consolidated capitalization and financial ratios; (vi) reviewed the reported
prices and trading activity for the Bancshares Common Stock and the MBI Common
Stock; (vii) compared the financial performance of Bancshares and MBI and the
prices and trading activity of the Bancshares Common Stock and the MBI Common
Stock with that of
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certain other comparable publicly-traded companies and their securities;
(viii) discussed the results of regulatory examinations of Bancshares and MBI
with the senior management of the respective companies; (ix) discussed the
strategic objectives of the Merger and the plan for the combined company with
senior executives of Bancshares and MBI; (x) reviewed and discussed with
senior managements of Bancshares and MBI certain estimates of the cost savings
and revenue enhancements projected by Bancshares and MBI for the combined
company and compared such amounts to those estimated in certain precedent
transactions; (xi) reviewed the financial terms, to the extent publicly
available, of certain comparable precedent transactions; (xii) participated in
discussions and negotiations among representatives of Bancshares and MBI and
their legal advisors; (xiii) reviewed the Merger Agreement, the Stock Option
Agreement between Bancshares and MBI and certain related documents; and (xiv)
considered such other factors as Morgan Stanley deemed appropriate.
In rendering its opinion, Morgan Stanley assumed and relied upon without
independent verification the accuracy and completeness of the information
supplied or otherwise made available to Morgan Stanley by Bancshares and MBI
for the purposes of its opinion. With respect to the financial projections,
including the estimates of cost savings and revenue enhancements expected to
result from the Merger, Morgan Stanley assumed that they had been reasonably
prepared on bases reflecting the best currently available estimates and
judgments of the future financial performance of Bancshares and MBI. Morgan
Stanley did not make any independent valuation or appraisal of the assets or
liabilities of Bancshares and MBI, nor was Morgan Stanley furnished with any
such appraisals, and Morgan Stanley did not examine any individual loan credit
files of Bancshares and MBI. In addition, Morgan Stanley assumed the Merger
would be consummated substantially in accordance with the terms set forth in
the Merger Agreement. Morgan Stanley's opinion is necessarily based on
financial, economic, market and other conditions as in effect on, and the
information made available to Morgan Stanley as of, the date of the opinions.
The following is a brief summary of the financial analyses performed by
Morgan Stanley and reviewed with the Bancshares Board on October 25, 1996 in
connection with rendering its opinions on October 25th and October 27th.
Comparable Company Analysis. As part of its analysis, Morgan Stanley
compared certain financial information of Bancshares with corresponding
publicly available information of (i) a group of eight publicly traded bank
holding companies that Morgan Stanley considered comparable in certain
respects with Bancshares (the "Peer Group"), and (ii) thirty-five regional
bank holding companies (the "Morgan Stanley Bank Index" and together with the
Peer Group, the "Comparables"). The Peer Group consisted of Associated Banc-
Corp., Cole Taylor Financial Group, Inc., Community First Bankshares, Inc.,
Corus Bancshares, Inc., First Financial Bancorp., First Michigan Bank
Corporation, Inc., Magna Group, Inc. and Old National Bancorp. The Morgan
Stanley Bank Index consisted of AmSouth Bancorporation, Banc One Corporation,
BankAmerica Corporation, Barnett Banks, Inc., Bank of New York Company, Inc.,
Bank of Boston Corporation, Boatmen's Bancshares, Inc., Crestar Financial
Corporation, CoreStates Financial Corp., Comerica Incorporated, First American
Corporation, First Bank System, Inc., First Chicago NBD Corporation, Fifth
Third Bancorp, Fleet Financial Group, Inc., First of America Bank Corporation,
Firstar Corporation, First Union Corporation, First Virginia Banks, Inc.,
Huntington Bancshares Incorporated, Hibernia Corporation, KeyCorp, Mellon Bank
Corporation, NationsBank Corporation, National City Corporation, Norwest
Corporation, PNC Bank Corp., Regions Financial Corporation, Southern National
Corporation, Star Banc Corporation, SunTrust Banks, Inc., Union Planters
Corporation, U.S. Bancorp, Wachovia Corporation and Wells Fargo & Company.
Historical financial information used in connection with the ratios provided
below with respect to the Comparables is as of September 30, 1996 when
available, and otherwise June 30, 1996.
Morgan Stanley analyzed the relative performance and value of Bancshares by
comparing certain market trading statistics for Bancshares with the
Comparables. Market information used in ratios provided below is as of October
23, 1996. The market trading information used in the valuation analysis was
market price to book value (which was 2.4x in the case of Bancshares; 2.1x in
the case of the average of the Peer Group; and 2.2x in the case of the average
of the Morgan Stanley Bank Index) and market price to estimated earnings per
share for
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1997 (which was 11.9x in the case of Bancshares; 11.9x in the case of the
average of the Peer Group; and 11.7x in the case of the average of the Morgan
Stanley Bank Index). Earnings per share estimates for Bancshares, the Morgan
Stanley Bank Index and the Peer Group were based on First Call estimates as of
October 23, 1996. First Call is a data service that monitors and publishes
compilations of earnings estimates produced by selected research analysts
regarding companies of interest to institutional shareholders. The implied
range of values for Bancshares Common Stock derived from the analysis of the
Comparables' market price to book value and market price to 1997 estimated
earnings per share ranged from approximately $35 to $44 per share.
Dividend Discount Analysis. Morgan Stanley performed a dividend discount
analysis to determine a range of present values per share of Bancshares Common
Stock assuming Bancshares continued to operate as a stand-alone entity. This
range was determined by adding (i) the present value of the estimated future
dividend stream that Bancshares could generate, and (ii) the present value of
the "terminal value" of Bancshares Common Stock at the end of year 2001. To
determine a projected dividend stream, Morgan Stanley assumed a constant
equity/asset ratio of 8%. The earnings projections which formed the basis for
the dividends were adapted from First Call estimates for 1996 and 1997, and
earnings growth rates ranging from 9%-11% for estimating earnings for 1998
through 2002. The "terminal value" of Bancshares Common Stock at the end of
the period was determined by applying two price-to-earnings multiples (11x and
12x) to year 2002 projected earnings. The dividend stream and terminal values
were discounted to present values using discount rates of 12% and 14%, which
Morgan Stanley viewed as the appropriate discount rate range for a company
with Bancshares's risk characteristics. Based on the above assumptions, fully
diluted stand-alone value of Bancshares Common Stock ranged from approximately
$39 to $48 per share.
Implied Acquisition Value. As part of its analysis of the acquisition
valuation, Morgan Stanley assumed that the net present value of estimated cost
savings and revenue enhancements was added to the stand-alone value of
Bancshares Common Stock calculated using First Call estimates as described
above (see "--Dividend Discount Analysis"). Based on cost savings ranging from
$14-$18 million (15%-20% of projected non-interest expense base), discount
rates of 12% and 14%, a phase-in cost of savings over two years, a cost
savings growth rate of 2% after the phase-in period, merger and reorganization
charges equal to the cost savings incurred in the first year following the
Merger and price-to-earnings terminal multiples of 11x and 12x in the year
2002, Morgan Stanley estimated the implied acquisition value of Bancshares
Common Stock to range from approximately $45 to $53 per share.
Precedent Transaction Analysis. Morgan Stanley performed an analysis of nine
precedent transactions ("Precedent Transactions") by selected holding
companies of commercial banks that Morgan Stanley deemed comparable to the
Merger in order to calculate a valuation range for the Bancshares Common
Stock. Multiples of book value and earnings implied by the consideration paid
in Precedent Transactions were applied to book value and 1997 estimated
earnings per share of Bancshares to yield a range of values for Bancshares
Common Stock. The Precedent Transactions consisted of U.S. Bancorp/West One
Bancorp, First Bank System, Inc./FirsTier Financial, Inc., Boatmen's
Bancshares, Inc./Fourth Financial Corporation, National City
Corporation/Integra Financial Corporation, NationsBank Corporation/Bank South
Corporation, UJB Financial Corp./The Summit Bancorporation, Regions Financial
Corporation/First National Bancorp, Bank of Boston Corporation/BayBanks, Inc.
and Crestar Financial Corporation/Citizens Bancorp.
Ranges of multiples of book value and of estimated earnings (based on
Institutional Brokers Estimate System estimates prior to announcement) per
share ranging from 2.1x to 2.4x and from 13.5x to 15.5x, respectively, derived
from the Precedent Transactions were applied to the book value and 1997
estimated earnings (based on First Call estimates) per share of Bancshares to
yield an implied range of values for Bancshares Common Stock ranging from
approximately $37 to $55 per share.
Exchange Ratio Analysis. Morgan Stanley analyzed the ratio of closing prices
per share of Bancshares Common Stock and MBI Common Stock during the twelve-
month period ending October 23, 1996. Morgan Stanley observed that such
implied exchange ratio had averaged 0.825x during such period, 0.808x over the
six-
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month period, 0.800x over the three-month period, 0.809x over the one-month
period, and 0.802x over the one-week period, in each case, prior to October
23, 1996. Morgan Stanley also observed that the implied exchange ratio based
on the closing market prices of Bancshares Common Stock and MBI Common Stock
on October 23, 1996 of $42.000 and $52.375, respectively, was approximately
0.802x.
Contribution Analysis. Morgan Stanley reviewed the pro forma effects of the
Merger and computed the contribution to the combined company's pro forma
financial results attributable to each of Bancshares and MBI. The computation
showed, among other things, that Bancshares and MBI would contribute to the
combined company approximately 16% and 84%, respectively, of book value as of
September 30, 1996, 18% and 82%, respectively, of 1997 estimated earnings
based on First Call estimates, and 18% and 82%, respectively, of market value
as of October 23, 1996. Morgan Stanley calculated that the Exchange Ratio
would result in an allocation between the holders of Bancshares Common Stock
and MBI Common Stock of pro forma ownership of the combined company equal to
approximately 21% and 79%, respectively.
In connection with its written opinion dated as of the date of this Joint
Proxy Statement/Prospectus, Morgan Stanley confirmed the appropriateness of
its reliance on the analyses used to render its October 27, 1996 opinion by
performing procedures to update certain of such analyses and by reviewing the
assumptions upon which such analyses were based and the factors considered in
connection therewith.
No company or transaction used in the comparable company and comparable
transaction analyses is identical to Bancshares or the Merger. Accordingly, an
analysis of the results of the foregoing necessarily involves complex
considerations and judgments concerning financial and operating
characteristics of Bancshares and other factors that could affect the public
trading value of the companies to which they are being compared.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to a partial analysis or summary description. In
arriving at its opinion, Morgan Stanley considered the results of all its
analyses as a whole and did not attribute any particular weight to any
analysis or factor considered by it. Morgan Stanley believes that selecting
any portion of its analyses, without considering all analyses, would create an
incomplete view of the process underlying its opinion.
In performing its analyses, Morgan Stanley made numerous assumptions with
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond the control of Bancshares or MBI. The
analyses performed by Morgan Stanley are not necessarily indicative of actual
values, which may be significantly more or less favorable than suggested by
such analyses. Such analyses were prepared solely as a part of Morgan
Stanley's analysis of the fairness from a financial point of view of the
Exchange Ratio in the Merger Agreement to the holders of shares of Bancshares
Common Stock and were conducted in connection with the delivery of Morgan
Stanley's opinion. The analyses do not purport to be appraisals or to reflect
the prices at which Bancshares might actually be sold.
As described above, Morgan Stanley's opinion and the information provided by
Morgan Stanley to the Bancshares Board were two of a number of factors taken
into consideration by the Bancshares Board in making its determination to
recommend approval of the Merger Agreement and the transactions contemplated
thereby. Consequently, the Morgan Stanley analyses described above should not
be viewed as determinative of the opinion of the entire Bancshares Board or
the view of the management with respect to the value of Bancshares. The
Exchange Ratio pursuant to the Merger Agreement was determined through
negotiations between Bancshares and its advisors and MBI, and was approved by
the entire Bancshares Board.
The Exchange Ratio pursuant to the Merger Agreement was determined through
negotiations between Bancshares and MBI and was approved by the Bancshares
Board. Morgan Stanley provided advice to Bancshares during the course of such
negotiations, but did not participate in negotiations relating to the Exchange
Ratio.
The Bancshares Board retained Morgan Stanley based upon its experience and
expertise. Morgan Stanley is an internationally recognized investment banking
and advisory firm. As part of its investment banking business,
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Morgan Stanley is regularly engaged in the valuation of businesses and
securities in connection with mergers and acquisitions, negotiated
underwritings, competitive biddings, secondary distributions of listed and
unlisted securities, private placements and valuation for estate, corporate
and other purposes. Morgan Stanley makes a market in Bancshares Common Stock
and MBI Common Stock. In the course of its business, Morgan Stanley and its
affiliates may actively trade the debt and equity securities of Bancshares and
MBI for their own account and for the accounts of customers and, accordingly
may at times hold a long or short position in such securities. In the past,
Morgan Stanley has provided financial advisory and investment banking services
to Bancshares for which services Morgan Stanley received customary fees.
Pursuant to a letter dated June 5, 1995, as modified on October 21, 1996,
Bancshares has agreed to pay Morgan Stanley: (i) an advisory fee estimated to
be between $100,000 and $200,000 which is payable if the Merger is not
consummated, and (ii) a transaction fee of $5.0 million which is payable upon
the consummation of the Merger. Any advisory fee paid will be credited against
the transaction fee. In addition, Bancshares has agreed, among other things,
to reimburse Morgan Stanley for all reasonable out-of-pocket expenses incurred
in connection with the services provided by Morgan Stanley, and to indemnify
and hold harmless Morgan Stanley and certain related parties from and against
certain liabilities and expenses, which may include certain liabilities under
the federal securities laws, in connection with its engagement.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain members of Bancshares' management have certain interests in the
Merger that are in addition to their interests as shareholders of Bancshares
generally. The Bancshares Board was aware of their interests and considered
them, among other matters, in approving the Merger.
MBI Directorship. In connection with the proposed Merger, MBI has agreed to
nominate Alvin J. Siteman, Chairman of Bancshares, for election to the MBI
Board for a three-year term expiring in 2000. Mr. Siteman will be nominated to
the MBI Board for election as a Class III director promptly following the
Effective Time.
Employment Agreements. Mr. Siteman, John P. Dubinsky, President and Chief
Executive Officer of Bancshares, and Peter F. Benoist, Executive Vice
President of Bancshares, have been offered certain positions in MBI's St.
Louis banking operations and have executed employment agreements with MBI
which will replace existing agreements each of such employees has with
Bancshares. These employment agreements take effect at the Effective Time.
Mr. Siteman's employment agreement, dated as of November 18, 1996, provides
for an eighteen-month term. Under his employment agreement, Mr. Siteman will
serve as Chairman of the Board of Directors of MBI's St. Louis banking
affiliate and will be nominated for election to the MBI Board for a three-year
term expiring in 2000. The employment agreement provides for an annual base
salary of no less than $420,000 and an annual bonus in an amount to be
determined by the MBI Board, but which will in no event be less than $231,000.
In addition, the employment agreement provides that Mr. Siteman will be
entitled during his employment term to receive certain perquisites and to
participate in all incentive, savings and retirement and welfare benefit
plans, in each case, as applicable to peer executives of MBI and its
affiliated companies. If Mr. Siteman's employment is terminated by MBI other
than for Cause, death or Disability (as such capitalized terms are defined in
his employment agreement), or if he terminates his employment for Good Reason
(as defined in his employment agreement), the employment agreement provides
that Mr. Siteman will be entitled to receive (i) all accrued and unpaid salary
and bonus as of the date of termination, (ii) a termination payment equal to
the greater of: (A) the product of (x) the number of months remaining under
the term of his employment agreement, divided by twelve, and (y) the sum of
his annual base salary and annual bonus, and, in the event that a fiscal year
has not been completed during the employment period as of the date of
termination, (B) the amount equal to the sum of his annual base salary and
annual bonus for the most recently completed fiscal year, payable in 24 equal
monthly installments, and (iii) continued benefits under the welfare benefit
plans for the greater of one year, the number of months remaining under the
employment agreement or such longer period as provided for in such plans. The
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<PAGE>
employment agreement also contains a covenant not to compete with MBI during
the term of his employment agreement and for a period of three years following
termination of Mr. Siteman's employment.
Mr. Dubinsky's employment agreement, dated as of October 27, 1996, provides
for a two-year term. Under his employment agreement, Mr. Dubinsky will serve
as President and Chief Executive Officer of MBI's St. Louis banking affiliate
and as a member of the MBI Executive Committee. The employment agreement
provides for a minimum annual base salary of $422,600 (representing 105% of
his annual base salary with Bancshares as of October 27, 1996), which is
subject to subsequent review and potential increase on an annual basis, and an
annual bonus in an amount to be determined by the MBI Board, but in no event
shall the amount thereof for the first fiscal year of MBI that he is so
employed be less than 55% of his annual base salary. In addition, the
employment agreement provides that Mr. Dubinsky will be entitled during his
employment term to receive certain perquisites and to participate in all
incentive, savings and retirement and welfare benefit plans, in each case as
applicable to peer executives of MBI and its affiliated companies. If Mr.
Dubinsky's employment is terminated by MBI other than for Cause, death or
Disability (as such capitalized terms are defined in his employment
agreement), or if he terminates his employment for Good Reason (as defined in
his employment agreement), Mr. Dubinsky will be entitled to receive (i) a
termination payment equal to the aggregate of (A) his annual base salary
through the date of termination, provided that if his employment is terminated
without Cause or for Good Reason before the 14th month anniversary of the
Effective Time, the date of termination shall be deemed to be such 14th month
anniversary and any accrued bonus shall be added to and be deemed a part of
the annual base salary, and (B) $1.2 million, payable in 24 equal monthly
installments (the approximate amount that would be owed to Mr. Dubinsky under
existing employment arrangements with Bancshares), and (ii) continued benefits
under the welfare benefit plans for the greater of one year, the number of
months remaining under the employment agreement or such longer period as
provided for in such plans. The employment agreement also contains a covenant
not to compete with MBI during the term of his employment agreement and for a
period of three years following termination of Mr. Dubinsky's employment.
Mr. Benoist's employment agreement, dated as of October 27, 1996, provides
for a two-year term. Under his employment agreement Mr. Benoist will serve as
Executive Vice President of MBI's St. Louis banking affiliate. The employment
agreement provides for a minimum annual base salary of $275,717 (representing
100% of his annual base salary with Bancshares as of October 27, 1996),
subject to subsequent review and potential increase on an annual basis, and an
annual bonus in an amount to be determined by the MBI Board, but in no event
shall the amount thereof for the first fiscal year of MBI that he is so
employed be less than 55% of his annual base salary. In addition, Mr. Benoist
will receive a retention bonus if he remains employed with MBI for the period
beginning at the Effective Time and ending 13 months thereafter, of (i) a lump
sum cash payment in an amount equal to the product of .25 and his annual base
salary during the 1997 calendar year, and (ii) 10,000 shares of restricted
stock under the Stock Incentive Plan, which shares shall vest in equal
installments on the second, third and fourth anniversaries of the Effective
Time. In addition, if Mr. Benoist is terminated other than for Cause (as
defined in his employment agreement) during the 30-day period immediately
following the first anniversary of the Effective Time, he shall receive the
lump sum payment described in clause (i) above. The employment agreement
further provides that Mr. Benoist will be entitled during his employment term
to receive certain perquisites and to participate in all incentive, savings
and retirement and welfare benefit plans, in each case as applicable to peer
executives of MBI and its affiliated companies. If Mr. Benoist's employment is
terminated by MBI other than for Cause, death or Disability (as such
capitalized terms are defined in his employment agreement), or if he
terminates his employment for Good Reason (as defined in his employment
agreement), Mr. Benoist will be entitled to receive (i) all accrued and unpaid
salary and bonus as of the date of termination, (ii) a termination payment
equal to the greater of: (A) the product of (x) the number of months remaining
under the term of his employment agreement, divided by twelve, and (y) the sum
of his annual base salary and annual bonus, and, in the event that a fiscal
year has not been completed during the employment period as of the date of
termination, and (B) the amount equal to the sum of his annual base salary and
annual bonus for the most recently completed fiscal year, payable in 24 equal
monthly installments, and (iii) continued benefits under the welfare benefit
plans for the greater of one year, the number of months remaining under the
employment agreement or such longer period as provided for in such plans. The
employment agreement also
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<PAGE>
contains a covenant not to compete with MBI during the term of his employment
agreement and for a period of three years following termination of Mr.
Benoist's employment.
Bonuses. The Merger Agreement provides that the Bancshares Board may
establish a bonus plan for 1997 for managers of Bancshares and its
subsidiaries under Bancshares' historical executive performance incentive
bonus plan. Such payments shall be within the sole discretion of the
Bancshares Board, subject to a maximum bonus amount, for all managers in the
aggregate, of $2,850,000. Bonuses are to be pro-rated based upon the number of
days during 1997 that an eligible employee is employed by Bancshares or one of
its subsidiaries. It is currently the intention of the Bancshares Board of
Bancshares to authorize such a plan for the payment of bonuses to managers
(including executive officers) in accordance with Bancshares' customary
compensation practices.
Stock Options. All rights with respect to Bancshares Common Stock pursuant
to Bancshares Stock Options outstanding under the Bancshares Stock Plans,
whether or not then exercisable, shall accelerate at the time Bancshares'
shareholders approve the Merger and be converted into and become rights with
respect to shares of MBI Common Stock at the Effective Time. See "--Employee
Benefits" and "SUMMARY INFORMATION--Bancshares Stock Options."
As of January 15, 1997, the five most highly compensated executive officers
of Bancshares for the year ending December 31, 1996 had vested and unvested
Bancshares Stock Options as follows:
<TABLE>
<CAPTION>
AVERAGE
NAME AND VESTED UNVESTED EXERCISE
PRINCIPAL POSITION OPTIONS OPTIONS(1) PRICE
------------------ ------- ---------- --------
<S> <C> <C> <C>
John P. Dubinsky.............................. 58,759 72,500 $33.27
President & Chief
Executive Officer
Alvin Siteman................................. 56,685 72,500 $36.84
Chairman
Peter F. Benoist.............................. 56,000 53,000 $31.38
Executive Vice President
W. Thomas Reeves.............................. 29,725 34,975 $33.08
Senior Vice President
Robert F. Borchert............................ 36,775 33,575 $31.05
Chairman and Chief Executive Officer,
Mark Twain Bank
</TABLE>
- --------
(1) As of the Effective Time, all Bancshares Stock Options, whether or not
then exercisable, shall accelerate and be converted into and become rights
with respect to shares of MBI Common Stock.
In addition, as of January 15, 1997, 44 other present or former employees
and directors of Bancshares had, in the aggregate, 331,189 vested and 367,552
unvested Bancshares Stock Options to purchase 698,741 shares of Bancshares
Common Stock at an average exercise price of $32.48 per share. All Bancshares
Stock Options, whether or not then exercisable, shall accelerate and be
converted into and become rights with respect to shares of MBI Common Stock.
Pursuant to the terms of the Merger Agreement, on January 7, 1997 Bancshares
granted Bancshares Stock Options with regard to 249,525 shares of Bancshares
Common Stock to employees (including executive officers) of Bancshares. Such
grants were made in a manner consistent with Bancshares' normal compensation
practices and are reflected in the above information.
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<PAGE>
Severance. Bancshares and certain of its key employees (including executive
officers) are parties to standard employment and compensation agreements (the
"Employment and Compensation Agreements") which will remain in effect as of
the Effective Time. These Employment and Compensation Agreements by their
terms are binding upon any successor to Bancshares. Among other things, the
Employment and Compensation Agreements contain provisions stating that in the
event of (i) termination by the employer without cause (as defined therein),
or (ii) termination by the employee in response to certain actions by the
employer affecting the employee's position, compensation or geographic
location, the employee becomes entitled to receive, upon execution of a
severance agreement, monthly severance payments in an amount based generally
upon the employee's current salary and regular incentive compensation (based
on the average paid during certain preceding years), which payments shall be
made for a period equal to the initial term of the employee's Employment and
Compensation Agreement (the "Severance Benefit"). Pursuant to the terms of
their employment agreements with MBI, Messrs. Siteman, Dubinsky and Benoist
have agreed that the Employment and Compensation Agreements previously
executed by them with Bancshares will be terminated as of the Effective Time.
Accordingly, Messrs. Siteman, Dubinsky and Benoist will not be eligible for
the Severance Benefit after the Effective Time.
As of January 15, 1997, the maximum Severance Benefit which would be payable
at the Effective Time to each of Bancshares' five most highly compensated
executive officers for the year ending December 31, 1996 is as follows:
<TABLE>
<CAPTION>
MAXIMUM AGGREGATE
INDIVIDUAL SEVERANCE BENEFIT
---------- -----------------
<S> <C>
John P. Dubinsky........................................ N/A
President & Chief Executive Officer
Alvin Siteman........................................... N/A
Chairman
Peter F. Benoist........................................ N/A
Executive Vice President
W. Thomas Reeves........................................ $642,000
Senior Vice President
Robert F. Borchert...................................... $583,000
Chairman and Chief Executive Officer,
Mark Twain Bank
</TABLE>
In addition, 32 other employees (including executive officers) of Bancshares
have executed Employment and Compensation Agreements and would be entitled to
a maximum aggregate Severance Benefit as of the Effective Time of
approximately $7,100,000.
Indemnification and Insurance. Under the Merger Agreement, MBI agreed to
indemnify and hold harmless the past and present employees, agents, directors
or officers of Bancshares or its subsidiaries for all acts or omissions
occurring at or prior to the Effective Time to the same extent such persons
are indemnified and held harmless by Bancshares as of the date of the Merger
Agreement (whether by operation of Bancshares' or one of its subsidiaries'
Articles of Incorporation, corporate resolution, contract or similar
agreement, or by operation of law). In addition, MBI agreed under the Merger
Agreement to provide, for a period of not less than six years after the
Effective Time, an insurance and indemnification policy that provides the
officers and directors of Bancshares and its subsidiaries in office
immediately prior to the Effective Time coverage no less favorable than the
coverage provided by MBI to MBI's directors and officers as of the date of the
Merger Agreement.
See "--Employee Benefits" for a description of the benefits provided by the
Merger Agreement for employees of Bancshares generally.
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<PAGE>
CONDITIONS OF THE MERGER
The respective obligations of MBI and Bancshares to consummate the Merger
are subject to the fulfillment or waiver at or prior to the Effective Time of
the following conditions:
(i) The Merger Agreement shall have received the requisite approval of
shareholders of MBI, Merger Sub and Bancshares.
(ii) All requisite approvals of the Merger Agreement and the transactions
contemplated thereby shall have been received from the Federal Reserve
Board, the State Bank Regulators, if required, and any other necessary
governmental or regulatory authority or agency (collectively, the
"Regulatory Authorities").
(iii) The Registration Statement shall have been declared effective and
shall not be subject to a stop order or any threatened stop order.
(iv) Neither MBI nor Bancshares shall be subject to any order, decree or
injunction of a court or agency of competent jurisdiction which enjoins or
prohibits the consummation of the Merger.
(v) Each of MBI and Bancshares shall have received an opinion reasonably
satisfactory in form and substance to it to the effect that the Merger will
qualify for pooling-of-interests accounting treatment, which opinion shall
not have been withdrawn (each, a "Pooling Letter").
Bancshares' obligation to effect the Merger is subject to the fulfillment or
waiver at or prior to the Effective Time of the following additional
conditions:
(i) The representations and warranties of MBI set forth in Article III of
the Merger Agreement shall be true and correct in all material respects as
of October 27, 1996 and as of the Effective Time (as though made on and as
of the Effective Time except (A) to the extent such representations and
warranties are by their express provisions made as of a specified date or
period and (B) for the effect of transactions contemplated or required by
the Merger Agreement).
(ii) MBI shall have performed in all material respects all obligations
required to be performed by it under the Merger Agreement prior to the
Effective Time.
(iii) Bancshares shall have received a certificate of the chairman or
chief financial officer of MBI as to the satisfaction of the conditions set
forth in clauses (i) and (ii).
(iv) Bancshares shall have received an opinion of Sidley & Austin, in
form and substance reasonably satisfactory to Bancshares, substantially to
the effect that, among other things, for federal income tax purposes (A)
the Merger will constitute a reorganization within the meaning of Section
368(a) of the Code, (B) no gain or loss will be recognized by Bancshares or
Merger Sub as a result of the Merger, and (C) no gain or loss will be
recognized by the shareholders of Bancshares upon the conversion of their
Bancshares Common Stock into MBI Common Stock pursuant to the Merger,
except with respect to cash, if any, received in lieu of fractional shares
of MBI Common Stock.
MBI's obligation to effect the Merger is subject to the fulfillment or
waiver at or prior to the Effective Time of the following additional
conditions:
(i) The representations and warranties of Bancshares set forth in Article
II of the Merger Agreement shall be true and correct in all material
respects as of October 27, 1996 and as of the Effective Time (as though
made on and as of the Effective Time except (A) to the extent such
representations and warranties are by their express provisions made as of a
specified date or period and (B) for the effect of transactions
contemplated or required by the Merger Agreement).
(ii) Bancshares shall have performed in all material respects all
obligations required to be performed by it under the Merger Agreement prior
to the Effective Time.
(iii) MBI shall have received certificates of the chairman and the
president and chief executive officer of Bancshares as to the satisfaction
of the conditions set forth in clauses (i) and (ii).
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<PAGE>
(iv) MBI shall have received an opinion from Wachtell, Lipton, Rosen &
Katz, in form and substance reasonably satisfactory to MBI, substantially
to the effect that, among other things, for federal income tax purposes (A)
the Merger will constitute a reorganization within the meaning of Section
368(a) of the Code, (B) no gain or loss will be recognized by Bancshares or
Merger Sub as a result of the Merger, and (C) no gain or loss will be
recognized by the shareholders of Bancshares upon the conversion of their
Bancshares Common Stock into MBI Common Stock pursuant to the Merger,
except with respect to cash, if any, received in lieu of fractional shares
of MBI Common Stock.
TERMINATION OF THE MERGER AGREEMENT
The Merger Agreement may be terminated at any time prior to the Effective
Time, whether before or after any requisite shareholder approval: (i) by
mutual consent of the MBI Executive Committee and the Bancshares Board; (ii)
by the Executive Committee of the MBI Board or the Bancshares Board (A) at any
time after October 27, 1997 if the Merger shall not theretofore have been
consummated (provided that the terminating party is not then in material
breach of the Merger Agreement), (B) if the Federal Reserve Board has denied
approval of the Merger and such denial has become final and nonappealable or
(C) if shareholders of Bancshares or MBI shall not have approved the Merger
Agreement at their respective Meetings; (iii) by the MBI Executive Committee
in the event of a material breach by Bancshares of the Merger Agreement, which
breach is not cured within 30 days after written notice thereof to Bancshares
by MBI; or (iv) by the Bancshares Board in the event of a material breach by
MBI of the Merger Agreement, which breach is not cured within 30 days after
written notice thereof is given to MBI by Bancshares.
No assurance can be given that the Merger will be consummated, that MBI and
Bancshares will not mutually agree to terminate the Merger Agreement or that
MBI or Bancshares will not elect to terminate the Merger Agreement if the
Merger has not been consummated on or before October 27, 1997.
CLOSING AND EFFECTIVE TIME
Unless the parties otherwise agree, the Closing of the Merger will take
place at 10:00 a.m., Central Daylight Time, on the date on which the Effective
Time occurs, which shall be such date as MBI notifies Bancshares in writing
but not earlier than the Approval Date, and not later than the first business
day of the first full calendar month commencing at least five business days
after the Approval Date. The Effective Time will occur upon the filing of the
appropriate documents in respect of the Merger with the Missouri Secretary of
State. It is currently anticipated that the Effective Time will occur shortly
after the later of the date of the MBI Annual Meeting and Bancshares Special
Meeting, assuming the Merger Agreement is approved at both such meetings.
SURRENDER OF BANCSHARES STOCK CERTIFICATES AND RECEIPT OF MBI COMMON STOCK
Except for the shares of Bancshares Common Stock subject to the exercise of
dissenters' rights, at the Effective Time of the Merger, each outstanding
share of Bancshares Common Stock (other than shares held by Bancshares or MBI
or any of their respective subsidiaries, in each case, other than in a
fiduciary capacity or as a result of debts previously contracted, which shall
be cancelled) will be converted into the right to receive .952 of a share of
MBI Common Stock.
At or prior to the Effective Time, MBI will deposit, or cause to be
deposited, with the Exchange Agent, for the benefit of the holders of record
of certificates representing shares of Bancshares Common Stock (the
"Certificates"), certificates representing the MBI Common Stock and cash in
lieu of any fractional shares (such cash and certificates for MBI Common
Stock, together with any dividends or distributions with respect thereto,
being hereinafter referred to as the "Exchange Fund").
As soon as practicable after the Effective Time, holders of record of
Certificates will be instructed to tender such Certificates to the Exchange
Agent pursuant to a letter of transmittal that the Exchange Agent will deliver
or cause to be delivered to such holders. Such letter of transmittal will
specify that risk of loss and title to the Certificates will pass only upon
delivery of such Certificates to the Exchange Agent.
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<PAGE>
After the Effective Time, each holder of a Certificate that surrenders such
Certificate with a properly completed transmittal letter to the Exchange Agent
will be entitled to a certificate or certificates representing the number of
full shares of MBI Common Stock into which the Certificate so surrendered will
have been converted pursuant to the Merger Agreement and any dividend
theretofore declared and not yet paid with respect to such shares of MBI
Common Stock, without interest, and any payment due for fractional shares. The
Exchange Agent will accept Certificates 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
must be appropriately endorsed or accompanied by such instruments of transfer
as the Exchange Agent may reasonably require in accordance with customary
exchange practices.
Each outstanding Certificate will, until duly surrendered to the Exchange
Agent, be deemed to evidence ownership of the Merger Consideration into which
the stock previously represented by such Certificate will have been converted
in the Merger. After the Effective Time, holders of Certificates will cease to
have rights with respect to the stock previously represented by such
Certificates and their sole right will be to exchange such Certificates for
such Merger Consideration. After the Effective Time, there will be no further
transfer on the records of Bancshares of Certificates, and, if such
Certificates are presented to Bancshares for transfer, they will be cancelled
against delivery of such Merger Consideration.
No dividends declared on MBI Common Stock will be remitted to any person
entitled to receive MBI Common Stock in the Merger until such person
surrenders the Certificate representing the right to receive such MBI Common
Stock, at which time such dividends will be remitted to such person, without
interest and less any taxes that may have been imposed thereon.
A restrictive legend will be placed on, and stop transfer instructions shall
be given to the Exchange Agent and MBI's transfer agent in respect of,
certificates representing MBI Common Stock issued in exchange for certificates
surrendered for exchange by any person constituting an "affiliate" of
Bancshares for purposes of Rule 145 of the Securities Act until MBI has
received a written agreement from such person not to sell or otherwise dispose
of any shares of MBI Common Stock received by such person until financial
results covering at least 30 days of combined operations have been published
and thereafter only in compliance with Rule 145 of the Securities Act. See
"INFORMATION REGARDING MBI STOCK--Restrictions on Resale of MBI Capital Stock
by Affiliates; Affiliate Agreements."
MBI and the Exchange Agent will be entitled to rely upon the stock transfer
books of Bancshares to establish the identity of those persons entitled to
receive Merger Consideration, which books will be conclusive with respect
thereto. In the event of a dispute with respect to ownership of stock
represented by any Certificate, MBI and the Exchange Agent will be entitled to
deposit any Merger Consideration represented thereby in escrow with an
independent third party and thereafter be relieved with respect to any claims
thereto.
If any certificate representing shares of MBI Common Stock is to be issued
in a name other than that in which the Certificate surrendered in exchange
therefor is registered, it shall be a condition of the issuance thereof that
the Certificate so surrendered shall be properly endorsed (or otherwise in
proper form for transfer) and that the person requesting such exchange shall
pay to the Exchange Agent in advance any transfer or other taxes required by
reason of the issuance of a certificate representing shares of MBI Common
Stock in any name other than that of the registered holder of the Certificate
surrendered, or required for any other reason, or shall establish to the
satisfaction of the Exchange Agent that such tax has been paid or is not
payable.
Any portion of the Exchange Fund that remains unclaimed by the shareholders
of Bancshares for 12 months after the Effective Time shall be paid to MBI.
Notwithstanding the foregoing, none of Bancshares, MBI, the Exchange Agent or
any other person shall be liable to any former holder of shares of Bancshares
Common Stock for any amount delivered in good faith to a public official
pursuant to applicable abandoned property, escheat or similar laws.
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<PAGE>
In the event any Certificate shall have been lost, stolen or destroyed, upon
the making of an affidavit of that fact by the person claiming such
Certificate to be lost, stolen or destroyed and, if reasonably required by
MBI, the posting by such person of a bond in such amount as MBI may determine
is reasonably necessary as indemnity against any claim that may be made
against it with respect to such Certificate, the Exchange Agent will issue in
exchange for such lost, stolen or destroyed Certificate the shares of MBI
Common Stock, dividends and any cash in lieu of fractional shares deliverable
in respect thereof pursuant to the Merger Agreement.
FRACTIONAL SHARES
No fractional shares of MBI Common Stock will be issued to the former
shareholders of Bancshares in connection with the Merger. Each former holder
of Bancshares Common Stock who otherwise would have been entitled to receive a
fraction of a share of MBI Common Stock will receive cash in lieu thereof,
without interest, in an amount equal to the holder's fractional share interest
multiplied by the closing stock price of MBI Common Stock on the NYSE
Composite Tape as reported in The Wall Street Journal (or in the absence
thereof, by any other authoritative source) on the last business day preceding
the Effective Time. No shareholder of Bancshares entitled to receive cash in
lieu of fractional shares will be entitled to dividends, voting rights or any
other rights in respect of such fractional shares. Cash received by Bancshares
shareholders in lieu of fractional shares may give rise to taxable income. See
"CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER."
REGULATORY APPROVAL
The obligations of the parties to effect the Merger are subject to prior
approval of the Federal Reserve Board and the State Bank Regulators, if
required, and any other necessary Regulatory Authority.
The Merger is subject to the prior approval of the Federal Reserve Board
under the BHCA. Under the BHCA, the Federal Reserve Board is required, in
approving transactions such as the Merger, to take into consideration the
financial and managerial resources and future prospects of the existing and
proposed institutions and the convenience and needs of the communities to be
served. In considering financial resources and future prospects, the Federal
Reserve Board will, among other things, evaluate the adequacy of the capital
levels of MBI and its bank subsidiaries following the Merger.
The BHCA prohibits the Federal Reserve Board from approving the Merger if
the Merger would result in a monopoly or be in furtherance of any combination
or conspiracy to monopolize or to attempt to monopolize the business of
banking in any part of the United States, or if the effect of the Merger in
any section of the country may be substantially to lessen competition or to
tend to create a monopoly, or if the Merger would in any other manner result
in a restraint of trade, unless the Federal Reserve Board finds that the
anticompetitive effects of the Merger are clearly outweighed in the public
interest by the probable effect of transactions in meeting the convenience and
needs of the communities to be served. In addition, under the Community
Reinvestment Act of 1977, as amended, the Federal Reserve Board must take into
account the record of performance of the existing institutions in meeting the
credit needs of the entire community, including low- and moderate-income
neighborhoods, served by such institutions.
Under the BHCA, the Merger may not be consummated until the 15th day
following the date of Federal Reserve Board approval (or, if the United States
Department of Justice (the "DOJ") has not submitted adverse comments with
respect to competitive factors, the 15th day), during which time the DOJ may
challenge the Merger on antitrust grounds. The commencement of an antitrust
action would stay the effectiveness of the Federal Reserve Board's approval
unless a court specifically orders otherwise.
The BHCA provides for the publication of notice and public comment on the
applications and authorizes the Federal Reserve Board to permit interested
parties to intervene in the proceedings. If an interested party is permitted
to intervene, such intervention could delay the regulatory approvals required
for consummation of the Merger.
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The Merger may also be subject to the approval of or filings with the State
Bank Regulators.
The Federal Reserve Board has approved the Merger, by letter dated January
22, 1997. MBI and Bancshares have filed all applications for the approval of
the State Bank Regulators, and have obtained all requisite approvals in these
regards. MBI and Bancshares 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.
THE MERGER CANNOT PROCEED IN THE ABSENCE OF THE REQUISITE REGULATORY
APPROVALS. THERE CAN BE NO ASSURANCE THAT ANY NECESSARY APPROVALS OR ACTIONS
WILL BE RECEIVED OR TAKEN, AS TO THE TIMING OF SUCH APPROVALS OR ACTIONS, OR
THAT ANY APPROVALS OR ACTIONS WILL NOT BE CONDITIONED IN A MANNER THAT WOULD
CAUSE THE PARTIES TO ABANDON THE MERGER. IN ADDITION, THERE CAN BE NO
ASSURANCE THAT ACTION WILL NOT BE BROUGHT CHALLENGING SUCH APPROVALS OR
ACTIONS, OR, IF SUCH A CHALLENGE IS BROUGHT, AS TO THE RESULT THEREOF.
See "--Closing and Effective Time," "--Conditions of the Merger," "--Waiver
and Amendment" and "--Termination of the Merger Agreement" and "SUPERVISION
AND REGULATION."
BUSINESS PENDING THE MERGER
From October 27, 1996 to the Effective Time, each of MBI and Bancshares
agreed to, and agreed to cause each of their respective subsidiaries to,
conduct its business according to the ordinary and usual course consistent
with past practices, and agreed to, and agreed to 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.
From October 27, 1996 to the Effective Time, the Merger Agreement provides
that, except as provided in the Merger Agreement, Bancshares has agreed not
to, and to cause each of its subsidiaries not to, without the prior written
consent of MBI:
(i) declare, set aside or pay any dividends or other distributions,
directly or indirectly, in respect of its capital stock (other than
dividends from a subsidiary of Bancshares to Bancshares or another
subsidiary of Bancshares), except that Bancshares may declare and pay
regular quarterly cash dividends on the Bancshares Common Stock (A) in
respect of the quarterly period ended on March 31, 1997 of not more than
$0.35 per share; and (B) in respect of each quarterly period thereafter of
not more than the greater of (x) .952 times the regular quarterly dividend
on a share of MBI Common Stock paid or payable during such quarterly period
or (y) $0.35, in each case per share; provided that Bancshares may not
declare or pay any dividends on Bancshares Common Stock for any period in
which its shareholders will be entitled to receive any regular quarterly
dividend on the shares of MBI Common Stock to be issued in the Merger;
(ii) enter into or amend any employment, severance or similar agreement
or arrangement with any director or officer or employee, or materially
modify any of Bancshares' employee benefit plans specified in the Merger
Agreement or grant any salary or wage increase or materially increase any
employee benefit (including incentive or bonus payments), except hiring
employees in the ordinary course of business and normal individual
increases in compensation to employees consistent with past practice, or as
required by law or contract;
(iii) authorize, recommend (subject to the fiduciary duties of the
Bancshares Board as advised in writing by outside counsel of Bancshares),
propose or announce an intention to authorize, recommend or propose, or
enter into an agreement in principle with respect to, any merger,
consolidation or business combination (other than the Merger), any
acquisition of a material amount of assets or securities, any disposition
of a material amount of assets or securities or any release or
relinquishment of any material contract rights;
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(iv) propose or adopt any amendments to its articles of incorporation,
association or other charter document or bylaws;
(v) issue, sell, grant, confer or award any of its Equity Securities (as
defined in the Merger Agreement) (except that Bancshares may (A) grant
options for up to 250,000 shares of Bancshares Common Stock under its
existing stock option plans consistent with its normal compensation
practices, (B) issue shares of Bancshares Common Stock upon exercise of
Bancshares stock options outstanding on October 27, 1996 or granted in
compliance with clause (A) above, (C) issue shares of Bancshares Common
Stock upon the conversion of Bancshares' 7% convertible subordinated
capital notes due 1999 or as contemplated by the Bancshares' Savings
Challenge Plan, and (D) issue shares of Bancshares Common Stock pursuant to
the acquisition of First City Bancshares, Inc. pursuant to an agreement
dated July 17, 1996 and except that Bancshares subsidiaries may issue
director qualifying shares subject to repurchase agreements in accordance
with present practice) or effect any stock split or adjust, combine,
reclassify or otherwise change its capitalization as it existed on October
27, 1996;
(vi) purchase, redeem, retire, repurchase, or exchange, or otherwise
acquire or dispose of, directly or indirectly, any of its Equity
Securities, whether pursuant to the terms of such Equity Securities or
otherwise other than director qualifying shares;
(vii) (A) without first consulting with MBI, enter into, renew or
increase any loan or credit commitment (including standby 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, which, under the credit policies and procedures of Bancshares
and/or Bancshares bank subsidiaries in effect as of October 27, 1996, would
be referred to the executive loan committee(s) of Bancshares and/or
Bancshares bank subsidiaries as constituted and existing as of October 27,
1996; (B) without first obtaining the written consent of MBI, lend to any
person or entity in an amount in excess of $16,000,000 or in an amount
which, when aggregated with any and all loans or credit commitments to such
person or entity, would be in excess of $16,000,000; or (C) lend to any
person other than in accordance with lending policies as in effect on the
date of the Merger Agreement; provided that, in the case of subclauses (B)
and (C) Bancshares or any Bancshares subsidiary may make any such loan in
the event (1) Bancshares or any Bancshares subsidiary has delivered to MBI
or its designated representative a notice of its intention to make such
loan and such information as MBI or its designated representative may
reasonably require in respect thereof, and (2) MBI or its designated
representative shall not have reasonably objected to such loan by giving
written or facsimile notice of such objection within two business days
following the delivery to MBI of the notice of intention and information as
aforesaid; provided, however, that nothing in this paragraph shall prohibit
Bancshares or any Bancshares subsidiary from honoring any contractual
obligation in existence on the date of the Merger Agreement;
(viii) directly or indirectly (including through its officers, directors,
employees or other representatives), initiate, solicit or encourage any
discussions, inquiries or proposals with any third party relating to the
disposition of any significant portion of the business or assets of
Bancshares or any Bancshares subsidiary or the acquisition of Equity
Securities of Bancshares or any Bancshares subsidiary or the merger of
Bancshares or any Bancshares subsidiary with any person (other than MBI) or
any similar transaction (each such transaction being referred to as an
"Acquisition Transaction"), or provide any such person with information or
assistance or negotiate with any such person with respect to an Acquisition
Transaction, and Bancshares shall promptly notify MBI orally of all the
relevant details relating to all inquiries, indications of interest and
proposals which it may receive with respect to any Acquisition Transaction;
(ix) take any action that would (A) materially impede or delay the
consummation of the transactions contemplated by the Merger Agreement or
the ability of MBI or Bancshares to obtain any approval of any Regulatory
Authority required for the transactions contemplated by the Merger
Agreement or to perform its covenants and agreements under the Merger
Agreement, or (B) prevent the Merger from qualifying as a reorganization
within the meaning of Section 368 of the Code;
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(x) other than in the ordinary course of business consistent with past
practice, incur any indebtedness for borrowed money, assume, guarantee,
endorse or otherwise as an accommodation become responsible or liable for
the obligations of any other individual, corporation or other entity, or,
without prior approval of MBI, which shall not be unreasonably withheld,
pay fees and expenses to attorneys, accountants or investment bankers in
connection with the Merger in excess of the amount set forth in the Merger
Agreement;
(xi) materially restructure or materially change its investment
securities portfolio, through purchases, sales or otherwise, or the manner
in which the portfolio is classified or reported or execute any individual
investment transaction (A) in securities backed by the full faith and
credit of the United States or an agency thereof in excess of $5,000,000,
and (B) in any other investment securities in excess of $1,000,000; or
(xii) agree in writing or otherwise to take any of the foregoing actions
or engage in any activity, enter into any transaction or take or omit to
take any other act which would make any of the representations and
warranties of Bancshares 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.
The Merger Agreement further provides that, from October 27, 1996 to the
Effective Time, except as provided in the Merger Agreement, MBI has agreed not
to, and to cause each of its subsidiaries not to, without the prior written
consent of Bancshares:
(i) 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 MBI subsidiaries to MBI or to another of the MBI
subsidiaries), except that MBI may pay its regular quarterly dividends in
amounts as it shall determine from time to time;
(ii) take any action that would (A) materially impede or delay the
consummation of the transactions contemplated by the Merger Agreement or
the ability of Bancshares or MBI to obtain any approval of any Regulatory
Authority required for the transactions contemplated by the Merger
Agreement or to perform its covenants and agreements under the Merger
Agreement, or (B) prevent the Merger from qualifying as a reorganization
within the meaning of Section 368 of the Code; or
(iii) 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 action 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 action.
WAIVER AND AMENDMENT
Any term, condition or provision of the Merger Agreement may be waived in
writing at any time by the party which is, or whose shareholders are, entitled
to the benefits thereof. The Merger Agreement may be amended by or on behalf
of the MBI Board and the Bancshares Board at any time before or after
Bancshares Shareholder Approval, by an instrument in writing signed on behalf
of each party; provided that after Bancshares Shareholder Approval no such
modification may alter or change the amount or kind of consideration to be
received by holders of Bancshares Common Stock in the Merger.
ACCOUNTING TREATMENT
It is intended that the Merger be accounted for under the pooling-of-
interests method of accounting. It is a condition to the obligations of each
of MBI and Bancshares to effect the Merger that a Pooling Letter shall have
been received by each of MBI and Bancshares. See "--Conditions of the Merger."
MBI and Bancshares have agreed to use their best efforts to cause the Merger
to qualify for pooling-of-interests accounting treatment.
Under the pooling-of-interests method of accounting, the historical basis of
the assets and liabilities of MBI and Bancshares will be combined at the
Effective Time and carried forward at their previously recorded amounts, and
the shareholders' equity accounts of MBI and Bancshares will be combined on
MBI's consolidated balance
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sheet and no goodwill or other intangible assets will be created. Financial
statements of MBI issued after the Effective Time will be restated
retroactively to reflect the consolidated operations of MBI and Bancshares as
if the Merger had taken place prior to the periods covered by such financial
statements. See "--Conditions of the Merger," "SUMMARY INFORMATION--
Comparative Unaudited Per Share Data," "--Summary Financial Data" and "PRO
FORMA FINANCIAL INFORMATION."
MANAGEMENT AND OPERATIONS AFTER THE MERGER
General. Merger Sub, a wholly owned subsidiary of MBI, will be the surviving
corporation resulting from the Merger. Merger Sub will be governed by the laws
of the state of Missouri and will operate in accordance with the articles of
incorporation and bylaws of Merger Sub as in effect immediately prior to the
Merger, until otherwise amended or repealed after the Effective Time.
Management after the Merger. In connection with the proposed Merger, MBI has
agreed to nominate Alvin J. Siteman, Chairman of Bancshares, for election to
the MBI Board for a three-year term expiring in 2000. Mr. Siteman will be
nominated for election to the MBI Board as a Class III director promptly
following the Effective Time. In addition, pursuant to employment agreements,
which were executed and will become effective at the Effective Time, Messrs.
Siteman, Dubinsky and Benoist will become Chairman, President and Chief
Executive Officer and Executive Vice President, respectively, of MBI's St.
Louis banking affiliate immediately following the Effective Time. See "--
Interests of Certain Persons in the Merger."
Operations after the Merger. Following the Merger and subject to necessary
preparations for systems integration, MBI intends to combine the operations of
and, subject to required regulatory approvals, to merge subsidiary banks of
MBI and Bancshares and to consolidate the operations of other subsidiaries of
MBI and Bancshares that provide similar services. Receipt of such regulatory
approvals is not a condition to the Merger.
While no assurance can be given, MBI and Bancshares believe that, at current
volumes, approximately $20.6 million of potential pre-tax cost savings can be
achieved on an annualized basis by 1999. Cost savings are expected to be
realized primarily through the consolidation of certain offices and branches,
staff functions and data processing and other redundant back-office
operations. MBI and Bancshares currently estimate that approximately 24
branches will be closed, which closures are expected to occur in the second
and third quarters of 1997. The extent to which cost savings will be achieved
is dependent upon various factors beyond the control of MBI and Bancshares,
including the regulatory environment, economic conditions, unanticipated
changes in business conditions and inflation. Therefore, no assurance can be
given with respect to the ultimate level or composition of cost savings to be
realized, or that such savings will be realized in the time-frame currently
anticipated.
MBI and Bancshares also anticipate that in order to achieve the contemplated
level of savings within the desired time-frame, they will incur one-time
Merger expenses and restructuring charges in connection with the Merger,
estimated at the current time to be approximately $40-$50 million (pre-tax) in
the aggregate, principally as a result of expenses to be incurred in
connection with transaction costs and anticipated elimination of duplicate
headquarters and operational facilities. The one-time charge is expected to be
recorded in the second quarter of 1997. The exact level of the restructuring
change that will be taken in connection with the Merger has not yet been
determined and could vary, potentially significantly, from the current
estimate based upon a further refinement of anticipated restructurings to
occur following the Merger.
While no assurances can be given, MBI and Bancshares also expect to achieve
revenue opportunities, which they expect will come principally from the
combination of MBI's strengths--its strong retail capabilities, expanded
distribution system, retail brokerage, trust and investment produce expertise
and enhanced commercial cash management capabilities--with Bancshares'
strengths--its exceptional business banking capabilities, expandable customer
relationships, institutional bond business and foreign exchange expertise. The
precise level of revenue opportunities which result from the Merger will be
dependent upon a variety of financial, economic
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and other factors, many of which are beyond the ability of MBI to control, and
no assurance can be provided as to the level of future revenues or earnings
that will be achieved by the combined company.
In addition, while no assurances can be given, in connection with the
proposed Roosevelt transaction, MBI believes that approximately $39.4 million
of potential pre-tax cost savings can be achieved on an annualized basis by
1999. MBI currently estimates that approximately 50 branches will be closed in
connection with the proposed transaction, which closures would not be expected
to occur until mid-1998. MBI also anticipates that in order to achieve the
contemplated level of savings within the desired time-frame, MBI will incur
one-time merger expenses in connection with the proposed transaction estimated
currently to be approximately $38-$45 million (pre-tax). The extent to which
such cost savings will be achieved is dependent upon various factors, a number
of which are beyond the control of MBI, including the regulatory environment,
economic conditions, unanticipated changes in business conditions and
inflation, and no assurances can be given with respect to the ultimate level
and composition of cost savings to be realized, or than such savings will be
realized in the time-frame currently anticipated. Although no assurances can
be given, based on earnings estimates as of the date of the Roosevelt
agreement, the Roosevelt transaction is also expected to be accretive to
earnings beginning in 1997.
EMPLOYEE BENEFITS
Employee Benefits. Except as set forth in the Merger Agreement, the
Bancshares Employee Plans (as defined and set forth in the Merger Agreement)
will not be terminated by reason of the Merger but will continue thereafter as
plans of the surviving corporation until such time as the employees of
Bancshares and Bancshares' subsidiaries are integrated into MBI's employee
benefit plans that are available to other employees of MBI and MBI's
subsidiaries, subject to the terms and conditions specified in such plans and
to such changes therein as may be necessary to reflect the consummation of the
Merger. MBI will take such steps as are necessary or required to integrate the
employees of Bancshares and Bancshares' subsidiaries into MBI's employee
benefit plans available to other employees of MBI and MBI's subsidiaries as
soon as practicable after the Effective Time, (i) with full credit for prior
service with Bancshares or any of the Bancshares subsidiaries for all purposes
other than determining the amount of benefit accruals under any defined
benefit plan, (ii) without any waiting periods, evidence of insurability, or
application of any pre-existing condition limitations, and (iii) with full
credit for claims arising prior to the Effective Time for purposes of
deductibles, out-of-pocket maximums, benefit maximums, and all other similar
limitations for the applicable plan year during which the Merger is
consummated. Each of MBI and Bancshares will use all reasonable efforts to
insure that no amounts paid or payable by Bancshares, Bancshares subsidiaries
or MBI to or with respect to any employee or former employee of Bancshares or
any Bancshares subsidiary will fail to be deductible for federal income tax
purposes by reason of Section 280G of the Code. Bancshares shall ensure that
following the Effective Time no holder of Bancshares Stock Options or any
participant in any Bancshares Stock Plan shall have any right thereunder to
acquire any securities of Bancshares or any Bancshares subsidiary.
Bancshares Stock Options. At the Effective Time, all rights with respect to
Bancshares Common Stock pursuant to Bancshares Stock Options that are
outstanding at the Effective Time, whether or not then exercisable, will be
converted into and become rights with respect to MBI Common Stock, and MBI
will assume each Bancshares Stock Option in accordance with the terms of the
stock option plan under which it was issued and the stock option agreement by
which it is evidenced. From and after the Effective Time, (i) each Bancshares
Stock Option assumed by MBI will be exercisable solely for shares of MBI
Common Stock, (ii) the number of shares of MBI Common Stock subject to each
Bancshares Stock Option will be equal to the number of shares of Bancshares
Common Stock subject to such Bancshares Stock Option immediately prior to the
Effective Time multiplied by the Exchange Ratio and (iii) the per share
exercise price under each Bancshares Stock Option will be adjusted by dividing
the per share exercise price under such Bancshares Stock Option by the
Exchange Ratio and rounding down to the nearest cent; provided, however, that
the terms of each Bancshares Stock Option will, in accordance with its terms,
be subject to further adjustment as appropriate to reflect any stock split,
stock dividend, recapitalization or other similar transaction subsequent to
the Effective Time. It is intended that the
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foregoing assumption of stock options will be undertaken in a manner that will
not constitute a "modification" (as defined in the Code) as to any Bancshares
Stock Option that is an "incentive stock option" (as defined in the Code).
The holder of a Bancshares Stock Option which is converted into an option
with respect to MBI Common Stock will not recognize gain or loss solely as a
result of such conversion. Certain tax consequences will arise, however, upon
the exercise of any such option that is a nonqualified stock option or the
sale or disposition of the shares acquired by exercise of any such option that
is an incentive stock option. See "CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF
THE MERGER."
Certain executive officers of Bancshares, including certain executive
officers who are directors, currently hold Bancshares Stock Options which will
be converted into rights with respect to MBI Common Stock as described above.
See "--Interests of Certain Persons in the Merger."
Indemnification and Insurance. Under the Merger Agreement, MBI agreed to
indemnify and hold harmless the past and present employees, agents, directors
or officers of Bancshares or its subsidiaries for all acts or omissions
occurring at or prior to the Effective Time to the same extent such persons
are indemnified and held harmless by Bancshares as of the date of the Merger
Agreement (whether by operation of Bancshares' or one of its subsidiaries'
Articles of Incorporation, corporate resolution, contract or similar
agreement, or by operation of law). In addition, MBI agreed under the Merger
Agreement to provide, for a period of not less than six years after the
Effective Time, an insurance and indemnification policy that provides the
officers and directors of Bancshares and its subsidiaries in office
immediately prior to the Effective Time coverage no less favorable than the
coverage provided by MBI to MBI's directors and officers as of the date of the
Merger Agreement.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following discussion summarizes the material federal income tax
consequences of the Merger. The discussion does not address all aspects of
federal taxation that may be relevant to particular Bancshares shareholders,
and it may not be applicable to shareholders who, for federal income tax
purposes, are nonresident alien individuals, foreign corporations, foreign
partnerships, foreign trusts or foreign estates, or who acquired their
Bancshares Common Stock pursuant to the exercise of employee stock options or
otherwise as compensation. The discussion does not address the effect of any
applicable state, local or foreign tax laws or any federal tax laws other than
those pertaining to the income tax. EACH BANCSHARES SHAREHOLDER SHOULD CONSULT
SUCH SHAREHOLDER'S OWN TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES TO
SUCH SHAREHOLDER OF THE MERGER.
This 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 to Bancshares
shareholders discussed herein. This discussion is also based on certain
assumptions regarding the factual circumstances that will exist at the
Effective Time, including certain representations made or to be made by
Bancshares, MBI and others. This discussion assumes that Bancshares
shareholders hold their Bancshares Common Stock as a capital asset within the
meaning of Section 1221 of the Code.
MBI has received an opinion from Wachtell, Lipton, Rosen & Katz, special
counsel to MBI, and Bancshares has received an opinion from Sidley & Austin,
special counsel to Bancshares, that, assuming the Merger occurs in accordance
with the Merger Agreement, and conditioned on the accuracy of certain
representations made by MBI, Bancshares and others, for federal income tax
purposes:
(i) The Merger will constitute a reorganization within the meaning of
Section 368(a) of the Code, and Bancshares, Merger Sub and MBI will each be
a party to the reorganization within the meaning of Section 368(b) of the
Code;
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(ii) no gain or loss will be recognized by Bancshares or Merger Sub as a
result of the Merger;
(iii) no gain or loss will be recognized by the shareholders of
Bancshares upon the conversion of their Bancshares Common Stock into MBI
Common Stock pursuant to the Merger, except with respect to cash, if any,
received in lieu of fractional shares of MBI Common Stock;
(iv) the aggregate tax basis of the shares of MBI Common Stock received
in exchange for shares of Bancshares Common Stock pursuant to the Merger
(including a fractional share of MBI Common Stock for which cash is paid)
will be the same as the aggregate tax basis of such shares of Bancshares
Common Stock;
(v) the holding period for shares of MBI Common Stock issued in exchange
for shares of Bancshares Common Stock pursuant to the Merger will include
the holder's holding period for such shares of Bancshares Common Stock,
provided such shares of Bancshares Common Stock were held as capital assets
by the holder at the Effective Time; and
(vi) a shareholder of Bancshares who receives cash in lieu of a
fractional share of MBI Common Stock will recognize gain or loss equal to
the difference, if any, between such shareholder's basis in the fractional
share (determined under clause (iv) above) and the amount of cash received.
An opinion of counsel, unlike a private letter ruling from the Internal
Revenue Service (the "Service"), has no binding effect on the Service. The
Service could take a position contrary to counsel's opinion, and, if the
matter is litigated, a court may reach a decision contrary to the opinion. The
Service is not expected to issue a ruling on the tax effects of the Merger and
no such ruling has been requested.
The holder of a Bancshares Stock Option which is converted into an option
with respect to MBI Common Stock will not recognize gain or loss solely as a
result of such conversion. If such Bancshares Stock Option is a nonqualified
stock option, however, such holder will generally recognize ordinary
compensation income on the date such option is exercised in an amount equal to
the excess of the aggregate fair market value on such date of the shares of
MBI Common Stock acquired upon such exercise over the aggregate exercise price
for such shares. If such Bancshares Stock Option is an incentive stock option,
such holder will not recognize income (except for purposes of the alternative
minimum tax) upon exercise of such incentive stock option. If the shares of
MBI Common Stock acquired by exercise of an incentive stock option are held
for the longer of two years from the date the option was granted or one year
from the date it was exercised, any gain or loss arising from a subsequent
disposition of such shares will be taxed as long-term capital gain or loss.
If, however, such shares are disposed of within the above-described period,
then in the year of such dispoition the participant will recognize
compensation taxable as ordinary income equal to the excess of the lesser of
(i) the amount realized upon such disposition or (ii) the fair market value of
such shares on the date of exercise over the exercise price.
A shareholder of Bancshares who exercises dissenters' rights as described
below under "DISSENTERS' RIGHTS OF SHAREHOLDERS OF BANCSHARES" should, in
general, treat the difference between the tax basis of the Bancshares Common
Stock held by such shareholder with respect to which such rights are exercised
and the amount received through the exercise of such rights as capital gain or
loss for federal income tax purposes although, depending on the shareholder's
particular circumstances, the amount received through the exercise of such
rights might be treated for federal income tax purposes as dividend income.
THE FOREGOING IS A GENERAL DISCUSSION OF THE MATERIAL FEDERAL INCOME TAX
CONSEQUENCES OF THE MERGER AND IS INCLUDED FOR GENERAL INFORMATION ONLY. THE
FOREGOING DISCUSSION DOES NOT TAKE INTO ACCOUNT THE PARTICULAR FACTS AND
CIRCUMSTANCES OF EACH SHAREHOLDER'S TAX STATUS AND ATTRIBUTES. AS A RESULT,
THE FEDERAL INCOME TAX CONSEQUENCES ADDRESSED IN THE FOREGOING DISCUSSION MAY
NOT APPLY TO EACH SHAREHOLDER. IN VIEW OF THE INDIVIDUAL NATURE OF INCOME TAX
CONSEQUENCES, EACH SHAREHOLDER IS URGED TO CONSULT SUCH SHAREHOLDER'S OWN TAX
ADVISOR TO DETERMINE THE SPECIFIC TAX CONSEQUENCES OF THE MERGER TO SUCH
SHAREHOLDER, INCLUDING THE APPLICATION AND EFFECT OF FEDERAL, STATE, LOCAL AND
OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN FEDERAL AND OTHER TAX
LAWS.
48
<PAGE>
DISSENTERS' RIGHTS OF SHAREHOLDERS OF BANCSHARES
Section 351.455 of the Missouri Law, a copy of which is attached hereto as
Annex C, entitles each holder of Bancshares Common Stock who follows the
procedures set forth in Section 351.455 to receive the fair value of such
holder's shares in cash. Under Section 351.455, a holder of Bancshares' Common
Stock may dissent and the surviving corporation will pay to such shareholder,
upon surrender of the certificate or certificates representing such shares,
the fair value of such shareholder's shares of Bancshares Common Stock as of
the day prior to the Bancshares Special Meeting, if such shareholder (i) files
with Bancshares prior to or at the Bancshares Special Meeting a written
objection to the Merger, (ii) does not vote in favor thereof, and (iii) within
20 days after the Effective Time makes a written demand to the surviving
corporation for payment of the fair value of the shares held by such
shareholder as of the day prior to the date of the Bancshares Special Meeting.
Such demand shall state the number and class of the shares owned by such
dissenting shareholder. Written objections to the Merger and demands for the
payment of fair value should be addressed to: Carl A. Wattenberg, Jr., 8820
Ladue Road, St. Louis, Missouri 63124. Bancshares' shareholders who have not
complied with all of these requirements will be conclusively presumed to have
consented to the Merger and will be bound by the terms thereof.
A PROXY MARKED "AGAINST" THE MERGER WILL NOT BE DEEMED TO BE A WRITTEN
NOTICE OF OBJECTION TO THE MERGER. A SHAREHOLDER WHO WISHES TO DISSENT FROM
THE MERGER MUST PROVIDE A SEPARATE WRITTEN NOTICE OF OBJECTION AT OR PRIOR TO
THE BANCSHARES SPECIAL MEETING, MUST NOT VOTE "FOR" THE MERGER AND MUST MAKE
WRITTEN DEMAND FOR PAYMENT WITHIN 20 DAYS AFTER THE EFFECTIVE TIME OF THE
MERGER. A PROXY MARKED "AGAINST" OR "ABSTAIN" OR A SHAREHOLDER'S FAILURE TO
VOTE WITH RESPECT TO THE MERGER WILL SUFFICE AS NOT VOTING IN FAVOR OF THE
MERGER.
A beneficial owner of shares who is not the record owner may not assert
dissenters' rights. If the stock is owned of record in a fiduciary capacity,
such as by a trustee, guardian or custodian, or by a nominee, the written
demand asserting dissenters' rights must be executed by the fiduciary or
nominee. If the stock is owned of record by more than one person, as in a
joint tenancy or tenancy in common, the demand must be executed by all joint
owners. An authorized agent, including an agent for two or more joint owners,
may execute the demand for a shareholder of record; however, the agent must
identify the record owner and expressly disclose the fact that, in executing
the demand, he is acting as agent for the record owner.
If within 30 days after the Effective Time the value of such shares is
agreed upon between the dissenting shareholder and the surviving corporation,
payment therefor will be made within 90 days after the Effective Time, upon
the surrender by such shareholder of the certificate or certificates
representing such shares. Upon payment of the agreed value, the dissenting
shareholder will cease to have any interest in such shares or in the surviving
corporation.
If, within such 30-day period, the dissenting shareholder and the surviving
corporation do not so agree as to value, then the dissenting shareholder may,
within 60 days after the expiration of the 30-day period, file a petition in
any court of competent jurisdiction within the county of St. Louis, Missouri,
asking for a finding and determination of the fair value of such shares, and
will be entitled to judgment against the surviving corporation for the amount
of such fair value as of the day prior to the date of the Bancshares Special
Meeting, together with interest thereon to the date of such judgment. The
judgment will be payable only upon, and simultaneously with, the surrender to
the surviving corporation of the certificate or certificates representing
shares with respect to which dissenters' rights have been exercised. Upon the
payment of the judgment, the dissenting shareholder will cease to have any
interest in such shares or in the surviving corporation. Unless the dissenting
shareholder files such petition within the 60-day period, such shareholder and
all persons claiming under such shareholder shall be conclusively presumed to
have approved and ratified the Merger and will be bound by the terms thereof.
49
<PAGE>
The right of a dissenting shareholder to be paid the fair value of the
shareholder's shares shall cease if the shareholder fails to comply with the
procedures set forth in Section 351.455 of the Missouri Law and described
above, or if the Merger Agreement is terminated for any reason.
A shareholder of Bancshares who exercises dissenters' rights might recognize
taxable income. See "CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER."
THE PRECEDING DISCUSSION IS A COMPLETE DESCRIPTION OF ALL THE MATERIAL
PROCEDURES TO BE FOLLOWED BY BANCSHARES SHAREHOLDERS IN ORDER TO PERFECT THEIR
DISSENTERS' RIGHTS UNDER SECTION 351.455 OF THE MISSOURI LAW, THE COMPLETE
TEXT OF WHICH IS ATTACHED AS ANNEX C TO THIS JOINT PROXY STATEMENT/PROSPECTUS.
BANCSHARES SHAREHOLDERS WHO ARE INTERESTED IN ASSERTING DISSENTERS' RIGHTS
PURSUANT TO THE MISSOURI LAW IN CONNECTION WITH THE MERGER SHOULD CONSULT WITH
THEIR COUNSEL FOR ADVICE AS TO THE PROCEDURES REQUIRED TO BE FOLLOWED.
50
<PAGE>
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 Bancshares and the corresponding pro forma and pro
forma equivalent per share amounts giving effect to the proposed Merger and
the proposed acquisitions of the Other Acquisitions. The data presented is
based upon the consolidated financial statements and related notes of MBI and
the consolidated financial statements and related notes of Bancshares included
in this Joint Proxy Statement/Prospectus or in documents incorporated herein
by reference, financial statements of Regional and Roosevelt prepared by their
respective managements and furnished to MBI and the pro forma combined
consolidated balance sheet and income statements, including the notes thereto,
appearing elsewhere herein. This information should be read in conjunction
with such historical and pro forma financial statements and related notes
thereto. The assumptions used in the preparation of this table appear in the
notes to the pro forma financial information appearing elsewhere in the Joint
Proxy Statement/Prospectus. See "--Pro Forma Combined Consolidated Financial
Statements (Unaudited)." This data is not necessarily indicative of the
results of the future operations of the combined organization or the actual
results that would have occurred if the Merger or the Other Acquisitions had
been consummated prior to the periods indicated.
<TABLE>
<CAPTION>
MBI/ MBI/
BANCSHARES BANCSHARES MBI/ALL ENTITIES MBI/ALL ENTITIES
MBI BANCSHARES PRO FORMA PRO FORMA PRO FORMA PRO FORMA
REPORTED REPORTED COMBINED(1) EQUIVALENT(2) COMBINED(3) EQUIVALENT(2)
-------- ---------- ----------- ------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Book Value per Common
Share:
December 31, 1996(4)... $26.52 $ 18.68 $24.28 $23.11 $26.18 $24.92
Cash Dividends Declared
per Common Share:
Year ended December 31,
1996.................. $ 1.64 $ 1.24 $ 1.64 $ 1.56 $ 1.64 $ 1.56
Year ended December 31,
1995.................. 1.32 1.08 1.32 1.26 -- --
Year ended December 31,
1994.................. 1.12 .96 1.12 1.07 -- --
Earnings Before
Extraordinary Items per
Common Share:
Year ended December 31,
1996.................. $ 3.10 $ 3.23 $ 3.14 $ 2.99 $ 2.14 $ 2.04
Year ended December 31,
1995.................. 3.74 2.93 3.59 3.42 -- --
Year ended December 31,
1994.................. 3.19 2.54 3.07 2.92 -- --
Market Price per Common
Share:
October 25, 1996(5).... $52.00 $42.375 -- $49.50(6) -- --
March 18, 1997(5)...... 56.50 53.250 -- -- -- --
</TABLE>
- --------
(1) Includes the effect of pro forma adjustments for Bancshares as
appropriate.
(2) Based upon the pro forma combined per share amounts multiplied by the
Exchange Ratio applicable to one share of Bancshares Common Stock.
(3) Includes the effect of pro forma adjustments for Bancshares and the Other
Acquisitions.
(4) Based upon the following number of shares outstanding as of December 31,
1996:
<TABLE>
<S> <C>
Shares of MBI Common Stock, as reported....................... 61,604,723
Aggregate number of shares of MBI Common Stock to be issued in
the Merger................................................... 17,213,114
----------
MBI/Bancshares Pro Forma Combined............................. 78,817,837
Shares of MBI Common Stock for Roosevelt, net of treasury
shares....................................................... 6,000,000
----------
MBI/All Entities Pro Forma Combined........................... 84,817,837
==========
</TABLE>
(5) The market values of MBI Common Stock and Bancshares Common Stock were
determined as of the last trading day preceding the public announcement of
the Merger and as of the most recent practicable date prior to the mailing
of this Joint Proxy Statement/Prospectus based on the last sales price as
reported on the NYSE Composite Tape.
(6) This amount represents MBI's Market Price per Common Share multiplied by
the Exchange Ratio applicable to one share of Bancshares Common Stock.
51
<PAGE>
PRO FORMA COMBINED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MBI has completed or announced a number of acquisitions during the years
covered by the pro forma financial statements that follow. Set forth below is
a table which summarizes the completed and pending acquisitions, including the
name of the acquired entity, the date or expected date of consummation of the
acquisition, the assets and deposits of the acquired entities at the date of
consummation for the completed acquisitions and as of December 31, 1996 for
the pending acquisitions, the consideration paid or to be paid in cash and
shares of MBI Common Stock and the accounting method utilized.
<TABLE>
<CAPTION>
CONSIDERATION
------------------------- ACCOUNTING
DATE ASSETS DEPOSITS CASH SHARES METHOD
------------- ---------- ---------- ----------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ACQUISITIONS COMPLETED
- ----------------------
Regional Bancshares,
Inc.................... Mar. 5, 1997 $ 181,365 $ 146,829 $12,000,300 600,417 Purchase
TODAY'S Bancorp, Inc.... Nov. 7, 1996 501,418 432,104 34,912 1,127,058 Purchase
First Financial
Corporation of
America................ Nov. 1, 1996 87,649 76,791 3,253 258,742 Purchase
Peoples State Bank...... Aug. 22, 1996 95,657 75,149 -- 325,837 Purchase
Metro Savings Bank,
F.S.B. ................ Mar. 7, 1996 80,857 73,843 5 197,902 Purchase
Security Bank of Conway,
F.S.B.................. Feb. 9, 1996 102,502 89,697 1 321,964 Purchase
Hawkeye Bancorporation.. Jan. 2, 1996 1,987,540 1,739,811 80 7,892,196 Pooling
First Sterling Bancorp,
Inc.................... Jan. 2, 1996 167,610 147,588 1 521,417 Pooling(1)
Southwest Bancshares,
Inc.................... Aug. 1, 1995 187,701 155,628 1 674,975 Pooling(1)
AmeriFirst
Bancorporation, Inc.... Aug. 1, 1995 155,521 130,179 1 661,356 Pooling(1)
Plains Spirit Financial
Corporation............ July 7, 1995 400,754 276,887 6,697 1,301,180 Purchase
TCBankshares, Inc....... May 1, 1995 1,422,798 1,217,740 -- 4,749,999(2) Pooling
Central Mortgage
Bancshares, Inc........ May 1, 1995 654,584 571,105 8 2,537,723 Pooling
UNSL Financial Corp..... Jan. 3, 1995 508,346 380,716 11 1,578,107 Pooling
Wedge Bank.............. Jan. 3, 1995 195,716 152,865 1 969,954 Pooling(1)
ACQUISITIONS PENDING
- --------------------
Mark Twain Bancshares,
Inc.................... 2nd Qtr. 1997 3,133,265 2,594,912 -- 17,200,000(3) Pooling
Roosevelt Financial
Group, Inc............. 3rd Qtr. 1997 7,796,412 5,347,071 (4) (4) Purchase
</TABLE>
- --------
(1) The historical financial statements of MBI were not restated for the
acquisition due to the immateriality of the acquiree's financial condition
and results of operations to those of MBI.
(2) In addition to MBI Common Stock issued, MBI assumed, through an exchange,
the outstanding, non-convertible preferred stock of TCBankshares, Inc.
Such preferred stock was redeemed in the first quarter of 1996.
(3) Estimated shares to be issued in acquisition.
(4) MBI will deliver up to 13,000,000 shares of common stock at an exchange
ratio of .4211 shares of MBI Common Stock, or $22.00 in cash, for each
share of Roosevelt common stock.
The following unaudited pro forma combined consolidated balance sheet gives
effect to the Merger as if it were consummated on December 31, 1996. The
following unaudited pro forma combined consolidated income statements for the
years ended December 31, 1996, 1995, and 1994 set forth the results of
operations of MBI combined with the results of operations of Bancshares, as if
the Merger had occurred as of the first day of the period presented.
The following unaudited pro forma combined consolidated balance sheet gives
effect to the Merger and the proposed acquisitions of Regional and Roosevelt
as if each of the mergers were consummated on December 31, 1996. The following
unaudited pro forma combined consolidated income statement for the year ended
December 31, 1996 includes the results of operations of Regional and Roosevelt
as if the proposed transactions had occurred as of January 1, 1996.
The unaudited pro forma combined consolidated financial statements should be
read in conjunction with the accompanying "MERCANTILE BANCORPORATION INC.
NOTES TO PRO FORMA COMBINED CONSOLIDATED FINANCIAL STATEMENTS" and with the
historical financial statements of MBI and Bancshares. These pro forma
combined consolidated financial statements may not be indicative of the
results of operations that actually would have occurred if the completed and
proposed mergers had been consummated on the dates assumed above or the
results of operations that may be achieved in the future.
52
<PAGE>
MERCANTILE BANCORPORATION INC.
PRO FORMA COMBINED CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1996
(THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
MBI,
BANCSHARES ROOSEVELT,
BANCSHARES COMBINED REGIONAL
MBI(1) BANCSHARES ADJUSTMENTS(2) CONSOLIDATED ROOSEVELT REGIONAL ADJUSTMENTS(2)
----------- ---------- -------------- ------------ ---------- -------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and due from
banks............. $ 1,223,911 $ 150,926 $ (83,307)(5) $ 1,241,530 $ 48,642 $ 5,988 $(355,250)(3)
(50,000)(6) (412,250)(8)
467,500 (10)
150,000 (11)
(38,400)(12)
(12,330)(13)
Due from banks--in-
terest bearing.... 91,616 4,387 96,003 0 0
Federal funds sold
and repurchase
agreements........ 234,212 23,500 257,712 0 1,230
Investments in debt
and equity securi-
ties
Trading........... 500 30,772 31,272 0 0
Available-for-
sale............. 3,691,509 218,479 3,909,988 3,157,757 67,674
Held-to-maturity.. 346,566 458,164 804,730 0 0
----------- ---------- --------- ----------- ---------- -------- ---------
Total............ 4,038,575 707,415 0 4,745,990 3,157,757 67,674 0
Loans and leases... 12,772,920 2,177,915 14,950,835 4,321,188 101,962
Reserve for possi-
ble loan losses... (196,627) (33,745) (230,372) (22,719) (1,789) (2,500)(12)
----------- ---------- --------- ----------- ---------- -------- ---------
Net Loans and
Leases.......... 12,576,293 2,144,170 0 14,720,463 4,298,469 100,173 (2,500)
Other assets....... 822,352 102,867 311,624 (4) 925,219 291,544 6,300 497,427 (8)
(311,624)(7) 574,573 (8),(15)
(497,427)(9)
24,585 (13)
16,415 (13),(15)
(24,585)(14)
----------- ---------- --------- ----------- ---------- -------- ---------
Total Assets..... $18,986,959 $3,133,265 $(133,307) $21,986,917 $7,796,412 $181,365 $ 387,758
=========== ========== ========= =========== ========== ======== =========
LIABILITIES
Deposits
Non-interest bear-
ing.............. $ 2,584,340 $ 498,431 $ (83,307)(5) $ 2,999,464 $ 0 $ 14,063 $
Interest bearing.. 11,983,660 2,096,481 14,080,141 5,347,071 132,766
Foreign........... 251,887 0 251,887 0 0
----------- ---------- --------- ----------- ---------- -------- ---------
Total Deposits... 14,819,887 2,594,912 (83,307) 17,331,492 5,347,071 146,829 0
Federal funds
purchased and
repurchase
agreements....... 1,589,261 185,751 1,775,012 3,095 8,000
Other borrowings.. 676,207 9,876 686,083 1,837,756 0 467,500 (10)
150,000 (11)
Other
liabilities...... 267,577 31,102 (18,000)(6) 280,679 111,063 1,951 (14,724)(12)
----------- ---------- --------- ----------- ---------- -------- ---------
Total
Liabilities..... 17,352,932 2,821,641 (101,307) 20,073,266 7,298,985 156,780 602,776
SHAREHOLDERS' EQ-
UITY
Preferred stock... 0 0 0 13 0 (13)(9)
Common stock...... 316,663 21,394 81,135 (4) 397,798 442 253 30,000 (8)
(21,394)(7) (442)(9)
(253)(14)
Capital surplus... 228,151 75,492 (46,462)(4) 181,689 298,283 2,907 274,500 (8)
(75,492)(7) (298,283)(9)
1,933 (13)
(2,907)(14)
Retained
earnings......... 1,173,414 227,375 227,375 (4) 1,368,789 198,689 21,425 (198,689)(9)
(227,375)(7) (21,425)(14)
(32,000)(6) (26,176)(12)
Treasury stock.... (84,201) (12,637) 49,576 (4) (34,625) 0 0 (355,250)(3)
12,637 (7) 355,250 (8)
26,737 (13)
----------- ---------- --------- ----------- ---------- -------- ---------
Total
Shareholders'
Equity.......... 1,634,027 311,624 (32,000) 1,913,651 497,427 24,585 (215,018)
----------- ---------- --------- ----------- ---------- -------- ---------
Total Liabilities
and
Shareholders'
Equity.......... $18,986,959 $3,133,265 $(133,307) $21,986,917 $7,796,412 $181,365 $ 387,758
=========== ========== ========= =========== ========== ======== =========
<CAPTION>
ALL ENTITIES
PRO FORMA
COMBINED
CONSOLIDATED
-------------
<S> <C>
ASSETS
Cash and due from
banks............. $ 1,095,430
Due from banks--in-
terest bearing.... 96,003
Federal funds sold
and repurchase
agreements........ 258,942
Investments in debt
and equity securi-
ties
Trading........... 31,272
Available-for-
sale............. 7,135,419
Held-to-maturity.. 804,730
-------------
Total............ 7,971,421
Loans and leases... 19,373,985
Reserve for possi-
ble loan losses... (257,380)
-------------
Net Loans and
Leases.......... 19,116,605
Other assets....... 1,814,051
-------------
Total Assets..... $30,352,452
=============
LIABILITIES
Deposits
Non-interest bear-
ing.............. $ 3,013,527
Interest bearing.. 19,559,978
Foreign........... 251,887
-------------
Total Deposits... 22,825,392
Federal funds
purchased and
repurchase
agreements....... 1,786,107
Other borrowings.. 3,141,339
Other
liabilities...... 378,969
-------------
Total
Liabilities..... 28,131,807
SHAREHOLDERS' EQ-
UITY
Preferred stock... 0
Common stock...... 427,798
Capital surplus... 458,122
Retained
earnings......... 1,342,613
Treasury stock.... (7,888)
-------------
Total
Shareholders'
Equity.......... 2,220,645
-------------
Total Liabilities
and
Shareholders'
Equity.......... $30,352,452
=============
</TABLE>
See notes to pro forma combined consolidated financial statements.
53
<PAGE>
MERCANTILE BANCORPORATION INC.
PRO FORMA COMBINED CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1996
(THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
MBI,
BANCSHARES ROOSEVELT,
BANCSHARES COMBINED REGIONAL
MBI(1) BANCSHARES ADJUSTMENTS(2) CONSOLIDATED ROOSEVELT REGIONAL ADJUSTMENTS(2)
----------- ----------- -------------- ------------ --------- -------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Interest Income... $ 1,325,381 $ 229,641 $(2,479)(16) $1,552,543 $640,311 $13,135 $ (7,500)(17)
(10,395)(18)
(1,953)(19)
Interest Expense.. 622,992 101,920 724,912 462,724 6,519 31,556 (10)
9,750 (11)
----------- ----------- ------- ----------- -------- ------- ---------
Net Interest In-
come............ 702,389 127,721 (2,479) 827,631 177,587 6,616 (61,154)
Provision for
Possible Loan
Losses........... 71,014 2,002 73,016 1,262 100
----------- ----------- ------- ----------- -------- ------- ---------
Net Interest
Income after
Provision for
Possible Loan
Losses.......... 631,375 125,719 (2,479) 754,615 176,325 6,516 (61,154)
Other Income
Trust............ 79,413 7,206 86,619 0 208
Service charges.. 80,660 8,256 88,916 17,157 344
Credit card
fees............ 27,007 955 27,962 0 0
Net loss from
financial
instruments..... 0 0 0 (76,634) 0
Securities gains
(losses)........ (317) 234 (83) 0 (11)
Other............ 109,205 23,156 132,361 23,510 557
----------- ----------- ------- ----------- -------- ------- ---------
Total Other In-
come............ 295,968 39,807 0 335,775 (35,967) 1,098 0
Other Expense
Salaries and
employee
benefits........ 315,620 49,706 365,326 42,304 2,074
Net occupancy and
equipment....... 91,079 12,492 103,571 18,081 535
Other............ 230,608 19,614 250,222 63,024 1,563 38,305 (15)
1,094 (15)
----------- ----------- ------- ----------- -------- ------- ---------
Total Other Ex-
pense........... 637,307 81,812 0 719,119 123,409 4,172 39,399
----------- ----------- ------- ----------- -------- ------- ---------
Income Before
Income Taxes.... 290,036 83,714 (2,479) 371,271 16,949 3,442 (100,553)
Income Taxes...... 98,089 30,446 (892)(2) 127,643 5,835 659 (21,312)(2)
(703)(2)
----------- ----------- ------- ----------- -------- ------- ---------
Income Before
Extraordinary
Items........... $ 191,947 $ 53,268 $(1,587) $ 243,628 $ 11,114 $ 2,783 $ (78,538)
=========== =========== ======= =========== ======== ======= =========
Per Share Data
Average Common
Shares
Outstanding..... 61,874,882 16,473,190 77,557,359
Net Income Before
Extraordinary
Items........... $ 3.10 $ 3.23 $ 3.14
<CAPTION>
ALL ENTITIES
PRO FORMA
COMBINED
CONSOLIDATED
-----------------
<S> <C>
Interest Income... $2,186,141
Interest Expense.. 1,235,461
-----------------
Net Interest In-
come............ 950,680
Provision for
Possible Loan
Losses........... 74,378
-----------------
Net Interest
Income after
Provision for
Possible Loan
Losses.......... 876,302
Other Income
Trust............ 86,827
Service charges.. 106,417
Credit card
fees............ 27,962
Net loss from
financial
instruments..... (76,634)
Securities gains
(losses)........ (94)
Other............ 156,428
-----------------
Total Other In-
come............ 300,906
Other Expense
Salaries and
employee
benefits........ 409,704
Net occupancy and
equipment....... 122,187
Other............ 354,208
-----------------
Total Other Ex-
pense........... 886,099
-----------------
Income Before
Income Taxes.... 291,109
Income Taxes...... 112,122
-----------------
Income Before
Extraordinary
Items........... $ 178,987
=================
Per Share Data
Average Common
Shares
Outstanding..... 83,557,359 (21)
Net Income Before
Extraordinary
Items........... $ 2.14
</TABLE>
See notes to pro forma combined consolidated financial statements.
54
<PAGE>
MERCANTILE BANCORPORATION INC.
PRO FORMA COMBINED CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1995
(THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
ALL ENTITIES
PRO FORMA
BANCSHARES COMBINED
MBI(1) BANCSHARES ADJUSTMENTS(2) CONSOLIDATED
---------- ---------- -------------- ------------
<S> <C> <C> <C> <C>
Interest Income............. $1,293,944 $223,173 $(2,479)(16) $1,514,638
Interest Expense............ 620,534 94,932 715,466
---------- ---------- ------- ----------
Net Interest Income....... 673,410 128,241 (2,479) 799,172
Provision for Possible Loan
Losses..................... 36,530 5,003 41,533
---------- ---------- ------- ----------
Net Interest Income after
Provision for Possible
Loan Losses.............. 636,880 123,238 (2,479) 757,639
Other Income
Trust..................... 70,751 6,364 77,115
Service charges........... 75,408 7,051 82,459
Credit card fees.......... 19,690 676 20,366
Securities gains.......... 4,042 296 4,338
Other..................... 103,762 22,399 126,161
---------- ---------- ------- ----------
Total Other Income...... 273,653 36,786 0 310,439
Other Expense
Salaries and employee
benefits................. 298,625 47,531 346,156
Net occupancy and
equipment................ 82,674 13,222 95,896
Other..................... 172,449 25,769 198,218
---------- ---------- ------- ----------
Total Other Expense..... 553,748 86,522 0 640,270
---------- ---------- ------- ----------
Income Before Income
Taxes.................. 356,785 73,502 (2,479) 427,808
Income Taxes................ 124,109 25,789 (892)(2) 149,006
---------- ---------- ------- ----------
Net Income.............. $ 232,676 $ 47,713 $(1,587) $ 278,802
========== ========== ======= ==========
Per Share Data
Average Common Shares
Outstanding.............. 61,883,723 16,288,839 77,390,698
Net Income................ $ 3.74 $ 2.93 $ 3.59
</TABLE>
See notes to pro forma combined consolidated financial statements.
55
<PAGE>
MERCANTILE BANCORPORATION INC.
PRO FORMA COMBINED CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1994
(THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
ALL ENTITIES
PRO FORMA
BANCSHARES COMBINED
MBI(1) BANCSHARES ADJUSTMENTS(2) CONSOLIDATED
---------- ---------- -------------- ------------
<S> <C> <C> <C> <C>
Interest Income............. $1,118,069 $194,613 $(2,479)(16) $1,310,203
Interest Expense............ 450,950 70,592 521,542
---------- ---------- ------- ----------
Net Interest Income....... 667,119 124,021 (2,479) 788,661
Provision for Possible Loan
Losses..................... 43,265 5,526 48,791
---------- ---------- ------- ----------
Net Interest Income after
Provision for Possible
Loan Losses.............. 623,854 118,495 (2,479) 739,870
Other Income
Trust..................... 65,888 6,084 71,972
Service charges........... 72,659 7,398 80,057
Credit card fees.......... 26,588 764 27,352
Securities gains.......... 2,579 309 2,888
Other..................... 68,847 20,945 89,792
---------- ---------- ------- ----------
Total Other Income...... 236,561 35,500 0 272,061
Other Expense
Salaries and employee
benefits................. 288,775 47,651 336,426
Net occupancy and
equipment................ 77,885 13,870 91,755
Other..................... 188,516 28,761 217,277
---------- ---------- ------- ----------
Total Other Expense..... 555,176 90,282 0 645,458
---------- ---------- ------- ----------
Income Before Income
Taxes.................. 305,239 63,713 (2,479) 366,473
Income Taxes................ 113,165 22,731 (892)(2) 135,004
---------- ---------- ------- ----------
Net Income.............. $ 192,074 $ 40,982 $(1,587) $ 231,469
========== ========== ======= ==========
Per Share Data
Average Common Shares
Outstanding.............. 59,757,392 16,103,109 75,087,552
Net Income................ $ 3.19 2.54 $ 3.07
</TABLE>
See notes to pro forma combined consolidated financial statements.
56
<PAGE>
MERCANTILE BANCORPORATION INC.
NOTES TO PRO FORMA COMBINED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) Represents MBI restated historical consolidated financial statements
reflecting the acquisition of Hawkeye Bancorporation, effective January
2, 1996. Such acquisition was accounted for as a pooling-of-interests.
The acquisition of First Sterling Bancorp, Inc. ("Sterling") was also
accounted for as a pooling-of-interests; however, due to the
immateriality of the financial condition and results of operations of
Sterling to that of MBI, MBI did not restate its historical financial
statements to reflect the acquisition of Sterling. Therefore, Sterling is
included in these pro forma financial statements only from its
acquisition date forward. Each of Security Bank of Conway, F.S.B., Metro
Savings Bank, F.S.B., Peoples State Bank, First Financial Corporation of
America and TODAY'S Bancorp, Inc., which were accounted for as purchases,
is included in these pro forma financial statements only from its
acquisition date forward. The full impact of these acquisitions is
immaterial to the pro forma combined consolidated financial statements.
(2) The acquisition of Bancshares will be accounted for as a pooling-of-
interests. The acquisitions of Roosevelt and Regional will be accounted
for as purchase transactions. Purchase accounting adjustments offset each
other or are believed to be immaterial at this time to the pro forma
consolidated financial condition and results of operations of MBI.
Included herein are the amortization of goodwill over a 15-year period
(see footnote 15 below), the lost interest income/interest expense on the
cash consideration (for Roosevelt and Regional) and stock buybacks.
Goodwill is considered nondeductible. The balance sheet impact of
goodwill amortization and lost interest income is ignored due to
immateriality. The income tax benefit associated with taxable income
statement adjustments is computed at an effective tax rate of 36%.
(3) In conjunction with the proposed acquisition of Bancshares, MBI plans on
delivering 986,091 shares of MBI Common Stock previously acquired in the
open market at an average price per share of $50.275. In conjunction with
the proposed acquisition of Regional, MBI repurchased 600,418 shares of
MBI Common Stock in the open market at an average price per share of
$44.53. In conjunction with the proposed acquisition of Roosevelt, MBI
plans to repurchase 7,000,000 shares of MBI Common Stock in the open
market. The assumed repurchase price per share is $50.75, the closing
price of MBI Common Stock on December 20, 1996, the last business date
before the announcement of the reorganization agreement between MBI and
Roosevelt.
(4) Acquisition of Bancshares with 17,213,114 shares of issued MBI Common
Stock, including 986,091 reissued treasury shares, based on the Exchange
Ratio of .952 shares of MBI Common Stock per share of Bancshares Common
Stock. The number of shares of MBI Common Stock, which represents the
aggregate number of shares to be issued in the Merger, was calculated as
follows:
<TABLE>
<S> <C>
Shares of Bancshares Common Stock outstanding at March 10,
1997....................................................... 16,825,778
Escrowed shares for First City Bancshares, Inc. not included
in the outstanding number above (see discussion in next
paragraph)................................................. 25,011
Maximum number of shares of Bancshares Common Stock which
could be issued pursuant to Bancshares' stock option plans
and
Bancshares' 7% convertible subordinated capital notes due
1999....................................................... 1,230,213
----------
Maximum number of shares of Bancshares Common Stock to be
cancelled in the Merger.................................... 18,081,002
Exchange Ratio.............................................. x .952
----------
Aggregate number of shares of MBI Common Stock to be issued
in the Merger.............................................. 17,213,114
==========
</TABLE>
57
<PAGE>
Bancshares acquired First City Bancshares, Inc. in December 1996 in an
acquisition accounted for as a purchase. First City Bancshares, Inc. is
included in these pro forma financial statements only from its acquisition
date forward. The full impact of this acquisition is immaterial to the pro
forma combined consolidated financial statements. Bancshares acquired
Northland Bancshares, Inc., owner of First National Bank of Platte County,
in September 1996, in an acquisition accounted for as a pooling-of-
interests. However, due to the immateriality of the financial condition and
results of operations of Northland Bancshares, Inc. to that of Bancshares,
Bancshares did not restate its historical financial statements to reflect
this acquisition. The full impact of the acquisition of Northland
Bancshares, Inc. is immaterial to the pro forma combined consolidated
financial statements.
(5) Elimination of non-interest bearing deposit balance of Bancshares
subsidiary bank with MBI subsidiary bank.
(6) Balance sheet impact of adjustments related to the Merger (see footnote
20 below). These adjustments will be initially recorded as a credit to
accrued liabilities. Since they will be paid out in cash within an
estimated 18-month period following the Merger, the Pro Forma Combined
Consolidated Financial Statements reflect the cash outlay. An income tax
benefit at an effective tax rate of 36% is included in this adjustment.
(7) Elimination of MBI's investment in Bancshares.
(8) Purchase entry of Roosevelt with assumed consideration consisting of
7,000,000 reissued treasury shares at $50.75 per share, 6,000,000 shares
of issued MBI Common Stock and $412,250,000 in cash. The closing price
for MBI Common Stock on December 20, 1996, the business date preceding
the announcement of the reorganization agreement between MBI and
Roosevelt, was $50.75. The pro forma financial statements assume that all
Roosevelt preferred shares are converted to common shares prior to the
acquisition by MBI of Roosevelt. Roosevelt completed three acquisitions
in the fourth quarter of 1996. Roosevelt acquired Community Charter
Corporation, a commercial bank holding company, Mutual Bancompany, Inc.,
parent company of Mutual Savings Bank and Sentinel Financial Corporation,
a thrift holding company. The impact of these acquisitions is immaterial
to the pro forma combined consolidated financial statements.
(9) Elimination of MBI's investment in Roosevelt.
(10) Proposed senior and subordinated debt of $467,500,000 to be issued. This
amount was determined based upon present cash levels of MBI's parent
company and estimated outflows associated with cash payments to Roosevelt
shareholders and with treasury share repurchases. Therefore,
significantly all of the proposed senior and subordinated debt will be
used to finance the acquisition of Roosevelt. The assumed interest rate
on such subordinated debt is 6.75%.
(11) Proposed issuance of $150,000,000 of subordinated debt securities of MBI
(the "Debt Securities"). The Debt Securities are issued at a floating
rate equal to the three-month LIBOR plus 85 basis points. The rate
assumed in calculating the expense for the Pro Forma Combined
Consolidated Financial Statements is 6.5%. The Debt Securities will be
the sole assets of Mercantile Capital Trust I, a statutory business trust
created under the laws of the State of Delaware of which MBI owns all the
common securities (the "Trust"). Floating Rate Capital Trust Pass-through
Securities of the Trust (the "Trust Securities") will be issued in
exchange for approximately $150,000,000 and the proceeds therefrom will
be invested in the Debt Securities. The payment of distributions on the
Trust Securities out of moneys held by the Trust and payments on
liquidation of the Trust or the redemption of the Trust Securities will
be guaranteed by MBI (the "Guarantee"). The Guarantee covers payments of
distributions and other payments on the Trust Securities only if and to
the extent MBI has made payments of interest or principal or other
payments on the Debt Securities held by the Trust. The Guarantee, when
taken together with MBI's obligations under the Debt Securities, the
declaration and the indenture, including MBI's obligations to pay costs,
expenses, debts and other obligations of the Trust, will provide a full
and unconditional guarantee on a subordinated basis by MCI of amounts due
on the Trust Securities.
(12) Balance sheet impact of adjustments related to the merger with Roosevelt
(see footnote 20 below). These adjustments, excluding the reserve for
possible loan losses entry, will be initially recorded as a credit to
accrued liabilities. Since they will be paid out in cash within an
estimated 18-month period following the merger with Roosevelt, the Pro
Forma Combined Consolidated Financial Statements reflect the cash outlay.
An income tax benefit at an effective tax rate of 36% is included in this
adjustment.
58
<PAGE>
(13) Purchase entry of Regional with assumed consideration consisting of
600,418 reissued treasury shares at $47.75 per share, plus $12,330,000 in
cash. The closing price for MBI Common Stock on August 23, 1996 (the date
of execution of the Merger Agreement) was $47.75.
(14)Elimination of MBI's investment in Regional.
(15) The pro forma excess of cost over fair value of net assets acquired was
$574,573,000 for Roosevelt and $16,415,000 for Regional as of December
31, 1996. The annual amount of goodwill amortization given that goodwill
is amortized over a 15-year period is $38,305,000 for Roosevelt and
$1,094,000 for Regional.
(16) Interest income foregone as the result of MBI repurchasing 986,091
treasury shares in conjunction with the acquisition of Bancshares by MBI.
The assumed interest rate is 5%, which represents the approximate rate
MBI receives on overnight funds.
(17) To partially finance the Roosevelt acquisition, it is estimated that
$150,000,000 in short-term earning assets will be liquidated. The assumed
interest rate is 5%.
(18) Interest income foregone if Roosevelt repurchases 7,000,000 of its shares
in the open market prior to the acquisition by MBI at a per share price
of $22. The assumed interest rate is 6.75%, which is the same rate
indicated in note 10 for senior and subordinated debt.
(19) Interest income foregone as the result of MBI repurchasing 600,418
treasury shares in conjunction with the acquisition of Regional by MBI.
The assumed interest rate is 5%.
(20) Upon consummation of the merger with Bancshares, MBI expects to record
certain adjustments related to the merger at an approximate pre-tax total
of between $40 and $50 million. Upon consummation of the acquisition of
Roosevelt, MBI expects to record certain adjustments related to conform
accounting and credit policies regarding loan and other asset valuations
to those of MBI. The pre-tax adjustment for Roosevelt is expected to
total between $38 and $45 million. The pre-tax adjustments for Bancshares
and Roosevelt are estimated as follows.
<TABLE>
<CAPTION>
$(000'S)
BANCSHARES ROOSEVELT
---------- ---------
<S> <C> <C>
-- Transition and duplicative costs related to system
standardization and signage....................... $10,000 $ 8,000
-- Provision for possible loan losses................ 0 2,500
-- Valuation of other real estate for accelerated
disposition......................................... 0 3,100
-- Accruals for severance and change of control
payments............................................ 13,000 6,600
-- Write-downs to fair value of branches and
equipment to be disposed of......................... 9,000 8,500
-- Investment banking, legal and accounting fees..... 7,000 8,800
-- Environmental exposure............................ 1,000 3,400
------- -------
Total............................................. $40,000 $40,900
======= =======
</TABLE>
The Bancshares and Roosevelt adjustments are MBI's estimate based upon
prior acquisitions, where amounts to standardize systems, standardize
procedures, accruals for severance and employee change of control contracts
and the write-down of fixed assets approximated 60 basis points of total
assets. For the Bancshares acquisition, approximately $11 million was added
for professional fees, and, as the transaction is entirely in-market,
additional charges for branch closings and severance payments are expected
to exceed the base 60 basis point estimate. As Roosevelt's asset base is
three times that of Bancshares and includes a significant investment
portfolio, no additional amount was deemed necessary.
(21) The computation of year-to-date average shares for the year ended
December 31, 1996:
<TABLE>
<S> <C> <C>
MBI reported for the year ended December 31,
1996............................................. 61,874,882
Bancshares as reported for the year ended December
31, 1996......................................... 16,473,190
Exchange Ratio.................................... x .952
----------
15,682,477
----------
MBI/Bancshares Combined........................... 77,557,359
Shares of MBI Common Stock to be issued in the
Roosevelt acquisition, net of treasury shares.... 6,000,000
----------
MBI/All Entities Pro Forma Combined............... 83,557,359
==========
</TABLE>
59
<PAGE>
DESCRIPTION OF BANCSHARES
At December 31, 1996, Bancshares owned or controlled substantially all the
capital stock of four banks: Mark Twain Bank, which operates 20 separate
locations in the metropolitan St. Louis area; Mark Twain Kansas City Bank,
which operates 15 separate locations in the metropolitan bi-state Kansas City
area; Mark Twain Illinois Bank, which operates four locations on the Illinois
side of the St. Louis metropolitan area; and First City National Bank, which
operates three locations in Springfield, Missouri.
Bancshares wholly owns the following: Mark Twain Properties, Inc., which
owns, holds under lease, or manages properties occupied by present banking
centers; Mark Twain Community Development Corporation, which provides services
and housing opportunities for low- and moderate-income persons; Tarquad
Corporation, which acts as trustee of deeds of trust of which Bancshares
subsidiaries are the lenders and beneficiaries; and Mark Twain Asset Recovery,
Inc., which acts as purchaser of certain assets acquired by subsidiary banks
in the collection of loans.
Mark Twain Bank wholly owns Mark Twain Brokerage Services, Inc., a member of
the National Association of Securities Dealers ("NASD"), which provides
customers with complete brokerage services on all exchanges and provides the
sale of various insurance company products. Mark Twain Bank also wholly owns
Mark Twain St. Louis Investment Company which is a holding company for Mark
Twain St. Louis Real Estate Investment Trust. Mark Twain St. Louis Real Estate
Investment Trust was organized to invest solely in mortgage loans originated
by the subsidiary banks of Bancshares. Mark Twain Bank and Mark Twain Kansas
City Bank each wholly own a Mark Twain Real Estate Development Corporation
subsidiary and a Mark Twain Community Development Corporation subsidiary.
Bancshares is registered with and subject to regulation by the Federal
Reserve Board and is subject to the Missouri Bank Holding Company Act. All
Bancshares-owned non-bank subsidiaries are subject to regulation by the
Federal Reserve Board. The subsidiary state-chartered banks are subject to
regulation and supervision by the banking regulators of the states in which
the banking units are located and the states in which the bank is chartered.
The subsidiary national bank is subject to regulation and supervision by the
Office of the Comptroller of the Currency. All subsidiary banks are subject to
regulation by and are members of the Federal Deposit Insurance Corporation
(the "FDIC").
The earnings of the subsidiary banks are affected not only by competing
financial institutions and general economic conditions, but also by the
policies of various governmental regulatory authorities, and state and federal
laws, particularly as they relate to powers authorized to banks and bank
holding companies. Bancshares and all subsidiary banks are subject to the
provisions of the Community Reinvestment Act. Mark Twain Brokerage Services,
Inc., is subject to supervision and regulation by NASD, the Commission, the
Missouri Division of Securities, the Missouri Division of Insurance, and the
Missouri Division of Finance, among others. The mortgage department is subject
to supervision by Department of Housing and Urban Development, Federal Housing
Authority, Veteran's Administration, Federal Home Loan Mortgage Corporation,
Federal National Mortgage Association, and Government National Mortgage
Association, among others, concerning mortgage lending.
The principal executive offices of Bancshares are located at 8820 Ladue
Road, St. Louis, Missouri 63124, telephone (314) 727-1000. Bancshares
maintains a web page at http://www.marktwain.com. For further information
concerning Bancshares, see "SUMMARY INFORMATION--Business of Bancshares,"
"TERMS OF THE PROPOSED MERGER," "PRO FORMA FINANCIAL INFORMATION" and
"INCORPORATION OF CERTAIN INFORMATION BY REFERENCE."
60
<PAGE>
INFORMATION REGARDING MBI STOCK
DESCRIPTION OF MBI COMMON STOCK AND ATTACHED PREFERRED SHARE PURCHASE RIGHTS
General. MBI has authorized 100,000,000 shares of MBI Common Stock and
5,000,000 shares of preferred stock, no par value ("MBI Preferred Stock"). At
the MBI Record Date, MBI had 60,209,008 shares of MBI Common Stock issued and
outstanding and no shares of MBI Preferred Stock issued and outstanding. Under
the Missouri Law, the MBI Board may generally approve the issuance of
authorized shares of MBI Common Stock and MBI Preferred Stock without
shareholder approval.
The MBI Board is also authorized to fix the number of shares and determine
the designation of any series of MBI Preferred Stock and to determine or alter
the rights, preferences, privileges and restrictions granted to or imposed
upon any series of MBI Preferred Stock. The MBI Board has designated and
reserved Series A Junior Participating Preferred Stock pursuant to MBI's
Preferred Share Purchase Rights Plan described below.
The existence of a substantial number of unissued and unreserved shares of
MBI Common Stock and undesignated shares of MBI Preferred Stock may enable the
MBI Board to issue shares to such persons and in such manner as may be deemed
to have an antitakeover effect.
Dividends. The holders of the MBI Common Stock are entitled to share ratably
in dividends when, as and if declared by the MBI Board 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 the MBI
Common Stock.
The MBI Board intends to maintain its present policy of paying quarterly
cash dividends on the MBI Common Stock, when justified by the financial
condition of MBI and its subsidiaries. The declaration and amount of future
dividends will depend on circumstances existing at the time, including MBI's
earnings, financial condition and capital requirements as well as regulatory
limitations, note and indenture provisions and such other factors as the MBI
Board 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, such shareholders presently have 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 cumulative votes may be cast for one
candidate for election as a director or may be distributed among two or more
candidates.
Preemptive Rights. The holders of MBI Common Stock have no preemptive right
to acquire any additional unissued shares or treasury shares of MBI.
Liquidation Rights. In the event of liquidation, dissolution or winding-up
of MBI, whether voluntary or involuntary, the holders of MBI Common Stock will
be entitled to share ratably in any of its assets or funds that are available
for distribution to its shareholders after the satisfaction of its 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 issuable in the Merger
will be, when issued, fully paid and nonassessable. Such shares do not have
any redemption provisions.
Preferred Share Purchase Rights Plan. One Right is attached to each share of
MBI Common Stock. The Rights trade automatically with shares of MBI Common
Stock, and become exercisable and will trade separately from the MBI Common
Stock on the 10th day after public announcement, or notice to MBI, that a
person or group has acquired, or has the right to acquire, beneficial
ownership of 20% or more of the outstanding shares of MBI Common Stock, or
upon commencement or announcement, or notice to MBI, of intent to make a
tender
61
<PAGE>
offer for 20% or more of the outstanding shares of MBI Common Stock, in either
case, without prior written consent of a majority of the MBI Board. When
exercisable, each Right will entitle the holder to buy 1/100 of a share of
Series A Junior Participating Preferred Stock at an exercise price of $100 per
Right. In the event a person or group acquires beneficial ownership of 20% or
more of MBI Common Stock, holders of Rights (other than the acquiring person
or group) may purchase MBI Common Stock having a market value of twice the
then current exercise price of each Right. If MBI is acquired by any person or
group after the Rights become exercisable, each Right will entitle its holder
to purchase stock of the acquiring company having a market value of twice the
current exercise price of each Right. The Rights are designed to protect the
interests of MBI and its shareholders against coercive takeover tactics. The
purpose of the Rights is to encourage potential acquirors to negotiate with
the MBI Board prior to attempting a takeover and to give the MBI 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 the MBI Board in certain circumstances,
expire by their terms on June 3, 1998.
Classification of Board of Directors. The MBI Board 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 MBI Board, classification of the MBI Board 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
MBI Board.
Other Matters. The MBI Restated Articles and MBI's By-Laws also contain
provisions which: (i) require the affirmative vote of holders of at least 75%
of the voting power of all of the outstanding shares of MBI entitled to vote
in the election of directors to remove a director or directors without cause;
(ii) require the affirmative vote of the holders of at least 75% of the voting
power of all shares of the outstanding capital stock of MBI to approve certain
"business combinations" with "interested parties" unless at least two-thirds
of the MBI Board first approve such business combinations; and (iii) require
an affirmative vote of at least 75% of the voting power of all shares of the
outstanding capital stock of MBI for the amendment, alteration, change or
repeal of any of the above provisions unless at least two-thirds of the MBI
Board first approve such an amendment, alteration, change or repeal. The MBI
Restated Articles also requires the MBI Board, in considering any business
combination, to give due consideration to all factors that the MBI Board may
consider relevant, including the effects of the proposed transaction on the
depositors and customers of MBI and its subsidiaries, on their communities and
geographic areas and on any of their businesses and properties; and the
adequacy of the consideration offered in the proposed transaction in relation
to the current market price of MBI's outstanding securities and to the value
of MBI in a freely negotiated transaction and the estimate of the MBI Board of
the future value of MBI. Such provisions may be deemed to have an antitakeover
effect.
RESTRICTIONS ON RESALE OF MBI CAPITAL STOCK BY AFFILIATES; AFFILIATE
AGREEMENTS
MBI Common Stock. Under Rule 145 of the Securities Act, all of the executive
officers and directors of Bancshares, including certain of the Supporting
Stockholders, by virtue of being affiliates of Bancshares, will be limited in
their right to resell the stock so received in the Merger. Such officers and
directors who desire to resell the MBI Common Stock so received must sell such
stock either pursuant to an effective registration statement under the
Securities Act or in accordance with an applicable exemption. In addition,
Supporting Stockholders who become "affiliates" of MBI following the Merger
will be limited in their right to resell the MBI Common Stock received in the
Merger.
Rule 145(d) under the Securities Act provides that persons deemed to be
affiliates of a company such as MBI solely by virtue of having been affiliates
of a company such as Bancshares prior to a transaction such as the Merger may
resell their stock pursuant to certain of the requirements of Rule 144 under
the Securities Act if
62
<PAGE>
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 Bancshares 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 Bancshares 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 BANCSHARES
Each of MBI and Bancshares is incorporated under the laws of the State of
Missouri. The rights of MBI's shareholders are governed by the MBI Restated
Articles, MBI's By-Laws and the Missouri Law. The rights of Bancshares
shareholders are governed by Bancshares' Restated Articles of Incorporation
and By-Laws and the Missouri Law. The rights of Bancshares shareholders who
receive shares of MBI Common Stock in the Merger will thereafter be governed
by the MBI Restated Articles, MBI's By-Laws and the Missouri Law. The material
rights of such shareholders, and, where applicable, the differences between
the rights of MBI shareholders and Bancshares shareholders, are summarized
below. The summary is qualified in its entirety by reference to the Missouri
Law, the MBI Restated Articles, MBI's By-Laws and the Restated Articles of
Incorporation and By-Laws of Bancshares.
Preferred Share Purchase Rights Plan. As described above under "--
Description of MBI Common Stock and Attached Preferred Share Purchase Rights--
Preferred Share Purchase Rights Plan," MBI Common Stock has attached Rights,
which may deter certain takeover proposals. Bancshares does not have a rights
plan.
Supermajority Provisions. The MBI Restated Articles and MBI's By-Laws
contain provisions requiring a supermajority vote of the shareholders of MBI
to approve certain proposals. Under both the MBI Restated Articles and MBI's
By-Laws, removal by the shareholders of the entire MBI Board 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 the MBI
Restated Articles or MBI's By-Laws relating to (i) the number or qualification
of directors; (ii) the classification of the MBI Board; (iii) the filling of
vacancies on the MBI Board; 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 MBI Board. The MBI Restated Articles additionally
provide that, in addition to any shareholder vote required under the Missouri
Law, the affirmative vote of the holders of not less than 75% of the total
votes to which all of the then outstanding shares of capital stock of MBI are
entitled, voting together as a single class, 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 the MBI Restated
Articles) on the other hand. If, however, at least two-thirds of the MBI Board
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 the MBI Restated Articles relating to the
approval of Business Combinations requires the affirmative vote of the holders
of at least 75% of the MBI Common Stock unless such amendment has previously
been approved by at least two-thirds of the MBI Board. To the extent that a
potential acquiror's strategy depends on the passage of proposals which
require a supermajority vote of MBI shareholders, such provisions requiring a
supermajority vote may have the effect of discouraging takeover attempts that
do not have MBI Board approval by making passage of such proposals more
difficult.
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Bancshares' Restated Articles of Incorporation and By-Laws do not require
supermajority approval by shareholders of any corporate actions.
Voting for Directors. MBI's By-Laws provide for cumulative voting in the
election of directors. Cumulative voting entitles each 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. Bancshares' By-Laws likewise
provide for cumulative voting in the election of directors.
Classified Board. As described under "--Description of MBI Common Stock and
Attached Preferred Purchase Rights--Classification of Board of Directors," the
MBI Board 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. The
Bancshares Board is likewise divided into three classes of directors, with
each class being elected to a staggered three-year term.
Action by Shareholders and Directors Without a Meeting. Under the Missouri
Law, the written action of shareholders is permitted unless the articles 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, may be taken without a
meeting if a consent in writing, setting forth the action taken, shall be
signed by all of the shareholders. MBI's By-Laws also provide that any action
that may be taken by the MBI Board at a meeting may be taken without a meeting
if a consent in writing, setting forth the action so to be taken, shall be
signed by all of the Directors prior to such action. Bancshares' By-Laws
provide that any action of the shareholders or Bancshares Board may be taken
upon the written consent of all the shareholders entitled to vote thereupon or
all of the members of the Bancshares Board, as the case may be.
Anti-Takeover Statutes. The Missouri Law contains certain provisions
applicable to Missouri corporations such as MBI and Bancshares 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 that 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 Law 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. Neither the MBI Restated Articles and MBI's By-Laws nor
Bancshares' Restated Articles of Incorporation and By-Laws "opt out" of the
Missouri business combination statute.
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The Missouri Law 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%, (ii) 33% 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: (x) a
majority of the outstanding voting stock, and (y) 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.
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. Neither the MBI Restated Articles
and MBI's By-Laws nor Bancshares' Restated Articles of Incorporation and By-
Laws "opt out" of the Control Share Acquisition Statute.
Dissenters' Rights. Under Section 351.455 of the Missouri Law, 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 fair value of such shares.
Shareholders' Right to Inspect. Under Section 351.215 of the Missouri Law,
each shareholder may at all proper times have access to and examine the books
of the company.
Size of Board of Directors. As permitted under the Missouri Law, the number
of directors on the MBI Board 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 MBI's By-Laws or by a resolution of the
MBI Board, in either case, adopted by the vote or consent of at least two-
thirds of the number of directors then authorized under MBI's By-Laws. The
number of directors on the MBI Board is currently fixed at 12. The number of
directors on the Bancshares Board is set forth in Bancshares' By-Laws, which
provide that the number of directors shall be eleven unless and until the By-
Laws are amended to provide otherwise. Under Bancshares' Restated Articles of
Incorporation, the number of directors may not be less than three. Bancshares'
By-Laws, including the provision establishing the number of members of the
Bancshares Board, may be amended by the vote of a majority of the members of
the Bancshares Board.
If the size of the MBI Board were increased, the remaining MBI directors
could fill the newly created vacancies until the next shareholders' meeting.
Under Bancshares' By-Laws, such vacancies may be filled only by the
shareholders.
Proposal of Business, Nomination of Directors. MBI's By-Laws contain
detailed advance notice and informational procedures which must be complied
with in order for a shareholder to nominate a person to serve as a director.
MBI's By-Laws generally require a shareholder to give notice of a proposed
nominee in advance of the shareholder meeting at which directors will be
elected. In addition, MBI's By-Laws contain detailed advance notice and
informational procedures which must be followed in order for a MBI shareholder
to propose
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an item of business for consideration at a meeting of MBI shareholders. There
are no similar provisions in Bancshares' By-Laws.
Special Meetings of Shareholders. Under MBI's By-Laws, special meetings of
the shareholders may be called by the Chairman of the Board or by the MBI
Board in their sole discretion. Under Bancshares' By-Laws, special meetings of
the shareholders may be called by the President, by the Chairman of the Board,
by the Bancshares Board, or by the holders of not less than 20% of all of the
outstanding shares entitled to vote at such meeting.
SUPERVISION AND REGULATION
GENERAL
As a bank holding company, MBI is subject to regulation under the BHCA and
its examination and reporting requirements. Under the BHCA, a bank holding
company may not, directly or indirectly, acquire the ownership or control of
more than 5% of the voting shares or substantially all of the assets of any
company, including a bank or savings and loan association, without the prior
approval of (or, in the case of certain non-bank companies, prior notice to)
the Federal Reserve Board. In addition, bank holding companies are generally
prohibited under the BHCA from engaging in nonbanking activities, subject to
certain exceptions.
As a savings and loan holding company, MBI is also subject to regulatory
oversight by the Office of Thrift Supervision (the "OTS"). As such, MBI is
required to register and file reports with the OTS and is subject to
regulation by the OTS. In addition, the OTS has enforcement authority over MBI
which permits the OTS to restrict or prohibit activities that are determined
to be a serious risk to its subsidiary savings association.
MBI and its subsidiaries are subject to supervision and examination by
applicable federal and state banking agencies. The earnings of MBI's
subsidiaries, and therefore the earnings of MBI, are affected by general
economic conditions, management policies and the legislative and governmental
actions of various regulatory authorities, including the Federal Reserve
Board, the OTS, the FDIC, the Comptroller of the Currency (the "Comptroller")
and state banking regulatory agencies. In addition, there are numerous
governmental requirements and regulations that affect the activities of MBI
and its subsidiaries.
CERTAIN TRANSACTIONS WITH AFFILIATES
There are various legal restrictions on the extent to which a bank holding
company such as MBI and its nonbank subsidiaries can engage in certain
transactions, including borrowing or otherwise obtaining credit from its bank
subsidiaries. In general, these restrictions require that any such extensions
of credit must be on non-preferential terms and secured by designated amounts
of specified collateral and be limited, as to any one of the holding company
or such nonbank subsidiaries, to 10% of the lending bank's capital stock and
surplus, and as to the holding company and all such nonbank subsidiaries in
the aggregate, to 20% of such bank's capital stock and surplus.
PAYMENT OF DIVIDENDS
MBI is a legal entity separate and distinct from its banking and other
subsidiaries. The principal source of MBI's revenues is dividends from its
national and state banking subsidiaries. Various federal and state statutory
provisions limit the amount of dividends the affiliate banks can pay to MBI
without regulatory approval. The approval of the appropriate bank regulator is
generally required for any dividend by a national bank or state member bank if
the total of all dividends declared by the board of directors of such banks in
any calendar year would exceed the total of (i) its net profits (as defined
and interpreted by regulation) for such year and (ii) its retained net profits
for the preceding two years less any required transfer to surplus or a fund
for the retirement of preferred stock. In addition, a national bank or a state
member bank may pay dividends only to the extent that its retained net profits
(including any portion transferred to surplus) exceed bad debts (as defined
and interpreted
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by regulation). The payment of dividends by any affiliate bank may also be
affected by other factors, such as the maintenance of adequate capital for
such affiliate bank.
In addition, if, in the opinion of the applicable federal bank regulatory
agency, a depository institution under its jurisdiction is engaged in or is
about to engage in an unsafe and unsound practice (which, depending on the
financial condition of the institution, could include the payment of
dividends), such agency may require, after notice and hearing, that the
institution in question cease and desist from such practice. The Comptroller
has indicated that paying dividends that would deplete a depository
institution's capital base to an inadequate level would be an unsafe and
unsound practice. Moreover, an insured depository institution may not pay any
dividends if such payment would cause it to become undercapitalized or once it
is undercapitalized. See "--Capital Adequacy." Also, the federal bank
regulatory agencies have issued policy statements which provide that
depository institutions and their holding companies should generally pay
dividends only out of current operating earnings.
CAPITAL ADEQUACY
The Federal Reserve Board has issued standards for measuring capital
adequacy for bank holding companies. These standards are designed to provide
risk-responsive capital guidelines and to incorporate a consistent framework
for use by financial institutions operating in major international financial
markets. The banking regulators have issued standards for banks that are
similar but not identical to the standards for bank holding companies.
In general, the risk-related standards require banks and bank holding
companies to maintain capital based on "risk adjusted" assets so that
categories of assets with potentially higher credit risk will require more
capital backing than categories with lower credit risk. In addition, banks and
bank holding companies are required to maintain capital to support off-balance
sheet activities such as loan commitments.
Under the risk-based capital standard, the minimum consolidated ratio of
total capital to risk-adjusted assets (including certain off-balance sheet
items, such as standby letters of credits) required by the Federal Reserve
Board for bank holding companies is currently 8%. At least one-half of the
total capital must be comprised of common equity, retained earnings,
qualifying noncumulative perpetual preferred stock, a limited amount of
qualifying cumulative perpetual preferred stock and minority interest in the
equity accounts of consolidated subsidiaries, plus certain items such as
goodwill and certain other intangible assets ("Tier I Capital"). The remainder
may consist of qualifying hybrid capital instruments, perpetual debt,
mandatory convertible debt securities, a limited amount of subordinated debt,
preferred stock that does not qualify as Tier I Capital and a limited amount
of loan and lease loss reserves. As of December 31, 1996, MBI's Tier I Capital
and total capital to risk adjusted assets ratios were 10.91% and 13.87%,
respectively. At December 31, 1996, on a pro forma combined basis after giving
effect to the Merger on a pooling-of-interests accounting basis, MBI's
estimated consolidated Tier I Capital and total capital to risk-adjusted
assets ratios would be 10.80% and 13.49%, respectively.
In addition to the risk-based standard, 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 less goodwill and certain other intangibles (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 4%
to 5%. 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.
The guidelines also provide that bank holding companies experiencing
internal growth or making acquisitions are expected to maintain strong capital
positions substantially above the minimum supervisory levels without
significant reliance on intangible assets. Furthermore, the Federal Reserve
Board has indicated that it
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will consider a "tangible Tier I Capital Leverage Ratio" (deducting all
intangibles) and other indicia of capital strength in evaluating proposals for
expansion or new activities.
As of December 31, 1996, MBI's Leverage Ratio was 7.82%. At December 31,
1996, on a pro forma combined basis after giving effect to the Merger on a
pooling-of-interests accounting basis, MBI's estimated consolidated Leverage
Ratio would be 7.97%.
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.
LIABILITY OF COMMONLY CONTROLLED INSTITUTIONS
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 the Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA"), federal banking regulators are required to take prompt corrective
action in respect of depository institutions that do not meet their minimum
capital requirements. The relevant capital measures are the total capital
ratio, Tier I Capital ratio and the Leverage Ratio. Under the regulations, a
national bank will be (i) "well-capitalized" if it has a total capital ratio
10% or greater, a Tier I Capital ratio of 6% or greater and a Leverage Ratio
of 5% or greater and is not subject to any order or written directive by any
regulatory authority to meet and maintain a specific capital level for any
capital measure; (ii) "adequately capitalized" if it has a total capital ratio
of 8% or greater, a Tier I Capital ratio of 4% or greater and a Leverage Ratio
of 4% or greater (3% in certain circumstances) and is not "well-capitalized;"
(iii) "undercapitalized" if it has a total capital ratio of less than 8%, a
Tier I Capital ratio of less than 4% or a Leverage Ratio of less than 4% (3%
in certain circumstances); (iv) "significantly undercapitalized" if it has a
total capital ratio of less than 6%, a Tier I Capital ratio of less than 3% or
a Leverage Ratio of less than 3%; and (v) "critically undercapitalized" if its
tangible equity is equal to or less than 2% of average quarterly tangible
assets. In addition, a bank's primary federal bank regulatory agency is
authorized to downgrade the bank's capital category to the next lower category
upon a determination that the bank is in an unsafe or unsound condition or is
engaged in an unsafe or unsound practice. As of December 31, 1995, MBI had
capital levels that qualify it as "well-capitalized" under such regulations.
FDICIA generally prohibits a depository institution from making any capital
distribution (including payment of a dividend) or paying any management fee to
its holding company if the depository institution was or would be as a result
thereof undercapitalized. An undercapitalized depository institution is also
subject to limitations on, among other things, asset growth, acquisitions,
branching, new business lines, acceptance of broker deposits and borrowings
from the federal reserve system and are required to submit a capital
restoration plan. The federal bank regulatory agencies may not accept a
capital restoration plan without determining, among other things, that the
plan is based upon realistic assumptions and is likely to succeed in restoring
the depository institution's capital. In addition, for a capital restoration
plan to be acceptable, the depository institution's parent holding company
must guaranty that the institution will comply with such capital restoration
plan. The aggregate liability of the parent holding company is limited to the
lesser of (i) an amount equal to 5% of the depository institution's total
assets at the time it became undercapitalized, or (ii) the amount which is
necessary (or would have been necessary) to bring the institution into
compliance with all capital standards applicable with respect to such
institution as of the time it fails to comply with the plan. If a depository
institution fails to submit an acceptable plan, it is treated as if it is
significantly undercapitalized. A significantly undercapitalized depository
institution
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may be subject to a number of requirements and restrictions, including orders
to sell sufficient voting stock to become adequately capitalized, requirements
to reduce total assets, and cessation of receipt of deposits from
correspondent banks. A critically undercapitalized institution is subject to
the appointment of a receiver or a conservator.
FDIC INSURANCE
Deposits of MBI subsidiary deposit institutions are insured up to $100,000
per insured depositor (as defined by law and regulation) primarily through the
bank insurance fund ("BIF"), although certain deposits acquired by MBI since
1989 were and continue to be insured through the Savings Association Insurance
Fund ("SAIF"). Both the BIF and SAIF are administered and managed by the FDIC.
In July, 1993, the FDIC adopted a new risk-based assessment system for
insured depository institutions that takes into account the risk attributable
to different categories and concentrations of assets and liabilities. Under
this system, an institution is assigned to one of three capital categories,
namely (i) well-capitalized, (ii) adequately capitalized, or (iii)
undercapitalized. An institution is further assigned by the FDIC to one of
three supervisory subgroups based on a supervisory evaluation provided to the
FDIC by the institution's primary federal regulator and information which the
FDIC determines to be relevant to the institution's financial condition and
the risk posed to the deposit insurance fund. An institution's insurance
assessment rate is then determined based on the capital category and
supervisory category to which it is assigned. These rates were established for
both funds to achieve a designated ratio of reserve to insured deposits of
1.25% within a specified period of time.
Once the designated ratio for the BIF was reached, which occurred in May,
1995, the FDIC was authorized to reduce the minimum assessment rate below the
then minimum $.23 per $100 of insured deposits and to set future assessment
rates at such levels that would maintain the fund's reserve ratio at the
designated level. In August 1995, the FDIC adopted final regulations reducing
the assessment rates for BIF member banks. Under the revised schedule, an
assessment rate schedule then ranged from $.04 to $.31 per $100 of insured
deposits was established for BIF member banks. In November 1995, the FDIC
approved a further reduction in the assessment schedule for BIF deposits.
Effective January 1, 1996, the assessment schedule now ranges from a minimum
of $2,000 per year to $.27 per $100 of deposits subject to BIF assessments,
based on each institution's risk classification.
Included in the Omnibus Appropriations Bill signed into law by President
Clinton on September 30, 1996 (the "1996 Legislation") were certain banking-
related riders affecting both the bank and thrift industry, principally
relating to the recapitalization of SAIF. Under the 1996 Legislation, every
depositary institution having SAIF-insured deposits was subject to a one-time
assessment of 65.7 cents on every $100 of thrift deposits held on March 31,
1995, payable on or before November 29, 1996, which assessment must be
reported as a third-quarter expense. The special assessments under this
provision on MBI and Bancshares were $12,385,000 and $0, respectively. It is
anticipated that the aggregate amount collected pursuant to this one-time
assessment will sufficiently recapitalize SAIF such that thrift deposit
insurance premiums, which currently are $.23 to $.31 per $100 of assessable
deposits, may be brought in line with those of banks by the year 2000. The
1996 Legislation reduced ongoing SAIF deposit insurance assessment rates from
$.230 to .064 per $100 of insured deposits and increased ongoing BIF deposit
insurance assessment rates from $0 to $.013 per $100 of insured deposits
beginning January 1, 1997. The 1996 Legislation also provides that, commencing
on January 1, 1997, banks will share with thrifts all subsequent payments of
interest due on bonds issued by the quasi-governmental Financing Corp. in the
late 1980s to finance the thrift bailout. From January 1, 1997 through
December 31, 1999, banks insured by the BIF will pay roughly $322 million
annually toward interest on these bonds, while SAIF-insured institutions will
pay a proportionately larger share, approximately $458 million annually.
Beginning in 2000 through 2017, both banks and thrifts will pay 2.43 cents per
$100 of insured deposits.
As of December 31, 1996, approximately 7.78% of MBI's banking subsidiaries
deposits were insured by SAIF. On a pro forma combined basis, approximately
6.66% of MBI's banking subsidiaries deposits would be insured by SAIF.
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The FDIC is authorized to prohibit any BIF-insured or SAIF-insured
institution from engaging in any activity that the FDIC determines by
regulation or order to pose a serious threat to the respective insurance fund.
Also, the FDIC may initiate enforcement actions against any bank or savings
institution, after first giving the institution's primary regulatory authority
an opportunity to take such action. The FDIC may terminate the deposit
insurance of any depository institution if it determines, after a hearing,
that the institution has engaged or is engaging in unsafe or unsound
practices, is in an unsafe or unsound condition to continue operations, or has
violated any applicable law, regulation, order or any condition imposed in
writing by the FDIC. It may also suspend deposit insurance temporarily during
the hearing process for the permanent termination of insurance, if the
institution has no tangible capital. If deposit insurance is terminated, the
deposits at the institution at the time of termination, less subsequent
withdrawals, shall continue to be insured for a period from six months to two
years, as determined by the FDIC.
INTERSTATE BANKING AND OTHER RECENT 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 (i) by permitting bank holding companies that are adequately
capitalized and managed, one year after enactment of the legislation, to
acquire banks located in states outside their home states regardless of
whether such acquisitions are authorized under the law of the host state, (ii)
by permitting the interstate merger of banks after June 1, 1997, subject to
the right of individual states to "opt in" or to "opt out" of this authority
before that date, (iii) by permitting banks to establish new branches on an
interstate basis provided that such action is specifically authorized by the
law of the host state, (iv) by permitting foreign banks to establish, with
approval of the regulators in the United States, branches outside their home
states to the same extent that national or state banks located in the home
state would be authorized to do so, and (v) by permitting, beginning September
29, 1995, banks to receive deposits, renew time deposits, close loans, service
loans and receive payments on loans and other obligations as agent for any
bank or thrift affiliate, whether the affiliate is located in the same state
or a different state. One effect of this legislation will be to permit MBI to
acquire banks located in any state and to permit bank holding companies
located in any state to acquire banks and bank holding companies in Missouri.
Overall, this legislation is likely to have the effects of increasing
competition and promoting geographic diversification in the banking industry.
The 1996 Legislation contemplates the merger of SAIF and BIF by 1999,
provided the consolidation/merger of federal bank and thrift charters under
applicable law and regulation has been achieved by that time. Until such a
consolidation/merger has been achieved, however, depositary institutions will
continue to be prohibited from shifting deposits from SAIF insurance coverage
to BIF insurance coverage in an attempt to avoid the higher SAIF assessments.
The FDIC is required to issue regulations to guard against the shifting of
deposits from SAIF to BIF. A report to Congress regarding the merger of SAIF
and BIF is required from the Treasury Department by March 31, 1997.
In addition, the 1996 Legislation contains a variety of regulatory relief
measures affecting banks and thrifts, including provisions modifying some of
the more onerous requirements imposed under federal banking laws passed in the
late 1980s and early 1990s. Among the measures are provisions reducing certain
regulatory burdens imposed upon bank holding companies. For example, the 1996
Legislation eliminates the requirement that a bank holding company seeking to
acquire control of a thrift directly or indirectly must file an application
with the OTS and for approval to become a unitary savings and loan holding
company as a result of such acquisition. The 1996 Legislation also provides
that a bank holding company owning or controlling a thrift will no longer be
subject to the supervision and regulation of the OTS. The OTS will continue to
regulate and supervise all thrifts acquired in such transactions.
In addition to the foregoing, there have been proposed a number of
legislative and regulatory proposals designed to strengthen the federal
deposit insurance system and to improve the overall financial stability of the
United States banking system, and to provide for other changes in the bank
regulatory structure, including
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proposals to reduce regulatory burdens on banking organizations and to expand
the nature of products and services banks and bank holding companies may
offer. It is not possible to predict whether or in what form these proposals
may be adopted in the future, and, if adopted, what their effect will be on
MBI.
LEGAL MATTERS
The validity of the MBI Common Stock to be issued in the Merger will be
passed upon by Jon W. Bilstrom, General Counsel and Secretary of MBI, who, as
of the MBI Record Date, beneficially owned 66,876 shares of MBI Common Stock,
which number includes shares subject to options held by Mr. Bilstrom which are
currently exercisable and options which will become exercisable within 60 days
of the MBI Record Date.
EXPERTS
The consolidated financial statements of MBI as of December 31, 1996, 1995
and 1994, and for each of the years in the three-year period ended December
31, 1996, incorporated by reference in the 1996 MBI Form 10-K, have been
incorporated by reference herein in reliance upon the report of Peat Marwick,
independent certified public accountants, incorporated by reference herein,
and upon the authority of such firm as experts in accounting and auditing.
The consolidated financial statements incorporated in this Joint Proxy
Statement/Prospectus by reference from the 1996 Bancshares Form 10-K have been
audited by Ernst & Young, independent auditors, as set forth in their report
thereon incorporated by reference therein and incorporated herein by
reference. Such consolidated financial statements are incorporated herein by
reference in reliance upon such report given upon the authority of such firm
as experts in accounting and auditing.
OTHER MATTERS
The MBI Board and the Bancshares Board, at the date hereof, are not aware of
any business to be presented at the MBI Annual Meeting or Bancshares Special
Meeting, respectively, other than that referred to in the Notice of MBI 1997
Annual Meeting and the Notice of Bancshares Special Meeting, respectively, and
discussed herein. If any other matter should properly come before MBI Annual
Meeting or Bancshares 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 MBI
or Bancshares, respectively.
SHAREHOLDER PROPOSALS
If the Merger is consummated, shareholders of Bancshares who receive MBI
Common Stock will become shareholders of MBI at the Effective Time. MBI
shareholders may submit to MBI proposals for formal consideration at the 1998
annual meeting of MBI's shareholders and inclusion in MBI's proxy statement
and proxy for such meeting. All such proposals must be received in writing by
the Corporate Secretary at Mercantile Bancorporation Inc., P.O. Box 524, St.
Louis, Missouri 63166-0524 by November 22, 1997 in order to be considered for
inclusion in MBI's Proxy Statement and proxy for the 1998 Annual Meeting.
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EXPLANATORY NOTE: These additional pages 72-78 relate solely to matters to
be considered at the MBI Annual Meeting and will be included in the Proxy
Statement/Prospectus to be delivered to MBI shareholders only. These
additional pages contain MBI proxy statement information only and shall not be
deemed to constitute prospectus information.
ELECTION OF MBI DIRECTORS;
AMENDMENT TO MBI RESTATED ARTICLES OF INCORPORATION; AND
ADOPTION OF THE MBI AMENDED AND RESTATED STOCK INCENTIVE
PLAN AND THE MBI AMENDED AND RESTATED EXECUTIVE INCENTIVE
COMPENSATION PLAN
ELECTION OF DIRECTORS
One of the purposes of the MBI Annual Meeting is to elect three directors in
Class III to serve for terms of three years expiring in 2000 and one director
in Class II to serve for a term of two years expiring in 1999. The persons
named on the enclosed form of proxy intend to vote all duly executed proxies
received "FOR" the election to the MBI Board of each of the nominees, except
as otherwise directed in any proxy. The three nominees receiving the highest
number of votes in the Class III election will be elected as Class III
directors and the nominee receiving the highest number of votes in the Class
II election will be elected as a Class II director. Each of the nominees for
election as directors in Class III is currently a director of MBI. The nominee
for election in Class II is also currently a director of MBI.
In the event any nominee declines or is unable to serve, it is intended that
the proxies for the election of such nominee will be voted for a successor
nominee designated by the MBI Board. The MBI Board has no reason to believe
that any nominee will decline or be unable to serve if elected.
The name, age as of the date of the MBI Annual Meeting, principal occupation
or position and other directorships with respect to the nominees and the other
directors whose terms of office as directors will continue after the MBI
Annual Meeting are set forth below. Each of the directors has held the
currently listed position or another executive position with the same employer
for more than five years except as set forth beside his or her name.
CLASS III--TO BE ELECTED FOR A TERM OF THREE
YEARS EXPIRING IN 2000
HARRY M. CORNELL, JR., 68--Director beginning in 1991; Chairman, Chief
Executive Officer and Director of Leggett & Platt, Inc., manufacturer of
components used primarily in the furniture and bedding industry; Director of
Ennis Business Forms, Inc.
THOMAS H. JACOBSEN, 57--Director beginning in 1989; Chairman of the Board,
President and Chief Executive Officer of MBI; Director of Union Electric
Company, Student Loan Marketing Association and Trans World Airlines, Inc.
PATRICK T. STOKES, 54--Director beginning in 1992; President of Anheuser-
Busch, Inc., brewer of beer and other malt beverages.
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CLASS II--TO BE ELECTED FOR A TERM OF TWO YEARS
EXPIRING IN 1999
CRAIG D. SCHNUCK, 48--Director beginning in 1991; Chairman, Chief Executive
Officer and Director of Schnuck Markets, Inc., retail supermarket chain;
Director of Edison Brothers Stores, Inc. and General American Life Insurance
Company.
CLASS I--TO CONTINUE IN OFFICE UNTIL 1998
THOMAS A. HAYS, 64--Director beginning in 1984; retired Deputy Chairman of
The May Department Stores Company, retail stores; Director of Union Electric
Company, Leggett & Platt, Inc., Kinko's Inc. and Payless Shoe Source, Inc.;
Advisory Director of Schnuck Markets, Inc.
FRANK LYON, JR., 55--Director beginning in 1995; private investor. Mr. Lyon
served as Chairman of the Board of Mercantile Bank of Arkansas and its
predecessor holding company, TCBankshares Inc., for more than five years prior
to May 1995.
HARVEY SALIGMAN, 58--Director beginning in 1982; General Partner of Cynwyd
Investments, real estate investment company since August 1996; Director of
Union Electric Company. Mr. Saligman served as Managing Partner of Cynwyd
Investments for more than five years prior to August 1996.
ROBERT L. STARK, 64--Director beginning in 1993; Dean of University of
Kansas Regents Center, educational institution, since September 1993; Century
Products Co., Champion Enterprises and Payless Shoe Source, Inc. Mr. Stark
served as Executive Vice President of Hallmark Cards, Inc. from January 1986
to March 1993.
JOHN A. WRIGHT, 54--Director beginning in 1986; President and Chief
Executive Officer of Woodridge Resources Corporation, natural resources
investment firm.
CLASS II--TO CONTINUE IN OFFICE UNTIL 1999
WILLIAM A. HALL, 51--Director beginning in 1993; Assistant to the Chairman,
Hallmark Cards, Inc., manufacturer of greeting cards and related products;
Director of Payless Cashways, Inc.
EDWARD A. MUELLER, 49--Director beginning in 1996; President, Chief
Executive Officer and Director of Southwestern Bell Telephone Company,
communications industry company, since July 1995. Mr. Mueller served for more
than five years prior thereto in various capacities with other affiliates of
SBC Communications, Inc.
ROBERT W. MURRAY, 61--Director beginning in 1996; Chairman of the Board of
Mercantile Bank of Western Iowa--Polk County since January 1996. Mr. Murray
served as Chairman and Chief Executive Officer of Hawkeye Bancorporation from
April 1991 to January 1996, and in various other capacities with Hawkeye
Bancorporation prior thereto.
PROPOSAL TO AMEND THE ARTICLES OF INCORPORATION TO INCREASE THE AUTHORIZED
NUMBER OF SHARES OF MBI COMMON STOCK AND CHANGE THE PAR VALUE OF MBI COMMON
STOCK
The MBI Board has recently approved a proposal to amend Article 3 of the MBI
Restated Articles to increase the number of shares of MBI Common Stock
authorized thereunder from 100,000,000 to 200,000,000 and change the par value
of MBI Common Stock from $5.00 per share to $0.01 per share, and has directed
that the proposal be submitted to the vote of the shareholders at the MBI
Annual Meeting. MBI also has a class of MBI Preferred Stock authorized
pursuant to Article 3 of the MBI Restated Articles. No change to the number of
shares of MBI Preferred Stock presently authorized is being made pursuant to
this proposed amendment.
73
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[ADDITIONAL PAGE TO MBI SHAREHOLDERS ONLY]
On the MBI Record Date, 60,209,008 shares of MBI Common Stock were issued and
outstanding. Approximately 30,213,114 shares of MBI Common Stock will be issued
or reserved for issuance upon consummation of the pending acquisitions by MBI
of Bancshares and Roosevelt. Consummation of the acquisitions is expected to
occur, subject to receipt of all necessary regulatory and shareholder
approvals, later this year. In addition, approximately 3,864,301 shares of MBI
Common Stock will be required to satisfy MBI's potential obligations under its
stock-based benefit plans. Except as set forth above or in other acquisition
transactions that may be in the process of negotiation but not yet publicly
announced, there are no 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 MBI Common Stock, or contracts, commitments,
understandings or arrangements by which MBI is or may become bound to issue
additional shares of MBI Common Stock, or options, warrants or rights to
purchase or acquire any additional shares of MBI Common Stock. Accordingly,
without the proposed amendment, MBI has approximately 5,710,000 authorized
shares of its MBI Common Stock that were not issued, reserved or designated for
issuance as disclosed above.
The additional shares of MBI Common Stock for which authorization is sought
herein would be identical to the shares of MBI Common Stock now authorized
under the MBI Restated Articles. The authorized shares will be used from time
to time in connection with future acquisitions, stock dividends or split-ups,
capital raising, stock-based employee benefit plans and other stock
requirements of MBI. The proposed amendment could result in increasing the
number of shares that would have to be acquired by a party seeking to obtain
control of MBI, but would not otherwise affect the legal rights of the
shareholders of the outstanding shares of MBI Common Stock.
The MBI Board believes that it is in the best interests of MBI and its
shareholders to increase the number of authorized but unissued shares of its
MBI Common Stock. The increase will provide a reserve of shares available for
issuance upon sole authorization of the MBI Board for any general corporate
purpose.
The MBI Board also believes that it is in the best interests of MBI and its
shareholders to change the par value of MBI Common Stock from $5.00 per share
to $0.01 per share. By approving the $0.01 par value, the shareholders will
enable MBI to take advantage of savings in state filing fees.
The complete text of the proposed amendment to the MBI Restated Articles is
set forth in Annex F to this Proxy Statement/Prospectus.
Adoption of the proposed amendment to Article 3 of the MBI Restated Articles
will require the affirmative vote of the holders of a majority of the
outstanding shares of MBI Common Stock. THE MBI BOARD RECOMMENDS A VOTE "FOR"
THE PROPOSED AMENDMENT TO ARTICLE 3 OF THE MBI RESTATED ARTICLES.
PROPOSAL TO ADOPT THE MBI AMENDED AND RESTATED STOCK INCENTIVE PLAN
The MBI 1994 Stock Incentive Plan (the "Stock Incentive Plan") approved by
the shareholders of MBI in April 1994, provides for the granting of stock
options and other stock-based awards to key employees of MBI and its
subsidiaries. The Stock Incentive Plan, as proposed to be amended and restated,
seeks to advance the interests of MBI and its shareholders by incenting and
motivating such employees toward superior performance and by enabling MBI to
attract and retain those employees upon whose judgment, talents and special
efforts the success of MBI is largely dependent.
The maximum aggregate number of shares of MBI Common Stock which currently
can be issued under the Stock Incentive Plan is 2,250,000 shares, plus any
shares which are forfeited or tendered pursuant to either or both of two other
shareholder-approved plans, the MBI 1987 Stock Option Plan and the MBI 1991
Employee Incentive Plan (collectively, the "Prior Plans"), subject to
adjustment in the event of any change in the outstanding shares of MBI Common
Stock by reason of a stock dividend, stock split, recapitalization, merger,
consolidation or other similar changes generally affecting MBI shareholders.
The Stock Incentive Plan limits the number of shares or units equivalent to
shares of MBI Common Stock that can be granted to participating
74
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[ADDITIONAL PAGE TO MBI SHAREHOLDERS ONLY]
employees (collectively, "Stock Grants") and the number of shares that can be
issued pursuant to any stock options or stock appreciation rights ("SARs").
The aggregate number of shares that currently can be issued in the form of
Stock Grants is limited to 480,000 shares, plus the number of shares of
restricted stock authorized under the MBI 1991 Employee Incentive Plan, which
either have not been awarded under such plan or have been awarded but
subsequently forfeited under such plan. No more than 337,500 shares currently
can be issued to any one individual pursuant to any stock options or SARs.
In recognition of the growth of MBI's franchise to date and based upon its
strategy to continue to expand its business operations through acquisitions,
the MBI Board has adopted the MBI Amended and Restated Stock Incentive Plan
(the "Amended and Restated Stock Incentive Plan"), subject to shareholder
approval, which, specifically, (i) increases the aggregate number of shares of
MBI Common Stock which may be issued under the plan to 6,000,000 shares, plus
shares forfeited or tendered pursuant to the Prior Plans, (ii) increases the
total number of shares of MBI Common Stock available for Stock Grants to
860,000 shares, and (iii) increases the maximum number of shares which may be
awarded to any one individual in the form of stock options or SARs to
1,200,000 shares.
The Amended and Restated Stock Incentive Plan will be administered by the
Compensation Committee, consisting currently of three non-employee directors
of MBI. Members of the Committee will not be eligible to be awarded stock
options, SARs or stock grants under the Amended and Restated Stock Incentive
Plan. The Compensation Committee, by majority action thereof, is authorized in
its sole discretion to determine the individuals to whom the awards will be
granted, the type and amount of such awards and the terms thereof, as well as
to interpret the Amended and Restated Stock Incentive Plan, to prescribe rules
and regulations relating to the Amended and Restated Stock Incentive Plan, to
provide for conditions and assurances deemed necessary or advisable to protect
the interests of MBI, and to make all other determinations necessary or
advisable for the administration of the Amended and Restated Stock Incentive
Plan to the extent not contrary to the express provisions of the Amended and
Restated Stock Incentive Plan.
The MBI Board, by majority action thereof, at any time may terminate, and
from time to time may amend or modify the Amended and Restated Stock Incentive
Plan; provided, however, that no such action of the MBI Board may, without the
approval of the shareholders of MBI: (i) increase the total amount of shares
which may be issued under the Amended and Restated Stock Incentive Plan; or
(ii) cause the Amended and Restated Stock Incentive Plan not to comply with
either Rule 16b-3 under the Exchange Act or Section 162(m) of the Code. No
amendment, modification or termination of the Amended and Restated Stock
Incentive Plan shall in any manner adversely affect any award theretofore
granted under the Amended and Restated Stock Incentive Plan, without the
consent of the participant affected thereby.
On January 15, 1997, the Compensation Committee approved Stock Option awards
for terms of 10 years from the date of grant, January 21, 1997, with an
exercise price equal to $52.375, as follows: 160,000 shares for Mr. Jacobsen;
50,000 shares for Mr. Adams; 30,000 shares for Mr. Beirise; 50,000 shares for
Mr. King; 50,000 shares for Mr. McClure; 466,000 shares for all executive
officers as a group and 413,025 shares for all employees as a group (excluding
executive officers).
The complete text of the Amended and Restated Stock Incentive Plan is set
forth in Annex G to this Proxy Statement/Prospectus. The following summary of
the Amended and Restated Stock Incentive Plan is subject to the provisions
contained in the complete text.
DESCRIPTION OF THE AMENDED AND RESTATED STOCK INCENTIVE PLAN. Any current
employee of MBI and its subsidiaries will be eligible to receive (i) stock
options ("Stock Options") which may or may not qualify as incentive stock
options within the meaning of Section 422 of the Code, (ii) SARs, and/or (iii)
Stock Grants.
Stock Options. Stock Options granted under the Amended and Restated Stock
Incentive Plan shall entitle the holder thereof to purchase MBI Common
Stock at the "Base Price" established therefor by the
75
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[ADDITIONAL PAGE TO MBI SHAREHOLDERS ONLY]
Compensation Committee, which price shall not be less than the "Fair Market
Value" (as defined in the Amended and Restated Stock Incentive Plan) of MBI
Common Stock at the time of grant and, once established, shall not be
subject to change. The Stock Option may be exercised at any time during the
term of the option as determined by the Compensation Committee at the time
of the grant.
There is no maximum or minimum number of shares for which a Stock Option
may be granted; provided, however, for any employee, the aggregate fair
market value of MBI Common Stock subject to qualifying incentive stock
options that are exercisable for the first time in any calendar year may
not exceed the limits established therefor from time to time under Section
422 of the Code; and, provided, further, that in no event shall the maximum
number of shares which may be awarded in the form of Stock Options or SARs
to any one individual exceed 1,200,000 shares.
SARS. A SAR gives to the holder thereof a right to receive, at the time
of surrender, MBI Common Stock or cash equal in value to the difference
between the fair market value of such stock at the date of surrender of the
SAR and the "Base Price" established by the Compensation Committee therefor
at the time of grant, subject to any limitation imposed by the Compensation
Committee on appreciation. The "Base Price" shall not be less than the fair
market value of MBI Common Stock on the date of the grant of the SAR. A SAR
may be granted either independent of, or in conjunction with, any Stock
Option. If granted in conjunction with a Stock Option, at the discretion of
the Compensation Committee, a SAR may either be surrendered (i) in lieu of
the exercise of such Stock Option, (ii) in conjunction with the exercise of
such Stock Option, or (iii) upon expiration of such Stock Option and SAR
and shall be awarded in such number and under such terms and conditions as
are determined appropriate by the Compensation Committee. In no event shall
the maximum number of shares which may be awarded in the form of SARs or
Stock Options to any individual exceed 1,200,000 shares.
Stock Grants. The Compensation Committee may issue shares or units
equivalent in value to shares of MBI Common Stock to designated employees
in such amounts and under such terms and conditions, including vesting and
payout, as the Compensation Committee shall determine appropriate at the
time of the award, including, without limitations, achievement of specific
business objectives and other measurements of individual, business unit or
organization performance. The total number of shares of MBI Common Stock
available for Stock Grants is 860,000 shares, unless such grants were
awarded as the payment form for grants or rights under any other employee
or compensation plan of MBI.
In the event of any "Change in Control" (as defined in the Amended and
Restated Stock Incentive Plan) all awards outstanding under the Amended and
Restated Stock Incentive Plan become immediately and fully exercisable or
payable in accordance with the Amended and Restated Stock Incentive Plan
provisions. Also in the event of a Change in Control or in the event of the
liquidation or reorganization of MBI, the Compensation Committee is
authorized to provide for such adjustments and/or settlement arrangements
as the Compensation Committee determines appropriate, whether at the time
of award or a subsequent date.
The Amended and Restated Stock Incentive Plan is to remain in effect
until (i) all MBI Common Stock reserved under the Amended and Restated
Stock Incentive Plan shall have been purchased or acquired, (ii) the date
the MBI Board terminates the Amended and Restated Stock Incentive Plan, or
(iii) April 27, 2004, whichever shall first occur.
Federal Income Tax Consequences. No income will be realized by a
participating officer or employee on the grant of an incentive stock option or
an option which is not an incentive stock option ("non-qualified option"), or
the grant of a SAR. No income will be realized by a participant, officer or
employee upon the award of a Stock Grant if the Stock Grant is subject to
conditions which constitute a substantial risk of forfeiture within the
meaning of Section 83 of the Code. MBI will not be entitled to a deduction at
the time a Stock Option or SAR is granted, or at the time of award of a Stock
Grant which is subject to a substantial risk of forfeiture. If a holder
exercises an incentive stock option and does not dispose of the shares
acquired within two years from the date of the grant, or within one year from
the date of exercise of the Stock Option, no income will be realized by the
holder at the time of exercise. MBI will not be entitled to a deduction by
reason of the exercise.
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[ADDITIONAL PAGE TO MBI SHAREHOLDERS ONLY]
If a holder disposes of the shares acquired pursuant to an incentive stock
option within two years from the date of grant of the option or within one
year from the date of exercise of the option, the holder will realize ordinary
income at the time of disposition which will equal the excess, if any, of the
lesser of (i) the amount realized on the disposition, or (ii) the fair market
value of the shares on the date of exercise, over the holder's basis in the
shares. MBI generally will be entitled to a deduction in an amount equal to
such income in the year of the disqualifying disposition.
Upon the exercise of a non-qualified option, the excess, if any, of the fair
market value of the stock on the date of exercise over the purchase price is
ordinary income to the holder as of the date of exercise. MBI generally will
be entitled to a deduction equal to such excess amount in the year of
exercise.
A holder will realize income as a result of the surrender of a SAR at the
time the stock is issued or the cash is paid. The amount of income realized
will be equal to the fair market value of shares issued on the date of
surrender of the SAR, plus the amount of cash, if any, received. MBI will be
entitled to a deduction equal to the income realized in the year in which the
SAR is surrendered for payment.
The holder of a Stock Grant which is not subject to Compensation Committee-
imposed restrictions which constitute a substantial risk of forfeiture will
realize income at the time the Stock Grant is awarded. Subject to a voluntary
election by the holder under Section 83(b) of the Code, a holder will realize
income as a result of the award of Stock Grants subject to Compensation
Committee-imposed restrictions which constitute a substantial risk of
forfeiture at the time the restrictions expire on such shares. An election in
these cases pursuant to Section 83(b) of the Code would have the effect of
causing the holder to realize income in the year in which such award was
granted. The amount of income realized will equal the fair market value of the
shares or share equivalent at the time that any restrictions lapse or
otherwise cease to constitute a substantial risk of forfeiture (or on the date
of award of the Stock Grant, in the event of a Section 83(b) election or the
award of a Stock Grant which is not subject to a substantial risk of
forfeiture) over the purchase price, if any, of such shares. MBI generally
will be entitled to a deduction equal to the income realized in the year in
which the holder is required to report such income.
The affirmative vote of the holders of a majority of the votes cast on the
proposal is required to approve the Amended and Restated Stock Incentive Plan.
THE MBI BOARD RECOMMENDS A VOTE "FOR" THE AMENDED AND RESTATED STOCK INCENTIVE
PLAN.
PROPOSAL TO ADOPT THE MBI AMENDED AND RESTATED EXECUTIVE INCENTIVE
COMPENSATION PLAN
The MBI 1994 Executive Incentive Compensation Plan (the "Executive Incentive
Compensation Plan"), approved by the shareholders of MBI in April 1994,
provides selected senior MBI officers with annual bonus opportunities based
upon preestablished performance objectives.
The Executive Incentive Compensation Plan is designed to qualify such bonus
opportunities as "performance based" under federal tax legislation enacted in
1993. Under regulations of the Service issued following adoption of the
Executive Incentive Compensation Plan, bonus opportunities must be based upon
preestablished shareholder approved performance objectives under the plan and
such plan must provide the "maximum dollar amount" that may be payable in
respect of such opportunities in any year, if such payments are to be
deductible to the plan sponsor as "performance-based" compensation. To ensure
that such payments are deductible to the maximum extent possible, the MBI
Board adopted the MBI Amended and Restated Executive Incentive Compensation
Plan (the "Amended and Restated Executive Incentive Compensation Plan"),
subject to shareholder approval, which will conform to such regulations,
extend the period the Executive Incentive Compensation Plan is to remain in
effect and provide additional financial measures upon which the performance
objectives are to be determined.
The complete text of the Amended and Restated Executive Incentive
Compensation Plan is set forth in Annex H to this Proxy Statement/Prospectus.
The following summary of the Amended and Restated Executive Incentive
Compensation Plan is subject to the provisions contained in the complete text.
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[ADDITIONAL PAGE TO MBI SHAREHOLDERS ONLY]
DESCRIPTION OF THE AMENDED AND RESTATED EXECUTIVE INCENTIVE COMPENSATION
PLAN. The Amended and Restated Executive Incentive Compensation Plan provides
for the creation of an aggregate bonus pool for annual incentive opportunities
based on MBI's performance for the applicable year versus preestablished
objectives. The current performance objectives include net income, return on
assets, earnings per share growth, overhead ratio, expense to assets ratio,
total shareholder return and net interest rate margin. Upon shareholder
approval at this MBI Annual Meeting of the Amended and Restated Executive
Incentive Compensation Plan, two new performance objectives will be available,
return on equity and shareholder value added measures, where shareholder value
added generally represents net operating profits after taxes, less an equity
capital charge. Such performance objectives may be applied individually or in
any combination and may be established on a corporate-wide basis or with
respect to one or more operating units, divisions, acquired businesses,
divestitures, minority interests, partnerships or joint ventures, or, where
applicable, on a relative or absolute basis or on a per share or an aggregate
basis.
All senior officers of MBI, including, without limitation, the Chief
Executive Officer and other key executives of MBI, are eligible to participate
in the Amended and Restated Executive Incentive Compensation Plan. The
Compensation Committee will administer the Amended and Restated Executive
Incentive Compensation Plan, and by majority action thereof, is authorized in
its sole discretion to determine the senior officers who are to participate in
the Amended and Restated Executive Incentive Compensation Plan and the amount
and terms of any and all awards made thereunder. The Compensation Committee is
also authorized to interpret the Amended and Restated Executive Incentive
Compensation Plan, to prescribe, amend and rescind rules and regulations
relating to the Amended and Restated Executive Incentive Compensation Plan, to
provide for conditions and assurances deemed necessary or advisable to protect
the interests of MBI, and to make all other determinations necessary or
advisable for the administration of the Amended and Restated Executive
Incentive Compensation Plan to the extent not contrary to the express
provisions thereof.
Each participating employee is assigned a target bonus award at the start of
each year. Target awards are expressed as a percent of base salary, as of the
start of the applicable performance year. Actual individual awards, subject to
adjustment as described below, are determined based upon a participant's
performance as compared to preestablished individual targets derived from one
of the shareholder-approved performance objectives set forth in the plan.
The Amended and Restated Executive Incentive Compensation Plan also provides
for additional bonus opportunity based upon the attainment of stretch
objectives which are preestablished with a high degree of difficulty of
attainment. The Compensation Committee determines the objectives from among
those criteria cited previously.
Upon shareholder approval of the Amended and Restated Executive Incentive
Compensation Plan at this MBI Annual Meeting, the maximum dollar amount of
awards which may be paid to any participant is one-half of one percent of
MBI's net income, as reported in MBI's audited financial statements, excluding
conforming adjustments and such other non-recurring or extraordinary items as
the Compensation Committee determines are not representative of MBI's ongoing
operations.
Upon shareholder approval of the Amended and Restated Executive Incentive
Compensation Plan, the plan will remain in effect until (i) the date the MBI
Board terminates the plan, or (ii) April 23, 2002, whichever shall first
occur. The MBI Board, by majority action thereof, at any time may terminate
and from time to time make further amendments or modifications to the Amended
and Restated Executive Incentive Compensation Plan; provided, however, that no
such action of the MBI Board may, without the approval of the shareholders of
MBI, cause the Amended and Restated Executive Incentive Compensation Plan not
to comply with either Rule 16b-3 under the Exchange Act or Section 162(m) of
the Code. No amendment, modification or termination of the Amended and
Restated Executive Incentive Compensation Plan shall in any manner adversely
affect any award theretofore granted under the plan, without the consent of
the participant affected thereby.
The affirmative vote of the holders of a majority of the votes cast on the
proposal is required to approve the Amended and Restated Executive Incentive
Compensation Plan. THE MBI BOARD RECOMMENDS A VOTE "FOR" THE AMENDED AND
RESTATED EXECUTIVE INCENTIVE COMPENSATION PLAN.
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EXPLANATORY NOTE: These additional pages 16-1 to 16-13 relate solely to
matters to be considered at the MBI Annual Meeting and will be inserted at the
end of the section entitled "MBI ANNUAL MEETING" as set forth in the Table of
Contents in the Proxy Statement/Prospectus to be delivered to MBI shareholders
only. These additional pages contain MBI proxy statement information only and
shall not be deemed to constitute prospectus information.
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
The following table sets forth the name and address of each beneficial owner
of five percent or more of MBI Common Stock known to MBI, showing the amount
and nature of such beneficial ownership and percent of class:
<TABLE>
<CAPTION>
PERCENT OF
CLASS OF
MBI COMMON
NAME AND ADDRESS AMOUNT AND NATURE STOCK, %5.00 PAR
OF BENEFICIAL OWNER OF BENEFICIAL OWNERSHIP VALUE(1)
------------------- ------------------------ ----------------
<C> <S> <C> <C>
Mercantile Bank National Sole Voting Power....... 3,455,216
Association(/2/) Shared Voting Power..... 1,204,803
("Mercantile Bank" or Sole Investment Power... 2,567,776
Shared Investment
"MBNA") Power................... 356,715
P.O. Box 387 Total................... 5,226,077 8.7%
St. Louis, Missouri
63166
Mr. Frank Lyon, Jr.(/3/) Sole Voting Power....... 4,553,262
One Riverfront Place Shared Voting Power..... 0
Suite 400 Sole Investment Power... 4,553,262
Shared Investment
North Little Rock, Power................... 0
Arkansas 72114 Total................... 4,533,262 7.6%
Delaware Management Sole Voting Power....... 267,970
Holdings, Inc.(/4/) Shared Voting Power..... 0
2005 Market Street Sole Investment Power... 3,689,714
Shared Investment
Philadelphia, Power................... 175,000
Pennsylvania 19103 Total................... 3,864,714(4) 6.4%
</TABLE>
- --------
(1) Based upon 60,209,008 shares outstanding as of the MBI Record Date.
(2) Includes shares beneficially owned by MBNA, and certain other affiliates
of MBI as of February 10, 1997. MBI has been advised that the shares held
as sole fiduciary by MBNA and such affiliates will be voted at the MBI
Annual Meeting for each of the persons nominated by the MBI Board for
election as a director and for each of the proposals set forth on the
Notice of MBI 1997 Annual Meeting and as further described herein. MBNA
and such affiliates will also recommend to all trustees and co-executors
that they vote in a similar manner.
(3) Based upon information contained in a Schedule 13G dated February 8, 1996,
as amended, and a Form 5 dated February 6, 1997, both filed with the
Commission, Frank Lyon, Jr. is the indirect beneficial owner of such
shares, which are held of record by the Lyon 72/95 Limited Partnership
(1,801,903 shares) and the Lyon 87/95 Limited Partnership (2,751,559
shares).
(4) Based upon information contained in a jointly filed Schedule 13G dated
December 31, 1996 and received by MBI on February 19, 1997, Delaware
Management Holdings, Inc. and Delaware Management Company, Inc. are each
deemed to be the beneficial owners, direct or indirect, of such shares.
16-1
<PAGE>
[ADDITIONAL PAGE TO MBI SHAREHOLDERS ONLY]
BOARD OF DIRECTORS AND COMMITTEES
During 1996, there were six meetings of the MBI Board. All of the directors
attended not less than 75% of the aggregate number of meetings of the MBI
Board and of the committees on which they served during the year, except Mr.
Mueller.
The standing committees of the MBI Board as of year-end 1996 included the
Audit Committee, the Business Policy Committee, the Compensation and
Management Development Committee, the Executive Committee and the Nominating
and Board Affairs Committee.
The members of the Audit Committee are Messrs. John A. Wright, Chairman,
William A. Hall and Edward A. Mueller. The Audit Committee met four times in
1996. The duties of the Audit Committee include meeting with the independent
auditors, management, internal auditors and credit review personnel
periodically to review the work of each and ensure that each is properly
discharging its responsibilities.
The members of the Business Policy Committee are Messrs. Patrick T. Stokes,
Chairman, Frank Lyon, Jr., Robert W. Murray, Craig D. Schnuck and Robert L.
Stark. The Business Policy Committee met two times in 1996. The Business
Policy Committee, among other things, reviews bank and non-bank service and
product offerings and regulatory agency-imposed or other legally required
credit and noncredit-related policies, guidelines and/or procedures.
The members of the Compensation and Management Development Committee are
Messrs. Harry M. Cornell, Jr., Chairman, Thomas A. Hays and Harvey Saligman.
The Compensation and Management Development Committee, which met four times in
1996, reviews and approves the salaries of executive officers of the
Corporation and Mercantile Bank, as well as selected subsidiary chief
executive officers, and authorizes all other forms of executive compensation.
The Compensation and Management Development Committee administers MBI's
executive incentive plans.
The members of the Executive Committee are Messrs. Thomas H. Jacobsen,
Chairman, Harry M. Cornell, Jr., Thomas A. Hays, Patrick T. Stokes and John A.
Wright. The Executive Committee may exercise all powers of the MBI Board which
may lawfully be delegated when the MBI Board is not in session. The Executive
Committee met six times in 1996.
The members of the Nominating and Board Affairs Committee, which proposes
nominees for election to the MBI Board, are Messrs. Thomas A. Hays, Chairman,
Harry M. Cornell, Jr. and Thomas H. Jacobsen. The Nominating and Board Affairs
Committee will consider written recommendations of shareholders with regard to
potential nominees. Shareholder recommendations must contain certain
information regarding the potential nominee and comply with certain
requirements for presentation as set forth in MBI's By-Laws. The Nominating
and Board Affairs Committee met three times in 1996.
DIRECTORS' FEES
Directors who are not officers of MBI or any of its subsidiaries are paid an
annual retainer of $15,000 ($17,000 for Committee Chairmen), as well as $1,000
for attendance at each meeting of the MBI Board and $500 for attendance at
meetings of its standing committees.
Pursuant to the MBI 1994 Stock Incentive Plan for Non-Employee Directors
(the "Director Plan"), each director not otherwise employed by MBI and its
subsidiaries receives stock units ("Stock Units"), each of which is the
equivalent of one share of MBI Common Stock, as additional consideration for
services rendered or to be rendered to the Corporation. Stock Units are
awarded annually at the time of the annual meeting of MBI's shareholders
("Annual Awards"), and quarterly at the time dividends are payable in respect
of MBI Common Stock ("Quarterly Awards"). Stock Units so awarded are credited
to accounts (each a "Stock Unit Account")
16-2
<PAGE>
[ADDITIONAL PAGE TO MBI SHAREHOLDERS ONLY]
established by MBI for the benefit of each non-employee director. Annual
Awards are limited to the lesser of (i) the number of Stock Units determined
by dividing Ten Thousand Dollars ($10,000.00) by the "Fair Market Value" of
MBI Common Stock (as defined in the Director Plan) at the time of the award,
or (ii) one hundred fifty (150). Quarterly Awards of Stock Units will be equal
to (i) the product of the per-share dividend payable with respect to MBI
Common Stock on the date of the award, multiplied by the number of Stock Units
previously credited to a director's Stock Unit Account, divided by (ii) the
"Fair Market Value" of a share of MBI Common Stock on that date. During 1996,
non-employee directors received a total of 2,926 Stock Units in Annual and
Quarterly Awards.
In addition, pursuant to the Director Plan, a non-employee director can
elect to defer until after the termination of services as a director (or
earlier change in control of MBI) the receipt of all or a portion of the
retainer and/or fees to which such director is entitled. Amounts so deferred
will be credited, at the option of the electing director, to either (i) an
interest-bearing cash account established by MBI for the benefit of such
director (each a "Cash Account") which will be adjusted for gains or losses
based upon an investment index selected by such director, or (ii) such
director's Stock Unit Account. Deferred cash amounts credited to a Stock Unit
Account will be contemporaneously converted to Stock Units on a Fair Market
Value-equivalent basis.
The total number of Stock Units in a non-employee director's Stock Unit
Account and amounts, if any, credited to such director's Cash Account shall be
distributed to the director in the form of an equivalent number of shares of
MBI Common Stock and in cash, respectively, following the termination of
service of such director (or earlier change in control of MBI). In lieu of
fractional shares of MBI Common Stock, each director entitled to receive
payments in respect of Stock Units will receive cash in an amount determined
by multiplying the fractional share interest to which such director would
otherwise be entitled by the then Fair Market Value thereof.
16-3
<PAGE>
[ADDITIONAL PAGE TO MBI SHAREHOLDERS ONLY]
BENEFICIAL OWNERSHIP OF STOCK BY MANAGEMENT
The following information is furnished as of the MBI Record Date, to
indicate beneficial ownership of shares of MBI Common Stock by each director
and executive officer named in the Summary Compensation Table, individually,
and all directors and executive officers as a group:
<TABLE>
<CAPTION>
SHARES
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED(1) STOCK UNITS(2)
------------------------ ------------------ -----------
<S> <C> <C>
Harry M. Cornell, Jr................ 2,100 1,918
William A. Hall..................... 4,438(3) 962
Thomas A. Hays...................... 5,700(4) 14,527
Thomas H. Jacobsen.................. 546,482(5) 0
Frank Lyon, Jr...................... 4,553,262(6) 913
Edward A. Mueller................... 100 153
Robert W. Murray.................... 91,616(7) 223
Harvey Saligman..................... 4,624(8) 2,964
Craig D. Schnuck.................... 4,250(9) 476
Robert L. Stark..................... 2,317(10) 3,483
Patrick T. Stokes................... 750 1,301
John A. Wright...................... 1,379(11) 2,264
W. Randolph Adams................... 78,970(12),(13) 0
John H. Beirise..................... 49,110(12),(14) 8,866
Richard C. King..................... 206,502(12),(15) 3,061
John W. McClure..................... 102,508(12),(16) 3,863
Directors, and executive officers as
a group (22 persons)............... 5,922,212(12) 44,974
</TABLE>
- --------
(1) Based on 60,209,008 shares outstanding as of the MBI Record Date,
director Frank Lyon, Jr. indirectly beneficially owned 7.6 percent of the
outstanding MBI Common Stock. No other director or executive officer
beneficially owned in excess of one percent of the outstanding MBI Common
Stock. All directors and executive officers as a group beneficially owned
9.8% of the outstanding MBI Common Stock (includes shares subject to
options which are currently exercisable and options which will become
exercisable within 60 days of the MBI Record Date). Unless otherwise
noted, each individual named has sole voting and investment power with
respect to all shares listed as beneficially owned.
(2) Includes Stock Units held in deferred compensation accounts. Stock Units
are convertible into an equal number of shares of MBI Common Stock.
(3) Mr. Hall holds all of the shares included above in the William Austin
Hall Revocable Trust.
(4) Mr. Hays holds all of the shares included above in a limited partnership,
the general partner of which partnership is a revocable trust of which
Mr. Hays is grantor, trustee and beneficiary. Mr. Hays is additionally, a
limited partner in such partnership. Mr. Hays has shared voting and
investment power with respect to these shares.
(5) Mr. Jacobsen holds 99,900 shares included above that are restricted
shares subject to forfeiture and reversion back to MBI in the event that
Mr. Jacobsen terminates his employment with MBI during specified time
periods. Mr. Jacobsen holds 72,373 shares included above in a trust of
which Mr. Jacobsen is trustee. The total set forth in the table above
also includes 366,450 shares subject to stock options held by Mr.
Jacobsen that are either presently exercisable or which are exercisable
within 60 days of the MBI Record Date.
(6) Mr. Lyon holds all of the shares included above in two limited
partnerships, the limited partner and sole shareholder of the corporate
general partner of each being revocable trusts of which Mr. Lyon is the
grantor, trustee, and beneficiary.
16-4
<PAGE>
[ADDITIONAL PAGE TO MBI SHAREHOLDERS ONLY]
(7) The total set forth above includes 34,664 shares which are owned by Mr.
Murray's wife and over which he has no voting or investment power, and
32,962 shares which are subject to stock options held by Mr. Murray that
are either presently exercisable or exercisable within 60 days of the MBI
Record Date.
(8) Mr. Saligman disclaims beneficial ownership of 459 shares included above
which are owned by his wife and 1,728 shares included above which are
owned by his wife as custodian for three children. Mr. Saligman has no
voting or investment power with respect to these shares.
(9) Mr. Schnuck holds all of the shares included above jointly with his wife.
Mr. Schnuck has shared voting and investment power with respect to these
shares.
(10) Mr. Stark holds all of the shares included above in a revocable trust of
which Mr. Stark is grantor, trustee and beneficiary.
(11) Mr. Wright holds all of the shares included above jointly with his wife.
Mr. Wright has shared voting and investment power with respect to these
shares.
(12) As of the MBI Record Date, Messrs. Adams, Beirise, King and McClure and
all directors and executive officers as a group held 20,000, 20,250,
15,000, 20,000 and 241,150 shares, respectively, included above that are
restricted shares subject to forfeiture by and reversion back to MBI in
the event that the executive officer terminates his employment with MBI
during specified time periods. The totals set forth in the table above
also include 47,250, 21,000, 24,900, 63,750, and 708,884 shares subject
to stock options held by Messrs. Adams, Beirise, King and McClure, and
all directors and executive officers as a group, respectively, that are
either presently exercisable or which are exercisable within 60 days of
the MBI Record Date.
(13) Mr. Adams holds 2,335 of the shares included above jointly with his wife.
Mr. Adams has shared voting and investment power with respect to these
shares.
(14) Mr. Beirise disclaims beneficial ownership of 150 shares included above
which are owned by his wife.
(15) Mr. King disclaims beneficial ownership of a total of 50,788 shares,
16,479 of which are held by a family trust, 17,155 of which are held in
an irrevocable trust for the benefit of his daughter, and 17,154 of which
are held in an irrevocable trust for the benefit of his son.
(16) The total set forth above includes 277 shares which are owned by Mr.
McClure's wife and over which he has no voting or investment power, and
4,940 shares which are held jointly with his wife and over which he has
shared voting and investment power.
16-5
<PAGE>
[ADDITIONAL PAGE TO MBI SHAREHOLDERS ONLY]
COMPENSATION AND MANAGEMENT DEVELOPMENT COMMITTEE REPORT TO SHAREHOLDERS
REGARDING EXECUTIVE COMPENSATION
Overall Policy. The design of MBI's executive compensation program links the
compensation of its executives directly to achievement of specific corporate
and/or business unit performance goals and returns to shareholders. The
overall objectives in this strategy are to attract and retain the best
possible executive talent, to motivate these executives to achieve the goals
contained in MBI's business strategy, to link executive and shareholder
interests through equity-based plans and to provide a compensation package
that recognizes and rewards individual contributions, including job
performance, as well as overall business results. While the strongest
competitors for executive talent are believed to be regional bank holding
companies with assets of greater than $20 billion located throughout the
United States, competitor companies for certain executive positions may be
non-banking companies.
During 1996, the Compensation and Management Development Committee (the
"Compensation Committee") conducted a comprehensive review of MBI's executive
compensation program. This review included an assessment of the market
competitiveness of base salaries, annual cash incentives and long-term equity-
based compensation of its executives and a relative comparison of corporate
performance and total return to shareholders to the bank holding companies
included in the Keefe, Bruyette and Woods 50 Index (the "KBW 50 Index"), which
consists of 50 of the larger United States bank holding companies.
The Compensation Committee determines the compensation of all of the
executive officers who report to Mr. Jacobsen and serve on MBI's Management
Executive Committee ("senior management officers"), including the named
executive officers whose compensation is detailed in this Proxy
Statement/Prospectus. The Compensation Committee also approves the design of
compensation policies for approximately 250 other officers, who are the next
most highly compensated officers of MBI and its subsidiaries. In reviewing the
individual performance of the officers whose compensation is detailed in this
Proxy Statement/Prospectus (other than Mr. Jacobsen), the Compensation
Committee takes into account the views of Mr. Jacobsen.
The key elements of MBI's executive compensation program consist of base
salary, annual performance-based cash incentives and stock-based incentives,
such as stock options, restricted performance units and restricted stock.
While the elements of compensation are considered separately, the Compensation
Committee's policies take into account the total compensation package of each
senior management officer, including pension benefits, supplemental retirement
benefits, insurance and other benefits. The Compensation Committee's policies
with respect to each element of executive compensation are discussed below.
Base Salaries. Base salaries for senior management officers are initially
determined by evaluating the responsibilities of the position held and the
skills, knowledge and experience of the individual, and by referring to the
competitive marketplace for executive talent, including a comparison of base
salaries for comparable positions at other companies deemed to be competitors
of MBI in the hiring of comparable executive officers. Since there is a
positive correlation between the asset size of banking institutions and the
salaries of senior management officers, MBI targets base salary levels for
senior management officers by comparison to average salaries paid for
comparable positions with banks included in the KBW 50 Index on an asset-size
adjusted basis.
Individual salary adjustments for senior management officers are determined
annually by evaluating the performance of each officer and the performance of
the business unit for which he/she is responsible (e.g. annual and long-term
net income, overhead, expense-to-assets ratio, return on assets and return on
equity goals) during the preceding year and, when applicable, taking into
account new responsibilities assigned to the officer during the year.
Generally, for 1996, senior management officers received base salary increases
of 9% on average over their prior base salary levels.
16-6
<PAGE>
[ADDITIONAL PAGE TO MBI SHAREHOLDERS ONLY]
The assets of MBI grew by 51.4% during the two-year period ended December
31, 1995. The base salary paid to Mr. Jacobsen in 1996 was increased by 10%
over 1995 to ensure a base salary which is competitive in the external
marketplace on an asset-size adjusted basis. The increase is also reflective
of MBI's success in meeting its financial goals in 1995 and the Compensation
Committee's assessment of Mr. Jacobsen's individual performance.
Annual Incentives. Each senior management officer is eligible for an annual
cash incentive award. This cash award is designed to provide an incentive for
the participating senior management officers to achieve annual performance
goals which are based on individual, business unit and corporate measures. For
1996, the target opportunities for such officers, expressed as a percent of
base salary, were based upon the median of incentive opportunities for similar
positions at the companies included in the KBW 50 Index. Performance
objectives for the funding of the annual incentive target opportunities were
based on achievement of net income and return on asset goals set by the
Compensation Committee during the first quarter of 1996. Additionally, each
officer was given specific objectives with respect to the Corporation,
business unit and individual performance, including, but not limited to, net
income, return on equity, asset growth, asset quality, deposit growth and
productivity improvement. Incentive awards reflect the degree to which 1996
objectives were met. Mr. Jacobsen participates in the MBI 1994 Executive
Incentive Compensation Plan, which was approved by the shareholders at the
1994 Annual Meeting of Shareholders. For 1996, Mr. Jacobsen's incentive target
was based on the Corporation's achievement of strategic objectives for net
income, return on assets and return on equity. His incentive award reflects
the degree to which the objectives were met.
Stock-Based Incentives. Under the MBI 1994 Stock Incentive Plan, stock
options, restricted performance units and restricted stock may be granted to
senior management officers. The Compensation Committee sets guidelines for the
size of stock option, restricted performance unit and restricted stock awards
based on the responsibilities of the position held, the skills, knowledge and
experience of the senior management officer, competitive compensation data
from the peer group and the Corporation's financial performance. Stock-based,
long-term incentives are targeted to the 75th percentile practices of the
companies included in the KBW 50 Index. While such stock-based incentives
primarily reflect competitive practices, past incentive awards are also
considered.
Stock options, restricted performance units and restricted stock are
designed to align the interests of senior management officers with those of
the shareholders. Stock options are granted with an exercise price equal to
the market price of the MBI Common Stock on the date of grant and generally
vest over four years beginning one year following the date of grant.
Restricted performance units granted in 1996 will fully or partially vest
based upon achievement of MBI's three-year earnings per share growth target.
In 1996, Mr. Jacobsen received no stock option awards, but was awarded 12,000
restricted performance units.
Restricted stock is generally awarded to a senior management officer in
recognition of their value to the Corporation and as a means to ensure their
continued service. Restricted stock awards typically vest over a period of at
least five years. This approach is designed to focus the executives on the
creation of shareholder value over the long term since the full benefit of the
compensation package cannot be realized unless stock price appreciation occurs
over a number of years. Mr. Jacobsen received no restricted stock award in
1996.
Executive Stock Ownership Guidelines. In 1994, MBI adopted stock ownership
guidelines for senior management officers. Officers as of January 1, 1994 have
until December 31, 1998 to acquire the specified number of shares of MBI
Common Stock. Those who become senior management officers after that date have
five years thereafter to acquire the specified number of shares. The
guidelines for Mr. Jacobsen and line and staff senior management officers are
78,750, 19,800 and 10,800 shares, respectively.
Deductibility of Executive Officer Compensation. The Compensation
Committee's policy with respect to the tax deductibility of executive
compensation in excess of $1 million is to structure benefit plans in such a
16-7
<PAGE>
[ADDITIONAL PAGE TO MBI SHAREHOLDERS ONLY]
manner that permits the deductibility of such compensation under Section 162(m)
of the Code when MBI can do so without material change to its overall
compensation program.
THE COMPENSATION AND MANAGEMENT
DEVELOPMENT COMMITTEE
HARRY M. CORNELL, JR.
(CHAIRMAN)
THOMAS A. HAYS HARVEY SALIGMAN
16-8
<PAGE>
[ADDITIONAL PAGE TO MBI SHAREHOLDERS ONLY]
COMPENSATION OF EXECUTIVE OFFICERS
Summary Compensation Table. The following table sets forth the compensation
of the named executive officers for each of the last three years:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG
TERM COMPENSATION
-----------------------------
PAY-
ANNUAL COMPENSATION AWARDS OUTS(2)
---------------------------- --------------------- -------
OTHER RESTRICTED SECURITIES ALL OTHER
ANNUAL STOCK UNDERLYING COMPEN-
SALARY BONUS COMPENSATION AWARDS(1) OPTIONS RPUS SATION(3)
NAME & PRINCIPAL POSITION YEAR ($) ($) ($) ($) (#) ($) ($)
- ------------------------- ---- ------- ------- ------------ ---------- ---------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Thomas H. Jacobsen...... 1996 633,000 554,318 79,126 0 0 586,506 121,700
Chairman of the Board,
President and 1995 573,600 516,240 68,835 2,737,500 0 0 118,330
Chief Executive Officer,
MBI 1994 546,300 477,944 46,099 0 108,000 0 83,530
John W. McClure......... 1996 337,800 211,455 18,629 0 0 184,795 47,392
Group President-- 1995 268,763 161,257 14,778 855,000 0 0 37,663
Community Banking, MBI 1994 230,000 134,148 5,879 0 33,750 0 25,052
Richard C. King......... 1996 284,000 142,000 11,414 0 0 142,141 47,765
Chairman, President and 1995 273,000 163,800 8,294 641,250 0 0 44,579
Chief
Executive Officer, 1994 260,000 136,481 7,476 0 24,750 0 33,925
Mercantile Bank
W. Randolph Adams....... 1996 337,800 87,828 21,265 0 0 184,795 47,880
Chairman and Chief 1995 268,763 147,819 13,024 855,000 0 0 40,356
Executive
Officer, MBNA and 1994 230,000 145,348 6,840 0 33,750 0 26,983
Mercantile
Trust Company N.A.
John H. Beirise......... 1996 249,600 139,738 19,658 0 0 184,795 35,353
Group President-- 1995 223,607 128,574 50,148 641,250 0 0 27,510
Capital Markets 1994 182,000 99,782 5,528 0 33,750 0 25,367
(Kansas/Kansas City)
</TABLE>
- --------
(1) Restricted stock awarded to Messrs. Jacobsen and Adams vests at the rate
of 25% of total shares each year, commencing forty-three months from the
date of issuance in the case of Mr. Jacobsen and thirty-six months from
the date of issuance in the case of Mr. Adams. Restricted stock awarded to
Messrs. McClure, King and Beirise vests at the rate of 25% of total shares
each year, commencing two years from the date of issuance in the case of
Messrs. King and McClure and four years from the date of issuance in the
case of Mr. Beirise. As of December 31, 1996, Messrs. Jacobsen, McClure,
King, Adams and Beirise held an aggregate of 99,900, 20,000, 15,000,
25,250, and 22, 875 shares of restricted stock, respectively (including
the restricted stock awards referred to in the table), having an aggregate
value on such date of $5,132,363, $1,027,500, $770,625, $1,297,219, and
$1,175,203, respectively. Holders of shares of restricted stock will
receive dividends on such shares during the period of restriction.
(2) Restricted Performance Unit payouts represent achievement of 81.86% of the
accumulated earnings per share growth target established in 1994 for the
1994 through 1996 performance period. Holders of restricted performance
units receive dividend equivalent rights on the units during the
restriction period. The earned units were converted to MBI Common Stock as
of close of business February 28, 1997.
(3) Included in the totals set forth in this column in respect of Messrs.
Jacobsen, McClure, King, Adams and Beirise are the profit sharing and/or
matching contributions of $80,727, $33,685, $33,501, $32,789 and $24,428,
for their respective accounts under MBI's Horizon Savings and Incentive
Plan, Supplemental Savings Plan and Stock Purchase Plan, and premiums of
$40,973, $13,707, $14,264, $15,091 and $10,925 paid by MBI on non-split
dollar life insurance policies for such officers, respectively, under
MBI's Management Life Insurance Plan.
16-9
<PAGE>
[ADDITIONAL PAGE TO MBI SHAREHOLDERS ONLY]
Option Grants in Last Fiscal Year. None of the individuals named in the
Summary Compensation Table received stock option grants in the fiscal year
ended December 31, 1996.
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year End Option
Values. None of the individuals named in the Summary Compensation Table
exercised stock options in the fiscal year ended December 31, 1996. The
following table sets forth information concerning options remaining
unexercised at December 31, 1996 that were held by the individuals named in
the Summary Compensation Table:
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT OPTIONS/SARS AT
FISCAL YEAR-END (#) FISCAL YEAR END(1) ($)
EXERCISABLE/ EXERCISABLE/
NAME UNEXERCISABLE UNEXERCISABLE
---- ---------------------- ----------------------
<S> <C> <C>
Thomas H. Jacobsen............. 307,350/123,900 8,100,860/2,338,613
W. Randolph Adams.............. 33,000/34,500 679,125/651,188
John H. Beirise................ 14,250/27,000 316,469/509,625
Richard C. King................ 16,200/23,550 305,775/444,506
John W. McClure................ 49,500/34,500 1,197,062/651,188
</TABLE>
- --------
(1) Based on a price per share of $51.375, being the closing sale before the
1996 fiscal year end.
LONG-TERM INCENTIVE PLANS--AWARDS IN LAST FISCAL YEAR
The following table sets forth information concerning stock-based awards
granted to the individuals named in the Summary Compensation Table in 1996
under the MBI 1994 Stock Incentive Plan.
<TABLE>
<CAPTION>
ESTIMATED FUTURE PAYOUTS
UNDER NON-STOCK
NUMBER OF PERFORMANCE OR PRICE-BASED PLANS
SHARES, UNITS OTHER PERIOD -------------------------
OR OTHER UNTIL MATURATION MINIMUM MAXIMUM
NAME RIGHTS (#)(1) OR PAYOUT (#) (#)
---- ------------- ---------------- ------------ ------------
<S> <C> <C> <C> <C>
Thomas H. Jacobsen.... 12,000 1/96-12/98 4,800 12,000
W. Randolph Adams..... 3,900 1/96-12/98 1,560 3,900
John H. Beirise....... 3,900 1/96-12/98 1,560 3,900
Richard C. King....... 3,900 1/96-12/98 1,560 3,900
John W. McClure....... 3,900 1/96-12/98 1,560 3,900
</TABLE>
- --------
(1) The named individuals were granted restricted performance units under the
terms of the MBI 1994 Stock Incentive Plan. Such restricted performance
units are convertible into an equal number of shares of MBI Common Stock
upon the achievement of specified earnings per share growth targets. The
executives will vest in 40% of the units if stated minimum performance is
achieved with incremental increases in the percentage of units vested up
to 100% or the maximum amount of the grant in the event that the stated
maximum performance is achieved. Failure to achieve the minimum
performance target will result in forfeiture of the award. In the event of
a change in control of MBI, as that term is defined in the MBI 1994 Stock
Incentive Plan, restricted performance units are convertible into shares
of MBI Common Stock in proportion to the time elapsed between the
beginining of the performance period to the change in control date as
related to the entire performance period; the remainder would be converted
into restricted stock on which restrictions would lapse on the date the
performance period is scheduled to end.
EMPLOYMENT ARRANGEMENTS
None of the senior management officers of MBI, including those named in the
Summary Compensation Table, are parties to any employment agreements with the
Corporation, except Mr. Jacobsen. The agreement pertaining to Mr. Jacobsen
provides that if his employment is terminated prior to the end of the term of
the agreement by Mr. Jacobsen for good reason or by MBI for any reason other
than death, disability or cause, MBI
16-10
<PAGE>
[ADDITIONAL PAGE TO MBI SHAREHOLDERS ONLY]
will be obligated to continue the then-current base salary of Mr. Jacobsen and
all benefits for the remaining term of the agreement.
Each of the officers named in the Summary Compensation Table and certain
other senior management officers are protected by substantively similar
contractual provisions from a decrease in compensation, benefits, title or
duties for a period of three years after a change in control of MBI. Under
such provisions, each such officer will be entitled to receive an amount equal
to such officer's then-current annual base salary and annual bonus in the
event that such officer remains employed with MBI through the first
anniversary of the change in control. Such agreements additionally provide
that if there is a decrease in compensation and responsibilities of such
officer or if such officer's employment is terminated for any reason other
than good cause or if such officer resigns for good reason (or in the case of
Mr. Jacobsen, if Mr. Jacobsen resigns for any reason within 13 months) after a
change in control, MBI will be obligated to pay a lump-sum amount equal to
twice such officer's then-current annual base salary and annual bonus, plus
the value of certain other retirement benefits and other payments foregone due
to the termination, and to continue all employee benefits through the
remaining term of the agreement. If it is determined that any payments made to
an officer pursuant to this agreement would subject such officer to an excise
tax pursuant to Section 4999 of the Code, MBI will also be obligated to pay to
such officer an additional amount sufficient to put the officer in the same
after-tax position as he would have been in had no excise tax been imposed on
such payment.
RETIREMENT PLANS
The following table shows the estimated annual pension benefit payable to a
covered participant at normal retirement age (65) under MBI's qualified
Retirement Plan and Trust (the "Retirement Plan") as well as MBI's
nonqualified Supplemental Retirement Plan (the "Supplemental Plan"). The
Supplemental Plan provides benefits to certain participants that would
otherwise be denied them by reason of certain Code limitations on Retirement
Plan benefits.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF SERVICE(1,2)
FINAL AVERAGE -------------------------------------------
SALARY 10 15 20 25 30
- ------------- ------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$ 450,000.......................... $74,056 $111,084 $148,113 $185,141 $222,169
650,000........................... 107,556 161,334 215,113 268,891 322,669
850,000........................... 141,056 211,584 282,113 352,641 423,169
1,050,000.......................... 174,556 261,834 349,113 436,391 523,669
1,250,000.......................... 208,056 312,084 416,113 520,141 624,169
1,450,000.......................... 241,556 362,334 483,113 603,891 724,669
</TABLE>
- --------
(1) The credited years of service for the five individuals listed in the
Summary Compensation Table have been determined to be 16 for Mr. Jacobsen,
5 for Mr. Adams, 4 for Mr. Beirise, 4 for Mr. King and 24 for Mr. McClure.
(2) The maximum amount payable under the Retirement Plan is limited by the
Code to $125,000 annually, subject to cost of living increases after 1996,
certain transition rules applicable to benefits accrued before July 1,
1982 and reduction by reason of contributions under tax-qualified defined
contribution plans maintained by MBI. To the extent benefits under the
Retirement Plan are limited by the Code, they will be paid under the
Supplemental Plan.
Under these plans, eligible employees receive annual retirement benefits
based upon the highest "Average Annual Salary" received for any period of 60
consecutive months preceding the date of termination of employment (the "Final
Average Annual Salary"). "Average Annual Salary" is defined as all
compensation received by a participant for personal services performed for MBI
or a subsidiary as an employee (other than
16-11
<PAGE>
[ADDITIONAL PAGE TO MBI SHAREHOLDERS ONLY]
compensation pursuant to plans, which is specifically excluded by the terms of
the Retirement Plan and the Supplemental Plan). The compensation covered by
the definition of "Average Annual Salary" for each of the five individuals
named in the Summary Compensation Table is equal to the sum of the "Salary"
and "Bonus" columns of the Summary Compensation Table with respect to each
individual. The table above presents annual retirement benefits payable as a
single life annuity under both plans combined. Such retirement benefits are
not subject to reductions for social security benefits or other offset
amounts.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN AMONG MBI, S&P 500 AND KBW 50
INDICES
The following graph compares quarterly cumulative five-year shareholder
returns (including reinvestment of dividends) on an indexed basis with the S&P
500 Stock Index and the KBW 50 Index, which is composed of 50 of the nation's
larger banking companies, including all money-center and most major regional
banks:
<TABLE>
<CAPTION>
PERIOD ENDING
-----------------------------------------------------
INDEX 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96
----- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Mercantile Bancorporation
Inc. ................... 100.00 132.63 127.93 137.36 208.61 241.02
S&P 500.................. 100.00 107.62 118.47 120.03 165.13 202.89
KBW 50................... 100.00 131.74 141.21 133.63 208.11 293.76
</TABLE>
INTEREST OF MANAGEMENT AND OTHERS IN CERTAIN TRANSACTIONS
The officers and directors of MBI are at present, as in the past, customers
of one or more of MBI's subsidiary banks and have had and expect to have
transactions with such banks in the ordinary course of business. In addition,
certain of the officers and directors of MBI are at present, as in the past,
also executive officers or principal shareholders of corporations which are
customers of such banks and which have had and expect to have transactions
with such banks in the ordinary course of business. All such transactions were
made in the ordinary course of business, were made on substantially the same
terms, including interest rates and collateral, as those prevailing at the
time for comparable transactions with other persons, and did not involve more
than normal risk of collectibility or present other unfavorable or unusual
features.
Frank Lyon, Jr., a director of MBI, has interests in entities that leased
certain office facilities to subsidiary banks that were acquired by MBI on May
1, 1995. Aggregate lease payments of approximately $614,000 were paid in 1996
to such entities. MBI exercised options to purchase two of these office
facilities with the purchase
16-12
<PAGE>
[ADDITIONAL PAGE TO MBI SHAREHOLDERS ONLY]
price for each such facility determined by separate fair market value
appraisals. The purchase of the two properties is expected to be consummated
in the first quarter of 1997. Under the terms of the lease agreements in
respect of the remaining facilities, aggregate lease payments for 1997 are
expected to approximate $471,000.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires MBI's directors and executive
officers ("Reporting Persons") to file with the Securities and Exchange
Commission initial reports of ownership and reports of changes in ownership of
MBI Common Stock and other equity securities of MBI. To MBI's knowledge, based
solely on its review of the copies of such reports furnished to MBI and
written representations by such directors, nominees and executive officers
that no other reports were required, during the year ended December 31, 1996,
all Section 16(a) filing requirements applicable to Reporting Persons were
timely met.
INDEPENDENT AUDITORS
The firm of KPMG Peat Marwick LLP ("Peat Marwick") has been selected as
MBI's independent auditor for 1997. Such firm was also MBI's independent
auditor for 1996. A representative of Peat Marwick is expected to be present
at the MBI Annual Meeting. The representative shall have an opportunity to
make a statement, if such representative desires to do so, and will be
available to respond to appropriate questions.
16-13
<PAGE>
ANNEX A
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF REORGANIZATION
BETWEEN
MERCANTILE BANCORPORATION INC.,
AMERIBANC, INC.
AND
MARK TWAIN BANCSHARES, INC.
----------------
DATED OCTOBER 27, 1996
AS AMENDED
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
A-1
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is made and
entered into on October 27, 1996, as amended, by and between MERCANTILE
BANCORPORATION INC., a Missouri corporation ("Mercantile"), Ameribanc, Inc., a
Missouri corporation and a wholly owned subsidiary of Mercantile ("Merger
Sub") and Mark Twain Bancshares, Inc., a Missouri corporation (together with
its predecessors, "Bancshares").
W I T N E S S E T H:
WHEREAS, Mercantile is a registered bank holding company under the Bank
Holding Company Act of 1956, as amended (the "Holding Company Act"); and
WHEREAS, Bancshares is a registered bank holding company under the Holding
Company Act; and
WHEREAS, the Board of Directors of Bancshares and the Executive Committee of
the Board of Directors of Mercantile have approved the merger (the "Merger")
of Bancshares with and into Merger Sub pursuant to the terms and subject to
the conditions of this Agreement; and
WHEREAS, for federal income tax purposes, it is intended that the Merger
shall qualify as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Internal Revenue Code"); and
WHEREAS, as a condition to, and concurrently with the execution of this
Agreement, Mercantile and certain shareholders of Bancshares are entering into
Support Agreements (the "Support Agreements") in the form attached hereto as
Exhibit A; and
WHEREAS, as a condition to, and concurrently with the execution of this
Agreement, Mercantile and Bancshares are entering into a stock option
agreement (the "Stock Option Agreement") in the form attached hereto as
Exhibit B; 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:
ARTICLE I
The Merger
1.01. The Merger. (a) Subject to the terms and conditions of this Agreement,
Bancshares shall be merged with and into Merger Sub in accordance with The
General and Business Corporation Law of Missouri (the "Missouri Act") and the
separate corporate existence of Bancshares 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 Missouri.
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, or at such other time, and at such place, as Mercantile
and Bancshares shall agree (the "Closing Date").
1.03. Effective Time. The Merger shall become effective on the date and at
the time (the "Effective Time") on which appropriate documents in respect of
the Merger are filed with the Secretary of State of the State of Missouri in
such form as required by, and in accordance with, the relevant provisions of
the Missouri
A-2
<PAGE>
Act. Subject to the terms and conditions of this Agreement, the Effective Time
shall occur on such date as Mercantile shall notify Bancshares in writing
(such notice to be at least five business days in advance of the Effective
Time) but (i) not earlier than the satisfaction of all conditions set forth in
Section 6.01(a) and 6.01(b) (the "Approval Date") and (ii) subject to clause
(i), not later than the first business day of the first full calendar month
commencing at least five business days after the Approval Date.
1.04. Additional Actions. If, at any time after the Effective Time,
Mercantile 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 Bancshares or Merger Sub or (b) otherwise
carry out the purposes of this Agreement, Bancshares 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 Bancshares or otherwise to
take any and all such action.
1.05. Effect of Merger. The Articles of Incorporation and Bylaws of Merger
Sub in effect 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. 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; such directors and officers shall hold office in accordance with
the Surviving Corporation's Bylaws and applicable law.
1.06. Conversion of Securities. At the Effective Time, by virtue of the
Merger and without any action on the part of Mercantile, Bancshares or the
holder of any of the following securities:
(i) Each share of the common stock, par value $.01 per share, 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
(ii) Each share of the common stock, par value $1.25 per share
("Bancshares Common Stock"), of Bancshares issued and outstanding
immediately prior to the Effective Time, other than any Dissenting Shares
(as defined in Section 1.08), shall cease to be outstanding and shall be
converted into and become the right to receive .952 (the "Exchange Ratio")
of a share of common stock, par value $5.00 per share ("Mercantile Common
Stock"), of Mercantile and the associated Rights under the Mercantile
Rights Agreement as those terms are defined in Section 3.02; provided,
however, that any shares of Bancshares Common Stock held by Bancshares 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
Mercantile or any of its 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 represent capital stock of the Surviving
Corporation and shall not be exchanged for shares of Mercantile Common
Stock.
1.07. Exchange Procedures. (a) Mercantile shall designate a person
reasonably acceptable to Bancshares to act as Exchange Agent hereunder (the
"Exchange Agent"). At or prior to the Effective Time, Mercantile shall
deposit, or cause to be deposited, with the Exchange Agent, for the benefit of
the holders of record of certificates representing shares of Bancshares Common
Stock (the "Certificates"), for exchange in accordance with this Article I,
certificates representing the Mercantile Common Stock and cash in lieu of any
fractional shares issuable pursuant to Section 1.06(ii) (such cash and
certificates for Mercantile Common Stock, together with any dividends or
distributions with respect thereto, being hereinafter referred to as the
"Exchange Fund") in exchange for outstanding Bancshares Common Stock. As soon
as practicable after the Effective Time holders of Certificates shall be
instructed to tender such Certificates to the Exchange Agent pursuant to a
letter of transmittal that the Exchange Agent shall deliver or cause to be
delivered to such holders. Such letters of transmittal shall
A-3
<PAGE>
specify that risk of loss and title to Certificates shall pass only upon
delivery of such Certificates to the Exchange Agent.
(b) Subject to Section 1.09, after the Effective Time, each holder of a
Certificate that surrenders such Certificate with a properly completed
transmittal letter to the Exchange Agent will be entitled to (i) a certificate
or certificates representing the number of full shares of Mercantile Common
Stock into which the Certificate so surrendered shall have been converted
pursuant to this Agreement and any distribution theretofore declared and not
yet paid with respect to such shares of Mercantile Common Stock, without
interest, and (ii) a check representing the amount of any cash in lieu of
fractional shares which such holder has the right to receive in respect of the
Certificate surrendered pursuant to this Article I.
(c) The Exchange Agent shall accept Certificates 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 in
accordance with customary exchange practices.
(d) Each outstanding Certificate shall until duly surrendered to Mercantile
or the Exchange Agent be deemed to evidence ownership of the consideration
into which the stock previously represented by such Certificate shall have
been converted pursuant to this Agreement.
(e) After the Effective Time, holders of Certificates shall cease to have
rights with respect to the stock previously represented by such Certificates,
and their sole rights shall be to exchange such Certificates for the
consideration provided for in this Agreement. After the Effective Time, there
shall be no further transfer on the records of Bancshares of Certificates, and
if such Certificates are presented to Bancshares for transfer, they shall be
cancelled against delivery of the consideration provided therefor in this
Agreement. No dividends declared will be remitted to any person entitled to
receive Mercantile Common Stock under this Agreement until such person
surrenders the Certificate representing the right to receive such Mercantile
Common Stock, at which time such dividends shall be remitted to such person,
without interest and less any taxes that may have been imposed thereon. A
restrictive legend will be placed on, and stop transfer instructions shall be
given to the Exchange Agent and Mercantile's transfer agent in respect of,
certificates representing Mercantile Common Stock issued in exchange for
certificates surrendered for exchange by any person constituting an
"affiliate" of Bancshares for purposes of Rule 145 of the Securities Act of
1933, as amended (together with the rules and regulations thereunder, the
"Securities Act"), and identified in the letter or letters referred to in
Section 5.05 or otherwise identified as such by Mercantile, until Mercantile
has received a written agreement from such person in the form attached as
Exhibit C. Mercantile and the Exchange Agent shall be entitled to rely upon
the stock transfer books of Bancshares to establish the identity of those
persons entitled to receive consideration specified in this Agreement, which
books shall be conclusive with respect thereto. In the event of a dispute with
respect to ownership of stock represented by any Certificate, Mercantile and
the Exchange Agent shall be entitled to deposit any consideration represented
thereby in escrow with an independent third party and thereafter be relieved
with respect to any claims thereto.
If any certificate representing shares of Mercantile Common Stock is to be
issued in a name other than that in which the Certificate surrendered in
exchange therefor is registered, it shall be a condition of the issuance
thereof that the Certificate so surrendered shall be properly endorsed (or
otherwise in proper form for transfer) and that the person requesting such
exchange shall pay to the Exchange Agent in advance any transfer or other
taxes required by reason of the issuance of a certificate representing shares
of Mercantile Common Stock in any name other than that of the registered
holder of the Certificate surrendered, or required for any other reason, or
shall establish to the satisfaction of the Exchange Agent that such tax has
been paid or is not payable.
Any portion of the Exchange Fund that remains unclaimed by the stockholders
of Bancshares for 12 months after the Effective Time shall be paid to
Mercantile. Notwithstanding the foregoing, none of Bancshares, Mercantile, the
Exchange Agent or any other person shall be liable to any former holder of
shares of Bancshares Common Stock for any amount delivered in good faith to a
public official pursuant to applicable abandoned property, escheat or similar
laws.
A-4
<PAGE>
In the event any Certificate shall have been lost, stolen or destroyed, upon
the making of an affidavit of that fact by the person claiming such
Certificate to be lost, stolen or destroyed and, if reasonably required by
Mercantile, the posting by such person of a bond in such amount as Mercantile
may determine is reasonably necessary as indemnity against any claim that may
be made against it with respect to such Certificate, the Exchange Agent will
issue in exchange for such lost, stolen or destroyed Certificate the shares of
Mercantile Common Stock, dividends and any cash in lieu of fractional shares
deliverable in respect thereof pursuant to this Agreement.
1.08. Dissenting Shares. (a) "Dissenting Shares" means any shares held by
any holder who becomes entitled to payment of the fair value of such shares
under the Missouri Act. Any holders of Dissenting Shares shall be entitled to
payment for such shares only to the extent permitted by and in accordance with
the provisions of the Missouri Act; provided, however, that if, in accordance
with the Missouri Act, any holder of Dissenting Shares shall forfeit such
right to payment of the fair value of such shares, such shares shall thereupon
be deemed to have been converted into and to have become exchangeable for, as
of the Effective Time, the right to receive the consideration provided in this
Article I.
(b) Bancshares shall give Mercantile (i) prompt notice of any written
objections to the Merger and any written demands for the payment of the fair
value of any shares, withdrawals of such demands, and any other instruments
served pursuant to Section 351.455 of the Missouri Act received by Bancshares
and (ii) the opportunity to participate in all negotiations and proceedings
with respect to such demands under the Missouri Act. Bancshares shall not
voluntarily make any payment with respect to any demands for payment of fair
value and shall not, except with the prior written consent of Mercantile,
settle or offer to settle any such demands.
1.09. 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 Closing Price per share of Mercantile Common Stock on the
last business day preceding the Effective Time. With respect to a share of
stock, "Closing Price" shall mean: the closing price as reported on the
Consolidated Tape (as reported in The Wall Street Journal or in the absence
thereof, by any other authoritative source). No such holder shall be entitled
to dividends, voting rights or any other rights in respect of any fractional
share.
1.10. Anti-Dilution Adjustments. If prior to the Effective Time Mercantile
shall declare a stock dividend or make distributions upon or subdivide, split
up, reclassify, combine or make other similar change to Mercantile Common
Stock, exchange Mercantile Common Stock for a different number or kind of
shares or securities or declare a dividend or make a distribution on
Mercantile Common Stock in any security convertible into Mercantile Common
Stock, or is involved in any transaction resulting in any of the foregoing
(including any exchange of Mercantile Common Stock for a different number or
kind of shares or securities), appropriate and proportionate adjustment or
adjustments will be made to the Exchange Ratio.
1.11. Reservation of Right to Revise Transaction. Mercantile may at any time
change the method of effecting the reorganization of the parties (including
without limitation the provisions of this Article I) if and to the extent it
deems such change to be desirable, including without limitation to provide for
a merger of Bancshares directly into Mercantile, in which Mercantile is the
surviving corporation, or a merger of Merger Sub into Bancshares, in which
Bancshares is the surviving corporation, provided, however, that no such
change shall (A) alter or change the amount or kind of consideration to be
issued to holders of Bancshares Common Stock as provided for in this Agreement
(the "Merger Consideration"), (B) adversely affect the tax treatment to
Bancshares' 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.
A-5
<PAGE>
ARTICLE II
Representation, Warranties and Covenants of Bancshares
Bancshares represents and warrants to and covenants with Mercantile as
follows:
2.01. Organization and Authority. Bancshares is a corporation duly
organized, validly existing and in good standing under the laws of the State
of Missouri, 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, except where the failure to be so
qualified would not have a material adverse effect on the financial condition,
results of operations or business (collectively, the "Condition") of
Bancshares and its Subsidiaries, taken as a whole, and has corporate power and
authority to own its properties and assets and to carry on its business as it
is now being conducted. Bancshares is registered as a bank holding company
with the Board of Governors of the Federal Reserve System (the "Board") under
the Holding Company Act. True and complete copies of the Restated Articles of
Incorporation and the Restated Bylaws of Bancshares and, to the extent
requested in writing by Mercantile, of the articles of incorporation and
bylaws of the Bancshares Subsidiaries (as defined in Section 2.02), each as in
effect on the date of this Agreement, have been provided to Mercantile.
2.02. Subsidiaries. Schedule 2.02 sets forth a complete and correct list of
all of Bancshares' Subsidiaries (each a "Bancshares Subsidiary" and
collectively the "Bancshares Subsidiaries"), all outstanding Equity Securities
of each of which, except as set forth on Schedule 2.02, are owned directly or
indirectly by Bancshares. "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, or stock appreciation or similar rights in respect of,
any shares of its capital stock or other Equity Securities. All of the
outstanding shares of capital stock of the Bancshares Subsidiaries are validly
issued, fully paid and nonassessable, and, except as set forth on Schedule
2.02, those shares owned directly or indirectly by Bancshares 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 Bancshares Subsidiaries is a corporation, bank, trust
company or other entity duly incorporated or organized, validly existing, and
in good standing 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 Bancshares Subsidiaries is duly qualified to do
business in each jurisdiction where its ownership or leasing of property or
the conduct of its business requires it to be so qualified, except where the
failure to so qualify would not have a material adverse effect on the
Condition of Bancshares and its Subsidiaries, taken as a whole. Except as set
forth on Schedule 2.02, Bancshares does not own beneficially, directly or
indirectly, any shares of any class of Equity Securities or similar interests
of any corporation, bank, business trust, association or similar organization
except in each case in a fiduciary capacity or as a result of debts previously
contracted. As of the date hereof, Bancshares' bank Subsidiaries (the "Banks")
consist of four state banking associations chartered under the laws of the
states of Missouri and Illinois. The deposits of each of the Banks are insured
by the Bank Insurance Fund ("BIF") or, to the extent transferred to a Bank by
the Resolution Trust Corporation or any savings association, by the Savings
Association Insurance Fund of the Federal Deposit Insurance Corporation (the
"FDIC"). The aggregate "adjusted attributable deposit amount" (as defined in
12 U.S.C. (S) 1815) of the Banks is zero. None of the Banks identified as such
on Schedule 2.02 are members of the Federal Reserve System. Except as set
forth on Schedule 2.02, neither Bancshares nor any Bancshares Subsidiary holds
any interest in a partnership or joint venture of any kind.
2.03. Capitalization. The authorized capital stock of Bancshares consists of
(i) 30,000,000 shares of Bancshares Common Stock, of which, as of September
30, 1996, 16,384,722 shares were issued and outstanding and (ii) 500,000
shares of preferred stock, par value $25.00 ("Bancshares Preferred Stock"), of
which none are outstanding. As of September 30, 1996, Bancshares had reserved
(i) 1,029,566 shares of Bancshares Common
A-6
<PAGE>
Stock for issuance under Bancshares' stock option and incentive plans, a list
of which is set forth on Schedule 2.03 (the "Bancshares Stock Plans"),
pursuant to which options ("Bancshares Stock Options") covering 1,029,566
shares of Bancshares Common Stock are outstanding as of the date hereof, (ii)
148,090 shares of Bancshares Common Stock for issuance upon conversion of
Bancshares' 7% convertible subordinated capital notes due 1999 (the
"Bancshares Convertible Notes") and (iii) approximately 261,479 (subject to
adjustment) shares of Bancshares Common Stock for issuance upon the
acquisition of First City Bancshares, Inc. pursuant to an agreement dated July
17, 1996 (the "First City Acquisition Agreement"). Since September 30, 1996,
no Equity Securities of Bancshares have been issued other than shares of
Bancshares Common Stock which may have been issued upon the exercise of
Bancshares Stock Options, the conversion of Bancshares Convertible Notes, as
contemplated by the First City Acquisition Agreement or as may be issued
pursuant to Bancshares' Savings Challenge Plan. Except as set forth in this
Section, there are no other Equity Securities of Bancshares outstanding. All
of the issued and outstanding shares of Bancshares Common Stock are validly
issued, fully paid, and nonassessable, and have not been issued in violation
of any preemptive right of any stockholder of Bancshares. Bancshares maintains
a dividend reinvestment plan.
2.04. Authorization. (a) Bancshares has the corporate power and authority to
enter into this Agreement and, subject to the approval of this Agreement by
the stockholders of Bancshares, to carry out its obligations hereunder. The
only stockholder vote required for Bancshares to approve this Agreement is the
affirmative vote of the holders of at least two thirds of the outstanding
shares of Bancshares Common Stock entitled to vote on the Agreement. The
execution, delivery and performance of this Agreement by Bancshares and the
consummation by Bancshares of the transactions contemplated hereby have been
duly authorized by the Board of Directors of Bancshares. Subject to approval
by the stockholders of Bancshares, this Agreement is a valid and binding
obligation of Bancshares enforceable against Bancshares in accordance with its
terms.
(b) Except as set forth on Schedule 2.04B, neither the execution, delivery
nor performance by Bancshares of this Agreement, nor the consummation by
Bancshares of the transactions contemplated hereby, nor compliance by
Bancshares 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 material properties or assets of
Bancshares or any Bancshares Subsidiary under any of the terms, conditions or
provisions of (x) its articles or certificate 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 Bancshares or any
Bancshares Subsidiary is a party or by which it may be bound, or to which
Bancshares or any Bancshares Subsidiary or any of the material properties or
assets of Bancshares or any Bancshares Subsidiary may be subject other than
those as to which any such violation, conflict, breach, event, termination,
acceleration or creation would not have a material adverse effect on the
Condition of Bancshares and the Bancshares Subsidiaries, taken as a whole, or
(ii) subject to compliance with the statutes and regulations referred to in
paragraph (c) of this Section 2.04, to the best knowledge of Bancshares,
violate any judgment, ruling, order, writ, injunction, decree, statute, rule
or regulation applicable to Bancshares or any Bancshares Subsidiary or any of
their respective material properties or assets.
(c) Other than in connection or in compliance with the provisions of the
Missouri Act, the Securities Act, the Securities Exchange Act of 1934 and the
rules and regulations thereunder (the "Exchange Act"), the Investment Company
Act of 1940, as amended, and the rules and regulations thereunder (the
"Investment Company Act"), the securities or blue sky laws of the various
states or filings, consents, reviews, authorizations, approvals or exemptions
required under the Holding Company Act, and the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 (the "HSR Act"), or any required approvals of or
filings with the Missouri Division of Finance and Division of Insurance and
the state banking regulators of the states of Illinois and Kansas (the "State
Bank Regulators") or filings required with respect to any Transfer Taxes
described in Section 5.18, 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 Bancshares of the transactions contemplated
by this Agreement.
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2.05. Bancshares Financial Statements. The consolidated and parent-company
only condensed balance sheets of Bancshares and its Subsidiaries as of
December 31, 1995, 1994 and 1993 and related consolidated and condensed
statements of income, cash flows and changes in shareholders' equity for each
of the three years in the three-year period ended December 31, 1995, together
with the notes thereto, audited by Ernst & Young LLP and included in an annual
report on Form 10-K as filed with the SEC, and the unaudited consolidated
balance sheets of Bancshares and its Subsidiaries as of March 31 and June 30,
1996 and the related unaudited consolidated statements of income and cash
flows for the periods then ended included in quarterly reports on Form 10-Q
(each a "Bancshares Form 10-Q") as filed with the SEC (collectively, the
"Bancshares Financial Statements"), have been prepared in accordance with
generally accepted accounting principles in the United States applied on a
consistent basis ("GAAP"), present fairly the consolidated financial position
of Bancshares and its Subsidiaries at the dates and the consolidated results
of operations, cash flows and changes in stockholders' equity of Bancshares
and its Subsidiaries for the periods stated therein and are derived from the
books and records of Bancshares and its Subsidiaries, which are complete and
accurate in all material respects and have been maintained in all material
respects in accordance with applicable laws and regulations. Neither
Bancshares nor any of its Subsidiaries has any contingent liabilities that are
material, either individually or in the aggregate, to Bancshares and its
Subsidiaries, taken as a whole, other than those reflected in the Bancshares
Financial Statements or disclosed in the footnotes thereto, reflected in the
Bancshares SEC Reports (as hereinafter defined), arising pursuant to
agreements in the ordinary course of business or set forth on Schedule 2.05.
2.06. Bancshares Reports. Since January 1, 1993, each of Bancshares and the
Bancshares Subsidiaries has filed all material reports, registrations and
statements, together with any required material 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) the Board, (iii) the
FDIC, (iv) the State Bank Regulators, and (v) except in the case of this
clause (v) where the failure to file such report, registration or statement,
either individually or in the aggregate, will not have a material adverse
effect on the Condition of Bancshares and its Subsidiaries, taken as a whole,
any other federal, state, municipal, local or foreign government, securities,
banking, 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 the SEC are collectively referred to
herein as "Bancshares SEC Reports" and all such reports and statements filed
with any Regulatory Authority are collectively referred to herein as
"Bancshares Reports." As of its respective date, each Bancshares 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.
2.07. Properties and Leases. Except as may be reflected in the Bancshares
Financial Statements, except for any Lien for current taxes not yet delinquent
and except with respect to assets classified as real estate owned, Bancshares
and its Subsidiaries have good title free and clear of any Lien (except for
Liens that do not materially interfere with the use of, or materially affect
the value of, the property subject to such Lien) to all the real and personal
property reflected in Bancshares' consolidated balance sheet as of June 30,
1996 included in the most recent Bancshares Form 10-Q and, in each case, all
real and personal property acquired since such date, except such real and
personal property as has been disposed of in the ordinary course of business
and real and personal property that is not material, either individually or in
the aggregate, to Bancshares and its Subsidiaries, taken as a whole. All
leases material to Bancshares and the Bancshares Subsidiaries, taken as a
whole, pursuant to which Bancshares or any Bancshares Subsidiary, as lessee,
leases real or personal property, are valid and effective in accordance with
their respective terms, and there is not, under any of such leases, any
material existing default by Bancshares or any Bancshares Subsidiary or any
event which, with notice or lapse of time or both, would constitute such a
material default. Substantially all of Bancshares' and Bancshares
Subsidiaries' buildings, structures and equipment in regular use have been
well maintained and are in good and serviceable condition, normal wear and
tear excepted.
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2.08. Taxes. Except as previously disclosed by Bancshares to Mercantile, (i)
Bancshares and each Bancshares Subsidiary have timely filed or will timely
file (including extensions) all material tax returns required to be filed at
or prior to the Closing Date except where failures to so timely file would
not, individually or in the aggregate, reasonably be expected to have a
material adverse effect on the Condition of Bancshares and the Bancshares
Subsidiaries, taken as a whole ("Bancshares Returns"); (ii) each of Bancshares
and its Subsidiaries has paid, or set up adequate reserves on the Bancshares
Financial Statements for the payment of, all taxes required to be paid in
respect of the periods covered by the Bancshares Financial Statements and has
paid or set up adequate reserves on the most recent financial statements
Bancshares has filed under the Exchange Act for the payment of, all taxes
anticipated to be payable in respect of the periods covered by such financial
statements, in each case except where failures to so pay or set up adequate
reserves would not, individually or in the aggregate, reasonably be expected
to have a material adverse effect on the Condition of Bancshares and the
Bancshares Subsidiaries, taken as a whole; (iii) no material deficiencies for
any tax, assessment or governmental charge have been proposed, asserted or
assessed in writing by any governmental or taxing authority against any of
Bancshares or any Bancshares Subsidiary which have not been settled or would
not be covered by existing reserves; (iv) neither Bancshares nor any
Bancshares Subsidiary is delinquent in the payment of any material tax,
assessment or governmental charge shown to be due on any Bancshares Return
(taking into account extensions properly obtained), and no waiver of the time
to assess any tax granted in writing by Bancshares or any Bancshares
Subsidiary is pending; (v) the federal and state income tax returns of
Bancshares and the Bancshares Subsidiaries have been audited and settled by
the Internal Revenue Service (the "IRS") or appropriate state tax authorities
for all periods ended through December 31, 1992, or the period for assessment
of taxes in respect of such periods has expired. To the best knowledge of
Bancshares, the representations set forth in the Bancshares Tax Certificate
attached as Exhibit D to this Agreement, if made on the date hereof (assuming
the Merger was consummated on the date hereof), would be true and correct.
2.09. Material Adverse Change. Since December 31, 1995, there has been no
material adverse change in the Condition of Bancshares and its Subsidiaries,
taken as a whole, except (i) as may have resulted or may result from changes
to laws and regulations or changes in economic conditions applicable to
banking institutions generally or in general levels of interest rates
affecting banking institutions generally and (ii) the costs incurred or to be
incurred by Bancshares in connection with this Agreement, including costs
incurred for investment banking, accounting and legal services.
2.10. Commitments and Contracts. (a) Except as set forth on Schedule 2.10A,
neither Bancshares nor any Bancshares Subsidiary is a party or subject to any
of the following (whether written or oral, express or implied):
(i) any material agreement, arrangement or commitment (A) not made in the
ordinary course of business or (B) pursuant to which Bancshares or any of
its Subsidiaries is or may become obligated to invest in or contribute
capital to any Bancshares Subsidiary;
(ii) any agreement, indenture or other instrument not disclosed in the
Bancshares Financial Statements relating to the borrowing of money by
Bancshares or any Bancshares Subsidiary or the guarantee by Bancshares or
any Bancshares Subsidiary of any such obligation (other than trade payables
or instruments related to transactions entered into in the ordinary course
of business by any Bancshares Subsidiary, such as deposits, Fed Funds
borrowings, hedges, swaps, repurchase agreements and other ordinary course
money market transactions);
(iii) any contract, agreement or understanding with any labor union or
collective bargaining organization relating to employees of Bancshares or
Bancshares Subsidiaries;
(iv) any contract containing covenants which materially limit the ability
of Bancshares or any Bancshares Subsidiary to compete in any line of
business or with any person or which involve any restriction of the
geographical area in which Bancshares or any Bancshares Subsidiary may
carry on its business, or which materially limits the method by which
Bancshares or any Bancshares Subsidiary may carry on its business (other
than as may be required by law or any applicable Regulatory Authority and
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other than with respect to any matter which is not material to Bancshares
and its Subsidiaries, taken as a whole);
(v) any other contract or agreement which is a "material contract" within
the meaning of Item 601(b)(10) of Regulation S-K promulgated by the SEC; or
(vi) any lease with annual rental payments aggregating $250,000 or more.
(b) Neither Bancshares nor any Bancshares Subsidiary is in violation of its
charter documents or 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 Bancshares and its Subsidiaries, taken as a whole.
2.11. Litigation and Other Proceedings. Except as set forth on Schedule
2.11, neither Bancshares nor any Bancshares Subsidiary is a party to any
pending or, to the best knowledge of Bancshares, 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 Bancshares and its Subsidiaries, taken as a whole. Without
limiting the generality of the foregoing, as of the date of this Agreement,
there are no actions, suits, or proceedings pending or, to the best knowledge
of Bancshares, threatened against Bancshares or any Bancshares Subsidiary or
any of their respective officers or directors by any stockholder of Bancshares
or any Bancshares Subsidiary (or any former stockholder of Bancshares or any
Bancshares Subsidiary) or involving claims under the Securities Act, the
Exchange Act, the Community Reinvestment Act of 1977, as amended, or the fair
lending laws or which purport or seek to enjoin or restrain the transactions
contemplated by this Agreement.
2.12. Insurance. Each of Bancshares and its Subsidiaries has taken 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 Bancshares, 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 Bancshares and
its Subsidiaries, taken as a whole. Promptly after the date hereof, Bancshares
shall provide a list of all insurance policies maintained by or for the
benefit of Bancshares or its Subsidiaries or their directors, officers,
employees or agents.
2.13. Compliance with Laws. (a) Bancshares 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 properties and
assets and to carry on their business as presently conducted, except where the
failure to so have or make would not have a material adverse effect on the
Condition of Bancshares and its Subsidiaries, taken as a whole; all such
permits, licenses, certificates of authority, orders and approvals are in full
force and effect and, to the best knowledge of Bancshares, no suspension or
cancellation of any of them is threatened; and all such filings, applications
and registrations are current.
(b) Except for failures to comply or defaults which individually or in the
aggregate would not have a material adverse effect on the Condition of
Bancshares and its Subsidiaries, taken as a whole, (i) each of Bancshares and
its 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 Bancshares
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
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exercise of trust powers) and governing instruments applicable to them and to
the conduct of their business, and (ii) neither Bancshares nor any Bancshares
Subsidiary 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 for liabilities which individually or in the
aggregate would not have a material adverse effect on the Condition of
Bancshares and its Subsidiaries, taken as a whole, neither Bancshares nor any
Bancshares Subsidiary 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 Bancshares (whether directly or, to the best knowledge of
Bancshares, as a consequence of such Property being part of the investment
portfolio of Bancshares or any Bancshares Subsidiary) (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.
"Property" of a person shall include all property (real or personal, tangible
or intangible) owned or controlled by such person, including without
limitation property under foreclosure, property held by such person or any
Subsidiary of such person in its capacity as a trustee and property in which
any venture capital or similar unit of such person or any Subsidiary of such
person has an interest. As of the date of this Agreement, no claim, action,
suit, or proceeding is pending against Bancshares or any Bancshares Subsidiary
relating to Property of Bancshares before any court or other Regulatory
Authority or arbitration tribunal relating to hazardous substances, pollution
or the environment, and there is no outstanding judgment, order, writ,
injunction, decree, or award against or affecting Bancshares or any Bancshares
Subsidiary 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 Bancshares or any Bancshares Subsidiary which
reasonably could be expected to have a material adverse effect on the
Condition of Bancshares and its Subsidiaries, taken as a whole.
(c) From and after January 1, 1993, neither Bancshares nor any Bancshares
Subsidiary has received any notification or communication which has not been
resolved from any Regulatory Authority (i) asserting that Bancshares or any
Bancshares Subsidiary, 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 2.13C or in
any writing previously furnished to Mercantile or (B) reasonably could not be
expected to have a material adverse effect on the Condition of Bancshares and
its Subsidiaries, taken as a whole, (ii) threatening to revoke any license,
franchise, permit or governmental authorization that is material to the
Condition of Bancshares and its Subsidiaries, taken as a whole, including
without limitation such company's status as an insured depositary institution
under the Federal Deposit Insurance Act, or (iii) requiring or threatening to
require Bancshares or any of its Subsidiaries, or indicating that Bancshares
or any of its Subsidiaries may be required, to enter into a cease and desist
order, agreement or memorandum of understanding or any other agreement
restricting or limiting or purporting to direct, restrict or limit in any
material manner the operations of Bancshares or any of its 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 Bancshares nor any Bancshares Subsidiary 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.
2.14. Labor. No work stoppage involving Bancshares or any Bancshares
Subsidiary, is pending or, to the best knowledge of Bancshares, threatened
which reasonably could be expected to have a material adverse effect on the
Condition of Bancshares and its Subsidiaries, taken as a whole. Neither
Bancshares nor any Bancshares Subsidiary is involved in, or, to the best
knowledge of Bancshares, 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 Bancshares and
its Subsidiaries, taken as a whole.
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2.15. Material Interests of Certain Persons. (a) Except as set forth in
Bancshares' Proxy Statement for its 1996 Annual Meeting of Stockholders, to
the best knowledge of Bancshares, no officer or director of Bancshares or any
Bancshares Subsidiary, or any "associate" (as such term is defined in Rule
14a-1 under the Exchange Act) of any such officer or director, has any
material interest in any material contract or property (real or personal,
tangible or intangible), used in, or pertaining to the business of, Bancshares
or any Bancshares Subsidiary, which in the case of Bancshares is required to
be disclosed by Item 404 of Regulation S-K promulgated by the SEC or in the
case of any such Subsidiary would be required to be so disclosed if such
Subsidiary had a class of securities registered under Section 12 of the
Exchange Act.
(b) Except as set forth in Bancshares' Proxy Statement for its 1996 Annual
Meeting of Stockholders or on Schedule 2.15B, as of September 30, 1996, there
are no loans from Bancshares or any Bancshares Subsidiary to any present
officer, director, employee or any associate or related interest of any such
person which was or would be required under any rule or regulation to be
approved by or reported to Bancshares' or Bancshares Subsidiary's Board of
Directors ("Insider Loans"), and no Insider Loans in excess of $500,000 have
been made since September 30, 1996. All outstanding Insider Loans from
Bancshares or any Bancshares Subsidiary were approved by or reported to the
appropriate board of directors in accordance with applicable law and
regulations.
2.16. Allowance for Loan and Lease Losses. The allowances for loan and lease
losses contained in the Bancshares Financial Statements were established in
accordance with the past practices and experiences of Bancshares and its
Subsidiaries.
2.17. Employee Benefit Plans. (a) Except as set forth in Schedule 2.17A,
neither Bancshares nor any Bancshares Subsidiary is a party to any existing
employment, management, consulting, deferred compensation, change-in-control
or other similar contract. "Bancshares Employee Plans" means all pension,
retirement, supplemental retirement, savings, profit sharing, stock option,
stock purchase, stock ownership, stock appreciation right, deferred
compensation, consulting, bonus, medical, disability, workers' compensation,
vacation, group insurance, severance and other material employee benefit,
incentive and welfare policies, contracts, plans and arrangements, and all
trust agreements related thereto, maintained (currently or at any time in the
last five years) by or contributed to by Bancshares or any Bancshares
Subsidiary in respect of any of the present or former directors, officers, or
other employees of and/or consultants to Bancshares or any Bancshares
Subsidiary. Schedule 2.17A lists all Bancshares Employee Plans currently in
effect. Bancshares has furnished, or will furnish promptly after the date
hereof, Mercantile with the following documents with respect to each
Bancshares Employee Plan: (i) a true and complete copy of all written
documents comprising such Bancshares Employee Plan (including amendments and
individual agreements relating thereto) or, if there is no such written
document, an accurate and complete description of the Bancshares Employee
Plan; (ii) the most recent 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, Bancshares has furnished Mercantile 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 Bancshares or any Bancshares
Subsidiary.
(b) Except as set forth in Schedule 2.17B, all Bancshares Employee Plans
have been maintained and operated materially in accordance with their terms
and with the material requirements of all applicable statutes, orders, rules
and final regulations, including without limitation ERISA and the Internal
Revenue Code. All contributions required to be made to Bancshares Employee
Plans have been made.
(c) With respect to each of the Bancshares Employee Plans which is a pension
plan (as defined in Section 3(2) of ERISA) (the "Pension Plans"), except as
set forth in Schedule 2.17C: (i) each Pension Plan which is intended to be
"qualified" within the meaning of Section 401(a) of the Internal Revenue Code
has been determined to be so qualified by the Internal Revenue Service and, to
the knowledge of Bancshares, such determination letter may still be relied
upon, and each related trust is exempt from taxation under Section 501(a) of
the Internal Revenue Code; (ii) the actuarial present value of accumulated
plan benefits under each Pension
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Plan which is subject to Title IV of ERISA, valued using the assumptions in
the most recent actuarial report, did not, in each case, as of the last
applicable annual valuation date, exceed the value of the assets of the
Pension Plan allocable to such vested or accrued benefits; (iii) to the best
knowledge of Bancshares, there has been no "prohibited transaction," as such
term is defined in Section 4975 of the Internal Revenue Code or Section 406 of
ERISA, which could subject any Pension Plan or associated trust, or the
Bancshares or any Bancshares Subsidiary, to any material tax or penalty; (iv)
except as set forth on Schedule 2.17C, no Pension Plan subject to Title IV of
ERISA or any trust created thereunder has been terminated, nor have there been
any "reportable events" (as that term is defined in Section 4043 of ERISA)
with respect to any Pension Plan for which the 30-day notice requirement has
not been waived on or after January 1, 1985; 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). No
Pension Plan is a "multiemployer plan" as that term is defined in Section
3(37) of ERISA or a "multiple employer pension plan" as described in Section
4063(a) of ERISA.
(d) Except as set forth on Schedule 2.17D, neither Bancshares nor any
Bancshares Subsidiary has any liability for any post-retirement health,
medical or similar benefit of any kind whatsoever, except as required by
statute or regulation.
(e) To the knowledge of Bancshares, neither Bancshares nor any Bancshares
Subsidiary has any material liability under ERISA or the Internal Revenue Code
as a result of its being a member of a group described in Sections 414(b),
(c), (m) or (o) of the Internal Revenue Code.
(f) Except as set forth on Schedule 2.17F, neither the execution nor
delivery of this Agreement, nor the consummation of any of the transactions
contemplated hereby, will (i) result in any material payment (including
without limitation severance, unemployment compensation or golden parachute
payment) becoming due to any director or employee of Bancshares or any
Bancshares Subsidiary from any of such entities, (ii) materially increase any
benefit otherwise payable under any of the Bancshares Employee Plans or (iii)
result in the acceleration of the time of payment of any such benefit. No
holder of an option to acquire stock of Bancshares 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 Bancshares) in exchange for or with
respect to all or any portion of such option. No Bancshares Employee Stock
Option has an associated "re-load" feature.
2.18. Conduct of Bancshares to Date. From and after January 1, 1996 through
the date of this Agreement, except as set forth on Schedule 2.18 or in
Bancshares Financial Statements or the Bancshares SEC Reports: (i) Bancshares
and the Bancshares Subsidiaries have conducted their respective businesses in
all material respects in the ordinary and usual course consistent with past
practices; (ii) neither Bancshares nor any Bancshares Subsidiary has incurred
any material obligation or liability (absolute or contingent), except normal
trade or business obligations or 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; (iii)
neither Bancshares nor any Bancshares Subsidiary has discharged or satisfied
any material Lien or paid any material obligation or liability (absolute or
contingent), other than in the ordinary course of business; (iv) neither
Bancshares nor any Bancshares Subsidiary has sold, assigned, transferred,
leased, exchanged, or otherwise disposed of any of its material properties or
assets other than for a fair consideration in the ordinary course of business;
(v) except as required by contract or law, neither Bancshares nor any
Bancshares Subsidiary has (A) increased the rate of compensation of, or paid
any bonus to, any of its directors, officers, or other employees, except merit
or promotion increases 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 Bancshares
Employee Plans or (D) agreed to do any of the foregoing; (vi) neither
Bancshares nor any Bancshares 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;
and (vii) neither Bancshares nor any Bancshares Subsidiary has cancelled or
compromised any debt, except for debts charged off or compromised in
accordance with the past practice of Bancshares and its Subsidiaries.
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2.19. Proxy Statement, etc. None of the information regarding Bancshares or
any Bancshares Subsidiary supplied or to be supplied by Bancshares 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 Bancshares Common Stock
pursuant to the provisions of this Agreement (the "Registration Statement"),
(ii) the proxy statement (the "Joint Proxy Statement") to be mailed to
stockholders of Mercantile and Bancshares in connection with the transactions
contemplated by this Agreement 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 Joint 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 meetings of stockholders referred to in Section
5.03 (the "Meetings"), 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
the Meetings. All documents which Bancshares or any Bancshares Subsidiary is
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.
2.20. Registration Obligations. Except as set forth on Schedule 2.20,
neither Bancshares nor any Bancshares Subsidiary is under any obligation,
contingent or otherwise, to register any of its securities under the
Securities Act.
2.21. State Takeover Statutes. The transactions contemplated by this
Agreement are not subject to any applicable state takeover law under the laws
of the State of Missouri or any other state applicable to Bancshares.
2.22. Accounting, Tax and Regulatory Matters. Neither Bancshares nor any
Bancshares Subsidiary 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 (A) for pooling-of-interests accounting
treatment or (B) as a reorganization within the meaning of Section 368 of the
Internal Revenue 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.
2.23. Brokers and Finders. Except for Morgan Stanley & Co. Incorporated,
neither Bancshares nor any Bancshares Subsidiary 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
Bancshares or any Bancshares Subsidiary, in connection with this Agreement or
the transactions contemplated hereby. Schedule 2.23 discloses a bona fide
estimate of the aggregate amount of all fees and expenses expected to be paid
by Bancshares to all attorneys, accountants or investment bankers in
connection with the Merger ("Merger Fees").
2.24. Other Activities. (a) Except as set forth on Schedule 2.24A, neither
Bancshares nor any of its Subsidiaries engages in any insurance activities
other than acting as a principal, agent or broker for insurance that is
directly related to an extension of credit by Bancshares or any of its
Subsidiaries and limited to assuring the repayment of the balance due on the
extension of credit in the event of the death, disability or involuntary
unemployment of the debtor.
(b) Except as set forth on Schedule 2.24B, to the knowledge of Bancshares'
management: each Bancshares Subsidiary that is a bank that performs personal
trust, corporate trust and other fiduciary activities ("Trust Activities") has
done so with requisite authority under applicable law of Regulatory
Authorities and in material accordance with the agreements and instruments
governing such Trust Activities, sound fiduciary principles and applicable law
and regulation; there is no investigation or inquiry by any governmental
entity pending or threatened against Bancshares or any of its Subsidiaries
thereof relating to the compliance by Bancshares or any of its Subsidiaries
with sound fiduciary principles and applicable law and regulations; and except
when such
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failure would not have a material adverse effect on the Condition of
Bancshares and the Bancshares Subsidiary, taken as a whole, each employee of
any such bank had the authority to act in the capacity in which such employee
acted with respect to Trust Activities in each case in which such employee was
held out as a representative of such bank; and such bank has established
policies and procedures for the purpose of complying with applicable laws of
governmental entities relating to Trust Activities, has followed such policies
and procedures in all material respects and has performed appropriate internal
audit reviews of Trust Activities, which audits have disclosed no material
violations of applicable laws of governmental entities or such policies and
procedures.
2.25. Interest Rate Risk Management Instruments. (a) Set forth on Schedule
2.25A 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 Bancshares or any of its Subsidiaries is a party or by
which any of their properties or assets may be bound.
(b) All interest rate swaps, caps, floors and option agreements and other
interest rate risk management arrangements to which Bancshares or any of its
Subsidiaries is a party or by which any of their properties or assets may be
bound were entered into in the ordinary course of business and, to the
knowledge of Bancshares, 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.
Bancshares and each of its Subsidiaries has duly performed in all material
respects all of its obligations thereunder to the extent that such obligations
to perform have accrued, and, to the knowledge of Bancshares, as of the date
hereof, there are no material breaches, violations or defaults or allegations
or assertions of such by any party thereunder.
2.26. Accuracy of Information. To the knowledge of Bancshares, the
statements of Bancshares contained in this Agreement, the Schedules and any
other written document executed and delivered by or on behalf of Bancshares
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 therein not misleading.
ARTICLE III
Representations, Warranties and Covenants of Mercantile
Mercantile represents, and warrants to and covenants with Bancshares as
follows:
3.01. Organization and Authority. Mercantile is a corporation and each of
its Subsidiaries (each, a "Mercantile Subsidiary") is a corporation, bank,
trust company or other entity duly organized, validly existing and in good
standing under the laws of the jurisdiction of organization, 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 be so qualified would not have a material adverse effect
on the Condition of Mercantile and its Subsidiaries, taken as a whole.
Mercantile is registered as a bank holding company with the Board under the
Holding Company Act. True and complete copies of the Articles of Incorporation
and Bylaws of Mercantile and of Merger Sub, each in effect on the date of this
Agreement, have been provided to Bancshares.
3.02. Capitalization. The authorized capital stock of Mercantile consists of
(i) 100,000,000 shares of Mercantile Common Stock, of which, as of September
30, 1996, 63,255,861 shares were issued and outstanding and (ii) 5,000,000
shares of preferred stock, no par value ("Mercantile Preferred Stock"),
issuable in series, none of which, as of September 30, 1996, is issued and
outstanding. Mercantile has designated 1,000,000 shares of
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Mercantile Preferred Stock as "Series A Junior Participating Preferred Stock"
and has reserved such shares for issuance upon the exercise of Preferred Stock
Purchase Rights (the "Rights") 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 September 30, 1996,
Mercantile had reserved (i) 1,166,068 shares of Mercantile Common Stock for
issuance under various stock option and incentive plans ("Mercantile Stock
Options"), (ii) 1,177,066 shares of Mercantile Common Stock for issuance upon
the acquisition of Today's Bancorp, Inc. ("Today's") pursuant to an agreement
dated March 19, 1996, (iii) 258,783 shares of Mercantile Common Stock for
issuance upon the acquisition of First Financial Corp. of America ("First
Financial") pursuant to an agreement dated July 9, 1996, and (iv) 600,418
shares of Mercantile Common Stock for issuance upon the acquisition of
Regional Bancshares, Inc. ("Regional") pursuant to an agreement dated August
22, 1996. From September 30, 1996 through the date of this Agreement, no
shares of Mercantile Common Stock or other Equity Securities of Mercantile
have been issued excluding any such shares which may have been issued pursuant
to stock-based employee benefit or incentive plans and programs, or pursuant
to the foregoing agreements. 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 (A) for
pooling-of-interests accounting treatment or (B) as a reorganization within
the meaning of Section 368 of the Internal Revenue 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. Except as set
forth in this Section 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 stockholder of Mercantile. The Mercantile Common Stock
to be issued in the Merger will be, when so issued, duly authorized, validly
issued, fully paid and non-assessable, and will not be issued in violation of
any preemptive right of any stockholder of Mercantile.
3.03. Authorization. (a) Each of Mercantile and Merger Sub has the corporate
power and authority to enter into this Agreement and to carry out its
obligations hereunder. The only stockholder vote required for Mercantile to
approve the Agreement is the affirmative vote of the holders of at least a
majority of the votes cast in connection with the Agreement by holders of
Mercantile Common Stock. 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. This Agreement
is a valid and binding obligation of Mercantile and Merger Sub enforceable
against Mercantile and Merger Sub in accordance with its terms.
(b) Neither the execution, delivery nor performance by Mercantile or Merger
Sub of this Agreement, nor the consummation by Mercantile or Merger Sub of the
transactions contemplated hereby, nor compliance by Mercantile or 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 material properties or assets of Mercantile or any
Mercantile Subsidiary under any of the terms, conditions or provisions of (x)
its articles or certificate 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 any Mercantile
Subsidiary is a party or by which it may be bound, or to which Mercantile or
any Mercantile Subsidiary or any of the material properties of Mercantile or
any Mercantile Subsidiary may be subject, other than those as to which any
such violation, conflict, breach, event, termination, acceleration or creation
would not have a material adverse effect on the Condition of Mercantile and
the Mercantile Subsidiaries, taken as a whole, or (ii) subject to compliance
with the statutes and regulations referred to in paragraph (c) of this Section
3.03, to the best knowledge of Mercantile,
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violate any judgment, ruling, order, writ, injunction, decree, statute, rule
or regulation applicable to Mercantile or any of its Subsidiaries or any of
their respective material properties or assets.
(c) Other than in connection with or in compliance with the provisions of
Missouri Act, the Securities Act, the Exchange Act, the Investment Company
Act, the securities or blue sky laws of the various states or filings,
consents, reviews, authorizations, approvals or exemptions required under the
Holding Company Act, and the HSR Act, or any required approvals of the Federal
Reserve Board or the State Bank Regulators or filings required with respect to
any Transfer Taxes described in Section 5.18, 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 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, 1995, 1994 and 1993 and related supplemental consolidated and
parent company only statements of income, cash flows and changes in
shareholders' equity for each of the three years in the three-year period
ended December 31, 1995, together with the notes thereto, audited by KPMG Peat
Marwick ("Mercantile Auditors") and included in Mercantile's current report on
Form 8-K dated March 11, 1996 as filed with the SEC, and the unaudited
consolidated balance sheets of Mercantile and its Subsidiaries as of March 31
and June 30, 1996 and the related unaudited consolidated statements of income
and cash flows for the periods then ended included in quarterly reports 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 stockholders'
equity and cash flows of Mercantile and its Subsidiaries for the periods
stated therein and 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 all material respects in accordance with applicable
laws and regulations. Neither Mercantile nor any of its Subsidiaries has any
contingent liabilities that are material either individually, or in the
aggregate, to Mercantile and its Subsidiaries, taken as a whole, other than
those reflected in the Mercantile Financial Statements or disclosed in the
footnotes thereto, in the Mercantile SEC Reports (as hereinafter defined) or
arising pursuant to agreements in the ordinary course of business.
3.05. Mercantile Reports. Since January 1, 1993, each of Mercantile and the
Mercantile Subsidiaries has filed all material reports, registrations and
statements, together with any required material amendments thereto, that it
was required to file with any Regulatory Authority. All such reports and
statements filed with the SEC are collectively referred to herein as
"Mercantile SEC Reports" and 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 December 31, 1995, there has been no
material adverse change in the Condition of Mercantile and its Subsidiaries,
taken as a whole, except (i) as may have resulted or may result from changes
to laws and regulations or changes in economic conditions applicable to
banking institutions generally or in general levels of interest rates
affecting banking institutions generally and (ii) the costs incurred or to be
incurred by Mercantile in connection with this Agreement, including costs
incurred for investment banking, accounting and legal services.
3.07. Compliance with Laws. (a) Each of Mercantile and its Subsidiaries has
complied with all laws, regulations, and orders (including without limitation
zoning ordinances, building codes, ERISA, and securities, tax, environmental,
civil rights, and occupational health and safety laws and regulations and
including without limitation in the case of any Mercantile Subsidiary that is
a bank, banking organization, thrift, banking corporation or trust company,
all statutes, rules, regulations and policy statements pertaining to the
conduct of a banking, deposit-taking or lending or related business or to the
exercise of trust powers) and governing
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instruments applicable to them and to the conduct of their business, except
where such failure to comply would not have a material adverse effect on the
Condition of Mercantile and its Subsidiaries, taken as a whole, and (ii)
neither Mercantile nor any Mercantile Subsidiary 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
Mercantile and its Subsidiaries, taken as a whole. Neither Mercantile nor any
Mercantile Subsidiary is subject to or reasonably likely to incur a liability
as a result of its ownership, operation, or use of any Property of Mercantile
(whether directly or, to the best knowledge of Mercantile, as a consequence of
such Property being part of the investment portfolio of Mercantile or any
Mercantile Subsidiary) (A) that is contaminated by or contains any 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 Mercantile and its Subsidiaries, taken as a whole. Except for
statutory or regulatory restrictions of general application, no Regulatory
Authority has placed any restriction on the business of Mercantile or any
Mercantile Subsidiary which reasonably could be expected to have a material
adverse effect on the Condition of Mercantile and its Subsidiaries, taken as a
whole. As of the date of this Agreement, no claim, action, suit, or proceeding
is pending against Mercantile or any Mercantile Subsidiary relating to
Property of Mercantile before any court or other Regulatory Authority or
arbitration tribunal relating to hazardous substances, pollution, or the
environment, and there is no outstanding judgment, order, writ, injunction,
decree, or award against or affecting Mercantile or any Mercantile Subsidiary
with respect to the same.
(b) 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 properties and assets
and to carry on their business as presently conducted, except where the
failure to so have or make would not have a material adverse effect on the
Condition of Mercantile and its Subsidiaries, taken as a whole; all such
permits, licenses, certificates of authority, orders and approvals are in full
force and effect and, to the best knowledge of Mercantile, no suspension or
cancellation of any of them is threatened; and all such filings, applications
and registrations are current.
(c) From and after January 1, 1993, neither Mercantile nor any Mercantile
Subsidiary has received any notification or communication which has not been
resolved from any Regulatory Authority (i) asserting that any Mercantile or
any Subsidiary of Mercantile, 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 3.07C or in
any writing previously furnished to Bancshares or (B) reasonably could not be
expected to have a material adverse effect on the Condition of Mercantile and
its Subsidiaries, taken as a whole, (ii) threatening to revoke any license,
franchise, permit or governmental authorization that is material to the
Condition of Mercantile and its Subsidiaries, taken as a whole, including
without limitation such company's status as an insured depositary institution
under the Federal Deposit Insurance Act, or (iii) requiring or threatening to
require Mercantile or any of its Subsidiaries, or indicating that Mercantile
or any of its Subsidiaries may be required, to enter into a cease and desist
order, agreement or memorandum of understanding or any other agreement
restricting or limiting or purporting to direct, restrict or limit in any
material manner the operations of Mercantile or any of its 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 Mercantile nor any Mercantile Subsidiary 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.
3.08. Registration Statement, etc. None of the information regarding
Mercantile or any of its Subsidiaries supplied or to be supplied by Mercantile
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
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Regulatory Authority and, in the case of the Registration Statement, when it
becomes effective and, with respect to the Proxy Statement, when mailed (or
furnished to stockholders of Bancshares), 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, 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 the Meeting.
All documents which Mercantile or any of its Subsidiaries 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. Except for UBS Securities Inc., neither
Mercantile nor any of its 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
Mercantile or any of its Subsidiaries, in connection with this Agreement or
the transactions contemplated hereby.
3.10. Commitments and Contracts. Neither Mercantile nor any Mercantile
Subsidiary is in violation of its charter documents or 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 Mercantile and its
Subsidiaries, taken as a whole.
3.11. Litigation and Other Proceedings. Neither Mercantile nor any
Mercantile Subsidiary is a party to any pending or, to the best knowledge of
Mercantile, 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 Mercantile and its Subsidiaries,
taken as a whole. Without limiting the generality of the foregoing, as of the
date of this Agreement, there are no actions, suits, or proceedings pending
or, to the best knowledge of Mercantile, threatened against Mercantile or any
Mercantile Subsidiary or any of their respective officers or directors by any
stockholder of Mercantile or any Mercantile Subsidiary (or any former
stockholder of Mercantile or any Mercantile Subsidiary) or involving claims
under the Securities Act, the Exchange Act, the Community Reinvestment Act of
1977, as amended, or the fair lending laws or which purport or seek to enjoin
or restrain the transactions contemplated by this Agreement.
3.12. Interest Rate Risk Management Instruments. All interest rate swaps,
caps, floors and option agreements and other interest rate risk management
arrangements to which Mercantile or any of its Subsidiaries is a party or by
which any of their properties or assets may be bound were entered into in the
ordinary course of business and, to the knowledge of Mercantile, 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. Mercantile and each of its Subsidiaries has duly
performed in all material respects all of its obligations thereunder to the
extent that such obligations to perform have accrued, and, to the knowledge of
Mercantile, as of the date hereof, there are no material breaches, violations
or defaults or allegations or assertions of such by any party thereunder.
3.13. Taxes. Mercantile and each Mercantile Subsidiary have timely filed or
will timely file (including extensions) all material tax returns required to
be filed at or prior to the Closing Date except where failures to so timely
file would not, individually or in the aggregate, reasonably be expected to
have a material adverse effect on the Condition of Mercantile and the
Mercantile Subsidiaries, taken as a whole ("Mercantile Returns"). Each of
Mercantile and its Subsidiaries has paid, or set up adequate reserves on the
Mercantile Financial Statements for the payment of, all taxes required to be
paid in respect of the periods covered by the Mercantile Financial Statements
and has paid or set up adequate reserves on the most recent financial
statements Mercantile has filed under the Exchange Act for the payment of, all
taxes anticipated to be payable in respect of the periods covered
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by such financial statements, in each case except where failures to so pay or
set up adequate reserves would not, individually or in the aggregate,
reasonably be expected to have a material adverse effect on the Condition of
Mercantile and the Mercantile Subsidiaries, taken as a whole. No material
deficiencies for any tax, assessment or governmental charge have been
proposed, asserted or assessed in writing by any governmental or taxing
authority against any of Mercantile or any Mercantile Subsidiary which have
not been settled or would not be covered by existing reserves. Neither
Mercantile nor any Mercantile Subsidiary is delinquent in the payment of any
material tax, assessment or governmental charge shown to be due on any
Mercantile Return (taking into account extensions properly obtained), and no
waiver of the time to assess any tax granted in writing by Mercantile or any
Mercantile Subsidiary is pending. The federal and state income tax returns of
Mercantile and the Mercantile Subsidiaries have been audited and settled by
the IRS or appropriate state tax authorities for all periods ended through
December 31, 1992, or the period for assessment of taxes in respect of such
periods has expired. To the best knowledge of Mercantile, the representations
set forth in the Mercantile Tax Certificate attached as Exhibit E to this
Agreement, if made on the date hereof (assuming the Merger was consummated on
the date hereof), would be true and correct.
3.14. Accounting, Tax and Regulatory Matters. Neither Mercantile nor any
Mercantile Subsidiary 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 (A) for pooling-of-interests accounting
treatment or (B) as a reorganization within the meaning of Section 368 of the
Internal Revenue 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.
3.15. Accuracy of Information. To the knowledge of Mercantile, the
statements of Mercantile contained in this Agreement, the Schedules and in any
other written document executed and delivered by or on behalf of Mercantile
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.
3.16. Labor. No work stoppage involving Mercantile or any Mercantile
Subsidiary, is pending or, to the best knowledge of Mercantile, threatened
which reasonably could be expected to have a material adverse effect on the
Condition of Mercantile and its Subsidiaries, taken as a whole. Neither
Mercantile nor any Mercantile Subsidiary is involved in, or, to the best
knowledge of Mercantile, threatened with or affected by, any labor dispute,
arbitration, law suit or administration proceeding which reasonably could be
expected to 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, each of Mercantile and
Bancshares shall, and shall cause each of their respective Subsidiaries to,
conduct its business 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.
4.02. Forbearances. Except to the extent required by law, regulation or
Regulatory Authority, or as set forth on Schedule 4.02 or as otherwise
contemplated by this Agreement, during the period from the date of this
Agreement to the Effective Time, Bancshares shall not and shall not permit any
of its Subsidiaries to, without the prior written consent of Mercantile:
(a) declare, set aside or pay any dividends or other distributions,
directly or indirectly, in respect of its capital stock (other than
dividends from a Subsidiary of Bancshares to Bancshares or another
Subsidiary of
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Bancshares), except that Bancshares may declare and pay cash dividends on
the Bancshares Common Stock (x) in respect of the quarterly period ended on
March 31, 1997 of not more than $.35 per share; and (y) in respect of each
quarterly period thereafter of not more than the greater of (i) .952 times
the regular quarterly dividend on a share of Mercantile Common Stock paid
or payable during such quarterly period or (ii) $.35, in each case per
share; provided, that Bancshares shall not declare or pay any dividends on
Bancshares Common Stock for any period in which its stockholders will be
entitled to receive any regular quarterly dividend on the shares of
Mercantile Common Stock to be issued in the Merger; or,
(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 Bancshares Employee Plans or grant any salary or wage increase
or materially increase any employee benefit (including incentive or bonus
payments), except hiring employees in the ordinary course of business and
normal individual increases in compensation to employees consistent with
past practice, or as required by law or contract; or,
(c) authorize, recommend (subject to the fiduciary duties of Bancshares'
Board of Directors as advised in writing by outside counsel to Bancshares),
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; or
(d) propose or adopt any amendments to its articles of incorporation,
association or other charter document or bylaws; or
(e) issue, sell, grant, confer or award any of its Equity Securities
(except that Bancshares may (i) grant options for up to 250,000 shares of
Bancshares Common Stock under its existing stock option plans consistent
with its normal compensation practices, (ii) issue shares of Bancshares
Common Stock upon exercise of Bancshares Stock Options outstanding on the
date of this Agreement or granted in compliance with this clause (e), (iii)
issue shares of Bancshares Common Stock upon the conversion of the
Bancshares Convertible Notes or as contemplated by the Bancshares' Savings
Challenge Plan, and (iv) issue shares of Bancshares Common Stock pursuant
to the First City Acquisition Agreement and except that Bancshares
Subsidiaries may issue director qualifying shares subject to repurchase
agreements in accordance with present practice) or effect any stock split
or adjust, combine, reclassify or otherwise change its capitalization as it
existed on the date of this Agreement; or
(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 other than director qualifying shares; or
(g) (1) 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 that, which under the credit policies and procedures of
Bancshares and/or Banks in effect as of the date hereof, would be referred
to the executive loan committee(s) of Bancshares and/or Banks as
constituted and existing as of the date of this Agreement; (2) without
first obtaining the written consent of Mercantile, lend to any person or
entity in an amount in excess of $16,000,000 or in an amount which, when
aggregated with any and all loans or credit commitments to such person or
entity, would be in excess of $16,000,000; or (3) 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 (ii) and (iii) Bancshares or any
Bancshares Subsidiary may make any such loan in the event (A) Bancshares or
any Bancshares Subsidiary has delivered to Mercantile or its designated
representative a notice of its intention to make such loan and such
information as Mercantile or its designated representative may reasonably
require in respect thereof and (B) Mercantile 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 Mercantile of the notice of intention and
information as aforesaid; provided, however, that nothing in this paragraph
shall prohibit Bancshares or any Bancshares Subsidiary from
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honoring any contractual obligation in existence on the date of this
Agreement. For purposes of clause (i) of this Section, the requirement of
Bancshares to consult with Mercantile shall be deemed to include the
requirement of Bancshares and/or the Banks to provide to designated
representatives of Mercantile copies of all information of the type and
nature provided to such executive loan committee(s) in respect of each loan
or credit commitment referred to such committee(s) and the requirement that
such designated representatives of Mercantile be invited to attend the
meetings of such executive loan committee(s) at which presentations shall
be made in respect of such referred loans and/or credit commitments; or
(h) directly or indirectly (including through its officers, directors,
employees or other representatives) initiate, solicit or encourage any
discussions, inquiries or proposals with any third party relating to the
disposition of any significant portion of the business or assets of
Bancshares or any Bancshares Subsidiary or the acquisition of Equity
Securities of Bancshares or any Bancshares Subsidiary or the merger of
Bancshares or any Bancshares Subsidiary with any person (other than
Mercantile) or any similar transaction (each such transaction being
referred to herein as an "Acquisition Transaction"), or provide any such
person with information or assistance or negotiate with any such person
with respect to an Acquisition Transaction, and Bancshares shall promptly
notify Mercantile 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; or
(i) take any action that would (A) materially impede or delay the
consummation of the transactions contemplated by this Agreement or the
ability of Mercantile or Bancshares 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 the transactions contemplated hereby from qualifying as a
reorganization within the meaning of Section 368 of the Internal Revenue
Code; or
(j) other than in the ordinary course of business consistent with past
practice, incur any indebtedness for borrowed money, assume, guarantee,
endorse or otherwise as an accommodation become responsible or liable for
the obligations of any other individual, corporation or other entity, or,
without prior approval of Mercantile, which shall not be unreasonably
withheld, pay any Merger Fees in excess of the amount set forth on Schedule
2.23; or
(k) materially restructure or materially change its investment securities
portfolio, through purchases, sales or otherwise, or the manner in which
the portfolio is classified or reported, or execute any individual
investment transaction for its own account (i) in securities backed by the
full faith and credit of the United States or an agency thereof in excess
of $5,000,000 and (ii) in any other investment securities in excess of
$1,000,000; or
(l) agree in writing or otherwise to take any of the foregoing actions or
engage in any activity, enter into any transaction or take or omit to take
any other act which would make any of the representations and warranties 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.
4.03. Forbearances of Mercantile. Except to the extent required by law,
regulation or Regulatory Authority, or with the prior written consent of
Bancshares, during the period from the date of this Agreement to the Effective
Time, Mercantile shall not and shall not permit any of the Mercantile
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 Mercantile Subsidiaries to Mercantile or to
another of the Mercantile Subsidiaries), except that Mercantile may pay its
regular quarterly dividends in amounts as it shall determine from time to
time;
(b) take any action that would (A) materially impede or delay the
consummation of the transactions contemplated by this Agreement or the
ability of Bancshares or Mercantile 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 the transactions contemplated hereby from qualifying as a
reorganization within the meaning of Section 368 of the Code; or
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(c) 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 action which would make any of the representations
and warranties in 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.
ARTICLE V
Additional Agreements
5.01. Access and Information. Mercantile and its Subsidiaries, on the one
hand, and Bancshares and its Subsidiaries, on the other hand, shall each
afford to each 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 such other party may reasonably
request. Each party hereto 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 which is not otherwise public knowledge, (B) return all documents
(including copies thereof) obtained hereunder from the other party to such
other party and (C) use its best efforts to cause all 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.
5.02. Registration Statement; Regulatory Matters. (a) Mercantile shall
prepare and, subject to the review and consent of Bancshares with respect to
matters relating to Bancshares, file with the SEC as soon as is reasonably
practicable, but in no event later than 45 days from the date hereof, the
Registration Statement (or the equivalent in the form of preliminary proxy
material) with respect to the shares of Mercantile Common Stock to be issued
in the Merger and the exercise of Bancshares Stock Options after the Effective
Time. Mercantile shall prepare and file an application with the Federal
Reserve Board as soon as reasonably practicable but in no event later than 45
days from the date hereof. Mercantile shall use all reasonable efforts to
cause the Registration Statement to become effective as soon as reasonably
practicable. 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 the exercise of such options, and Bancshares and
its Subsidiaries shall furnish Mercantile all information concerning
Bancshares and its Subsidiaries and the stockholders thereof as Mercantile may
reasonably request in connection with any such action. Mercantile shall use
its best efforts to cause the shares of Mercantile Common Stock to be issued
in the Merger to be approved for listing on the New York Stock Exchange,
subject to official notice of issuance, prior to the Effective Time.
(b) Bancshares and Mercantile 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 and, as and if directed by Mercantile, to consummate such
other mergers, consolidations or asset transfers or other transactions by and
among Mercantile's Subsidiaries and Bancshares' Subsidiaries concurrently with
or following the Effective Time, provided, however, that the foregoing shall
not (A) alter or change the Merger Consideration, (B) adversely affect the tax
treatment to Bancshares' 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.
5.03. Stockholder Approval. Each party shall call a meeting of its
stockholders to be held as soon as practicable for the purpose of voting upon
the Merger or take other action for stockholders to authorize the Merger. In
connection therewith, Mercantile shall prepare the Joint Proxy Statement,
subject to the review and
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consent of Bancshares and, with the approval of each of Mercantile and
Bancshares, the Joint Proxy Statement shall be filed with the SEC and mailed
to the stockholders of each party. The board of directors of each party shall
submit for approval of its stockholders the matters to be voted upon in order
to authorize the Merger. The board of directors of each party hereby does and
(subject to the fiduciary duties of Bancshares' and Mercantile's Boards of
Directors, as advised by outside counsel) will recommend approval of the
matters to be voted upon in order to authorize the Merger and the other
transactions contemplated hereby to stockholders of such party and will use
its best efforts to obtain any vote of its stockholders that is necessary to
authorize the Merger and to consummate the transactions contemplated hereby.
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 information or reports as the same
become available and shall 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 any material change
in its business or operations and of any material governmental complaints,
investigations or hearings (or communications indicating that the same may be
contemplated), or the institution or the threat of material litigation
involving such party, and shall keep the other party fully informed of such
events.
5.05. Agreements of Affiliates; Publication of Combined Financial
Results. (a) As soon as practicable after the date of this Agreement,
Bancshares shall deliver to Mercantile a letter identifying all persons whom
Bancshares believes to be, at the time this Agreement is submitted to a vote
of the stockholders of Bancshares, "affiliates" of Bancshares for purposes of
Rule 145 under the Securities Act. Bancshares shall use its best efforts to
cause each person who is so identified as an "affiliate" to deliver to
Mercantile as soon as practicable thereafter, a written agreement in the form
attached hereto as Exhibit C relating to compliance with the applicable
provisions of the Securities Act. Prior to the Effective Time, Bancshares
shall amend and supplement such letter 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.
(b) Mercantile shall use its best efforts to publish as promptly as
reasonably practical, but in no event later than 90 days after the end of the
first month after the Effective Time in which there are at least 30 days of
post-Merger combined operations, combined sales and net income figures as
contemplated by and in accordance with the terms of SEC Accounting Series
Release No. 135.
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.
5.07. Miscellaneous Agreements and Consents. (a) 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 reasonable efforts to obtain consents of Regulatory Authorities that are,
in the opinion of Mercantile, desirable for the consummation of the
transactions contemplated by this Agreement.
(b) Subject to applicable laws, regulations and requirements of Regulatory
Authorities, Bancshares, prior to the Effective Time, shall (i) consult and
cooperate with Mercantile regarding the implementation of those policies and
procedures established by Mercantile for its governance and that of its
Subsidiaries and not otherwise referenced in Section 5.16 hereof, including,
without limitation, policies and procedures pertaining to the accounting,
asset/liability management, audit, credit, human resources, treasury and legal
functions, and (ii) at the request of Mercantile, conform Bancshares' existing
policies and procedures in respect of such matters to Mercantile's policies
and procedures or, in the absence of any existing Bancshares policy or
procedure regarding any such function, introduce Mercantile's policies or
procedures in respect thereof, unless to do so would cause
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Bancshares or any of the Bancshares Subsidiaries to be in violation of any
law, rule or regulation of any Regulatory Authority having jurisdiction over
Bancshares and/or the Bancshares Subsidiary affected thereby; provided,
however, that prior to the date that it shall be a requirement hereunder for
such policies and procedures to be established, Mercantile shall certify to
Bancshares that Mercantile's representations and warranties are true and
correct as of such date, that the approval conditions to its obligations
contemplated by Section 6.01(b) have been satisfied or waived (except to the
extent that any waiting period associated therewith may then have commenced
but not expired) and that Mercantile is otherwise in compliance with this
Agreement; and provided, further, that Bancshares shall not be required to
take any such action that is not consistent with GAAP and regulatory
accounting principles.
5.08. Employee Benefits. (a) The Bancshares 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 Bancshares and
the Bancshares Subsidiaries are integrated into Mercantile's employee benefit
plans that are available to other employees of Mercantile and Mercantile
Subsidiaries, subject to the terms and conditions specified in such plans and
to such changes therein as may be necessary to reflect the consummation of the
Merger. Mercantile shall take such steps as are necessary or required to
integrate the employees of Bancshares and the Bancshares Subsidiaries in
Mercantile's employee benefit plans available to other employees of Mercantile
and Mercantile Subsidiaries as soon as practicable after the Effective Time,
(i) with full credit for prior service with Bancshares or any of the
Bancshares Subsidiaries for all purposes other than determining the amount of
benefit accruals under any defined benefit plan, (ii) without any waiting
periods, evidence of insurability, or application of any pre-existing
condition limitations, and (iii) with full credit for claims arising prior to
the Effective Time for purposes of deductibles, out-of-pocket maximums,
benefit maximums, and all other similar limitations for the applicable plan
year during which the Merger is consummated. Each of Mercantile and Bancshares
shall use all reasonable efforts to insure that no amounts paid or payable by
Bancshares, Bancshares Subsidiaries or Mercantile to or with respect to any
employee or former employee of Bancshares or any Bancshares Subsidiary will
fail to be deductible for federal income tax purposes by reason of Section
280G of the Internal Revenue Code. Bancshares shall ensure that following the
Effective Time no holder of Bancshares Employee Stock Options or any
participant in any Bancshares Stock Plan shall have any right thereunder to
acquire any securities of Bancshares or any Bancshares Subsidiary.
(b) Mercantile agrees that the following principles shall apply for purposes
of determining bonuses for 1997 under Bancshares' executive performance
incentive plan as and to the extent adopted by Bancshares' Board of Directors,
in its sole discretion, prior to the Effective Time: (1) all employees of
Bancshares and the Bancshares Subsidiaries at the Effective Time who, at such
time, are covered by such plan (other than employees whose employment is
terminated (i) by Bancshares for any reason prior to the Effective Time, or
(ii) voluntarily by the employee or (iii) involuntarily for cause on or prior
to the end of the calendar year in which the Merger is consummated) shall be
eligible to receive a pro rata portion of such bonuses; (2) whether any
bonuses are payable under such plan and, if so, the amount thereof shall be
determined as if the Merger had not occurred and Bancshares had remained an
independent, publicly-owned company through the calendar year in which the
Merger is consummated, taking into account, to the extent reasonably
applicable, action that could have been taken but for the limitations imposed
by Section 4.02; provided, that the aggregate amount of bonuses paid for 1997
to such employees of Bancshares and its Subsidiaries shall not be in excess of
$2,850,000; and (3) any bonuses payable pursuant to clause (2) above shall be
paid as soon as practicable after the end of the calendar year in which the
Merger is consummated and in any event no later than March 31, 1998. The pro
rata portion of an employee's bonus shall be the amount determined pursuant to
the preceding sentence multiplied by a fraction, the numerator of which shall
be the number of days during the calendar year for which such employee was
employed by Bancshares or a Bancshares Subsidiary or Mercantile or a
Mercantile Subsidiary and the denominator of which shall be 365. Prior to the
Effective Time, the Compensation Committee of Bancshares' Board of Directors
may, with Mercantile's approval, amend such plan and take other actions
thereunder to effectuate the foregoing principles. This paragraph (b) shall
not apply to any annual bonus payable pursuant to a written employment or
termination agreement in effect on the date hereof.
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5.09. Bancshares Stock Options. At the Effective Time, all rights with
respect to Bancshares Common Stock pursuant to Bancshares 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 each Bancshares Stock Option in accordance with
the terms of the stock option plan under which it was issued and the stock
option agreement by which it is evidenced. From and after the Effective Time,
(i) each Bancshares 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 Bancshares Stock Option shall be equal
to the number of shares of Bancshares Common Stock subject to such Bancshares
Stock Option immediately prior to the Effective Time multiplied by the
Exchange Ratio and (iii) the per share exercise price under each Bancshares
Stock Option shall be adjusted by dividing the per share exercise price under
such Bancshares Stock Option by the Exchange Ratio and rounding to the nearest
cent; provided, however, that the terms of each Bancshares 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. It is intended that the
foregoing assumption shall be undertaken in a manner that will not constitute
a "modification" as defined in the Internal Revenue Code, as to any Bancshares
Stock Option that is an "incentive stock option." Mercantile acknowledges that
the consummation of the Merger will constitute an "acceleration event" as such
term is defined in the Bancshares Stock Options plans and agreements.
5.10. Press Releases. Except as may be required by law, Bancshares 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. Each party 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. D&O Indemnification. From and after the Effective Time, Mercantile
agrees to indemnify and hold harmless the past and present employees, agents,
directors or officers of Bancshares or its Subsidiaries for all acts or
omissions occurring at or prior to the Effective Time to the same extent such
persons are indemnified and held harmless (1) under their respective Articles
of Incorporation or Bylaws of Bancshares and its Subsidiaries in the form in
effect at the date of this Agreement, (ii) by operation of law, or (iii) 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. Mercantile will provide, or
cause to be provided, for a period of not less than six years from the
Effective Time, an insurance and indemnification policy that provides the
officers and directors of Bancshares and its Subsidiaries immediately prior to
the Effective Time coverage no less favorable than as currently provided by
Mercantile to its officers and directors.
5.13. Best Efforts. Each of Mercantile and Bancshares undertakes and agrees
to use its best efforts to cause the Merger (i) to qualify (A) for pooling-of-
interests accounting treatment and (B) as a reorganization within the meaning
of Section 368 of the Internal Revenue Code and (ii) to occur as soon as
practicable. Each of Mercantile and Bancshares agrees to not take any action
that would materially impede or delay the consummation of the transactions
contemplated by this Agreement or the ability of Mercantile or Bancshares 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.
5.14. Insurance. Bancshares shall, and Bancshares shall cause each of its
Subsidiaries to, use its best efforts to maintain its existing insurance.
5.15. Bancshares Convertible Notes. Mercantile acknowledges that at the
Effective Time, by virtue of the Merger and without any further action on the
part of Bancshares, the Bancshares Convertible Notes shall be convertible into
shares of Mercantile Common Stock pursuant to the terms of the indenture
governing the Bancshares Convertible Notes. Mercantile shall, and shall cause
the Surviving Corporation to, execute with the
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trustee under such indenture at the Effective Time a supplemental indenture
providing that such Bancshares Convertible Notes shall be convertible into
shares of Mercantile Common Stock as contemplated by such indenture.
5.16. Conforming Entries. (a) Notwithstanding that Bancshares believes that
Bancshares and the Bancshares Subsidiaries have established all reserves and
taken all provisions for possible loan losses required by GAAP and applicable
laws, rules and regulations, Bancshares recognizes that Mercantile may have
adopted different loan, accrual and reserve policies (including loan
classifications and levels of reserves for possible loan losses). Subject to
applicable laws, regulations and the requirements of Regulatory Authorities,
from and after the date of this Agreement to the Effective Time, Bancshares
and Mercantile shall consult with each other with respect to conforming the
loan, accrual and reserve policies of Bancshares and the Bancshares
Subsidiaries to those policies of Mercantile.
(b) Subject to applicable laws, regulations and the requirements of
Regulatory Authorities, in addition, from and after the date of this Agreement
to the Effective Time, Bancshares and Mercantile shall consult with each other
with respect to determining appropriate Bancshares accruals, reserves and
charges to establish and take in respect of excess equipment write-off or
write-down of various assets and other appropriate charges and accounting
adjustments taking into account the parties' business plans following the
Merger.
(c) Subject to applicable laws, regulations and the requirements of
Regulatory Authorities, Bancshares and Mercantile shall consult with each
other with respect to determining the amount and the timing for recognizing
for financial accounting purposes Bancshares' expenses of the Merger and any
restructuring charges relating to or to be incurred in connection with the
Merger.
(d) Subject to applicable laws, regulations and the requirements of
Regulatory Authorities, Bancshares shall (i) establish and take such reserves
and accruals at such time as Mercantile shall reasonably request to conform
Bancshares' loan, accrual and reserve policies to Mercantile's policies, and
(ii) establish and take such accruals, reserves and charges in order to
implement such policies in respect of excess facilities and equipment
capacity, severance costs, litigation matters, write-off or write-down of
various assets and other appropriate accounting adjustments, and to recognize
for financial accounting purposes such expenses of the Merger and
restructuring charges related to or to be incurred in connection with the
Merger, in each case at such times as are reasonably requested by Mercantile;
provided, however, that on the date such reserves, accruals and charges are to
be taken, Mercantile shall certify to Bancshares that Mercantile's
representations and warranties are true and correct as of such date, that the
approval conditions to its obligations contemplated by Section 6.01(b) have
been satisfied or waived (except to the extent that any waiting period
associated therewith may then have commenced but not expired) and that
Mercantile is otherwise in compliance with this Agreement; and provided,
further, that Bancshares shall not be required to take any such action that is
not consistent with GAAP and regulatory accounting principles.
(e) No reserves, accruals or charges taken in accordance with Section
5.16(d) above may be a basis to assert a violation of a breach of a
representation, warranty or covenant of Bancshares herein.
5.17. Environmental Reports. Bancshares shall cooperate with Mercantile so
that Mercantile may as soon as reasonably practicable obtain, at Mercantile's
expense, a report of a phase one environmental investigation on all real
property owned, leased or operated by Bancshares or any of the Bancshares
Subsidiaries as of the date hereof (but excluding "other real estate owned,"
property held in trust or in a fiduciary capacity and space in retail or
similar establishments leased by Bancshares or any of the Bancshares
Subsidiaries for automatic teller machines or bank branch facilities where the
space leased comprises less than 20% of the total space leased to all tenants
of such property) and within ten (10) days after the acquisition or lease of
any real property acquired or leased by Bancshares or any of the Bancshares
Subsidiaries after the date hereof (but excluding space in retail and similar
establishments leased by Bancshares or any of the Bancshares Subsidiaries for
automatic teller machines or bank branch facilities where the space leased
comprises less than 20% of the total space leased to all tenants of such
property). If advisable in light of the phase one report with respect to any
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parcel of real property referred to above, in the reasonable opinion of
Mercantile, Bancshares shall also cooperate with Mercantile so that Mercantile
may obtain, at Mercantile's expense, a phase two investigation report on such
designated parcels.
5.18. Real Estate Transfer Taxes. Mercantile and Bancshares agree that
either Bancshares or Merger Sub will pay any state or local tax which is
attributable to the transfer of the beneficial ownership of Bancshares' or any
Bancshares Subsidiary's real property, if any (collectively, the "Transfer
Taxes"), and any penalties or interest with respect to the Transfer Taxes,
payable in connection with the consummation of the Merger. Bancshares and
Mercantile agree to cooperate with the other in the filing of any returns with
respect to the Transfer Taxes, including supplying in a timely manner a
complete list of all real property interests held by Bancshares and its
Subsidiaries and any information with respect to such property that is
reasonably necessary to complete such returns. The portion of the
consideration allocable to the real property of Bancshares and its
Subsidiaries shall be agreed to between Mercantile and Bancshares. The
stockholders of Bancshares (who are intended third party beneficiaries of this
Section 5.18) shall be deemed to have agreed to be bound by the allocation
established pursuant to this Section 5.18 in the preparation of any return
with respect to the Transfer Taxes.
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 each party.
(b) All requisite approvals of this Agreement and the transactions
contemplated hereby shall have been received from the Federal Reserve
Board, the State Bank Regulators and any other Regulatory Authority
(without the imposition of any conditions that are in Mercantile's
reasonable judgment unduly burdensome) and the expiration of all requisite
waiting periods thereunder. For purposes of this paragraph, a divestiture
required as a condition to any regulatory approval shall not be unduly
burdensome if such divestiture is consistent with Federal Reserve Board
guidelines, policies and practices regarding the merger of bank holding
companies that have been utilized in transactions that have recently been
reviewed prior to the date of this Agreement.
(c) The Registration Statement shall have been declared effective and
shall not be subject to a stop order or any threatened stop order.
(d) Neither Bancshares nor Mercantile 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) Mercantile and Bancshares shall have received an opinion of
Mercantile Auditors addressed to Mercantile in form and substance
reasonably satisfactory to Mercantile and Bancshares, that the Merger will
qualify for pooling-of-interests accounting treatment, which opinion shall
not have been withdrawn.
6.02. Conditions to Obligations of Bancshares To Effect the Merger. The
obligations of Bancshares 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
Mercantile 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 or period and (ii) for the effect of
transactions and actions contemplated or required by this Agreement) and
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Bancshares shall have received a certificate of the chairman or chief
financial officer of Mercantile to that effect.
(b) Performance of Obligations. Mercantile shall have performed in all
material respects all obligations required to be performed by it under this
Agreement prior to the Effective Time, and Bancshares shall have received a
certificate of the chairman or chief financial officer of Mercantile to
that effect.
(c) Tax Opinion. Bancshares shall have received an opinion of Sidley &
Austin or other counsel reasonably acceptable to Bancshares, in form and
substance reasonably satisfactory to Bancshares, dated the Effective Time,
substantially to the effect that for federal income tax purposes:
(i) the Merger will constitute a "reorganization" within the meaning
of Section 368(a) of the Internal Revenue Code, and Bancshares, Merger
Sub and Mercantile will each be a party to the reorganization within
the meaning of Section 368(b) of the Internal Revenue Code;
(ii) no gain or loss will be recognized by Bancshares or Merger Sub
as a result of the Merger;
(iii) no gain or loss will be recognized by the stockholders of
Bancshares upon the conversion of their Bancshares Common Stock into
Mercantile Common Stock pursuant to the Merger, except with respect to
cash, if any, received in lieu of fractional shares of Mercantile
Common Stock;
(iv) the aggregate tax basis of the shares of Mercantile Common Stock
received in exchange for shares of Bancshares Common Stock pursuant to
the Merger (including a fractional share of Mercantile Common Stock for
which cash is paid) will be the same as the aggregate tax basis of such
shares of Bancshares Common Stock;
(v) the holding period for shares of Mercantile Common Stock issued
in exchange for shares of Bancshares Common Stock pursuant to the
Merger will include the holder's holding period for such shares of
Bancshares Common Stock, provided such shares of Bancshares Common
Stock were held as capital assets by the holder at the Effective Time;
and
(vi) a stockholder of Bancshares who receives cash in lieu of a
fractional share of Mercantile Common Stock will recognize gain or loss
equal to the difference, if any, between such stockholder's basis in
the fractional share (determined under clause (iv) above) and the
amount of cash received.
In rendering such opinion, such counsel may rely as to matters of fact upon
the representations contained herein and shall receive, and may rely on,
customary representations from Mercantile, Bancshares, and others, including
representations to the effect of those contained in the Tax Certificates set
forth in Exhibits D and E.
6.03. Conditions to Obligations of Mercantile To Effect the Merger. The
obligations of Mercantile 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
Bancshares 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 or period and (ii) for the effect of
transactions and actions contemplated or required by this Agreement) and
Mercantile shall have received a certificate of the chairman of Bancshares
and a certificate of the president and chief executive officer of
Bancshares to that effect.
(b) Performance of Obligations. Bancshares shall have performed in all
material respects all obligations required to be performed by it under this
Agreement prior to the Effective Time, and Mercantile shall have received a
certificate of the chairman of Bancshares and a certificate of the
president and chief executive officer of Bancshares to that effect.
(c) Tax Opinion. Mercantile shall have received an opinion of Wachtell,
Lipton, Rosen & Katz, or other counsel reasonably acceptable to Mercantile,
in form and substance reasonably satisfactory to Mercantile, dated the
Effective Time, substantially to the effect that for federal income tax
purposes:
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(i) the Merger will constitute a "reorganization" within the meaning
of Section 368(a) of the Internal Revenue Code, and Bancshares, Merger
Sub and Mercantile will each be a party to the reorganization within
the meaning of Section 368(b) of the Internal Revenue Code;
(ii) no gain or loss will be recognized by Bancshares or Merger Sub
as a result of the Merger;
(iii) no gain or loss will be recognized by the stockholders of
Bancshares upon the conversion of their Bancshares Common Stock into
Mercantile Common Stock pursuant to the Merger, except with respect to
cash, if any, received in lieu of fractional shares of Mercantile
Common Stock;
(iv) the aggregate tax basis of the shares of Mercantile Common Stock
received in exchange for shares of Bancshares Common Stock pursuant to
the Merger (including a fractional share of Mercantile Common Stock for
which cash is paid) will be the same as the aggregate tax basis of such
shares of Bancshares Common Stock;
(v) the holding period for shares of Mercantile Common Stock issued
in exchange for shares of Bancshares Common Stock pursuant to the
Merger will include the holder's holding period for such shares of
Bancshares Common Stock, provided such shares of Bancshares Common
Stock were held as capital assets by the holder at the Effective Time;
and
(vi) a stockholder of Bancshares who receives cash in lieu of a
fractional share of Mercantile Common Stock will recognize gain or loss
equal to the difference, if any, between such stockholder's basis in
the fractional share (determined under clause (iv) above) and the
amount of cash received.
In rendering such opinion, such counsel may rely as to matters of fact upon
the representations contained herein and shall receive, and may rely on,
customary representations from Mercantile, Bancshares, and others, including
representations to the effect of those contained in the Tax Certificates set
forth in Exhibits D and E.
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 any requisite stockholder approval:
(a) by mutual consent by the Executive Committee of the Board of
Directors of Mercantile and the Board of Directors of Bancshares;
(b) by the Executive Committee of the Board of Directors of Mercantile or
the Board of Directors of Bancshares at any time after the date that is
twelve months after the date of this Agreement 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 Board of Directors of Bancshares if (i) the Federal Reserve Board has
denied approval of the Merger and such denial has become final and
nonappealable or (ii) stockholders of Bancshares or Mercantile shall not
have approved this Agreement at their respective Meetings;
(d) by the Executive Committee of the Board of Directors of Mercantile in
the event of a material breach by Bancshares of any representation,
warranty, covenant or other agreement contained in this Agreement, which
breach is not cured within 30 days after written notice thereof to
Bancshares by Mercantile; or
(e) by the Board of Directors of Bancshares in the event of a material
breach by Mercantile of any representation, warranty, covenant or other
agreement contained in this Agreement, which breach is not cured within 30
days after written notice thereof is given to Mercantile by Bancshares.
7.02. Effect of Termination. In the event of termination of this Agreement
by either Mercantile or Bancshares as provided in Section 7.01, this Agreement
shall forthwith become void and there shall be no
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liability or obligation on the part of Mercantile or Bancshares, their
respective Subsidiaries or their respective officers or directors except that
(i) the second sentence of Section 5.01, Section 5.06, Section 7.02 and
Section 8.01 shall survive any termination of this Agreement and (ii)
notwithstanding anything to the contrary contained in this Agreement, neither
Mercantile nor Bancshares shall be relieved or released from any liabilities
or damages arising out of its willful breach of any provision of this
Agreement.
7.03. Amendment. This Agreement and the Schedules hereto may be amended by
the parties hereto, by action taken by or on behalf of their respective Boards
of Directors, at any time before or after approval of this Agreement by the
stockholders of Bancshares; provided, however, that after any such approval by
the stockholders of Bancshares no such modification shall alter or change the
amount or kind of consideration to be received by holders of Bancshares Common
Stock as provided in this Agreement. This Agreement may not be amended except
by an instrument in writing signed on behalf of each of Mercantile and
Bancshares.
7.04. 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.
7.05. 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.
All representations, warranties and agreements in this Agreement of Mercantile
and Bancshares or in any instrument delivered by Mercantile or Bancshares
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 or, in
the case of any other such instrument, in accordance with the terms of such
instrument, except for those agreements contained herein and therein which by
their terms apply in whole or in part after the Effective Time.
8.02. 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, (ii) upon confirmation of receipt if by facsimile
transmission, (iii) on the date received if mailed by registered or certified
mail (return receipt requested), or (iv) on the business date after being
delivered to a reputable overnight delivery service if by such service, 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 Mercantile or Merger Sub:
Mercantile Bancorporation Inc.
Mercantile Tower
P.O. Box 524
St. Louis, Missouri 63166-0524
Attention: John W. Rowe
Executive Vice President,
Mercantile Bank of St. Louis,
National Association
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Copies to:
Jon W. Bilstrom, Esq.
General Counsel
Mercantile Bancorporation Inc.
Mercantile Tower
P.O. Box 524
St. Louis, Missouri 63166-0524
and
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
Attention: Edward D. Herlihy, Esq.
Telecopy: (212) 403-2000
(ii) if to Bancshares:
John Dubinsky
President and Chief Executive Officer
Mark Twain Bancshares, Inc.
8820 Ladue Road
St. Louis, Missouri 63124
Copies to:
Sidley & Austin
One First National Plaza
Chicago, Illinois 60603
Attention: Thomas A. Cole, Esq.
Telecopy: (312) 853-7036
8.03. Miscellaneous. This Agreement (including the Schedules and other
written documents referred to herein or provided hereunder) (i) constitutes
the entire agreement and supersedes all other prior agreements and
understandings, both written and oral, among the parties, or any of them, with
respect to the subject matter hereof, including any confidentiality agreement
between the parties hereto, (ii) except for the provisions of Section 5.12, is
not intended to confer upon any person not a party hereto any rights or
remedies hereunder, (iii) shall not be assigned by operation of law or
otherwise and (iv) shall be governed in all respects by the laws of the State
of Missouri. Nothing in this Agreement shall be construed to require any party
(or any subsidiary or affiliate of any party) to take any action or fail to
take any action in violation of applicable law, rule or regulation. This
Agreement may be executed in counterparts which together shall constitute a
single agreement.
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IN WITNESS WHEREOF, Mercantile and Bancshares 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
written above.
Attest: MERCANTILE BANCORPORATION INC.
/s/ Jon W. Bilstrom /s/ Thomas H. Jacobsen
_____________________________________ By: _________________________________
Name: Jon W. Bilstrom Name: Thomas H. Jacobsen
Title: General Counsel Title: Chairman, President &
Chief Executive Officer
Attest: AMERIBANC, INC.
/s/ David Grant /s/ John W. Rowe
_____________________________________ By: _________________________________
Name: David Grant Name: John W. Rowe
Title: Senior Vice President Title: Vice President
Attest: MARK TWAIN BANCSHARES, INC.
/s/ Carl A. Wattenberg, Jr. /s/ John P. Dubinsky
_____________________________________ By: _________________________________
Name: Carl A. Wattenberg, Jr. Name: John P. Dubinsky
Title: Senior Vice President, Title: President and Chief
Secretary and General Executive Officer
Counsel
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ANNEX B
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT ("Option Agreement") dated October 27, 1996, between
MERCANTILE BANCORPORATION INC. ("Mercantile"), a Missouri corporation
registered as a bank holding company under the Bank Holding Company Act of
1956, as amended (the "Holding Company Act"), and Mark Twain Bancshares, Inc.
("Bancshares"), a Missouri corporation registered as a bank holding company
under the Holding Company Act.
W I T N E S S E T H:
WHEREAS, the Executive Committee of the Board of Directors of Mercantile and
the Board of Directors of Bancshares have approved an Agreement and Plan of
Reorganization dated as of even date herewith (the "Merger Agreement")
providing for the merger of Bancshares with and into a wholly owned subsidiary
of Mercantile;
WHEREAS, as a condition to Mercantile's entering into the Merger Agreement,
Mercantile has required that Bancshares agree, and Bancshares has agreed, to
grant to Mercantile the option set forth herein to purchase authorized but
unissued shares of Bancshares Common Stock;
NOW, THEREFORE, in consideration of the premises herein contained, the
parties agree as follows:
1. Definitions.
Capitalized terms used but not defined herein shall have the same meanings
as in the Merger Agreement.
2. Grant of Option.
Subject to the terms and conditions set forth herein, Bancshares hereby
grants to Mercantile an option (the "Option") to purchase up to 3,261,522
authorized and unissued shares of Bancshares Common Stock at a price of
$42.375 per share (the "Purchase Price") payable in cash as provided in
Section 4 hereof.
3. Exercise of Option.
(a) Mercantile may exercise the Option, in whole or in part, at any time or
from time to time if a Purchase Event (as defined below) shall have occurred;
provided, however, that (i) to the extent the Option shall not have been
exercised, it shall terminate and be of no further force and effect upon the
earliest to occur of the Effective Time of the Merger, 12 months following
termination of the Merger Agreement in accordance with Section 7.01(d)
thereof, and the termination of the Merger Agreement in accordance with
Section 7.01(a) through 7.01(c) or 7.01(e) thereof, provided that if such
termination follows an Extension Event (as defined below), the Option shall
not terminate until the date that is 12 months following such termination;
(ii) if the Option cannot be exercised on such date because of any injunction,
order or similar restraint issued by a court of competent jurisdiction, the
Option shall expire on the 30th business day after such injunction, order or
restraint shall have been dissolved or when such injunction, order or
restraint shall have become permanent and no longer subject to appeal, as the
case may be; and (iii) any such exercise shall be subject to compliance with
applicable law, including the Holding Company Act.
(b) As used herein, a "Purchase Event" shall mean any of the following
events:
(i) Bancshares or any Bancshares Subsidiary, without having received
prior written consent from Mercantile, shall have entered into, authorized,
recommended, proposed or publicly announced its intention
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to enter into, authorize, recommend, or propose, an agreement, arrangement
or understanding with any person (other than Mercantile or any Mercantile
Subsidiary) to (A) effect a merger or consolidation or similar transaction
involving Bancshares or any Bancshares Subsidiary, (B) purchase, lease or
otherwise acquire all or a substantial portion of Bancshares or any
Bancshares Subsidiary that constitutes a Significant Subsidiary (as defined
in Rule 1-02 of Regulation S-X promulgated by the SEC) or (C) purchase or
otherwise acquire (including by way of merger, consolidation, share
exchange or similar transaction) Beneficial Ownership of securities
representing 10% or more of the voting power of Bancshares or any
Bancshares Subsidiary (in each case other than any such merger,
consolidation, purchase, lease or other transaction involving only
Bancshares and one or more Bancshares Subsidiaries or involving only any
two or more Bancshares Subsidiaries);
(ii) any person (other than Mercantile or any Subsidiary of Mercantile,
or Bancshares or any Subsidiary of Bancshares in a fiduciary capacity)
shall have acquired after the date hereof Beneficial Ownership or the right
to acquire Beneficial Ownership of 10% or more of the voting power of
Bancshares; or
(iii) Bancshares' Board of Directors shall have withdrawn or modified in
a manner adverse to Mercantile the recommendation of Bancshares' Board of
Directors with respect to the Merger Agreement, in each case after an
Extension Event; or
(iv) the holders of Bancshares Common Stock shall not have approved the
Merger Agreement at the Meeting of Bancshares stockholders, or such Meeting
shall not have been held or shall have been cancelled prior to termination
of the Merger Agreement in accordance with its terms, in each case after an
Extension Event.
(c) As used herein, the term "Extension Event" shall mean any of the
following events:
(i) a Purchase Event of the type specified in clauses (b)(i) and (b)(ii)
above;
(ii) any person (other than Mercantile or any Mercantile Subsidiary)
shall have "commenced" (as such term is defined in Rule 14d-2 under the
Exchange Act), or shall have filed a registration statement under the
Securities Act with respect to, a tender offer or exchange offer to
purchase shares of Bancshares Common Stock such that, upon consummation of
such offer, such person would have Beneficial Ownership (as defined below)
or the right to acquire Beneficial Ownership of 10% or more of the voting
power of Bancshares; or,
(iii) any person (other than Mercantile or any Subsidiary of Mercantile,
or Bancshares or any Subsidiary of Bancshares in a fiduciary capacity)
shall have publicly announced its willingness, or shall have publicly
announced a proposal, or publicly disclosed an intention to make a
proposal, (x) to make an offer described in clause (ii) above or (y) to
engage in a transaction described in clause (i) above.
(d) As used herein, the terms "Beneficial Ownership" and "Beneficially Own"
shall have the meanings ascribed to them in Rule 13d-3 under the Exchange Act.
(e) In the event Mercantile wishes to exercise the Option, it shall deliver
to Bancshares a written notice (the date of which being herein referred to as
the "Notice Date") specifying (i) the total number of shares it intends to
purchase pursuant to such exercise and (ii) a place and date not earlier than
three business days nor later than 60 calendar days from the Notice Date for
the closing of such purchase (the "Closing Date").
4. Payment and Delivery of Certificates.
(a) At the closing referred to in Section 3 hereof, Mercantile shall pay to
Bancshares the aggregate purchase price for the shares of Bancshares Common
Stock purchased pursuant to the exercise of the Option in immediately
available funds by wire transfer to a bank account designated by Bancshares.
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<PAGE>
(b) At such closing, simultaneously with the delivery of cash as provided in
Section 4(a), Bancshares shall deliver to Mercantile a certificate or
certificates representing the number of shares of Bancshares Common Stock
purchased by Mercantile, registered in the name of Mercantile or a nominee
designated in writing by Mercantile, and Mercantile shall deliver to
Bancshares a letter agreeing that Mercantile shall not offer to sell, pledge
or otherwise dispose of such shares in violation of applicable law or the
provisions of this Option Agreement.
(c) If at the time of issuance of any Bancshares Common Stock pursuant to
any exercise of the Option, Bancshares shall have issued any share purchase
rights or similar securities to holders of Bancshares Common Stock, then each
such share of Bancshares Common Stock shall also represent rights with terms
substantially the same as and at least as favorable to Mercantile as those
issued to other holders of Bancshares Common Stock.
(d) Certificates for Bancshares Common Stock delivered at any closing
hereunder shall be endorsed with a restrictive legend which shall read
substantially as follows:
The transfer of the shares represented by this certificate is subject to
certain provisions of an agreement between the registered holder hereof and
Mark Twain Bancshares, Inc. ("Mark Twain"), a copy of which is on file at
the principal office of Mark Twain, and to resale restrictions arising
under the Securities Act of 1933 and any applicable state securities laws.
A copy of such agreement will be provided to the holder hereof without
charge upon receipt by Mark Twain of a written request therefor.
It is understood and agreed that the above legend shall be removed by delivery
of substitute certificate(s) without such legend if Mercantile shall have
delivered to Bancshares an opinion of counsel, in form and substance
reasonably satisfactory to Bancshares and its counsel, to the effect that such
legend is not required for purposes of the Securities Act and any applicable
state securities laws.
5. Authorization, etc.
(a) Bancshares hereby represents and warrants to Mercantile that:
(i) Bancshares has full corporate authority to execute and deliver this
Option Agreement and, subject to Section 11(i), to consummate the
transactions contemplated hereby;
(ii) such execution, delivery and consummation have been authorized by
the Board of Directors of Bancshares, and no other corporate proceedings
are necessary therefor;
(iii) this Option Agreement has been duly and validly executed and
delivered and represents a valid and legally binding obligation of
Bancshares, enforceable against Bancshares in accordance with its terms;
and
(iv) Bancshares has taken all necessary corporate action to authorize and
reserve and, subject to Section 11(i), permit it to issue and, at all times
from the date hereof through the date of the exercise in full or the
expiration or termination of the Option, shall have reserved for issuance
upon exercise of the Option, 3,261,522 shares of Bancshares Common Stock,
all of which, upon issuance pursuant hereto, shall be duly authorized,
validly issued, fully paid and nonassessable, and shall be delivered free
and clear of all claims, liens, encumbrances, restrictions (other than
federal and state securities restrictions) and security interests and not
subject to any preemptive rights.
(b) Mercantile hereby represents and warrants to Bancshares that:
(i) Mercantile has full corporate authority to execute and deliver this
Option Agreement and, subject to Section 11(i), to consummate the
transactions contemplated hereby;
(ii) such execution, delivery and consummation have been authorized by
all requisite corporate action by Mercantile, and no other corporate
proceedings are necessary therefor;
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(iii) this Option Agreement has been duly and validly executed and
delivered and represents a valid and legally binding obligation of
Mercantile, enforceable against Mercantile in accordance with its terms;
and
(iv) any Bancshares Common Stock or other securities acquired by
Mercantile upon exercise of the Option will not be taken with a view to the
public distribution thereof and will not be transferred or otherwise
disposed of except in compliance with the Securities Act.
6. Adjustment upon Changes in Capitalization.
In the event of any change in Bancshares Common Stock by reason of stock
dividends, split-ups, recapitalizations or the like, the type and number of
shares subject to the Option, and the purchase price per share, as the case
may be, shall be adjusted appropriately. In the event that any additional
shares of Bancshares Common Stock are issued after the date of this Option
Agreement (other than pursuant to an event described in the preceding sentence
or pursuant to this Option Agreement), the number of shares of Bancshares
Common Stock subject to the Option shall be adjusted so that, after such
issuance, it equals at least 19.9% of the number of shares of Bancshares
Common Stock then issued and outstanding (without considering as outstanding
any shares subject to or issued pursuant to the Option).
7. Repurchase.
(a) Subject to Section 11(i), at the request of Mercantile at any time
commencing upon the occurrence of a Put Event (as defined below) and ending 13
months immediately thereafter (the "Repurchase Period"), Bancshares (or any
successor entity thereof) shall repurchase the Option from Mercantile together
with all (but not less than all, subject to Section 10) shares of Bancshares
Common Stock purchased by Mercantile pursuant thereto with respect to which
Mercantile then has Beneficial Ownership, at a price (per share, the "Per
Share Repurchase Price") equal to the sum of:
(i) The exercise price paid by Mercantile for any shares of Bancshares
Common Stock acquired pursuant to the Option;
(ii) The difference between (A) the "Market/Tender Offer Price" for
shares of Bancshares Common Stock (defined as the higher of (x) the highest
price per share at which a tender or exchange offer has been made for
shares of Bancshares Common Stock or (y) the highest closing mean of the
"bid" and the "ask" price per share of Bancshares Common Stock on the New
York Stock Exchange Consolidated Tape (as reported in the Wall Street
Journal or other authoritative source), for any day within that portion of
the Repurchase Period which precedes the date Mercantile gives notice of
the required repurchase under this Section 7) and (B) the exercise price as
determined pursuant to Section 2 hereof (subject to adjustment as provided
in Section 6), multiplied by the number of shares of Bancshares Common
Stock with respect to which the Option has not been exercised, but only if
the Market/Tender Offer Price is greater than such exercise price; and
(iii) The difference between the Market/Tender Offer Price and the
exercise price paid by Mercantile for any shares of Bancshares Common Stock
purchased pursuant to the exercise of the Option, multiplied by the number
of shares so purchased, but only if the Market/Tender Offer Price is
greater than such exercise price.
(b) In the event Mercantile exercises its rights under this Section 7,
Bancshares shall, within 10 business days thereafter, pay the required amount
to Mercantile by wire transfer of immediately available funds to an account
designated by Mercantile and Mercantile shall surrender to Bancshares the
Option and the certificates evidencing the shares of Bancshares Common Stock
purchased thereunder with respect to which Mercantile then has Beneficial
Ownership, and Mercantile shall warrant that it has sole record and Beneficial
Ownership of such shares and that the same are free and clear of all liens,
claims, charges, restrictions and encumbrances of any kind whatsoever.
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(c) In determining the Market/Tender Offer Price, the value of any
consideration other than cash shall be determined by an independent nationally
recognized investment banking firm selected by Mercantile and reasonably
acceptable to Bancshares.
(d) For purposes of this Section 7, a Put Event shall be deemed to have
occurred (i) upon the consummation of any merger, consolidation or any similar
transaction involving Bancshares or any purchase, lease or other acquisition
of all or a substantial portion of the assets of Bancshares or (ii) upon the
acquisition by any person of Beneficial Ownership of 50% or more of the then
outstanding shares of Bancshares Common Stock, provided that no such event
shall constitute a Put Event unless a Purchase Event shall have occurred prior
to expiration or termination of the Option.
8. Repurchase at Option of Bancshares and First Refusal.
(a) Except to the extent that Mercantile shall have previously exercised its
rights under Section 7, at the request of Bancshares during the six-month
period commencing 13 months following the first occurrence of a Purchase
Event, Bancshares may repurchase from Mercantile, and Mercantile shall sell to
Bancshares, all (but not less than all, subject to Section 10) of the
Bancshares Common Stock acquired by Mercantile pursuant hereto and with
respect to which Mercantile has Beneficial Ownership at the time of such
repurchase at a price per share equal to the greater of (i) 110% of the
Market/Tender Offer Price per share, (ii) the Per Share Repurchase Price or
(iii) the sum of (A) the aggregate Purchase Price of the shares so repurchased
plus (B) interest on the aggregate Purchase Price paid for the shares so
repurchased from the date of purchase to the date of repurchase at the average
rate of interest announced by Mercantile as its prime or base lending or
reference rate during such period, less any dividends received on the shares
so repurchased, plus (C) Mercantile's reasonable out-of-pocket expenses
incurred in connection with the transactions contemplated by the Merger
Agreement, including, without limitation, accounting and investment banking
fees. Any repurchase under this Section 8(a) shall be consummated in
accordance with Section 7(b).
(b) If, at any time after the occurrence of a Purchase Event and prior to
the earlier of (i) the expiration of 18 months immediately following such
Purchase Event or (ii) the expiration or termination of the Option, Mercantile
shall desire to sell, assign, transfer or otherwise dispose of the Option or
all or any of the shares of Bancshares Common Stock acquired by it pursuant to
the Option, it shall give Bancshares written notice of the proposed
transaction (an "Offeror's Notice"), identifying the proposed transferee, and
setting forth the terms of the proposed transaction. An Offeror's Notice shall
be deemed an offer by Mercantile to Bancshares, which may be accepted within
10 business days of the receipt of such Offeror's Notice, on the same terms
and conditions and at the same price at which Mercantile is proposing to
transfer the Option or such shares to a third party. The purchase of the
Option or any such shares by Bancshares shall be closed within 10 business
days of the date of the acceptance of the offer and the purchase price shall
be paid to Mercantile by wire transfer of immediately available funds to an
account designated by Mercantile. In the event of the failure or refusal of
Bancshares to purchase the Option or all the shares covered by the Offeror's
Notice or if the Board or any other Regulatory Authority disapproves
Bancshares' proposed purchase of the Option or such shares, Mercantile may,
within 60 days from the date of the Offeror's Notice, sell all, but not less
than all, of the Option or such shares to such third party at no less than the
price specified and on terms no more favorable to the purchaser than those set
forth in the Offeror's Notice. The requirements of this Section 8(b) shall not
apply to (i) any disposition as a result of which the proposed transferee
would Beneficially Own not more than 2% of the voting power of Bancshares or
(ii) any disposition of Bancshares Common Stock by a person to whom Mercantile
has sold shares of Bancshares Common Stock issued upon exercise of the Option.
9. Registration Rights.
At any time after a Purchase Event, Bancshares shall, if requested by any
holder or beneficial owner of shares of Bancshares Common Stock issued upon
exercise of the Option (except any beneficial holder who acquired all of such
holder's shares in a transaction exempt from the requirements of Section 8(b)
by reason of
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clause (i) thereof) (each a "Holder"), as expeditiously as possible file a
registration statement on a form for general use under the Securities Act if
necessary in order to permit the sale or other disposition of the shares of
Bancshares Common Stock that have been acquired upon exercise of the Option in
accordance with the intended method of sale or other disposition requested by
any such Holder (it being understood and agreed that any such sale or other
disposition shall be effected on a widely distributed basis so that, upon
consummation thereof, no purchaser or transferee shall Beneficially Own more
than 2% of the shares of Bancshares Common Stock then outstanding). Each such
Holder shall provide all information reasonably requested by Bancshares for
inclusion in any registration statement to be filed hereunder. Bancshares
shall use its best efforts to cause such registration statement first to
become effective and then to remain effective for such period not in excess of
180 days from the day such registration statement first becomes effective as
may be reasonably necessary to effect such sales or other dispositions. The
registration effected under this Section 9 shall be at Bancshares' expense
except for underwriting commissions and the fees and disbursements of such
Holders' counsel attributable to the registration of such Bancshares Common
Stock. In no event shall Bancshares be required to effect more than one
registration hereunder. The filing of the registration statement hereunder may
be delayed for such period of time as may reasonably be required to facilitate
any public distribution by Bancshares of Bancshares Common Stock or if a
special audit of Bancshares would otherwise be required in connection
therewith. If requested by any such Holder in connection with such
registration, Bancshares shall become a party to any underwriting agreement
relating to the sale of such shares, but only to the extent of obligating
itself in respect of representations, warranties, indemnities and other
agreements customarily included in such underwriting agreements for parties
similarly situated. Upon receiving any request for registration under this
Section 9 from any Holder, Bancshares agrees to send a copy thereof to any
other person known to Bancshares to be entitled to registration rights under
this Section 9, in each case by promptly mailing the same, postage prepaid, to
the address of record of the persons entitled to receive such copies.
10. Severability.
Any term, provision, covenant or restriction contained in this Option
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 Option
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 Option Agreement that is so found to be so broad
as to be unenforceable shall be interpreted to be as broad as is enforceable.
If for any reason such court or Regulatory Authority determines that
applicable law will not permit Mercantile or any other person to acquire, or
Bancshares to repurchase or purchase, the full number of shares of Bancshares
Common Stock provided in Section 2 hereof (as adjusted pursuant to Section 6
hereof), it is the express intention of the parties hereto to allow Mercantile
or such other person to acquire, or Bancshares to repurchase or purchase, such
lesser number of shares as may be permissible, without any amendment or
modification hereof.
11. Miscellaneous.
(a) Expenses. Each of the parties hereto shall pay all costs and expenses
incurred by it or on its behalf in connection with the transactions
contemplated hereunder, including fees and expenses of its own financial
consultants, investment bankers, accountants and counsel, except as otherwise
provided herein.
(b) Entire Agreement. Except as otherwise expressly provided herein, this
Option Agreement and the Merger Agreement contain the entire agreement between
the parties with respect to the transactions contemplated hereunder and
supersedes all prior arrangements or understandings with respect thereto,
written or oral.
(c) Successors; No Third Party Beneficiaries. The terms and conditions of
this Option Agreement shall inure to the benefit of and be binding upon the
parties hereto and their respective successors and permitted assigns. Nothing
in this Option Agreement, expressed or implied, is intended to confer upon any
party, other than the parties hereto, and their respective successors and
assigns, any rights, remedies, obligations, or liabilities under or by reason
of this Option Agreement, except as expressly provided herein.
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(d) Assignment. Other than as provided in Sections 8 and 9 hereof, neither
of the parties hereto may sell, transfer, assign or otherwise dispose of any
of its rights or obligations under this Option Agreement or the Option created
hereunder to any other person (whether by operation of law or otherwise),
without the express written consent of the other party.
(e) Notices. All notices or other communications which are required or
permitted hereunder shall be in writing and sufficient if delivered in
accordance with Section 8.02 of the Merger Agreement (which is incorporated
herein by reference).
(f) Counterparts. This Option Agreement may be executed in counterparts, and
each such counterpart shall be deemed to be an original instrument, but both
such counterparts together shall constitute but one agreement.
(g) Specific Performance. The parties hereto agree that if for any reason
Mercantile or Bancshares shall have failed to perform its obligations under
this Option Agreement, then either party hereto seeking to enforce this Option
Agreement against such non-performing party shall be entitled to specific
performance and injunctive and other equitable relief, and the parties hereto
further agree to waive any requirement for the securing or posting of any bond
in connection with the obtaining of any such injunctive or other equitable
relief. This provision is without prejudice to any other rights that either
party hereto may have against the other party hereto for any failure to
perform its obligations under this Option Agreement.
(h) Governing Law. This Option Agreement shall be governed by and construed
in accordance with the laws of the State of Missouri applicable to agreements
made and entirely to be performed within such state. Nothing in this Option
Agreement shall be construed to require any party (or any subsidiary or
affiliate of any party) to take any action or fail to take any action in
violation of applicable law, rule or regulation.
(i) Regulatory Approvals; Section 16(b). If, in connection with (A) the
exercise of the Option under Section 3 or a sale by Mercantile to a third
party under Section 8, (B) a repurchase by Bancshares under Section 7 or a
repurchase or purchase by Bancshares under Section 8, prior notification to or
approval of the Board or any other Regulatory Authority is required, then the
required notice or application for approval shall be promptly filed and
expeditiously processed and periods of time that otherwise would run pursuant
to such Sections shall run instead from the date on which any such required
notification period has expired or been terminated or such approval has been
obtained, and in either event, any requisite waiting period shall have passed.
In the case of clause (A) of this subsection (i), such filing shall be made by
Mercantile, and in the case of clause (B) of this subsection (i), such filing
shall be made by Bancshares, provided that each of Mercantile and Bancshares
shall use its best efforts to make all filings with, and to obtain consents
of, all third parties and Regulatory Authorities necessary to the consummation
of the transactions contemplated hereby, including without limitation applying
to the Board under the Holding Company Act for approval to acquire the shares
issuable hereunder. Periods of time that otherwise would run pursuant to
Sections 3, 7 or 8 shall also be extended to the extent necessary to avoid
liability under Section 16(b) of the Exchange Act.
(j) No Breach of Merger Agreement Authorized. Nothing contained in this
Option Agreement shall be deemed to authorize Bancshares to issue any shares
of Bancshares Common Stock in breach of, or otherwise breach any of, the
provisions of the Merger Agreement.
(k) Waiver and Amendment. Any provision of this Agreement may be waived at
any time by the party that is entitled to the benefits of such provision. This
Option Agreement may not be modified, amended, altered or supplemented except
upon the execution and delivery of a written agreement executed by the parties
hereto.
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<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has executed this Option
Agreement as of the date first written above.
MERCANTILE BANCORPORATION INC.
/s/ Thomas H. Jacobson
By:__________________________________
Name: Thomas H. Jacobson
Title: Chairman, President
andChief Executive Officer
MARK TWAIN BANCSHARES, INC.
/s/ John P. Dubinsky
By:__________________________________
Name: John P. Dubinsky
Title: President and Chief
Executive Officer
B-8
<PAGE>
ANNEX C
DISSENTERS' RIGHTS PROVISIONS UNDER THE
MISSOURI GENERAL AND BUSINESS CORPORATION LAW
Set forth below is the text of the statutory dissenters' rights provisions
under Section 351.455 of the Missouri General and Business Corporation Law.
351.455 SHAREHOLDER WHO OBJECTS TO MERGER MAY DEMAND VALUE OF SHARES, WHEN--
(i) If a shareholder of a corporation which is a party to a merger or
consolidation shall file with such corporation, prior to or at the meeting of
shareholders at which the plan of merger or consolidation is submitted to a
vote, a written objection to such plan of merger or consolidation, and shall
not vote in favor thereof, and such shareholder, within twenty days after the
merger or consolidation is effected, shall make written demand on the
surviving or new corporation for payment of the fair value of his shares as of
the day prior to the date on which the vote was taken approving the merger or
consolidation the surviving or new corporation shall pay to such shareholder,
upon surrender of his certificate or certificates representing said shares,
the fair value thereof. Such demand shall state the number and class of the
shares owned by such dissenting shareholder. Any shareholder failing to make
demand within the twenty day period shall be conclusively presumed to have
consented to the merger or consolidation and shall be bound by the terms
thereof.
(ii) If within thirty days after the date on which such merger or
consolidation was effected the value of such shares is agreed upon between the
dissenting shareholder and the surviving or new corporation, payment therefor
shall be made within ninety days after the date on which such merger or
consolidation was effected, upon the surrender of his certificate or
certificates representing said shares. Upon payment of the agreed value the
dissenting shareholder shall cease to have any interest in such shares or in
the corporation.
(iii) If within such period of thirty days the shareholder and the surviving
or new corporation do not so agree, then the dissenting shareholder may,
within sixty days after the expiration of the thirty day period, file a
petition in any court of competent jurisdiction within the county in which the
registered office of the surviving or new corporation is situated, asking for
a finding and determination of the fair value of such shares, and shall be
entitled to judgment against the surviving or new corporation for the amount
of such fair value as of the day prior to the date on which such vote was
taken approving such merger or consolidation, together with interest thereon
to the date of such judgment. The judgment shall be payable only upon and
simultaneously with the surrender to the surviving or new corporations of the
certificate or certificates representing said shares. Upon the payment of the
judgment, the dissenting shareholder shall cease to have any interest in such
shares, or in the surviving or new corporation. Such shares may be held and
disposed of by the surviving or new corporation as it may see fit. Unless the
dissenting shareholder shall file such petition within the time herein
limited, such shareholder and all persons claiming under him shall be
conclusively presumed to have approved and ratified the merger or
consolidation, and shall be bound by the terms thereof.
(iv) The right of a dissenting shareholder to be paid the fair value of his
shares as herein provided shall cease if and when the corporation shall
abandon the merger or consolidation.
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ANNEX D
[UBS Securities LLC Letterhead]
March 19, 1997
The Board of Directors
Mercantile Bancorporation Inc.
One Mercantile Center
P.O. Box 524
St. Louis, Missouri 63166
Members of the Board:
You have requested our opinion as to the fairness, from a financial point of
view, to the shareholders of Mercantile Bancorporation Inc. (the "Company") of
the exchange ratio (the "Exchange Ratio") in the proposed merger (the
"Merger") of Mark Twain Bancshares, Inc. ("Mark Twain") with and into
Ameribanc, Inc., a wholly-owned subsidiary of the Company, pursuant to the
Agreement and Plan of Merger dated as of October 27, 1996 (the "Agreement")
among the Company, Ameribanc, Inc. and Mark Twain. Pursuant to the Agreement,
each outstanding share of common stock, par value $1.25 per share, of Mark
Twain will be converted into the right to receive .952 shares of common stock,
par value $5.00 per share, of the Company. The terms of the Merger are more
fully set forth in the Agreement.
We understand that the Merger is conditioned upon, among other things,
receipt of a letter from the Company's independent auditors that the Merger
will qualify for pooling-of-interests accounting treatment and an opinion of
counsel that the Merger constitutes a tax-free transaction under the Internal
Revenue Code. Pursuant to the Agreement, the Company and Mark Twain entered
into a Stock Option Agreement ("the Stock Option Agreement") under which Mark
Twain has granted to the Company an option to purchase up to 19.9% of the
outstanding shares of Mark Twain common stock at the time of exercise at an
exercise price of $42.375 per share.
UBS Securities LLC, as part of its investment banking business, is
continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, secondary
distributions of listed and unlisted securities, private placements and
valuations for corporate and other purposes. In the ordinary course of our
business, we and our affiliates may actively trade the shares of the Company
and Mark Twain for our own account and for the accounts of our customers and,
accordingly, may at any time hold a long or short position in such securities.
We are acting as exclusive financial advisor to the Company in connection with
the Merger and will receive a fee from the Company for our services.
In arriving at our opinion, we have reviewed and relied upon material
bearing upon the financial and operating condition of the Company and Mark
Twain and the Merger, including the following: (i) the Agreement and the Stock
Option Agreement; (ii) the Agreement and Plan of Reorganization between MBI
and Roosevelt dated December 22, 1996 and the related Stock Option Agreement
between MBI and Roosevelt dated December 22, 1996; (iii) the Annual Reports to
Shareholders and Annual Reports on Form 10-K for the three years ended
December 31, 1996, of the Company, Roosevelt and Mark Twain; (iv) certain
interim reports on Form 8-K of the Company, Roosevelt and Mark Twain filed
subsequent to January 1, 1996; (v) certain other financial information
concerning the businesses and operations of the Company, Roosevelt and Mark
Twain furnished to us by the Company, Roosevelt and Mark Twain, including
certain internal financial analyses, pro forma financial statements giving
effect to the acquisition of Roosevelt and the Merger prepared by the senior
management of
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<PAGE>
the Company and forecasts for the Company, Roosevelt and Mark Twain prepared
by the senior management of the Company; (vi) certain publicly available
information concerning trading of, and the trading market for, the common
stock of the Company and the common stock of Mark Twain; and (vii) certain
publicly available information with respect to banks and bank holding
companies and the nature and terms of certain other transactions that we
consider relevant to our inquiry. We have also held discussions with senior
management of the Company and Mark Twain regarding the past and current
business operations, regulatory relations, financial condition and future
prospects of their respective companies and such other matters as we have
deemed relevant to our inquiry.
In conducting our review and arriving at our opinion, as contemplated under
the terms of our engagement by the Company, we have relied, without
independent investigation, upon the accuracy and completeness of all financial
and other information provided to us or publicly available, and we have not
assumed any responsibility in any respect for the accuracy, completeness or
reasonableness of, or any obligation to verify, the same or to conduct any
appraisal of assets. Without limiting the generality of the foregoing, we have
relied upon the management of the Company as to the reasonableness of the pro
forma financial statements (including the underlying assumptions, the
adjustments giving effect thereto and the allocation of such adjustments) and
the reasonableness and achievability of the financial and operating forecasts
and projections (and the assumptions and bases therefor) provided to us, and
we have assumed that such forecasts and projections reflect the best currently
available estimates and judgments of such management and that such forecasts
and projections will be realized in the amounts and in the time periods
currently estimated by such management. We have assumed, without independent
verification, that the aggregate allowances for credit losses for the Company,
Roosevelt and Mark Twain are adequate to cover such losses. In rendering our
opinion, we have not made or obtained any evaluations or appraisals of the
property of the Company, Roosevelt or Mark Twain, nor have we examined any
individual credit files.
We have considered such financial and other factors as we have deemed
appropriate under the circumstances, including among others the following: (i)
the historical and current financial position and results of operations of the
Company and Mark Twain; (ii) the assets and liabilities of the Company and
Mark Twain; (iii) certain pro forma combined financial information for the
Company and Mark Twain; (iv) historical and current market data for the shares
of common stock of the Company and Mark Twain; (v) stock market data for
certain other companies, the securities of which are publicly traded, which we
believe may be similar or comparable to the Company or Mark Twain; and (vi)
the nature and terms of certain other merger transactions involving banks and
bank holding companies. We have also taken into account our assessment of
general economic, market and financial conditions and our experience in other
transactions, as well as our experience in securities valuation and knowledge
of the banking industry generally. Our opinion is necessarily based upon
economic, market and other conditions as they exist and can be evaluated on
the date hereof and the information made available to us through the date
hereof.
It is understood that this letter is for the benefit and use of the Board of
Directors of the Company in connection with its consideration of the Merger
and may not be used for any other purpose or reproduced, disseminated, quoted
or referred to at any time, in any manner or for any purpose without our prior
written consent, except that this opinion may be included in its entirety in
any filing with the Securities and Exchange Commission in connection with the
Merger. This letter addresses only the fairness, from a financial point of
view, to the shareholders of the Company of the consideration to be paid in
the Merger pursuant to the Merger Agreement, does not address any other aspect
of the Merger and should not be construed as any recommendation or advice to
the Board of Directors to approve the Merger or to any shareholder of the
Company to vote or take any other action in favor of the Merger.
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<PAGE>
Based upon and subject to the foregoing, including the various assumptions
and limitations set forth herein, it is our opinion that, as of the date
hereof, the Exchange Ratio is fair, from a financial point of view, to the
shareholders of the Company.
Very truly yours,
UBS SECURITIES LLC
/s/ Richard J. Barrett
By: _________________________________
Managing Director
/s/ Tod D. Perkins
By: _________________________________
Managing Director
D-3
<PAGE>
ANNEX E
[Morgan Stanley & Co. Incorporated Letterhead]
March 19, 1997
Board of Directors
Mark Twain Bancshares, Inc.
8820 Ladue Road
St. Louis, MO 63124
Members of the Board:
We understand that Mark Twain Bancshares, Inc. ("Mark Twain"), Mercantile
Bancorporation Inc. ("Mercantile") and a wholly owned subsidiary of Mercantile
("Merger Sub"), entered into an Agreement and Plan of Reorganization, dated
October 27, 1996 (the "Merger Agreement"), which provides, among other things,
for the merger of Mark Twain with and into Merger Sub (the "Merger"). Pursuant
to the Merger, Mark Twain will become a wholly owned subsidiary of Mercantile
and each outstanding share of common stock, par value $1.25 per share (the
"Mark Twain Common Stock"), other than shares held in treasury or held by
Mercantile or any subsidiary of Mercantile or as to which dissenters' rights
have been perfected, will be converted into 0.952 shares (the "Exchange
Ratio") of common stock, par value $5.00 per share, of Mercantile (the
"Mercantile Common Stock"). The terms and conditions of the Merger are more
fully set forth in the Merger Agreement.
You have asked for our opinion as to whether the Exchange Ratio pursuant to
the Merger Agreement is fair from a financial point of view to the holders of
shares of Mark Twain Common Stock (other than Mercantile and its affiliates).
For purposes of the opinion set forth herein, we have:
1. reviewed certain publicly available financial statements and other
information of Mark Twain and Mercantile, respectively;
2. reviewed certain internal financial statements and other financial and
operating data concerning Mark Twain and Mercantile prepared by the
managements of Mark Twain and Mercantile, respectively;
3. analyzed certain financial projections of Mark Twain and Mercantile
prepared by the managements of Mark Twain and Mercantile, respectively;
4. discussed the past and current operations and financial condition and
the prospects of Mark Twain and Mercantile with senior executives of Mark
Twain and Mercantile, respectively;
5. analyzed the pro forma impact of the Merger on the combined company's
earnings per share, consolidated capitalization and financial ratios;
6. reviewed the reported prices and trading activity for the Mark Twain
Common Stock and the Mercantile Common Stock;
7. compared the financial performance of Mark Twain and Mercantile and
the prices and trading activity of the Mark Twain Common Stock and the
Mercantile Common Stock with that of certain other comparable publicly-
traded companies and their securities;
8. discussed the results of regulatory examinations of Mark Twain and
Mercantile with the senior managements of the respective companies;
9. discussed the strategic objectives of the Merger and the plan for the
combined company with senior executives of Mark Twain and Mercantile;
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<PAGE>
10. reviewed and discussed with the senior managements of Mark Twain and
Mercantile certain estimates of the cost savings and revenue enhancements
projected by Mark Twain and Mercantile for the combined company and
compared such amounts to those estimates in certain precedent transactions;
11. reviewed the financial terms, to the extent publicly available, of
certain comparable precedent transactions;
12. participated in discussions and negotiations among representatives of
Mark Twain and Mercantile and their legal advisors;
13. reviewed the Merger Agreement, the Stock Option Agreement between
Mark Twain and Mercantile and certain related documents; and
14. considered such other factors as we have deemed appropriate.
We have assumed and relied upon without independent verification the
accuracy and completeness of the information supplied or otherwise made
available to us by Mark Twain and Mercantile for the purposes of this opinion.
With respect to the financial projections, including the estimates of cost
savings and revenue enhancements expected to result from the Merger, we have
assumed that they have been reasonably prepared on bases reflecting the best
currently available estimates and judgments of the future financial
performance of Mark Twain and Mercantile. We have not made any independent
valuation or appraisal of the assets or liabilities of Mark Twain or
Mercantile, nor have we been furnished with any such appraisals, and we have
not examined any individual loan credit files of Mark Twain or Mercantile. In
addition, we have assumed the Merger will be consummated substantially in
accordance with the terms set forth in the Merger Agreement. Our opinion is
necessarily based on financial, economic, market and other conditions as in
effect on, and the information made available to us as of, the date hereof.
In arriving at our opinion, we were not authorized to solicit, and did not
solicit, interest from any party with respect to the acquisition of Mark Twain
or any of its assets.
We have acted as financial advisor to the Board of Directors of Mark Twain
in connection with this transaction and will receive a fee for our services, a
substantial portion of which is contingent upon the consummation of the
Merger. In the past, Morgan Stanley & Co. Incorporated and its affiliates have
provided financial advisory and financing services for Mark Twain and have
received fees for the rendering of these services.
It is understood that this letter is for the information of the Board of
Directors of Mark Twain and may not be used for any other purpose without our
prior written consent, except that this opinion may be included in its
entirety in any filing with the Securities and Exchange Commission in
connection with the Merger. In addition, we express no opinion or
recommendation as to how the holders of Mark Twain Common Stock should vote at
the stockholders' meeting held in connection with the Merger.
Based on the foregoing, we are of the opinion on the date hereof that the
Exchange Ratio pursuant to the Merger Agreement is fair from a financial point
of view to the holders of shares of Mark Twain Common Stock (other than
Mercantile and its affiliates).
Very truly yours,
MORGAN STANLEY & CO. INCORPORATED
/s/ William M. Weiant
By: _________________________________
William M. Weiant
Managing Director
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ANNEX F
RESOLUTION TO AMEND RESTATED ARTICLES OF INCORPORATION
OF
MERCANTILE BANCORPORATION INC.
The following amendment to the Restated Articles of Incorporation, as
amended, of Mercantile Bancorporation Inc. (the "Company") shall be put to a
vote of the shareholders of the Company at the Annual Meeting of Shareholders
to be held April 24, 1997:
RESOLVED, that Article 3 of the Restated Articles of Incorporation, as
amended, of the Company shall be amended to increase the aggregate number of
shares of Common Stock of the Company authorized for issuance from 100,000,000
to 200,000,000 and change the par value of the Common Stock from $5.00 per
share to $0.01 per share.
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ANNEX G
MERCANTILE BANCORPORATION INC.
AMENDED AND RESTATED STOCK INCENTIVE PLAN
1. PURPOSE
The Mercantile Bancorporation Inc. (the "Company") Amended and Restated
Stock Incentive Plan (the "Plan") is an amendment and restatement of the
Mercantile Bancorporation Inc. 1994 Stock Incentive Plan. The purpose of the
plan is to advance the interests of the Company and its shareholders by
encouraging the success of the Company by providing for the acquisition of an
equity interest by key employees, by providing additional incentives and
motivation toward superior Company performance, and by enabling the Company to
attract and retain the services of key employees upon whose judgment, talents,
and special effort the successful conduct of its operations is largely
dependent.
2. TERM
The Plan shall be effective as of April 28, 1994, and shall remain in effect
until the earlier of ten (10) years from the effective date or termination of
the plan by the Board of Directors of the Company (the "Board"). If the Plan
is terminated by the Board, no awards may be issued after the effective date
of such termination, but, subject to the preceding sentence, previously issued
awards shall remain outstanding in accordance with their applicable terms and
conditions and the terms and conditions of the Plan.
3. PLAN ADMINISTRATION
The Plan shall be administered by a committee (the "Committee") of and
appointed by the Board consisting of three or more non-employee Directors each
of whom is both (1) qualified to administer this Plan as contemplated by Rule
16b-3 under the Securities Exchange Act of 1934, as amended (the "Act"), and
(2) considered to be an "outside director" as contemplated by Section 162(m)
of the Internal Revenue Code of 1986, as amended (the "Code"). The Committee
shall have full and exclusive power to interpret the Plan and to adopt such
rules, regulations, forms and guidelines for carrying out the Plan as it may
deem necessary or proper, all of which power shall be executed in the best
interests of the Company and in keeping with the objectives of the Plan. This
power includes, but is not limited to, selecting award recipients,
establishing all award terms and conditions and adopting modifications,
amendments, forms and procedures, including subplans and the like, as may be
necessary to comply with provisions of any applicable regulatory rulings. The
Committee may delegate part or all of its administrative authority hereunder
to one or more of its members, as the members by unanimous consent deem
appropriate.
4. ELIGIBILITY
Any employee of the Company shall be eligible to receive one or more awards
under the Plan. "Employee" shall also include any former employee of the
Company eligible to receive an assumed or replacement award as contemplated in
Sections 5 and 6, and, for purposes of this Section 4, "Company" includes any
entity that is directly or indirectly controlled by the Company or any entity
in which the Company has a significant equity interest, as determined by the
Committee.
5. SHARES OF COMMON STOCK SUBJECT TO THE PLAN
(a) Subject to Section 6, the maximum aggregate number of shares of Common
Stock of the Company ("Shares") which may be issued to participants under the
Plan shall not exceed six million (6,000,000), plus any Shares which are
forfeited or tendered pursuant to either or both of the following plans of the
Company
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which previously have received shareholder approval ("Prior Plans"): the
Mercantile Bancorporation Inc. 1987 Stock Option Plan and the Mercantile
Bancorporation Inc. 1991 Employee Incentive Plan. Of these shares, no more
than six million (6,000,000) shall be issued to Participants pursuant to
incentive stock options. In addition, the amount of shares representing
forfeited or tendered shares shall not be available for awards to persons
subject to Section 16 of the Act, to the extent necessary to comply with Rule
16b-3 under the Act. For purposes of this Section 5, the following shall
apply: (i) "Forfeited" shares means any Shares issued pursuant to awards made
under a Plan which are forfeited to the Company pursuant to award terms and
conditions, including any Shares covered by grants made under any Prior Plan
which are returned to the Company because of the cancellation, expiration or
forfeiture of a grant made under such Prior Plan, as well as any shares which,
at the expiration of the particular plan pursuant to its terms, remain
unallocated to awards previously made under the plan; and (ii) "Tendered"
shares means any Shares which have been exchanged, either actually or by
attestation, by a person as full or partial payment made to the Company on or
after the effective date of the Plan in connection with any award under the
Plan.
(b) Except as provided in Section 7, in no event shall more than eight
hundred sixty thousand (860,000) Shares (plus the number of shares of
Restricted Stock authorized under the Mercantile Bancorporation 1991 Employee
Incentive Plan which either have not been awarded under that plan or have been
awarded but subsequently forfeited pursuant to their terms) be issued in
connection with the award of stock pursuant to Section 6(c), unless such stock
was awarded as the payment form for grants or rights under any other employee
or compensation plan of the Company. Additionally, the maximum number of
Shares which may be awarded in the form of stock options or SARs to any one
individual under the Plan shall be limited to one million two hundred thousand
(1,200,000) Shares.
(c) In instances where a stock appreciation right ("SAR") or other award is
settled in cash or a form other than Shares, the Shares that would have been
issued had there been no cash or other settlement shall nevertheless be deemed
issued and shall no longer be available for issuance under the Plan. However,
the payment of cash dividends and dividend equivalents in conjunction with
outstanding awards shall not be counted against the Shares available for
issuance, except to the extent required to comply with Rule 16b-3 under the
Act. Any Shares that are issued by the Company, and any awards that are
granted by, or become obligations of, the Company, through the assumption by
the Company or an affiliate of, or in substitution for, outstanding awards
previously granted by an acquired company shall not be counted against the
Shares available for issuance under the Plan.
(d) Any Shares issued under the Plan may consist in whole or in part of
authorized and unissued Shares or of treasury Shares, and no fractional Shares
shall be issued under the Plan. Cash may be paid in lieu of any fractional
Shares in settlement of awards under the Plan.
6. AWARDS
The Committee shall determine the type or types of award(s) to be made to
each participant. Awards may be granted singly, in combination or in tandem.
Awards also may be made in combination or in tandem with, in replacement of or
substitution for, as alternatives to, or as the payment form for grants or
rights under any other employee or compensation plan of the Company, including
the plan of any acquired entity. The types of awards that may be granted under
the Plan are:
(a) Stock Options--A grant of a right to purchase a specified number of
Shares during a specified period as determined by the Committee. The
purchase price per share for each stock option shall be not less than 100%
of Fair Market Value on the date of grant, except that, in the case of a
stock option granted retroactively in tandem with or as a substitution for
another award, the exercise or designated price may be no lower than the
Fair Market Value of a share on the date such other award was granted. A
stock option may be in the form of an ISO which, in addition to being
subject to applicable terms, conditions and limitations established by the
Committee, complies with Section 422 of the Code. The price at which Shares
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of Common Stock may be purchased under a stock option shall be paid in full
at the time of the exercise in cash or such other method permitted by the
Committee, including (i) tendering (either actually or by attestation)
Shares; (ii) surrendering a stock award valued at Fair Market Value on the
date of surrender; (iii) authorizing a third party to sell the Shares (or a
sufficient portion thereof) acquired upon exercise of a stock option and
assigning the delivery to the Company of a sufficient amount of the sale
proceeds to pay for all the Shares acquired through such exercise; or (iv)
any combination of the above. Options shall not be exercisable for a period
of at least six months following the date of grant.
(b) SARs--A right to receive a payment in cash and/or Shares, equal to
the excess of the Fair Market Value of a specified number of Shares on the
date the SAR is exercised over the Fair Market Value on the date the SAR
was granted as set forth in the applicable award agreement, except that, in
the case of a SAR granted retroactively in tandem with or as a substitution
for another award, the exercise or designated price may be no lower than
the Fair Market Value of a share on the date such other award was granted.
SARs shall not be exercisable for at least six months following the date of
grant.
(c) Stock Awards--An award made or denominated in Shares or units
equivalent in value to Shares. All or part of any stock award may be
subject to conditions and restrictions established by the Committee, and
set forth in the award agreement, which may include, but are not limited
to, continuous service with the Company, achievement of specific business
objectives and other measurements of individual, business unit or Company
performance. Stock received pursuant to any such award shall not be
transferable for at least six months following the date of grant.
7. ADJUSTMENTS AND REORGANIZATIONS
(a) In the event of any stock dividend, stock split, combination or exchange
of Shares, merger, consolidation, spin-off, recapitalization or other
distribution (other than normal cash dividends) of Company assets to
stockholders, or any other change affecting Shares or the price of Shares,
such proportionate adjustments, if any, as the Committee in its discretion may
deem appropriate to reflect such change shall be made with respect to (i) the
aggregate number of Shares that may be issued under the Plan; (ii) each
outstanding award made under the Plan; and (iii) the exercise price per share
for any outstanding stock options, SARs or similar awards under the Plan.
(b) Notwithstanding any other provision of this Plan and any terms of an
agreement under which the Committee has granted an Award under this Plan, upon
a Change in Control, outstanding Awards shall become immediately and fully
exercisable or payable according to the following terms:
(i) Any outstanding and unexercised Option shall become immediately and
fully exercisable, and shall remain exercisable until it would otherwise
expire by reason of lapse of time.
(ii) During the six month and seven day period from and after a Change in
Control (the "Exercise Period"), unless the Committee shall determine
otherwise at the time of grant, a Participant shall have the right, in lieu
of the payment of the Base Price of the shares of Stock being purchased
under the Option and by giving notice to the Committee, to elect (within
the Exercise Period) in lieu of exercise thereof, provided that if such
Option is held by an officer or director of the Company (within the meaning
of Section 16 of the Exchange Act) more than six (6) months from the grant
thereof, to surrender all or part of the Option to the Company and to
receive in cash, within 30 days of such notice, an amount equal to the
amount by which the Change in Control Price per share of Stock on the date
of such election shall exceed the Base Price per share of Stock under the
Option multiplied by the number of shares of Stock granted under the Option
as to which the right granted under this subsection 7(b)(ii) shall have
been exercised. Change in Control Price shall mean the higher of (A)(i) for
any period during which the Stock shall not be listed for trading on a
national securities exchange, but when prices for the Stock shall be
reported by the National Market System of the National Association of
Securities Dealers Automated Quotation System ("NASDAQ"), the highest price
per share as quoted by National Market System of NASDAQ, (ii) for any
period during which the
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Stock shall not be listed for trading on a national securities exchange or
its price reported by the National Market System of NASDAQ, but when prices
for the Stock shall be reported by NASDAQ, the highest average of the high
bid and low asked prices as reported by the NASDAQ, (iii) for any period
during which the Stock shall be listed for trading on a national securities
exchange, the highest closing price per share of Stock on such exchange as
of the close of such trading day or (iv) the highest market price per share
of Stock as determined by a nationally recognized investment banking firm
selected by the Board of Directors in the event neither (i), (ii) or (iii)
above shall be applicable, in each case during the 60-day period prior to
and ending on the date of the Change in Control and (B) if the Change in
Control is the result of a transaction or series of transactions described
in subsections 16(a) or (c), the highest price per share of the Stock paid
in such transaction or series of transactions (which in the case of
subsection 16(a) shall be the highest price per share of the Stock as
reflected in a Schedule 13D by the person having made the acquisition);
provided, however, that with respect to any Incentive Stock Option, the
Change in Control Price shall not exceed the market price of a share of
Stock (to the extent required pursuant to Section 422 of the Internal
Revenue Code of 1986, as amended) on the date of surrender thereof.
(iii) Any outstanding and unexercised Stock Appreciation Rights (other
than such rights which arise pursuant to subsection (b)(ii), above) shall
become exercisable as follows:
(1) Any SAR which may be surrendered in lieu of exercising a stock
option or in conjunction with the exercise of a stock option may
continue to be so surrendered in accordance with its terms.
(B) Any SAR which may be surrendered upon the lapse of a stock option
shall be deemed to have been surrendered if and when the Participant
advises the Committee in writing of an election to have stock options
with respect to which the SAR was granted treated as having lapsed.
(2) Any SAR which may be surrendered independent of any stock option
shall be exercisable immediately, without regard to limitations imposed
upon such surrender which are related to the passage of time.
(iv) The Committee shall provide in the Award agreement for the treatment
to be accorded any Shares awarded pursuant to subsection 6(c) which Award
has not expired or been forfeited before the occurrence of a Change in
Control.
8. FAIR MARKET VALUE
Fair Market Value for all purposes under the Plan shall mean the closing
price of a Share as reported daily on the New York Stock Exchange Composite
Tape and published in The Wall Street Journal or similar readily available
public source for the date in question. If no sale of Shares was made on such
date, the closing price of a Share as reported for the next preceding day on
which a sale of Shares was made shall be used.
9. DIVIDENDS AND DIVIDEND EQUIVALENTS
The Committee may provide that any awards under the Plan earn dividends or
dividend equivalents. Such dividends or dividend equivalents may be paid
currently or may be credited to a participant's account. Any crediting of
dividends or dividend equivalents may be subject to such restrictions and
conditions as the Committee may establish, including reinvestment in
additional Shares or share equivalents.
10. DEFERRALS AND SETTLEMENTS
Payment of awards may be in the form of cash, Shares, other awards or
combinations thereof as the Committee shall determine, and with such
restrictions as it may impose. The Committee also may require or permit
participants to elect to defer the issuance of Shares or the settlement of
awards in cash under such rules and procedures as it may establish under the
Plan. It also may provide that deferred settlements include the payment or
crediting of interest on the deferred amounts, or the payment or crediting of
dividend equivalents where the deferral amounts are denominated in Shares.
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11. AWARD AGREEMENTS
Awards under the Plan shall be evidenced by agreements that set forth the
terms, conditions and limitations for each award which may include the term of
an award (except that in no event shall the term of any ISO exceed a period of
ten years from the date of its grant), the provisions applicable in the event
the participant's employment terminates, and the Committee's authority to
unilaterally or bilaterally amend, modify, suspend, cancel or rescind any
award. The Committee may, but need not, require the execution of any such
agreement, in which case acceptance of the award by the respective participant
shall constitute agreement to the terms of the award.
12. PLAN AMENDMENT
The Plan may be amended only by a disinterested majority of the Board of
Directors as it deems necessary or appropriate to better achieve the purpose
of the Plan, except that no such amendment which would increase the number of
Shares available for issuance in accordance with Sections 5 and 6 or otherwise
cause the Plan not to comply with either Rule 16b-3, or any successor rule,
under the Act or Section 162(m) of the Code shall be effective without the
approval of the Company's shareholders.
13. TAX WITHHOLDING
The Company shall have the right to deduct from any settlement of an award
made under the Plan, including the delivery or vesting of Shares, a sufficient
amount to cover withholding of any federal, state or local taxes required by
law, or to take such other action as may be necessary to satisfy any such
withholding obligations. The Committee may permit Shares to be used to satisfy
required tax withholding and such Shares shall be valued at the Fair Market
Value as of the settlement date of the applicable award. Any election by a
person subject to Section 16 of the Act to have Shares withheld from the
payment of an award hereunder to satisfy tax withholding obligations shall be
made in compliance with Rule 16b-3.
14. OTHER COMPANY BENEFIT AND COMPENSATION PROGRAMS
Unless otherwise specifically determined by the Committee, settlements of
awards received by participants under the Plan shall not be deemed a part of a
participant's regular, recurring compensation for purposes of calculating
payments from or benefits under any Company benefit plan, severance program or
severance pay law of any country. Further, the Company may adopt other
compensation programs, plans or arrangements as it deems appropriate or
necessary.
15. FUTURE RIGHTS
No person shall have any claim or rights to be granted an award under the
Plan, and no participant shall have any rights under the Plan to be retained
in the employ of the Company.
16. CHANGE IN CONTROL
For purposes of this Plan, Change in Control shall mean:
(a) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Act) (a "Person") of
beneficial ownership (within the meaning of Rule 13d-3 promulgated under
the Act) of 20% or more of either (i) the then outstanding shares of common
stock of the Company (the "Outstanding Company Common Stock") or (ii) the
combined voting power of the then outstanding voting securities of the
Company entitled to vote generally in the election of directors (the
"Outstanding Company Voting Securities"); provided, however, that the
following acquisitions shall not constitute a Change in Control: (A) any
acquisition directly from the Company (excluding an acquisition by virtue
of the exercise of a conversion privilege), (B) any acquisition by the
Company, (C) any acquisition by any
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employee benefit plan (or related trust) sponsored or maintained by the
Company or any of its affiliated companies or (D) any acquisition by any
corporation pursuant to a reorganization, merger or consolidation, if,
following such reorganization, merger or consolidation, the conditions
described in clauses (i), (ii) and (iii) of subsection (c), below, are
satisfied; or
(b) Individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority
of the Board; provided, however, that any individual becoming a director
subsequent to the date hereof whose election, or nomination for election by
the Company's shareholders, was approved by a vote of at least a majority
of the directors then comprising the Incumbent Board shall be considered as
though such individual were a member of the Incumbent Board, but excluding,
for this purpose, any such individual whose initial assumption of office
occurs as a result of either an actual or threatened election contest (as
such terms are used in Rule 14a-11 of Regulation 14A promulgated under the
Act) or other actual or threatened solicitation of proxies or consents by
or on behalf of a Person other than the Board; or
(c) Approval by the shareholders of the Company of a reorganization,
merger or consolidation, in each case, unless, following such
reorganization, merger or consolidation, (i) all or substantially all of
the individuals and entities who were the beneficial owners, respectively,
of the Outstanding Company Common Stock and Outstanding Company Voting
Securities immediately prior to such reorganization, merger or
consolidation beneficially own, directly or indirectly, more than 50% of,
respectively, the then outstanding shares of common stock and the combined
voting power of the then outstanding voting securities entitled to vote
generally in the election of directors, as the case may be, of the
corporation resulting from such reorganization, merger or consolidation in
substantially the same proportions as their ownership, immediately prior to
such reorganization, merger or consolidation of the Outstanding Company
Common Stock and Outstanding Company Voting Securities, as the case may be,
(ii) no Person (excluding the Company and any employee benefit plan (or
related trust) of the Company or of the corporation resulting from such
reorganization, merger or consolidation and any Person beneficially owning,
immediately prior to such reorganization, merger or consolidation, directly
or indirectly, 20% or more of the Outstanding Company Common Stock or
Outstanding Voting Securities, as the case may be) beneficially owns,
directly or indirectly, 20% or more of, respectively, the then outstanding
shares of common stock of the corporation resulting from such
reorganization, merger or consolidation or the combined voting power of the
then outstanding voting securities of such corporation and (iii) at least a
majority of the members of the board of directors of the corporation
resulting from such reorganization, merger or consolidation were members of
the Incumbent Board at the time of the execution of the initial agreement
providing for such reorganization, merger or consolidation; or
(d) Approval by the shareholders of the Company of (i) a complete
liquidation or dissolution of the Company or (ii) the sale or other
disposition of all or substantially all of the assets of the Company, other
than to a corporation, with respect to which, following such sale or other
disposition, (A) more than 80% of, respectively, the then outstanding
shares of common stock of such corporation and the combined voting power of
the then outstanding voting securities of such corporation entitled to vote
generally in the election of directors is then beneficially owned, directly
or indirectly, by all or substantially all of the individuals and entities
who were the beneficial owners, respectively, of the Outstanding Company
Common Stock and Outstanding Company Voting Securities immediately prior to
such sale or other disposition in substantially the same proportion as
their ownership, immediately prior to such sale or other disposition, of
the Outstanding Company Common Stock and Outstanding Company Voting
Securities, as the case may be, (B) no Person (excluding the Company and
any employee benefit plan (or related trust) of the Company or of such
corporation and any Person beneficially owning, immediately prior to such
sale or other disposition, 20% or more of the Outstanding Company Common
Stock or Outstanding Company Voting Securities, as the case may be) then
beneficially owns, directly or indirectly, 20% or more of, respectively,
the then outstanding shares of common stock of such corporation and the
combined voting power of the then outstanding voting securities of such
corporation entitled to vote generally in the election of directors and
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(C) at least a majority of the members of the board of directors of such
corporation were members of the Incumbent Board at the time of the
execution of the initial agreement or action of the Board providing for
such sale or other disposition of assets of the Company.
17. MISCELLANEOUS
(a) Unfunded Plan: Unless otherwise determined by the Committee, the Plan
shall be unfunded and shall not create (or be construed to create) a trust or
a separate fund or funds. The Plan shall not establish any fiduciary
relationship between the Company and any Participant or other person. To the
extent any person holds any rights under the Plan, such rights (unless
otherwise determined by the Committee) shall be no greater than the rights of
an unsecured general creditor of the Company.
(b) Assignment; Encumbrances: The right to receive an award, and the right
to receive payment with respect to any award under this Plan are not
assignable or transferable and shall not be subject to any encumbrances,
liens, pledges or charges of the participant or to claims of the participant's
creditors. Any attempt to assign, transfer, hypothecate or attach any rights
with respect to or derived from any award, or any rights with respect to or
derived from an award, shall be null and void and of no force and effect
whatsoever.
(c) Successors and Assigns: The Plan shall be binding on all successors and
assigns of a participant, including, without limitation, the estate of such
participant and the executor, administrator or trustee of such estate, or any
receiver or trustee in bankruptcy or representative of the participant's
creditors.
(d) Designation of Beneficiaries: A participant may designate in writing a
beneficiary or beneficiaries to receive any distribution under the Plan which
is made after the participant's death, provided, however, that if at the time
any such distribution is due, there is no designation of a beneficiary in
force or if any person (other than a trustee or trustees) as to whom a
beneficiary designation was in force at the time of the participant's death
shall have died before the payment became due and the participant has failed
to provide in such beneficiary designation for any person or persons to take
in lieu of such deceased person, the person or persons entitled to receive
such distribution (or part thereof, as the case may be) shall be the
participant's executor or administrator.
(e) Governing Law: The validity, construction and effect of the Plan and any
actions taken or relating to the Plan, shall be determined in accordance with
the laws of the State of Missouri and applicable federal law.
(f) Rights as a Shareholder: A participant shall have no rights as a
shareholder with respect to an award until the participant actually becomes a
holder of record of Shares distributed with respect thereto.
(g) Notices: All notices or other communications made or given pursuant to
this Plan shall be in writing and shall be sufficiently made or given if hand
delivered, or if mailed by certified mail, addressed to the participant at the
address contained in the records of the Company or to the Company at its
principal office, as applicable.
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ANNEX H
MERCANTILE BANCORPORATION INC.
AMENDED AND RESTATED EXECUTIVE INCENTIVE COMPENSATION PLAN
SECTION 1. ESTABLISHMENT AND PURPOSE
1.1. Establishment of the Plan. Mercantile Bancorporation Inc. (the
"Company") hereby establishes the Amended and Restated Executive Incentive
Compensation Plan as herein set forth (herein referred to as the "Plan"). The
Plan is an amendment and restatement of the Mercantile Bancorporation Inc.
1994 Executive Incentive Compensation Plan.
1.2. Purpose. The purpose of the Plan is to enable the Company to attract
and retain selected senior officers and to motivate superior levels of
performance by providing such officers with annual bonus opportunities based
upon preestablished performance objectives. The plan is designed to qualify
such bonus opportunities as "performance-based" under federal tax laws.
1.3. Effective Date. The effective date of the Plan is January 1, 1994,
subject to approval of the material terms of the Plan by the Company's
shareholders. The Plan will remain in effect until terminated by the Board or
April 23, 2002, whichever shall first occur.
SECTION 2. DEFINITIONS
2.1. Definitions. Whenever used herein, the following terms will have the
meanings set forth below, unless otherwise expressly provided. When the
defined meaning is intended, the term is capitalized.
(a) "Board" means the Board of Directors of the Company.
(b) "Base Salary" means the regular base salary, exclusive of any
bonuses, incentive pay, special awards, or other compensation earned by or
awarded to a Participant, and exclusive of any awards under this Plan.
(c) "Cause" means: (1) substantial nonperformance of duties which
continues after the Company advises the Participant of such nonperformance,
or failure to substantially meet stated performance standards, goals or
objectives (other than as a result of incapacity due to a physical or
mental condition), or any other breach of any Employment Agreement between
the Employer and the Participant; (2) the Participant's commission of an
act constituting a criminal offense involving moral turpitude, dishonesty
or breach of trust; or (3) the Employer's right to discontinue the
Participant's employment in the Participant's then current position in
order to comply with applicable laws and regulations or satisfy the
official orders, recommendations, and/or requirements of any regulatory
agency, body, or official having jurisdiction over the Employer.
(d) "Committee" means the Compensation and Management Development
Committee of the Board, or another committee appointed by the Board to
serve as the administrator for the Plan, which committee at all times
consists of persons who are "outside directors" as that term is defined in
the regulations promulgated under Section 162(m) of the Internal Revenue
Code of 1986, as amended.
(e) "Company" means Mercantile Bancorporation Inc., a Missouri
corporation.
(f) "Chief Executive" means the Chief Executive Officer of the Company.
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(g) "Disability" means a condition by reason of which (1) a Participant's
Base Salary payments have been discontinued by his Employer, and (2) he is
on leave of absence because of sickness or other disability, and (3) he is
receiving monthly payments under the Group Long-Term Disability Plan.
(h) "Employee" means a regular, active, full-time salaried employee of
the Employer who is in a position meeting the defined eligibility criteria
for participation in the Plan.
(i) "Employer" means the Company and any entity that is a subsidiary or
affiliate of the Company.
(j) "Final Award" means the award earned by each Participant at the end
of the Plan Year.
(k) "Participant" means an officer or other key Employee who is approved
by the Committee for participation in the Plan.
(l) "Performance Objectives" means the performance criteria and the
achievement goals established by the Committee for a Plan Year.
(m) "Plan Year" means the Company's fiscal year commencing January 1 and
ending December 31.
(n) "Retirement" means cessation of active services or of the actual
performance of regular duties by a Participant, other than a disabled
Participant, and retirement from the employ of all Employers.
(o) "Target Incentive Award" means the potential award to be earned by a
Participant for a Plan Year.
(p) "Target Incentive Award Pool" means the sum of all individual Target
Incentive Awards.
2.2. Gender and Number. Except when otherwise indicated by the context, any
masculine terminology used herein also will include the feminine, and the
definition of any term in the singular may include the plural.
2.3. Severability. In the event any provision of the Plan shall be held
illegal or invalid for any reason, the illegality or invalidity will not
affect the remaining parts of the Plan, and the Plan will be construed and
enforced as if the illegal or invalid provision had not been included.
SECTION 3. ELIGIBILITY AND PARTICIPATION
3.1. Eligibility. Eligibility for participation in the Plan will be limited
to the Chief Executive, those who report directly to the Chief Executive and
other key Employees who, by the nature and scope of their positions, are
materially responsible for the management, growth, and success of the Company.
3.2. Participation. Participation in the Plan will be determined annually by
the Committee. Employees approved for participation will be notified of their
selection as soon after approval as practicable.
3.3. Termination of Approval. The Committee may withdraw approval for a
Participant's participation at any time. In the event of such withdrawal, the
Employee concerned will cease to be a Participant as of the date of such
withdrawal. The Employee will be notified of such withdrawal as soon as
practicable following the Committee's action. A Participant who is withdrawn
from participation under this Section will not receive any award for the Plan
Year, except and to the extent that the Committee decides otherwise in its
sole discretion.
3.4. No Automatic Right to Participate. No Participant or other Employee
will at any time have a right to be selected for participation in the Plan for
any Plan Year, despite having been selected for participation in a previous
Plan Year.
SECTION 4. DETERMINATION OF PERFORMANCE CRITERIA
4.1. Company Performance Criteria. The Committee will establish, prior to
the beginning of each Plan Year (or prior to any other later date allowable
under Section 162(m)), a planned level of Company performance at which 100% of
the Target Incentive Award Pool will be made available for allocation to the
Participants. The performance basis for the Target Incentive Award Pool shall
be determined based upon any one or more of the following financial measures
of the Company: (i) net income; (ii) return on assets; (iii) return on equity;
(iv) earnings per share growth over the performance period; (v) overhead
ratio; (vi) expense to assets ratio; (vii) total shareholder return; (viii)
net interest rate margin; and/or (ix) shareholder value added measures, where
shareholder value added generally represents net operating profits after
taxes, less an equity capital charge. Such performance objectives may be
applied individually or in any combination and may be established on a
corporate-wide basis or with respect to one or more operating units,
divisions, acquired businesses, divestitures, minority interests, partnerships
or joint ventures, or, where applicable, on a relative or absolute basis or on
a per share or an aggregate basis.
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<PAGE>
[ADDITIONAL PAGE TO MBI SHAREHOLDERS ONLY]
4.2. Participant Performance Criteria. Prior to the beginning of each Plan
Year (or prior to any other later date allowable under Section 162(m)), the
Committee will establish and approve, as to the Chief Executive and as to all
other Participants, Performance Objectives for the Chief Executive and for
each of the other Participants, respectively.
SECTION 5. FINAL AWARD DETERMINATION
5.1. Target Incentive Awards. Prior to the beginning of each Plan Year (or
prior to any other later date allowable under Section 162(m)), the Committee,
as to the Chief Executive and as to all other Participants, will establish and
approve Target Incentive Award levels for the Chief Executive and for each of
the other Participants, respectively, based upon the attainment of the
established Performance Objectives by each such Participant. The established
Target Incentive Award levels will vary in relation to the Participant's
duties and responsibilities, provided that no Participant can receive in any
year under the Plan an amount in excess of one-half of one percent (0.5%) of
the Company's net income, as reported in the Company's audited financial
statements, excluding conforming adjustments and such other non-recurring or
extraordinary items as the Committee determines are not representative of the
Company's ongoing operations.
5.2. Target Incentive Pool Development. During each Plan Year, the Company
will accrue a Target Incentive Award Pool equal to the sum of the Target
Incentive Awards for all Plan Participants.
5.3. Company Performance Measurement. At the end of each Plan Year, the
Committee will determine the Company's performance relative to established
Performance Objectives.
5.4. Individual Award Determination. A Participant's Final Award will be
determined solely on the basis of the Participant's performance relative to
the attainment of the established Performance Objectives.
5.5. Payment of Awards. A Participant's Final Award will be paid in cash as
soon as is practicable following the end of the Plan Year; provided, however,
that the Committee may, in its sole discretion and without consultation with a
Participant, and on terms and conditions determined by it to be necessary or
appropriate, pay before the end of the Plan Year all or any portion of the
Final Award earned by all or any number of Participants during such Plan Year
if the Committee establishes reasonable procedures to assure the repayment of
any amounts paid to a Participant in excess of his or her actual Final Award
immediately after the determination of such actual Final Award. Such
accelerated payment of the Final Award shall be based on the estimated
financial performance of the Company for such Plan Year relative to
established Performance Objectives and shall be awarded in accordance with
Section 5.4 of the Plan. An additional payment, if any, reflecting the
difference between the amount of the Participant's actual Final Award and the
amount of the accelerated payment shall be paid to the Participant following
the release of the Company's audited financial statements pertaining to that
Plan Year. In addition, the Committee may elect to delay the payment of all or
a portion of a Participant's Final Award until such time as the amount payable
would be deductible to the Company as contemplated by Section 162(m) of the
Internal Revenue Code of 1986, as amended.
SECTION 6. TERMINATION OF EMPLOYMENT
6.1. Termination of Employment Due to Death, Disability, or Retirement. If a
Participant's employment ends because of death, Disability, or Retirement, the
Final Award, as determined under Section 5.5, will be adjusted to reflect
participation prior to termination. The Final Award thus determined will be
paid as soon as practicable following the release of the Company's audited
financial statements pertaining to that Plan Year.
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<PAGE>
[ADDITIONAL PAGE TO MBI SHAREHOLDERS ONLY]
6.2. Termination of Employment for Other Reasons. In the event a
Participant's employment ends for any reason other than death, Disability, or
Retirement, all of the Participant's rights to a Final Award for the Plan Year
then in progress will be forfeited. However, except when employment ends for
Cause, the Committee, in its sole discretion, may approve an award for the
portion of the Plan Year that the Participant was employed by the Employer.
SECTION 7. RIGHTS OF PARTICIPANTS
7.1. Employment. Nothing in this Plan will interfere with or limit in any
way the right of the Employer to terminate a Participant's employment at any
time, nor confer upon any Participant any right to continue in the employ of
an Employer.
7.2. Nontransferability. No right or interest of any Participant in this
Plan will be assignable or transferable or subject to any lien or encumbrance,
whether directly or indirectly, by operation of law or otherwise, including
without limitation execution, levy, garnishment, attachment, pledge, and
bankruptcy.
7.3. No Funding. Nothing contained in this Plan and no action taken
thereunder will create or be construed to create a trust of any kind, or a
fiduciary relationship between the Company and any Participant or beneficiary
or any other person. Amounts due under this Plan at any time and from time to
time will be paid from the general funds of the Company. To the extent that
any person acquires a right to receive payments thereunder, such right shall
be that of an unsecured general creditor of the Company.
7.4. No Rights Prior to Award Approval. No Participant will have any right
to payment of a Final Award unless and until it has been determined and
approved under Section 5.5.
SECTION 8. ADMINISTRATION
8.1. Administration. This Plan will be administered by the Committee
according to any rules that it may establish from time to time that are not
inconsistent with the provisions of the Plan.
8.2. Expenses of the Plan. The expenses of administering the Plan will be
borne by the Company.
SECTION 9. REQUIREMENTS OF LAW
9.1. Governing Law. The Plan will be construed in accordance with and
governed by the laws of the State of Missouri.
9.2. Withholding Taxes. The Company has the right to deduct from all
payments under this Plan any Federal, State, or local taxes required by law to
be withheld with respect to such payments.
SECTION 10. AMENDMENT AND TERMINATION
10.1. Amendment and Termination. The Committee, in its sole and absolute
discretion may modify or amend any or all of the provisions of this Plan at
any time and from time to time, without notice, and may suspend or terminate
it entirely. However, no such modification, amendment, suspension, or
termination, may, without the consent of the Participant (or his beneficiary
in the case of the death of the Participant), reduce the right of a
Participant (or his beneficiary as the case may be) to a payment or
distribution thereunder to which he is entitled by reason of an award as
approved by the Committee under Section 5.5.
SECTION 11. BENEFICIARY DESIGNATION
11.1. Beneficiary Designation. Each Participant under the Plan, may, from
time to time, name any beneficiary or beneficiaries (who may be named
contingently or successively) to whom any benefit under the Plan is to be paid
in case of his death before he receives any or all of such benefit. Each
designation will revoke all prior designations by the same Participant, will
be in a form prescribed by the Committee, and will be effective only when
filed by the Participant in writing with the Committee during his lifetime. In
the absence of any such designation, benefits remaining unpaid at the
Participant's death will be paid to the Participant's estate.
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<PAGE>
PROXY PROXY
MERCANTILE BANCORPORATION INC.
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS--APRIL 24, 1997
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
The undersigned hereby appoint(s) T.H. JACOBSEN, J.Q. ARNOLD and J.W.
BILSTROM, and each of them, with or without the others, proxies, with
full power of substitution, to vote on the following matters as directed
hereon all shares of stock of Mercantile Bancorporation Inc. (the
"Corporation") that the undersigned is entitled to vote at the Annual
Meeting of Shareholders of the Corporation to be held at the Cervantes
Convention Center at America's Center, Lecture Hall, 701 Convention
Plaza, St. Louis, Missouri, on Thursday, April 24, 1997, at 10:00 A.M.,
local time, and all adjournments thereof, all in accordance with and as
more fully described in the Notice and accompanying Proxy Statement for
such meeting, receipt of which is hereby acknowledged.
1. ELECTION OF CLASS III DIRECTORS
Election of three Class III directors to hold office for terms of three years
expiring in 2000 or until their successors have been duly elected and
qualified.
Nominees: HARRY M. CORNELL Jr., THOMAS H. JACOBSEN and PATRICK T. STOKES
2. ELECTION OF CLASS II DIRECTOR
Election of nominee CRAIG D. SCHNUCK as a Class II director to hold office
for a term of two years expiring in 1999 or until his successor has been duly
elected and qualified.
3. Approval and adoption of the Agreement and Plan of Reorganization, dated
October 27, 1996, as amended ("Merger Agreement"), by and between
Mercantile Bancorporation Inc., Ameribanc, Inc. and Mark Twain Bancshares,
Inc.
4. Adoption of the Amendment to the Restated Articles of Incorporation of
Mercantile Bancorporation Inc. ("Articles").
5. Adoption of the Mercantile Bancorporation Inc. Amended and Restated Stock
Incentive Plan ("Stock Incentive Plan")
6. Adoption of the Mercantile Bancorporation Inc. Amended and Restated
Executive Incentive Compensation Plan ("Executive Incentive Plan")
7. In their discretion, upon any other business, including adjournments of the
meeting, which may properly come before the meeting.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED SHAREHOLDER(S). IF NO DIRECTION IS MADE, THIS
PROXY WILL BE VOTED "FOR" THE ELECTION OF ALL NOMINEES AND THE PROPOSALS
LISTED. THE PROXIES CANNOT VOTE YOUR SHARES UNLESS YOU SIGN AND RETURN
THIS CARD.
(SEE REVERSE SIDE)
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- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
m FOLD AND DETACH HERE m
This is your ticket of admission to the Annual Meeting of Shareholders of
Mercantile Bancorporation Inc., to be held at the Cervantes Convention Center
at America's Center, Lecture Hall, 701 Convention Plaza, St. Louis, Missouri
on Thursday, April 24, 1997, at 10:00 A.M., local time.
If you plan to attend the meeting, please check box number 9 on the proxy
form. Please detach this card and bring it with you to the meeting for
presentation at the door.
Please note: Cameras and recording devices are not permitted at the Annual
Meeting.
THIS TICKET WILL ADMIT THE SHAREHOLDER(S) WHOSE NAME(S) APPEAR(S) ABOVE AND IS
NONTRANSFERABLE.
3262--MERCANTILE BANCORPORATION INC.
<PAGE>
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY. [X]
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
1. Election of Class III Directors--(see reverse) For Withhold For All
reverse) for, except vote withheld from the All All Except
from the following nominee(s): [_] [_] [_]
2. Election of Class II Directors--(see reverse). [_] [_]
For Against Abstain
3. Approval and adoption of Merger Agreement. [_] [_] [_]
4. Adoption of Amendment to Articles. [_] [_] [_]
5. Adoption of the Stock Incentive Plan. [_] [_] [_]
6. Adoption of the Executive Incentive Plan. [_] [_] [_]
7. In their discretion, upon any other [_] [_] [_]
business which may properly come before
the meeting.
8. Check here if address change is noted. [_]
9. Check here if you will attend the meeting. [_]
Dated________________________ , 1997
Signature(s) __________________________________________________________________
- -------------------------------------------------------------------------------
NOTE: Please sign exactly as name appears hereon. Joint Owners should each
sign. When signing as attorney, executor, administrator, trustee or
guardian, please give full title as such.
- --------------------------------------------------------------------------------
arrow up FOLD AND DETACH HERE arrow up
MERCANTILE BANCORPORATION INC.
- ------------------------------
ANNUAL MEETING OF SHAREHOLDERS
- ------------------------------
ADMISSION TICKET
----------------
APRIL 24, 1997, 10:00 A.M. [MAP]
--------------------------
CERVANTES CONVENTION CENTER AT AMERICA'S CENTER, LECTURE HALL
- -------------------------------------------------------------
701 CONVENTION PLAZA, ST. LOUIS, MISSOURI 63101
-----------------------------------------------
<PAGE>
PROXY PROXY
MARK TWAIN BANCSHARES, INC.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS FOR
THE BANCSHARES SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON APRIL 22, 1997
The undersigned hereby appoints Alvin J. Siteman and John P. Dubinsky, either
of them, with full power to act alone, the true and lawful attorneys-in-fact
and proxies of the undersigned to vote all shares of Common Stock of MARK TWAIN
BANCSHARES, INC., a Missouri corporation (the "Company"), held by the
undersigned, with full power of substitution and revocation, with the same
force and effect as the undersigned would be entitled to vote if personally
present at the Bancshares Special Meeting of Shareholders of the Company to be
held at the Auditorium of the Saint Louis Art Museum, Forest Park, St. Louis,
Missouri, on April 22, 1997, at 4:00 p.m. (Central Daylight Time), and at any
adjournment or postponement thereof, as follows:
PLEASE COMPLETE, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY, USING THE
ENCLOSED ENVELOPE.
(Continued and to be signed on reverse side.)
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3338--MARK TWAIN BANCSHARES, INC.
<PAGE>
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY. [X]
The Company's Board of Directors recommends a vote "FOR" the approval and
adoption of the Merger Agreement.
1. Approval and adoption of the Agreement and Plan For Against Abstain
of Reorganization, dated October 27, 1996, [_] [_] [_]
as amended (the "Merger Agreement"), by and
between Mercantile Bancorporation Inc., a Missouri
corporation, Ameribanc, Inc., a Missouri corporation,
and the Company.
2. OTHER MATTERS: Discretionary authority is hereby granted to transact such
other business as may properly come before the meeting or any adjournment or
postponement thereof.
This proxy, when properly executed, will be voted in the manner directed
herein. If this proxy is submitted, but no directions are made, this proxy will
be voted "FOR" the approval and adoption of the Merger Agreement.
The undersigned hereby acknowledges receipt of the Notice of Bancshares Special
Meeting of Shareholders and the Joint Proxy Statement/Prospectus, each dated
, 1997, furnished herewith.
Dated: _______________________________, 1997
Signature(s):___________________________________________________________________
________________________________________________________________________________
Title or Authority: ____________________________________________________________
IMPORTANT: Please sign your name exactly as it appears hereon. When signing as
attorney, agent, executor, administrator, trustee, guardian or corporate
officer, please give your full title as such. Each joint owner should sign the
proxy. If executed by a partnership, this proxy should be signed by an
authorized partner.
See back side for important information.
- --------------------------------------------------------------------------------
arrow up FOLD AND DETACH HERE arrow up
YOUR VOTE IS IMPORTANT.
PLEASE COMPLETE, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY,
USING THE ENCLOSED ENVELOPE.
3338--MARK TWAIN BANCSHARES, INC.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
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, including attorneys' fees, 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, despite the adjudication of liability and in
view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for proper expenses. Section 331.355(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 subsections (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, as provided in Article 12 of the Restated
Articles of Incorporation of the Registrant, 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 may also
extend 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 limits of $45,000,000 per loss, 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.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS. See Exhibit Index.
(b) FINANCIAL STATEMENT SCHEDULES. Not Applicable.
(c) REPORTS, OPINIONS OR APPRAISALS. Not Applicable.
<PAGE>
ITEM 22. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes:
1. 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; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or
any material change to such information in the Registration Statement.
2. That for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
3. To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination
of the offering.
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or 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.
(c) 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.
(d) The Registrant undertakes that every prospectus: (i) that is filed
pursuant to paragraph (c) immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415, will be filed as a part of an
amendment to the Registration Statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offering
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
(e) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to 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
II-2
<PAGE>
registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
(f) The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
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 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.
(g) The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
II-3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF ST. LOUIS, STATE OF
MISSOURI, ON MARCH 19, 1997.
Mercantile Bancorporation Inc.
/s/ Thomas H. Jacobsen
By: _________________________________
THOMAS H. JACOBSEN
CHAIRMAN OF THE BOARD, PRESIDENT
AND CHIEF EXECUTIVE OFFICER
POWER OF ATTORNEY
WE, THE UNDERSIGNED OFFICERS AND DIRECTORS OF MERCANTILE BANCORPORATION
INC., HEREBY SEVERALLY AND INDIVIDUALLY CONSTITUTE AND APPOINT THOMAS H.
JACOBSEN AND JOHN Q. ARNOLD, AND EACH OF THEM, THE TRUE AND LAWFUL ATTORNEYS
AND AGENTS OF EACH OF US TO EXECUTE IN THE NAME, PLACE AND STEAD OF EACH OF US
(INDIVIDUALLY AND IN ANY CAPACITY STATED BELOW) ANY AND ALL AMENDMENTS TO THIS
REGISTRATION STATEMENT ON FORM S-4 REGISTERING THE ISSUANCE BY MERCANTILE
BANCORPORATION INC. OF SHARES OF ITS COMMON STOCK, AND THE PREFERRED SHARE
PURCHASE RIGHTS WHICH TRADE THEREWITH, IN CONNECTION WITH THE PROPOSED MERGER
WITH MARK TWAIN BANCSHARES, INC., AND ALL INSTRUMENTS NECESSARY OR ADVISABLE
IN CONNECTION THEREWITH AND TO FILE THE SAME WITH THE SECURITIES AND EXCHANGE
COMMISSION, EACH OF SAID ATTORNEYS AND AGENTS TO HAVE THE POWER TO ACT WITH OR
WITHOUT THE OTHERS AND TO HAVE FULL POWER AND AUTHORITY TO DO AND PERFORM IN
THE NAME AND ON BEHALF OF EACH OF THE UNDERSIGNED EVERY ACT WHATSOEVER
NECESSARY OR ADVISABLE TO BE DONE IN THE PREMISES AS FULLY AND TO ALL INTENTS
AND PURPOSES AS ANY OF THE UNDERSIGNED MIGHT OR COULD DO IN PERSON, AND WE
HEREBY RATIFY AND CONFIRM OUR SIGNATURES AS THEY MAY BE SIGNED BY OUR SAID
ATTORNEYS AND AGENTS OR EACH OF THEM TO ANY AND ALL SUCH AMENDMENTS AND
INSTRUMENTS.
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 DATES INDICATED.
II-4
<PAGE>
SIGNATURE TITLE DATE
/s/ Thomas H. Jacobsen Chairman of the March 19, 1997
- ------------------------------------- Board, President,
THOMAS H. JACOBSEN PRINCIPAL Chief Executive
EXECUTIVE OFFICER Officer and
Director
/s/ John Q. Arnold Senior Executive March 19, 1997
- ------------------------------------- Vice President and
JOHN Q. ARNOLD PRINCIPAL FINANCIAL Chief Financial
OFFICER Officer
/s/ Michael T. Normile Senior Vice March 19, 1997
- ------------------------------------- President-- Finance
MICHAEL T. NORMILE PRINCIPAL and Control
ACCOUNTING OFFICER
Director , 1997
- -------------------------------------
HARRY M. CORNELL, JR.
/s/ William A. Hall Director March 19, 1997
- -------------------------------------
WILLIAM A. HALL
/s/ Thomas A. Hays Director March 19, 1997
- -------------------------------------
THOMAS A. HAYS
/s/ Frank Lyon, Jr. Director March 19, 1997
- -------------------------------------
FRANK LYON, JR.
/s/ Edward A. Mueller Director March 19, 1997
- -------------------------------------
EDWARD A. MUELLER
/s/ Robert W. Murray Director March 19, 1997
- -------------------------------------
ROBERT W. MURRAY
/s/ Harvey Saligman Director March 19, 1997
- -------------------------------------
HARVEY SALIGMAN
II-5
<PAGE>
SIGNATURE TITLE DATE
/s/ Craig D. Schnuck Director March 19, 1997
- -------------------------------------
CRAIG D. SCHNUCK
/s/ Robert L. Stark Director March 19, 1997
- -------------------------------------
ROBERT L. STARK
/s/ Patrick T. Stokes Director March 19, 1997
- -------------------------------------
PATRICK T. STOKES
/s/ John A. Wright Director March 19, 1997
- -------------------------------------
JOHN A. WRIGHT
II-6
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
------- ----------- ----
<C> <S> <C>
2.1 Agreement and Plan of Reorganization, dated as of October 27,
1996, by and between Registrant, Ameribanc, Inc. and Mark Twain
Bancshares, Inc. ("Bancshares"), filed as Exhibit 2.1 to
Registrant's Current Report on Form 8-K, dated November 6,
1996, is incorporated herein by reference.
2.2 Amendment to Agreement and Plan of Reorganization, dated
January 24, 1997, by and among Registrant, Ameribanc, Inc. and
Bancshares, filed as Exhibit 10.16 to Amendment No. 2 to
Registrant's Registration Statement No. 333-17757, is
incorporated herein by reference.
2.3 Stock Option Agreement, dated October 27, 1996, between
Registrant and Bancshares, included as Annex B to the
accompanying Joint Proxy Statement/Prospectus.
3.1 Registrant's Restated Articles of Incorporation, as amended and
currently in effect, filed as Exhibit 3(i) to Registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30,
1994 (File No. 1-11792), are incorporated herein by reference.
3.2 Registrant's By-Laws, as amended and currently in effect, filed
as Exhibit 3.2 to Amendment No. 2 to Registrant's Registration
Statement No. 333-17757, are incorporated herein by reference.
4.1 Form of Indenture Regarding Subordinated Securities between
Registrant and The First National Bank of Chicago, Trustee,
filed as Exhibit 4-1 to Registrant's Report on Form 8-K dated
September 24, 1992 (File No. 1-11792), is incorporated herein
by reference.
4.2 Form of Indenture Regarding Floating Rate Junior Subordinated
Definable Interest Debentures Due 2027 between Registrant and
the Chase Manhattan Bank, as Trustee, filed as Exhibit 4.2 to
Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1996 (File No. 1-11792), is incorporated
herein by reference.
4.3 Form of First Supplemental Indenture Regarding Floating Rate
Junior Subordinated Definable Interest Debentures Due 2027
between Registrant and the Chase Manhattan Bank, as Trustee,
filed as Exhibit 4.3 to Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1996 (File No. 1-11792),
is incorporated herein by reference.
4.4 Rights Agreement, dated as of May 23, 1988, between Registrant
and Mercantile Bank National Association, 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 on May 24, 1988 as Exhibits 1 and 2 to
Registrant's Registration Statement on Form 8-A (File No. 1-
11792), is incorporated herein by reference.
5 Form of Opinion of Jon W. Bilstrom as to the legality of the
securities being issued.
8.1 Form of Opinion of Wachtell, Lipton, Rosen & Katz as to certain
tax matters in the Merger.
8.2 Form of Opinion of Sidley & Austin as to certain tax matters in
the Merger.
10.1 The Mercantile Bancorporation Inc. 1987 Stock Option Plan as
amended, filed as Exhibit 10-3 to Registrant's Report on Form
10-K for the year ended December 31, 1989 (File No. 1-11792),
is incorporated herein by reference.
10.2 The Mercantile Bancorporation Inc. Executive Incentive
Compensation Plan, filed as Appendix C to Registrant's
definitive Proxy Statement for the 1994 Annual Meeting of
Shareholders, is incorporated herein by reference.
10.3 The Mercantile Bancorporation Inc. Employee Stock Purchase
Plan, filed as Exhibit 10-7 to Registrant's Report on Form 10-K
for the year ended December 31, 1989 (File No. 1-11792), is
incorporated herein by reference.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
------- ----------- ----
<C> <S> <C>
10.4 The Mercantile Bancorporation Inc. 1991 Employee Incentive
Plan, filed as Exhibit 10-7 to Registrant's Report on Form 10-K
for the year ended December 31, 1990 (File No. 1-11792), is
incorporated herein by reference.
10.5 Amendment Number One to the Mercantile Bancorporation Inc. 1991
Employee Incentive Plan, filed as Exhibit 10-6 to Registrant's
Report on Form 10-K for the year ended December 31, 1994 (File
No. 1-11792), is incorporated herein by reference.
10.6 The Mercantile Bancorporation Inc. 1994 Stock Incentive Plan,
filed as Appendix B to Registrant's definitive Proxy Statement
for the 1994 Annual Meeting of Shareholders, is incorporated
herein by reference.
10.7 The Mercantile Bancorporation Inc. 1994 Stock Incentive Plan
for Non-Employee Directors, filed as Appendix E to Registrant's
definitive Proxy Statement for the 1994 Annual Meeting of
Shareholders, is incorporated herein by reference.
10.8 The Mercantile Bancorporation Inc. Voluntary Deferred
Compensation Plan, filed as Appendix D to Registrant's
definitive Proxy Statement for the 1994 Annual Meeting of
Shareholders, is incorporated herein by reference.
10.9 Form of Employment Agreement for Thomas H. Jacobsen, as
amended, filed as Exhibit 10-8 to Registrant's Report on Form
10-K for the year ended December 31, 1989 (File No. 1-11792),
is incorporated herein by reference.
10.10 Form of Change of Control Employment Agreement for John W.
McClure, W. Randolph Adams, John Q. Arnold and Certain Other
Executive Officers, filed as Exhibit 10-10 to Registrant's
Report on Form 10-K for the year ended December 31, 1989 (File
No. 1-11792), incorporated herein by reference.
10.11 Agreement and Plan of Reorganization, dated August 4, 1995, by
and between Registrant and Hawkeye Bancorporation, filed as
Exhibit 2.1 to MBI's Registration Statement No. 33-63609, is
incorporated herein by reference.
10.12 The Mercantile Bancorporation Inc. Supplemental Retirement
Plan, filed as Exhibit 10-12 to Registrant's Report on Form 10-
K for the year ended December 31, 1992 (File No. 1-11792), is
incorporated herein by reference.
10.13 Agreement and Plan of Reorganization, dated December 22, 1996,
by and between MBI and Roosevelt Financial Group, Inc., filed
as Exhibit 2.1 to MBI's Current Report on Form 8-K, dated
December 22, 1996, is incorporated herein by reference.
23.1 Form of Consent of KPMG Peat Marwick LLP with regard to use of
its report on Registrant's financial statements.
23.2 Form of Consent of Ernst & Young LLP with regard to the use of
its report on Bancshares' financial statements.
23.3 Form of Consent of Jon W. Bilstrom (included in Exhibit 5).
23.4 Form of Consent of Wachtell, Lipton, Rosen & Katz (included in
Exhibit 8.1).
23.5 Form of Consent of Sidley & Austin (included in Exhibit 8.2).
23.6 Form of Consent of UBS Securities LLC.
23.7 Form of Consent of Morgan Stanley & Co. Incorporated.
24.1 Power of Attorney (included on signature page).
99.1 Form of Support Agreement, dated as of October 27, 1996, by and
between Registrant and certain directors and officers of
Bancshares.
99.2 Consent of Alvin J. Siteman to the use of his name as a person
about to become a director of Registrant.
</TABLE>
2
<PAGE>
EXHIBIT 5
[LETTERHEAD OF MERCANTILE BANCORPORATION INC.]
March 19, 1997
Board of Directors
Mercantile Bancorporation Inc.
P.O. Box 24
St. Louis, Missouri 63166-0524
Gentlemen:
In connection with the proposed registration under the Securities Act of
1933, as amended, of up to 17,213,114 shares of common stock, par value $5.00
per share (collectively, the "Shares"), of Mercantile Bancorporation Inc., a
Missouri corporation (the "Company"), which are to be issued by the Company upon
consummation of the merger (the "Merger") of Mark Twain Bancshares, Inc., with
and into Ameribanc, Inc., a Missouri corporation and wholly-owned subsidiary of
the Company, I have examined such corporate records and other documents,
including the Registration Statement on Form S-4 relating to the Shares
(together with the Proxy Statement/Prospectus contained in such Registration
Statement, and any amendments or supplements thereto, the "Registration
Statement") and have reviewed such matters of law as I have deemed necessary or
appropriate for this opinion. Based on such examination and review, it is my
opinion that, when issued upon consummation of the Merger as contemplated by the
Registration Statement, the Shares will be duly authorized, validly issued,
fully paid and nonassessable.
I consent to be named in the Registration Statement as the attorney who
passed upon the validity of the Shares, and to the filing of a copy of this
opinion as an exhibit to the Registration Statement.
Sincerely,
/s/ Jon W. Bilstrom
<PAGE>
EXHIBIT 8.1
[Wachtell, Lipton, Rosen & Katz Letterhead]
March 19, 1997
Mercantile Bancorporation Inc.
Mercantile Tower
P. O. Box 524
St. Louis, Missouri 63166-0524
Ladies/Gentlemen:
We have acted as special counsel to Mercantile Bancorporation, a Missouri
corporation ("MBI"), in connection with the proposed merger (the "Merger") of
Mark Twain Bancshares, Inc., a Missouri corporation ("Bancshares") with and into
Ameribanc, Inc., a Missouri corporation ("Merger Sub") and a direct wholly-owned
subsidiary of MBI, upon the terms and conditions set forth in the Agreement and
Plan of Merger dated as of October 27, 1996, as amended, by and among MBI,
Merger Sub and Bancshares (the "Agreement"). At your request, we are rendering
our opinion concerning certain federal income tax consequences of the Merger.
For purposes of the opinion set forth below, we have relied, with the
consent of MBI and the consent of Bancshares, upon the accuracy and completeness
of (a) the statements and representations (which statements and representations
we have neither investigated nor verified) contained, respectively, in the
certificates of the officers of MBI and Bancshares (copies of which are attached
hereto and which are incorporated herein by reference), and (b) representations
of certain holders of Bancshares Common Stock contained in the Support
Agreements referred to in the Agreement, and have assumed that the statements
and representations described in clauses (a) and (b) of this sentence will be
complete and accurate as of the Effective
<PAGE>
Mercantile Bancorporation Inc.
March 19, 1997
Page 2
Time. We have also relied upon the accuracy of the Registration Statement on
Form S-4 (the "Registration Statement") and the Proxy Statement-Prospectus (the
"Proxy Statement") filed with the Securities Exchange Commission, as amended
through the date hereof, in connection with the Merger. Any capitalized term
used and not defined herein has the meaning given to it in the Proxy Statement
or the appendices thereto (including the Agreement).
We have also assumed that the transactions contemplated by the Agreement
will be consummated in accordance therewith and as described in the Proxy
Statement and that the Merger will qualify as a statutory merger under the
applicable laws of the State of Missouri.
Based upon and subject to the foregoing, it is our opinion that for federal
income tax purposes:
(1) the Merger will constitute a "reorganization" within the meaning
of Section 368(a) of the Internal Revenue Code of 1986, as amended (the
"Code"), and Bancshares, Merger Sub and MBI will each be a party to the
reorganization within the meaning of Section 368(b) of the Code;
(2) no gain or loss will be recognized by Bancshares or Merger Sub as
a result of the Merger;
(3) no gain or loss will be recognized by the stockholders of
Bancshares upon the conversion of their Bancshares Common Stock into MBI
Common Stock pursuant to the Merger, except with respect to cash, if any,
received in lieu of fractional shares of MBI Common Stock;
(4) the aggregate tax basis of the shares of MBI Common Stock
received in exchange for shares of Bancshares Common Stock pursuant to the
Merger (including a fractional share of MBI Common Stock for which cash is
paid) will be the same as the aggregate tax basis of such shares of
Bancshares Common Stock;
(5) the holding period for shares of MBI Common Stock issued in
exchange for shares of Bancshares Common Stock pursuant to the Merger will
include the holder's holding period for such shares of Bancshares Common
<PAGE>
Mercantile Bancorporation Inc.
March 19, 1997
Page 3
Stock, provided such shares of Bancshares Common Stock were held as capital
--------
assets by the holder at the Effective Time; and
(6) a stockholder of Bancshares who receives cash in lieu of a
fractional share of MBI Common Stock will recognize gain or loss equal to
the difference, if any, between such stockholder's basis in the fractional
share (determined as provided in paragraph (4) above) and the amount of
cash received.
This opinion may not be applicable to Bancshares shareholders who
received their Bancshares Common Stock pursuant to the exercise of employee
stock options or otherwise as compensation or who are not citizens or residents
of the United States.
We hereby consent to the filing of this opinion with the Securities
and Exchange Commission as an exhibit to the Registration Statement, and to the
reference to this opinion under the caption "SUMMARY INFORMATION -- Federal
Income Tax Consequences in General", under the caption "CERTAIN FEDERAL INCOME
TAX CONSEQUENCES OF THE MERGER" and elsewhere in the Proxy Statement. In giving
such consent, we do not hereby admit that we are in the category of persons
whose consent is required under Section 7 of the Securities Act of 1933, as
amended.
Very truly yours,
/s/ Wachtell, Lipton, Rosen & Katz
<PAGE>
EXHIBIT 8.2
[SIDLEY & AUSTIN LETTERHEAD]
March 19, 1997
Mark Twain Bancshares, Inc.
8820 Ladue Road
St. Louis, Missouri 63124
Ladies and Gentlemen:
We refer to the Agreement and Plan of Reorganization dated October 27,
1996, as amended (the "Agreement"), among Mercantile Bancorporation Inc., a
Missouri corporation ("Mercantile"), Ameribanc, Inc., a Missouri corporation and
a direct, wholly owned subsidiary of Mercantile ("Merger Sub"), and Mark Twain
Bancshares, Inc., a Missouri corporation (together with its predecessors,
"Bancshares"), which provides for the merger (the "Merger") of Bancshares with
and into Merger Sub on the terms and conditions therein set forth, the time at
which the Merger becomes effective being hereinafter referred to as the
"Effective Time." Capitalized terms used but not defined herein have the
meanings specified in the Agreement.
As provided in the Agreement, at the Effective Time, by reason of the
Merger: (i) each share of common stock of Merger Sub issued and outstanding
immediately prior to the Effective Time will remain outstanding and will be
unchanged after the Merger and will thereafter constitute all of the issued and
outstanding stock of Merger Sub as the Surviving Corporation in the Merger; and
(ii) each share of common stock of Bancshares issued and outstanding immediately
prior to the Effective Time, other than shares held by holders of Bancshares
common stock who exercise dissenters' rights (as described below), will cease to
be outstanding and will be converted into and become the right to receive .952
of a share of common stock, par value $5.00 per share, of Mercantile and the
associated Rights under the Mercantile Rights Agreement; provided, however, that
-------- -------
any shares of Bancshares Common Stock held by Bancshares or any of its wholly
owned Subsidiaries, or Mercantile or any of its wholly owned Subsidiaries, in
each case other than in a fiduciary capacity or as a result of debts previously
contracted, will be cancelled and will not represent capital stock of the
Surviving Corporation and will not be exchanged for shares of Mercantile Common
Stock. Notwithstanding clause (ii) above, each holder of Bancshares Common Stock
who otherwise would have been entitled to a fraction of a share of Mercantile
Common Stock will receive cash in lieu thereof. Those holders of Bancshares
Common Stock exercising dissenters' rights under the Missouri Act will be
<PAGE>
entitled to payment of the fair value of their Bancshares Common Stock.
Accordingly, immediately following the Merger, the former holders of
Bancshares Common Stock (other than those who exercise dissenters' rights) will
hold Mercantile Common Stock issued in the Merger (and cash in lieu of any
fractional shares of Mercantile Common Stock) and Merger Sub, as the Surviving
Corporation, will be a wholly owned subsidiary of Mercantile. The Merger and the
Agreement are more fully described in Mercantile's Registration Statement on
Form S-4 (the "Registration Statement") relating to the registration of shares
of Mercantile Common Stock, which is being filed by Mercantile with the
Securities and Exchange Commission pursuant to the Securities Act of l933, as
amended. The Registration Statement includes the Joint Proxy
Statement/Prospectus (the "Prospectus") of Mercantile and Bancshares.
In rendering the opinions expressed below, we have relied upon the
accuracy of the facts, information and representations and the completeness of
the covenants contained in the Agreement, the Registration Statement (including
the Prospectus) and such other documents as we have deemed relevant and
necessary. Such opinions are conditioned, among other things, not only upon
such accuracy and completeness as of the date hereof, but also the continuing
accuracy and completeness thereof as of the Effective Time. Moreover, we have
assumed the absence of any change to any of such instruments and documents
between the date hereof and the Effective Time.
We have assumed the authenticity of all documents submitted to us as
originals, the genuineness of all signatures, the legal capacity of all natural
persons and the conformity with original documents of all copies submitted to us
for our examination. We have also assumed: (i) that the transactions related to
the Merger or contemplated by the Agreement will be consummated (A) in
accordance with the Agreement and (B) as described in the Prospectus; (ii) that
the Merger will qualify as a statutory merger under the laws of the State of
Missouri; (iii) the accuracy as of the date hereof, and the continuing accuracy
as of the Effective Time, of the written statements made by executives of
Mercantile and Bancshares contained in the Mercantile Tax Certificate and the
Bancshares Tax Certificate, respectively, attached as exhibits hereto (the
accuracy of which in no case have we investigated or verified), and (iv) the
accuracy as of the date hereof, and the continuing accuracy as of the Effective
Time, of representations of certain holders of Bancshares Common Stock contained
in the Support Agreements referred to in the Agreement (the accuracy of which in
no case have we investigated or verified).
In rendering the opinions expressed below, we have considered the
applicable provisions of the Internal Revenue Code
-2-
<PAGE>
of 1986, as amended (the "Code"), Regulations promulgated thereunder by the
United States Treasury Department (the "Regulations"), pertinent judicial
authorities, rulings of the Internal Revenue Service and such other authorities
as we have considered relevant. It should be noted that the Code, the
Regulations and such judicial decisions, administrative interpretations and
other authorities are subject to change at any time and, in some circumstances,
with retroactive effect; and any such change could affect the opinions stated
herein.
Based upon and subject to the foregoing, it is our opinion, as counsel
for Bancshares, that for federal income tax purposes:
(1) the Merger will constitute a "reorganization" within the meaning
of Section 368(a) of the Code, and Bancshares, Merger Sub and Mercantile
will each be a party to the reorganization within the meaning of Section
368(b) of the Code;
(2) no gain or loss will be recognized by Bancshares or Merger Sub as
a result of the Merger;
(3) no gain or loss will be recognized by the stockholders of
Bancshares upon the conversion of their Bancshares Common Stock into
Mercantile Common Stock pursuant to the Merger, except with respect to
cash, if any, received in lieu of fractional shares of Mercantile Common
Stock;
(4) the aggregate tax basis of the shares of Mercantile Common Stock
received in exchange for shares of Bancshares Common Stock pursuant to the
Merger (including a fractional share of Mercantile Common Stock for which
cash is paid) will be the same as the aggregate tax basis of such shares of
Bancshares Common Stock;
(5) the holding period for shares of Mercantile Common Stock issued
in exchange for shares of Bancshares Common Stock pursuant to the Merger
will include the holder's holding period for such shares of Bancshares
Common Stock, provided such shares of Bancshares Common Stock were held as
--------
capital assets by the holder at the Effective Time; and
(6) a stockholder of Bancshares who receives cash in lieu of a
fractional share of Mercantile Common Stock will recognize gain or loss
equal to the difference, if any, between such stockholder's basis in the
fractional share (determined as provided in paragraph (4) above) and the
amount of cash received.
-3-
<PAGE>
This opinion may not be applicable to Bancshares shareholders who
received their Bancshares Common Stock pursuant to the exercise of employee
stock options or otherwise as compensation or who are not citizens or residents
of the United States.
Except as expressly set forth in paragraphs (1) through (6),
inclusive, you have not requested, and we do not herein express, any opinion
concerning the tax consequences of, or any other matters related to, the Merger.
We assume no obligation to update or supplement this letter to reflect
any facts or circumstances which may hereafter come to our attention with
respect to the opinions expressed above, including any changes in applicable law
which may hereafter occur.
We hereby consent to the filing of this letter as an Exhibit to the
Registration Statement and to all references to our Firm included in or made a
part of the Registration Statement.
Very truly yours,
/s/ Sidley & Austin
-4-
<PAGE>
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
March 19, 1997
<PAGE>
EXHIBIT 23.2
Consent of Ernst & Young LLP
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated January 15, 1997, with respect to the consolidated
financial statements of Mark Twain Bancshares, Inc. incorporated by reference in
the Joint Proxy Statement of Mercantile Bancorporation Inc. and Mark Twain
Bancshares, Inc. that is made a part of the Registration Statement (Form S-4)
and Prospectus of Mercantile Bancorporation, Inc. for the registration of
17,213,114 shares of its common stock.
/s/ Ernst & Young LLP
March 18, 1997
St. Louis, Missouri
<PAGE>
EXHIBIT 23.6
[LETTERHEAD OF UBS SECURITIES LLC]
March 19, 1997
CONSENT OF UBS SECURITIES LLC
We hereby consent to the use of our name and to the description of our
opinion letters, dated October 27, 1996 and the date of the Joint Proxy
Statement/Prospectus, under the captions "Summary Information -- Opinion of
MBI's Financial Advisor", "Terms of the Proposed Merger -- Reasons of MBI for
the Merger; MBI Board Recommendation" and "--Opinion of MBI's Financial
Advisor" in, and to the inclusion of the opinion letter attached as Annex D to,
the Joint Proxy Statement/Prospectus of Mercantile Bancorporation Inc. and Mark
Twain Bancshares, Inc., which Joint Proxy Statement/Prospectus is part of the
Registration Statement on Form S-4 (File Number 1-11792) of Mercantile
Bancorporation Inc. By giving such consent we do not thereby admit that we are
experts with respect to any part of such Registration Statement within the
meaning of term "expert" as used in, or that we come within the category of
persons whose consent is required under, the Securities Act of 1933, as amended,
or the rules and regulations of the Securities and Exchange Commission
promulgated thereunder.
UBS SECURITIES LLC
By: /s/ Richard J. Barrett
-------------------------
Managing Director
New York, New York
March 19, 1997
- --------------
<PAGE>
EXHIBIT 23.7
[LETTERHEAD OF MORGAN STANLEY & CO. INCORPORATED]
CONSENT OF MORGAN STANLEY & CO. INCORPORATED
March 19, 1997
Mark Twain Bancshares, Inc.
8820 Ladue Road
St. Louis, MO 63124
Dear Sirs:
We hereby consent to the inclusion in the Registration Statement of
Mercantile Bancorporation Inc. ("Mercantile") on Form S-4, relating to the
proposed merger of Mark Twain Bancshares, Inc. with and into a subsidiary of
Mercantile, of our opinion letter appearing as Annex E to the Joint Proxy
Statement/Prospectus which is a part of the Registration Statement, and to the
references of our firm name therein. In giving such consent, we do not thereby
admit that we come within the category of persons whose consent is required
under Section 7 of the Securities Act of 1933, as amended, or the rules and
regulations adopted by the Securities and Exchange Commission thereunder nor do
we admit that we are experts with respect to any part of such Registration
Statement within the meaning of the term "experts" as used in the Securities Act
of 1933, as amended, or the rules and regulations of the Securities and Exchange
Commission thereunder.
Very truly yours,
MORGAN STANLEY & CO. INCORPORATED
By: /s/ William M. Weiant
-------------------------------
William M. Weiant
Managing Director
<PAGE>
EXHIBIT 99.1
October 27, 1996
Mercantile Bancorporation Inc.
Mercantile Tower
St. Louis, Missouri 63166
Dear Sirs:
The undersigned understands that Mercantile Bancorporation Inc. ("Mercantile")
and Mark Twain Bancshares, Inc. ("Bancshares") are entering into an Agreement
and Plan of Reorganization (the "Agreement") providing for, among other things,
a merger between a wholly owned subsidiary of Mercantile and Bancshares (the
"Merger") in which all of the outstanding shares of capital stock of Bancshares
will be exchanged for shares of common stock, par value $5.00 per share, of
Mercantile. This letter agreement is being executed by me solely in my capacity
as a shareholder of Bancshares.
As a condition and inducement to your willingness to enter into the Agreement:
Ownership of Stock. Except to the extent set forth on Schedule A, I represent
- ------------------
that I have sole voting and dispositive power over that number of shares of the
Common Stock, par value $1.25 per share, of Bancshares ("Bancshares Common
Stock") as set forth on Schedule A hereto, and that I beneficially own such
shares free and clear of all liens, charges and encumbrances, agreements and
commitments of every kind. The representation set forth in this paragraph shall
not survive the consummation of the Merger.
No Disposition or Solicitation. I will not sell, agree to sell or otherwise
- ------------------------------
transfer or dispose of any Bancshares Common Stock, other than pursuant to the
Merger or to an affiliate who agrees to comply herewith, nor will I directly or
indirectly solicit, initiate, or encourage any inquiries or proposals from,
discuss or negotiate with, or provide any non-public information to, any person
relating to any sale of Bancshares, or any of its business, material assets, or
capital stock, or any business combination or similar transaction involving
Bancshares ("Alternative Transaction"). Nothing in this letter agreement shall
preclude the undersigned from discharging his fiduciary duties as a director of
the Company.
Voting. I agree that I will vote all Bancshares Common Stock beneficially owned
- ------
by me at the record date for any meeting of stockholders of Bancshares called to
consider and vote on the Merger in favor of the Merger and I will vote against,
and not consent to, any Alternative Transaction or any action to nullify or
prevent the Merger at any meeting
<PAGE>
of stockholders of Bancshares called to consider and vote on any Alternative
Transaction or any such action.
No Disposition of Bancshares or Mercantile Common Stock. In my capacity as a
- -------------------------------------------------------
Bancshares shareholder, I represent that (i) I have no present plan or intention
to sell, exchange, or otherwise dispose of (or enter into any transaction to
reduce my equity risk with respect to) any shares of Mercantile Common Stock to
be received pursuant to the Merger, (ii) I have not transferred, and have no
present plan or intention to transfer, any shares of Bancshares Common Stock
prior to the Effective Time of the Merger in contemplation of the Merger, and
(iii) both of the foregoing representations will be true, correct and complete
as of the Effective Time of the Merger as though made as of the Effective Time
of the Merger. I understand that the representations made in this paragraph
will be relied upon by Sidley & Austin, counsel to Bancshares, and Wachtell,
Lipton, Rosen & Katz, counsel to Mercantile (each of whom is an intended third-
party beneficiary of the representations in this paragraph), in rendering their
opinions pursuant to Sections 6.02(c) and 6.03(c), respectively, of the
Agreement.
Termination. This letter agreement shall terminate upon the termination of the
- -----------
Agreement in accordance with its terms.
Miscellaneous. This letter agreement shall bind and benefit the respective
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parties' successors, assigns, executors, trustees and heirs. Damages are
inadequate for breach by me of any term of this agreement and Mercantile shall
be entitled to preliminary and permanent injunctive relief to enforce this
agreement. This letter agreement shall be governed by and construed under the
laws of the State of Missouri (without giving effect to the choice of law
provisions thereof). Any term hereof which is invalid or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such invalidity or unenforceability without affecting remaining terms or their
validity or enforceability in any other jurisdiction. If any provision of this
letter agreement is so broad as to be unenforceable, such provision shall be
interpreted to be only so broad as is enforceable.
<PAGE>
This letter agreement may be executed in any number of counter parts, each of
which shall be deemed an original and all of such counterparts together shall
constitute one and the same instrument.
Very truly yours,
- -----------------------------------
Confirmed and accepted
as of the date first above written:
MERCANTILE BANCORPORATION INC.
By:
--------------------------------
Name:
Title:
<PAGE>
SCHEDULE A
Number of Shares
of Bancshares Common Stock Address and
Name of Owned Beneficially Contact
Shareholder and of Record Person
- ------------------------------------------------------------
<PAGE>
EXHIBIT 99.2
CONSENT OF PERSON ABOUT TO BECOME A DIRECTOR
--------------------------------------------
The undersigned, pursuant to Rule 438 promulgated under the Securities Act
of 1933, as amended, hereby consents to being named as a person about to become
a Director of Mercantile Bancorporation Inc. in the Joint Proxy Statement/
Prospectus which forms a part of the Registration Statement on Form S-4 of
Mercantile Bancorporation Inc. ("MBI") to be filed with the Securities and
Exchange Commission in connection with the Agreement and Plan of Reorganization,
dated October 27, 1996, as amended, by and between MBI, Ameribanc, Inc. and Mark
Twain Bancshares, Inc.
Dated: March 19, 1997
/s/ Alvin J. Siteman
--------------------------
Alvin J. Siteman
