<PAGE> 1
As Filed With the Securities and Exchange Commission on April 29, 1998
Registration No. 333-
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)
<TABLE>
<S> <C> <C>
MISSOURI 6712 43-0951744
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
P.O. BOX 524
ST. LOUIS, MISSOURI 63166-0524
(314) 418-2525
(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, MISSOURI 63166-0524
(314) 418-2525
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
COPIES TO:
<TABLE>
<S> <C> <C>
EDWARD D. HERLIHY LARRY K. HARRIS
WACHTELL, LIPTON, ROSEN & KATZ SUELTHAUS & WALSH, P.C.
51 WEST 52ND STREET AND 7733 FORSYTH BOULEVARD, TWELTH FLOOR
NEW YORK, NEW YORK 10019 ST. LOUIS, MISSOURI 63105
--------------------
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO
THE PUBLIC: As soon as practicable after this Registration Statement becomes
effective. If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box: |_|
<PAGE> 2
----------------
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
- ----------------------- ------------------- --------------------- ---------------------- ===================
Title of Each Class Proposed Maximum Proposed Maximum Amount of
of Securities to Amount to be Offering Price Per Aggregate Offering Registration
be Registered Registered (1) Share (2) Price (2) (3) Fee
- ----------------------- ------------------- --------------------- ---------------------- ===================
<S> <C> <C> <C> <C>
Common Stock........ 13,800,000 $44.594 $740,728,455 $218,515
- ----------------------- ------------------- --------------------- ---------------------- ===================
</TABLE>
(1) Also includes one attached preferred share purchase right per share.
See "INFORMATION REGARDING MBI STOCK -- Description of MBI Common
Stock and Attached Preferred Share Purchase Rights --Preferred Share
Purchase Rights Plan."
(2) Pursuant to Rule 457(f), the registration fee is calculated based upon
the market value (determined by averaging the high and low sales
prices) of the common stock, par value $1.00 per share, of Firstbank of
Illinois Co. ("Firstbank") on the Nasdaq National Market System on
April 28, 1998.
(3) Based upon the maximum number of shares that may be exchanged upon
consummation of the merger described herein, and upon exercise of
securities exercisable for shares of common stock of Firstbank.
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, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
<PAGE> 3
[Firstbank of Illinois Co. Letterhead]
April __, 1998
Dear Stockholder:
On behalf of the Board of Directors and management, I cordially invite
you to attend the Annual Meeting of Stockholders of Firstbank of Illinois Co.
("Firstbank") to be held at 3:00 p.m., Central Daylight Savings Time, on Monday,
June 29, 1998, in the main ballroom of the Renaissance Springfield Hotel, 701
East Adams Street, Springfield, Illinois 62701 (the "Annual 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
January 30, 1998 (the "Merger Agreement"), providing for the merger (the
"Merger") of Firstbank with and into a wholly owned subsidiary of Mercantile
Bancorporation Inc. ("MBI"). Upon consummation of the Merger, each outstanding
share of Firstbank common stock, other than shares of Firstbank common stock
held by Firstbank, MBI, or any of their respective subsidiaries, will be
converted into 0.8308 shares (the "Exchange Ratio") of MBI common stock.
You will also be asked to consider and vote upon the election of three
directors of Firstbank, each to serve until the Merger is consummated or, in the
event the Merger is not consummated, until the expiration of each of their
three-year terms or until their respective successors are elected and qualified.
Enclosed are the following items relating to the Annual Meeting and the
Merger:
1. Proxy Statement/Prospectus;
2. Proxy card;
3. A pre-addressed return envelope to Harris Trust and Savings Bank,
the transfer agent, for the proxy card.
The Proxy Statement/Prospectus and related proxy materials set forth,
or incorporate by reference, financial data and other important information
relating to Firstbank 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 Annual
Meeting.
PaineWebber Incorporated, an investment banking firm, has issued its
opinion to your Board of Directors regarding the fairness to the Firstbank
Stockholders, from a financial point of view, of the consideration to be paid by
MBI pursuant to the Merger Agreement as of the date of such opinion. A copy of
the opinion is attached as Annex D to the Proxy Statement/Prospectus.
YOUR BOARD OF DIRECTORS HAS DETERMINED THAT THE TERMS OF THE MERGER
AGREEMENT AND THE TRANSACTIONS CONTEMPLATED
<PAGE> 4
THEREBY ARE IN THE BEST INTERESTS OF FIRSTBANK AND ITS STOCKHOLDERS.
ACCORDINGLY, THE BOARD OF DIRECTORS OF FIRSTBANK UNANIMOUSLY RECOMMENDS THAT
FIRSTBANK STOCKHOLDERS VOTE "FOR" THE APPROVAL AND ADOPTION OF THE MERGER
AGREEMENT AND "FOR" THE PROPOSED SLATE OF DIRECTORS.
It is important that your shares be represented at the Annual Meeting,
whether or not you plan to attend the Annual Meeting in person. PLEASE COMPLETE,
SIGN AND DATE THE 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 Annual Meeting and
vote in person, or if you wish to revoke your proxy for any reason prior to the
vote at the 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 by
executing any later-dated proxy relating to the same shares, or by attending the
Annual Meeting and voting in person. Attendance at the Annual Meeting will not
in itself constitute the revocation of your proxy.
The Board of Directors and management of Firstbank appreciate your
continued support. If you need assistance in completing your proxy card or if
you have any questions about the Proxy Statement/Prospectus, please feel free to
contact Chris R. Zettek at (217) 753-7543.
Sincerely,
/s/ Mark H. Ferguson
--------------------------------------
Mark H. Ferguson
Chairman of the Board,
President and Chief Executive Officer
-2-
<PAGE> 5
FIRSTBANK OF ILLINOIS CO.
205 SOUTH FIFTH STREET
SPRINGFIELD, ILLINOIS 62701
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held
June 29, 1998
To the Stockholders of Firstbank of Illinois Co.:
Notice is hereby given that the Annual Meeting of Stockholders of
Firstbank of Illinois Co., a Delaware corporation ("Firstbank"), will be held at
3:00 p.m., Central Daylight Savings Time, on Monday, June 29, 1998, in the main
ballroom of the Renaissance Springfield Hotel, 701 East Adams Street,
Springfield, Illinois 67201 (the "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 January 30, 1998 (the
"Merger Agreement"), by and among Mercantile Bancorporation Inc., a
Missouri corporation ("MBI"), Ameribanc, Inc., a Missouri corporation
and a wholly owned subsidiary of MBI ("Merger Sub"), and Firstbank,
pursuant to which, among other things, (i) Firstbank will be merged
(the "Merger") with and into Merger Sub, which will continue the
business and operations of Firstbank, (ii) each outstanding share of
Firstbank common stock, par value $1.00 per share ("Firstbank Common
Stock"), other than shares of Firstbank Common Stock held by Firstbank,
MBI, or any of their respective subsidiaries (except for shares held in
a fiduciary capacity or as a result of debts previously contracted),
will be converted into 0.8308 shares (the "Exchange Ratio") of MBI
common stock, par value $0.01 per share ("MBI Common Stock") and
associated preferred share purchase rights plus cash in lieu of
fractional shares and (iii) all rights with respect to Firstbank Common
Stock pursuant to stock options outstanding at the time of such
consummation, whether or not then exercisable, shall be converted into
and shall become rights with respect to MBI Common Stock and the
associated preferred share purchase rights. The Merger Agreement is
attached as Annex A to the accompanying Proxy Statement/Prospectus and
is incorporated herein by reference.
(2) To consider and vote upon the election of three directors of
Firstbank.
(3) To transact such other business as may properly come before
the Annual Meeting or any adjournment or postponement thereof.
The record date for determining the holders of Firstbank Common Stock
entitled to receive notice of, and to vote at, the Annual Meeting or any
adjournment or postponement
<PAGE> 6
thereof has been fixed as of the close of business on May 15, 1998. Approval by
the Firstbank Stockholders of the Merger Agreement requires the affirmative vote
of the holders of at least a majority of the outstanding shares of Firstbank
Common Stock entitled to vote at the Annual Meeting. The election of directors
requires a plurality of the votes of the shares present in person or represented
by proxy and entitled to vote.
Information regarding the Merger and related matters as well as the
other matters to be acted upon at the Annual Meeting is contained in the
accompanying Proxy Statement/Prospectus and the annexes thereto, which are
incorporated by reference herein and form a part of this Notice.
A list of Firstbank Stockholders entitled to vote at the Annual Meeting
will be available for examination at the principal offices of Firstbank, located
at 205 South Fifth Street, Springfield, Illinois, during ordinary business hours
beginning 10 days prior to the Annual Meeting and continuing through the
meeting.
WHETHER OR NOT YOU PLAN TO ATTEND THE 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 ANNUAL
MEETING BY FOLLOWING THE PROCEDURES SET FORTH IN THE ACCOMPANYING PROXY
STATEMENT/PROSPECTUS.
THE BOARD OF DIRECTORS OF FIRSTBANK HAS DETERMINED THAT THE TERMS OF
THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY ARE IN THE BEST
INTERESTS OF FIRSTBANK AND ITS STOCKHOLDERS. ACCORDINGLY, THE BOARD OF DIRECTORS
OF FIRSTBANK UNANIMOUSLY RECOMMENDS THAT FIRSTBANK STOCKHOLDERS VOTE "FOR" THE
APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND "FOR" THE PROPOSED SLATE OF
DIRECTORS.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Mark H. Ferguson
----------------------------------------
Mark H. Ferguson
Chairman of the Board,
President and Chief Executive Officer
Springfield, Illinois
___________, 1998
-2-
<PAGE> 7
FIRSTBANK OF ILLINOIS CO.
PROXY STATEMENT
--------------------
MERCANTILE BANCORPORATION INC.
PROSPECTUS
--------------------
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 29, 1998
--------------------
This Proxy Statement/Prospectus relates to up to 13,800,000 shares of
common stock, par value $0.01 per share, of Mercantile Bancorporation Inc., a
Missouri corporation ("MBI") (together with associated preferred share purchase
rights (the "Rights") under MBI's Rights Agreement dated May 23, 1988, between
MBI and Mercantile Bank National Association as rights agent, the "MBI Common
Stock") to be issued to the stockholders of Firstbank of Illinois Co., a
Delaware corporation ("Firstbank"), upon consummation of the proposed merger
(the "Merger") of Firstbank with and into Ameribanc, Inc., a Missouri
corporation and a wholly owned subsidiary of MBI ("Merger Sub"), with Merger Sub
as the surviving corporation. The Merger will be consummated pursuant to the
Agreement and Plan of Reorganization dated January 30, 1998, by and among MBI,
Merger Sub and Firstbank (the "Merger Agreement"), upon the terms and subject to
the conditions thereof. This Proxy Statement/Prospectus also serves as the Proxy
Statement of Firstbank for use in connection with the solicitation of proxies by
the Board of Directors of Firstbank (the "Firstbank Board") to be used at the
Annual Meeting of Stockholders of Firstbank (the "Annual Meeting") at which the
stockholders of Firstbank (the "Firstbank Stockholders") will be asked, among
other things, to approve and adopt the Merger Agreement. The Merger Agreement is
attached as Annex A and is incorporated herein by reference.
Pursuant to the Merger Agreement, MBI will issue up to an aggregate of
13,800,000 shares of MBI Common Stock less the number of shares of MBI Common
Stock issuable upon exercise of Firstbank's stock options outstanding as of the
effective time of the Merger. Upon consummation of the Merger, among other
things, each outstanding share of Firstbank common stock, par value $1.00 per
share ("Firstbank Common Stock"), other than shares of Firstbank Common Stock
held by Firstbank, MBI, or any of their respective subsidiaries (except for
shares held in a fiduciary capacity or as a result of debts previously
contracted), will be converted into 0.8308 shares (the "Exchange Ratio") of MBI
Common Stock. See "THE MERGER -- General Description of the Merger". In
addition, upon consummation of the Merger, all options to acquire
shares of Firstbank Common Stock ("Firstbank Stock Options") pursuant to
various stock option plans ("Firstbank Stock Plans") outstanding at the time
of such consummation, whether or not then exercisable, will be converted into
and shall become rights with respect to MBI Common Stock. See "THE MERGER --
Conversion of Firstbank Common Stock; Treatment of Firstbank Stock Options".
No fractional shares of MBI Common Stock will be issued in the Merger, but
cash
<PAGE> 8
will be paid, without interest, in lieu of such fractional shares. See "THE
MERGER -- Fractional Shares."
MBI Common Stock is listed on The New York Stock Exchange, Inc. (the
"NYSE") under the symbol "MTL." On January 30, 1998, the last full trading day
before public announcement of the Merger, the last sale price per share of MBI
Common Stock as reported on the NYSE Composite Tape was $50.50. On ______, 1998,
the last sale price per share of MBI Common Stock as reported on the NYSE
Composite Tape was $_____. Firstbank Common Stock is quoted on the Nasdaq
National Market ("Nasdaq") under the symbol "FBIC." On January 30, 1998, the
last sale price per share of Firstbank Common Stock quoted on Nasdaq was
$38.00. On _______, 1998, the last sale price per share for Firstbank Common
Stock as quoted on Nasdaq was $_____. Because the market price of MBI Common
Stock is subject to fluctuation and the Exchange Ratio is fixed, the value of
the shares of MBI Common Stock that Firstbank Stockholders will receive in the
Merger may materially increase or decrease prior to the Merger. See "SUMMARY
INFORMATION -- Markets and Market Prices."
This Proxy Statement/Prospectus, the letter to Firstbank Stockholders,
the Notice of Annual Meeting of Stockholders and the form of proxy are first
being mailed to the Firstbank Stockholders on or about ________, 1998.
THE SECURITIES TO BE ISSUED PURSUANT TO THIS PROXY STATEMENT/ PROSPECTUS HAVE
NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION (THE
"COMMISSION") OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROXY
STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE SHARES OF MBI COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS, DEPOSITS
OR OTHER OBLIGATIONS OF ANY BANK OR SAVINGS ASSOCIATION AND ARE NOT INSURED BY
THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE BANK INSURANCE FUND, THE SAVINGS
ASSOCIATION INSURANCE FUND OR ANY OTHER GOVERNMENTAL AGENCY.
--------------------
The date of this Proxy Statement/Prospectus is ________, 1998
-2-
<PAGE> 9
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
AVAILABLE INFORMATION.............................................................................................1
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE.................................................................2
CAUTIONARY STATEMENTS FOR PURPOSES OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995 .....................................................................3
SUMMARY INFORMATION...............................................................................................5
Business of MBI..............................................................................................5
Business of Merger Sub.......................................................................................6
Business of Firstbank........................................................................................6
Annual Meeting of Firstbank Stockholders.....................................................................6
The Proposed Merger..........................................................................................7
Fractional Shares............................................................................................8
Stock Option Agreement.......................................................................................9
Support Agreements...........................................................................................9
Recommendation of the Firstbank Board.......................................................................10
Opinion of Firstbank's Financial Advisor....................................................................10
Interests of Certain Persons in the Merger..................................................................10
Regulatory Approval.........................................................................................11
Waiver and Amendment........................................................................................11
Accounting Treatment........................................................................................11
Firstbank Stock Options.....................................................................................11
Federal Income Tax Consequences in General..................................................................12
Absence of Dissenters' Appraisal Rights.....................................................................12
Certain Differences in the Rights of Shareholders...........................................................12
Markets and Market Prices...................................................................................12
Comparative Unaudited Per Share Data........................................................................15
Summary Financial Data......................................................................................17
INFORMATION REGARDING ANNUAL MEETING.............................................................................20
General.....................................................................................................20
Date, Time and Place........................................................................................20
Firstbank Record Date; Vote Required........................................................................20
Voting and Revocation of Proxies............................................................................21
Solicitation of Proxies.....................................................................................22
PROPOSAL I - APPROVAL OF THE MERGER AGREEMENT....................................................................23
THE MERGER.......................................................................................................23
General Description of the Merger...........................................................................23
Closing and Effective Time..................................................................................23
</TABLE>
-i-
<PAGE> 10
<TABLE>
PAGE
<S> <C>
Conversion of Firstbank Common Stock; Treatment of Firstbank Stock Options..................................24
Fractional Shares...........................................................................................25
Stock Option Agreement......................................................................................26
Support Agreements..........................................................................................28
Background of the Merger ...................................................................................29
Reasons for the Merger; Firstbank Board Recommendation......................................................31
Opinion of Firstbank's Financial Advisor....................................................................34
Interests of Certain Persons in the Merger..................................................................42
Conditions of the Merger....................................................................................43
Termination of the Merger Agreement.........................................................................45
Regulatory Approval.........................................................................................46
Business Pending the Merger.................................................................................47
Waiver and Amendment........................................................................................50
Accounting Treatment........................................................................................50
Management and Operations After the Merger..................................................................50
Employee Benefits...........................................................................................51
Absence of Dissenters' Appraisal Rights.....................................................................52
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER............................................................53
PRO FORMA FINANCIAL INFORMATION..................................................................................55
Comparative Unaudited Per Share Data........................................................................55
Pro Forma Combined Consolidated Financial Statements (Unaudited)............................................56
DESCRIPTION OF FIRSTBANK.........................................................................................67
INFORMATION REGARDING MBI STOCK..................................................................................68
Description of MBI Common Stock and Attached Preferred Share Purchase Rights................................68
Restrictions on Resale of MBI Capital Stock by Affiliates; Affiliate Agreements.............................70
Comparison of the Rights of Shareholders of MBI and Stockholders of Firstbank...............................71
SUPERVISION AND REGULATION.......................................................................................77
General.....................................................................................................77
Certain Transactions with Affiliates........................................................................77
Payment of Dividends........................................................................................77
Capital Adequacy............................................................................................78
Support of Subsidiary Banks.................................................................................79
FIRREA and FDICIA...........................................................................................79
Depositor Preference Statute................................................................................80
FDIC Insurance Assessments..................................................................................80
Interstate Banking and Other Recent Legislation.............................................................82
PROPOSAL II -- ELECTION OF DIRECTORS.............................................................................83
</TABLE>
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<PAGE> 11
<TABLE>
PAGE
<S> <C>
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF..................................................................83
BOARD OF DIRECTORS...............................................................................................84
Election of Directors.......................................................................................84
Directors Whose Terms Expire in 1999 and 2000...............................................................84
Other Information on Directors..............................................................................85
Meetings and Committees of the Board of Directors...........................................................85
Other Nominations for Board of Directors....................................................................86
EXECUTIVE COMPENSATION...........................................................................................86
Incentive Compensation Plan.................................................................................87
Incentive Stock Option Plan.................................................................................88
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND DECEMBER 31, 1997 OPTION VALUES..............................88
OPTION GRANTS IN THE FISCAL YEAR ENDED DECEMBER 31, 1997.........................................................89
Report of the Compensation, Benefits and Officer Nominating Committee of the Board of
Directors................................................................................................89
Profit-Sharing Thrift Plan..................................................................................91
Retirement Plan.............................................................................................91
Employment Contracts and Termination of Employment and Change in Control Arrangements.......................92
Directors' Compensation.....................................................................................92
CERTAIN TRANSACTIONS.............................................................................................92
FIRSTBANK PERFORMANCE............................................................................................93
INDEPENDENT AUDITORS.............................................................................................94
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE..........................................................94
LEGAL MATTERS....................................................................................................94
EXPERTS..........................................................................................................94
OTHER MATTERS....................................................................................................95
STOCKHOLDER PROPOSALS............................................................................................95
</TABLE>
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<PAGE> 12
AVAILABLE INFORMATION
Each of MBI and Firstbank 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 Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information concerning either MBI or Firstbank 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 by mail 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 is listed on the NYSE, and such reports,
proxy statements and other information concerning MBI are available for
inspection and copying at the offices of the NYSE, 20 Broad Street, New York,
New York 10005. Firstbank Common Stock is quoted on Nasdaq, and such reports,
proxy statements and other information concerning Firstbank are available for
inspection and copying at the offices of the National Association of Securities
Dealers, Inc. at 1735 K Street, N.W., Washington, D.C. 20006.
MBI has filed a Registration Statement on Form S-4 (together with all
exhibits and any amendments thereto, the "Registration Statement") covering the
securities offered hereby with the Commission under the Securities Act of 1933,
as amended (the "Securities Act"). As permitted by the rules and regulations of
the Commission, this Proxy Statement/Prospectus omits certain information
contained or incorporated by reference in the Registration Statement. Reference
is hereby made to the Registration Statement for further information with
respect to MBI and the securities offered hereby. Such additional information
may be obtained from the Commission's principal office in Washington, D.C.
Statements contained in this Proxy Statement/Prospectus or in any document
incorporated by reference in this Proxy Statement/Prospectus as to the contents
of any documents provide a fair summary of the contents of such documents
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.
1
<PAGE> 13
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
This Proxy Statement/Prospectus incorporates documents by reference
which are not presented herein or delivered herewith. Copies of these documents
(excluding exhibits unless specifically incorporated by reference herein or in
such documents) are available, without charge, to any person to whom this Proxy
Statement/Prospectus is delivered upon written or oral request to the following:
<TABLE>
<CAPTION>
MBI DOCUMENTS FIRSTBANK DOCUMENTS
------------- -------------------
<S> <C>
Jon W. Bilstrom, Esq. Chris R. Zettek
General Counsel and Secretary Executive Vice President and Chief
Mercantile Bancorporation Inc. Financial Officer
P.O. Box 524 Firstbank of Illinois Co.
St. Louis, Missouri 63166-0524 205 South Fifth Street
(314) 418-2525 Springfield, Illinois 62701
(217) 753-7543
</TABLE>
IN ORDER TO ENSURE TIMELY DELIVERY OF SUCH DOCUMENTS, A REQUEST MUST BE
RECEIVED NO LATER THAN JUNE 21, 1998.
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,
1997.
(ii) The information contained in MBI's Proxy Statement, dated
March 17, 1998, for its Annual Meeting of Shareholders held on
April 23, 1998.
(iii) 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.
(iv) 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.
(v) MBI's current reports on Form 8-K dated as of January 10, 1998
and January 30, 1998.
The following documents filed with the Commission by Firstbank under
the Exchange Act are incorporated herein by reference (Commission File No.
0-08426):
(i) Firstbank's Annual Report on Form 10-K for the year ended
December 31, 1997.
2
<PAGE> 14
(ii) The description of Firstbank Common Stock set forth in Item 1
of Firstbank's Registration Statement on Form 8-A, dated March
8, 1977, and any amendment or report filed for the purpose of
updating such description.
(iii) Firstbank's current report on Form 8-K dated January 30, 1998,
as amended.
All documents filed with the Commission by MBI and/or Firstbank
pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the
date of this Proxy Statement/Prospectus and prior to the date of the Annual
Meeting shall be deemed to be incorporated by reference herein and made a part
hereof from the date any such document is filed. The information relating to MBI
and Firstbank contained in this Proxy Statement/Prospectus does not purport to
be complete and should be read together with the information in the documents
incorporated by reference herein. Any statement contained herein or in a
document incorporated or deemed to be incorporated herein by reference shall be
deemed to be modified or superseded for all purposes to the extent that a
statement contained herein or in any other subsequently filed document
incorporated or deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part hereof.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS OR IN THE
DOCUMENTS INCORPORATED BY REFERENCE HEREIN AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY MBI OR FIRSTBANK. THIS 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 PROXY
STATEMENT/PROSPECTUS SPEAKS AS OF THE DATE HEREOF UNLESS OTHERWISE SPECIFICALLY
INDICATED. NEITHER THE DELIVERY OF THIS PROXY STATEMENT/PROSPECTUS NOR ANY
DISTRIBUTION OF THE SECURITIES TO WHICH IT RELATES SHALL IMPLY OR CREATE AN
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF MBI OR FIRSTBANK OR
ANY OF THEIR RESPECTIVE SUBSIDIARIES OR IN THE INFORMATION SET FORTH OR
INCORPORATED BY REFERENCE HEREIN SUBSEQUENT TO THE DATE HEREOF.
CAUTIONARY STATEMENTS FOR PURPOSES OF THE PRIVATE SECURITIES LITIGATION
REFORM ACT OF 1995
THIS 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. SUCH FORWARD LOOKING
STATEMENTS APPEAR IN SEVERAL
3
<PAGE> 15
SECTIONS OF THIS PROXY STATEMENT/PROSPECTUS, INCLUDING "THE MERGER -- BACKGROUND
OF THE MERGER," " -- REASONS FOR THE MERGER; FIRSTBANK BOARD RECOMMENDATION,"
"-- OPINION OF FIRSTBANK'S FINANCIAL ADVISOR" AND "PRO FORMA FINANCIAL
INFORMATION." ALSO, WHENEVER THE WORDS "BELIEVES," "EXPECTS," "ANTICIPATES,"
"INTENDS," "ESTIMATES," "PLANS" OR SIMILAR WORDS OR EXPRESSIONS ARE USED, THE
STATEMENTS BEING MADE ARE FORWARD-LOOKING STATEMENTS. 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 FIRSTBANK
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 AS EXPECTED; (8) CHANGES IN BUSINESS CONDITIONS AND INFLATION; (9) CHANGES
IN THE SECURITIES MARKETS; AND (10) COSTS ASSOCIATED WITH, AND THE ABILITY OF
THE COMBINED COMPANY AND/OR ITS CUSTOMERS AND THIRD PARTY SOFTWARE VENDORS TO
SUCCESSFULLY ADDRESS, PROBLEMS ARISING FROM THE "YEAR 2000 ISSUE" (AS DISCUSSED
IN MBI'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1997) ARE
NOT AS ANTICIPATED. 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.
4
<PAGE> 16
SUMMARY INFORMATION
FOLLOWING IS A SUMMARY OF CERTAIN TERMS OF THE MERGER AND RELATED
INFORMATION DISCUSSED ELSEWHERE IN THIS PROXY STATEMENT/ PROSPECTUS AND IS NOT
INTENDED TO BE COMPLETE. IT IS QUALIFIED IN ALL RESPECTS BY THE MORE DETAILED
INFORMATION INCLUDED IN THIS PROXY STATEMENT/PROSPECTUS, THE ACCOMPANYING
ANNEXES AND THE DOCUMENTS INCORPORATED HEREIN BY REFERENCE. AS USED IN THIS
PROXY STATEMENT/PROSPECTUS, THE TERMS "MBI" AND "FIRSTBANK" REFER TO SUCH
CORPORATIONS, RESPECTIVELY, AND, WHERE THE CONTEXT REQUIRES, SUCH CORPORATIONS
AND THEIR RESPECTIVE SUBSIDIARIES ON A CONSOLIDATED BASIS. FIRSTBANK
STOCKHOLDERS ARE URGED TO READ AND CONSIDER CAREFULLY ALL OF THE INFORMATION
CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROXY STATEMENT/PROSPECTUS AND
THE ANNEXES TO THIS PROXY STATEMENT/PROSPECTUS. ALL INFORMATION CONCERNING MBI
INCLUDED IN THIS PROXY STATEMENT/PROSPECTUS HAS BEEN FURNISHED BY MBI AND ALL
INFORMATION CONCERNING FIRSTBANK INCLUDED IN THIS PROXY STATEMENT/PROSPECTUS HAS
BEEN FURNISHED BY FIRSTBANK.
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 February 27, 1998, MBI owned, directly or
indirectly, all of the capital stock (except for directors' qualifying shares)
of Mercantile Bank National Association ("Mercantile Bank") and 18 other
commercial banks located throughout Missouri, Illinois, eastern Kansas and
northern and central Arkansas and Iowa. MBI currently has acquisitions pending
with CBT Corporation ("CBT"), headquartered in Paducah, Kentucky, and Financial
Services Corporation of the Midwest ("Financial Services"), headquartered in
Rock Island, Illinois. 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, 1997, MBI reported, on a consolidated basis, total assets of
$30.0 billion, total deposits of $22.1 billion, total loans of $19.2 billion and
shareholders' equity of $2.4 billion.
MBI's principal executive offices are located at One Mercantile Center,
St. Louis, Missouri 63101 and its telephone number is (314) 418-2525.
For additional information, see " -- Summary Financial Data," "THE
MERGER," "INFORMATION REGARDING MBI STOCK," "SUPERVISION AND REGULATION," "PRO
FORMA FINANCIAL INFORMATION" and "INCORPORATION OF CERTAIN INFORMATION BY
REFERENCE."
5
<PAGE> 17
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, 1997, Merger Sub owned all of the capital stock of
Mercantile Bank National Association, and 18 other commercial banks which
operate from over 500 locations throughout Missouri, Illinois, northern and
central Arkansas, Iowa and eastern Kansas. Merger Sub, the surviving corporation
in the Merger, will continue to be a subsidiary of MBI.
Merger Sub's principal executive offices are located at One Mercantile
Center, St. Louis, Missouri 63101 and its telephone number is (314) 418-2525.
BUSINESS OF FIRSTBANK
Firstbank, a Delaware corporation, is a registered bank holding company
under the BHCA. As of December 31, 1997, Firstbank owned, directly or
indirectly, all of the outstanding capital stock of eight banks operating from
42 offices throughout downstate Illinois and from five offices in Missouri.
Additionally, Firstbank also operates certain non-banking subsidiaries providing
related financial services, including corporate trust, investment advisory and
discount brokerage services. At December 31, 1997, Firstbank had consolidated
assets of $2.28 billion, loans of $1.43 billion, deposits of $1.98 billion and
shareholders' equity of $233 million.
Firstbank's principal executive offices are located at 205 South Fifth
Street, Springfield, Illinois 62701 and its telephone number is (217) 753-7543.
For additional information, see "THE MERGER," "DESCRIPTION OF
FIRSTBANK," "PRO FORMA FINANCIAL INFORMATION" and "INCORPORATION OF CERTAIN
INFORMATION BY REFERENCE."
ANNUAL MEETING OF FIRSTBANK STOCKHOLDERS
The Annual Meeting will be held at 3:00 p.m., Central Daylight Savings
Time, on Monday, June 29, 1998, in the main ballroom of the Renaissance
Springfield Hotel, 701 East Adams Street, Springfield, Illinois 62794. At the
Annual Meeting, the Firstbank Stockholders will consider and vote upon (i) a
proposal to approve and adopt the Merger Agreement, and (ii) the election of
three directors, and will transact such other business as may properly come
before the Annual Meeting or any adjournment or postponement thereof. Approval
by the Firstbank Stockholders of the Merger Agreement requires the affirmative
vote of the holders of at least a majority of the outstanding shares of
Firstbank Common Stock entitled to vote at the Annual Meeting ("Stockholder
Approval"). The election of directors requires a plurality of the votes of the
shares present in person or by proxy and entitled to vote. Only holders of
record of Firstbank Common Stock at the close of business on May 15, 1998 (the
"Record Date") will be entitled to notice of, and to vote at, the Annual
Meeting. As of the Record Date, there were __________
6
<PAGE> 18
shares of Firstbank Common Stock outstanding held by approximately ____ holders
of record. See "INFORMATION REGARDING ANNUAL MEETING."
As of the Record Date, directors and executive officers of Firstbank
and certain of their affiliates owned beneficially an aggregate of _______
shares of Firstbank Common Stock, or approximately ___% of the shares entitled
to vote at the Annual Meeting. All of the directors of Firstbank, who as of the
Record Date beneficially owned in the aggregate approximately ___% of the
outstanding shares of Firstbank Common Stock, have agreed, pursuant to
separately executed support agreements dated January 30, 1998 (each, a "Support
Agreement"), to vote all shares of Firstbank Common Stock beneficially owned by
such person, or over which such person has voting power or control, to approve
the Merger Agreement. See "INFORMATION REGARDING ANNUAL MEETING" and "THE MERGER
- -- Support Agreements."
Any Firstbank Stockholder giving a proxy may revoke it at any time
prior to the vote at the Annual Meeting. Firstbank Stockholders wishing to
revoke a proxy prior to the vote may do so by delivering to the 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, a written notice of revocation bearing a
later date than the proxy, by executing any later dated proxy relating to the
same shares, or by attending the Annual Meeting and voting in person. Attendance
at the Annual Meeting will not in itself constitute the revocation of a proxy.
THE PROPOSED MERGER
General. Subject to the satisfaction of the terms and conditions set
forth in the Merger Agreement, which are described below, Firstbank will merge
with and into Merger Sub. Upon consummation of the Merger, Firstbank's corporate
existence will cease, with Merger Sub continuing as the surviving corporation.
Simultaneously with the effectiveness of the Merger, each outstanding
share of Firstbank Common Stock, other than shares held by Firstbank, MBI or any
of their respective subsidiaries, will be converted into 0.8308 shares (the
"Exchange Ratio") of MBI Common Stock, plus cash in lieu of fractional shares
(together with the MBI Common Stock to be issued in connection with the Merger,
the "Merger Consideration"). See "THE MERGER - General Description of the
Merger" " -- Conversion of Firstbank Common Stock; Treatment of Firstbank Stock
Options," " -- Fractional Shares" and " -- Absence of Dissenters' Appraisal
Rights."
Exchange Procedures. As soon as practicable after the effective time of
the Merger (the "Effective Time"), MBI will deliver or cause to be delivered to
each holder of record of certificates ("Certificates") formerly representing
Firstbank Common Stock instructions and a letter of transmittal to tender such
Certificates. Upon surrendering Certificates to MBI or to Harris Trust and
Savings Bank, as exchange agent (the "Exchange Agent") and acceptance thereof,
each previous holder of a Certificate so surrendered and accepted will be
entitled to certificates representing the number of full shares of MBI Common
Stock into which the shares represented by the Certificate so surrendered and
accepted shall have been converted pursuant to
7
<PAGE> 19
the Merger Agreement together with any distribution theretofore declared and not
yet paid with respect to such shares of MBI Common Stock and a check
representing the amount of any cash in lieu of fractional shares which such
holder has the right to receive with respect to the Certificates surrendered,
each without interest.
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 the Merger Agreement. After the Effective Time,
there shall be no further transfer on the records of Firstbank of Certificates,
and if such Certificates are presented to Firstbank for transfer, they shall be
cancelled against delivery of the consideration provided therefor in the Merger
Agreement. Mercantile shall not be obligated to deliver the consideration to
which any former holder of Firstbank Common Stock is entitled as a result of the
Merger until such holder surrenders the Certificates as provided in the Merger
Agreement. No dividends declared will be remitted to any person entitled to
receive MBI Common Stock under this Agreement until such person surrenders the
Certificate representing the right to receive such MBI 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.
Conditions. Consummation of the Merger is subject to certain terms and
conditions, including, among other things, Stockholder Approval and receipt of
all requisite regulatory approvals. See "THE MERGER -- Conditions of the Merger"
and " -- Regulatory Approval."
Closing and Effective Time. Unless the parties otherwise agree, the
closing of the Merger (the "Closing") 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 any such date as MBI shall notify Firstbank in writing
but (i) not earlier than the satisfaction or waiver of all conditions precedent,
including the receipt of Stockholder 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. The Effective Time will occur, and the Merger will be
consummated and become effective, on the date and at the time on which
appropriate documents in respect of the Merger are filed with the Secretaries of
State of the States of Delaware and Missouri. MBI and Firstbank currently
anticipate that the Effective Time will occur in the third quarter of 1998. See
"THE MERGER -- Closing and Effective Time."
Termination. 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
January 27, 1999. See "THE MERGER -- Termination of the Merger Agreement."
FRACTIONAL SHARES
No fractional shares of MBI Common Stock will be issued to Firstbank
Stockholders in connection with the Merger. Upon consummation of the Merger,
each former holder of Firstbank Common Stock who otherwise would have been
entitled to receive a fraction of a share of MBI Common Stock shall be entitled
to receive cash in lieu thereof, without interest, in an amount
8
<PAGE> 20
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 Firstbank Stockholders in lieu of fractional shares may give
rise to taxable income. See "CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE
MERGER."
STOCK OPTION AGREEMENT
In connection with the execution of the Merger Agreement, MBI and
Firstbank entered into the Stock Option Agreement dated January 30, 1998 (the
"Stock Option Agreement") pursuant to which Firstbank has issued MBI an option
(the "Option") to purchase up to 3,134,858 shares of Firstbank Common Stock (or
approximately 19.9% of the outstanding shares of Firstbank Common Stock as of
January 30, 1998, without including any shares subject to the Option) at an
exercise price of $37.75 per share. The Option is exercisable only upon the
occurrence of certain events and provides MBI the right, under certain
circumstances, to require Firstbank to purchase for cash the unexercised portion
of the Option and all shares of Firstbank Common Stock purchased by MBI pursuant
thereto. The Option, which MBI required that Firstbank grant as a condition to
entering into the Merger Agreement, may increase the likelihood of consummation
of the Merger by discouraging competing offers for Firstbank. Certain aspects of
the Stock Option Agreement may discourage persons who may now, or may prior to
the Effective Time, be interested in acquiring all of or a significant interest
in Firstbank from considering or proposing such an acquisition, even if such
persons were prepared to offer to pay consideration to Firstbank Stockholders
with a higher current market price than the Merger Consideration.
The Stock Option Agreement is attached hereto as Annex B to this Proxy
Statement/Prospectus and is incorporated herein by reference. See "THE MERGER --
Stock Option Agreement."
SUPPORT AGREEMENTS
Concurrently with the execution of the Merger Agreement, all of the
directors of Firstbank, who as of January 30, 1998, beneficially owned in the
aggregate approximately 7.9% of the outstanding shares of Firstbank Common Stock
(each, a "Supporting Stockholder" and together, the "Supporting Stockholders"),
executed separate Support Agreements with MBI pursuant to which each Supporting
Stockholder agreed, among other things, to vote all shares of Firstbank Common
Stock beneficially owned by the Supporting Stockholder to approve the Merger
Agreement. 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 Firstbank 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 Firstbank, or any of its business, material assets, or capital
stock, or any business combination or similar transaction involving Firstbank
(each such transaction, an "Alternative Transaction").
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<PAGE> 21
Each Support Agreement terminates upon termination of the Merger Agreement in
accordance with its terms. See "THE MERGER --Support Agreements."
RECOMMENDATION OF THE FIRSTBANK BOARD
THE FIRSTBANK BOARD HAS APPROVED THE MERGER AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED THEREBY. THE FIRSTBANK BOARD BELIEVES THAT THE MERGER
IS IN THE BEST INTERESTS OF FIRSTBANK AND ITS STOCKHOLDERS AND UNANIMOUSLY
RECOMMENDS THAT SUCH STOCKHOLDERS VOTE "FOR" THE MATTERS TO BE VOTED UPON BY
SUCH STOCKHOLDERS IN CONNECTION WITH THE MERGER.
For a discussion of the factors considered by the Firstbank Board in
reaching its conclusion, see "THE MERGER -- Reasons for the Merger; Firstbank
Board Recommendation."
OPINION OF FIRSTBANK'S FINANCIAL ADVISOR
PaineWebber Incorporated ("PaineWebber"), Firstbank's financial
advisor, delivered its oral opinion to the Firstbank Board on January 29, 1998,
which was confirmed in a written opinion dated January 29, 1998, to the effect
that, as of such date and based upon the procedures and subject to the
assumptions made, matters considered and limitations described therein, the
Exchange Ratio is fair from a financial point of view to the holders of
Firstbank Common Stock. PaineWebber has confirmed its January 29, 1998 opinion
by delivery of its written opinion, dated as of the date of this Proxy
Statement/Prospectus, to the effect that, as of the date hereof and based upon
the procedures and subject to the assumptions made, matters considered and
limitations described therein, the Exchange Ratio is fair from a financial point
of view to the holders of Firstbank Common Stock. See "THE MERGER -- Opinion of
Firstbank's Financial Advisor." The full text of the written opinion of
PaineWebber delivered on the date hereof is attached as Annex C to this Proxy
Statement/Prospectus and holders of Firstbank Common Stock are urged to read
carefully the opinion in its entirety.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain members of the management of Firstbank have interests in the
Merger in addition to their interests generally as Firstbank Stockholders. For
instance, Mark H. Ferguson has entered into an employment agreement with MBI and
is a party to a severance agreement with Firstbank. In addition, under the
Merger Agreement, MBI has agreed to indemnify the present and past employees,
agents, directors and officers of Firstbank and its subsidiaries for all acts
and omissions occurring at or prior to the Effective Time to the same extent as
such persons were entitled to be indemnified by Firstbank as of the date of the
Merger Agreement. The Merger Agreement also provides that MBI will provide, for
a period of not less than six years after the Effective Time, an insurance and
indemnification policy providing coverage to the directors and
10
<PAGE> 22
officers of Firstbank that is no less favorable than the coverage provided by
MBI to MBI's directors and officers as of the date of the Merger Agreement.
The Firstbank Board was aware of these interests and considered them,
among other interests and other matters, in approving the Merger Agreement and
the transactions contemplated thereby. See "THE MERGER --Interests of Certain
Persons in 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
reviewing the Merger, the Federal Reserve Board will consider various factors,
including possible anticompetitive effects of the Merger, and will examine the
financial and managerial resources and future prospects of the combined
organization. The Merger may not be consummated until expiration of all
applicable waiting periods. MBI is also required to file a change in control
application with the Illinois Office of Banks and Real Estate.
Application for such approvals has been (or promptly will be filed).
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.
See "THE 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 Board of Directors of MBI (the "MBI Board") and the
Firstbank Board at any time before or after Stockholder 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
Stockholder Approval no such modification may alter or change the amount or kind
of consideration to be received by holders of Firstbank Common Stock in the
Merger.
ACCOUNTING TREATMENT
It is intended that for accounting and financial reporting purposes the
Merger will be accounted for as a pooling-of-interests. See "THE MERGER --
Accounting Treatment" and " -- Conditions of the Merger."
FIRSTBANK STOCK OPTIONS
At the Effective Time, all rights with respect to Firstbank Stock
Options issued under Firstbank Stock Plans 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
11
<PAGE> 23
each Firstbank Stock Option in accordance with the terms of the Firstbank Stock
Plan under which it was issued and the stock option agreement by which it is
evidenced. See "THE MERGER -- Conversion of Firstbank Common Stock; Treatment of
Firstbank Stock Options."
Certain executive officers, including certain executive officers who
are directors, of Firstbank currently hold Firstbank 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) of the Internal Revenue Code of 1986, as amended (the "Code"). MBI and
Firstbank, respectively, have received opinions of Wachtell, Lipton, Rosen &
Katz, special counsel to MBI, and Suelthaus & Walsh, P.C. special counsel to
Firstbank, each dated as of the date of this Proxy Statement/Prospectus,
substantially to the effect that for U.S. federal income tax purposes, (i) the
Merger will be treated as a "reorganization" within the meaning of Section 368
of the Code (ii) and no gain or loss will be recognized by the Firstbank
Stockholders who receive solely MBI Common Stock in exchange for shares of
Firstbank Common Stock (except with respect to cash received in lieu of
fractional shares of MBI Common Stock). EACH FIRSTBANK STOCKHOLDER IS URGED TO
CONSULT SUCH STOCKHOLDER'S OWN TAX ADVISOR TO DETERMINE THE SPECIFIC TAX
CONSEQUENCES OF THE MERGER TO SUCH STOCKHOLDER. For a more detailed description
of the federal income tax consequences of the Merger, see "CERTAIN FEDERAL
INCOME TAX CONSEQUENCES OF THE MERGER."
ABSENCE OF DISSENTERS' APPRAISAL RIGHTS
Firstbank Stockholders do not have dissenters' appraisal rights in
connection with the Merger. See "THE MERGER -- Absence of Dissenters' Appraisal
Rights."
CERTAIN DIFFERENCES IN THE RIGHTS OF SHAREHOLDERS
The rights of Firstbank Stockholders are currently governed by the
Delaware Law and Firstbank's Certificate of Incorporation and By-Laws. Upon
consummation of the Merger, Firstbank Stockholders who receive MBI Common Stock
in the Merger will become shareholders of MBI, and their rights will be governed
by the Missouri General and Business Corporation Law (the "Missouri Law") and
MBI's Restated Articles of Incorporation and By-Laws. See "INFORMATION REGARDING
MBI STOCK -- Comparison of the Rights of Shareholders of MBI and Stockholders of
Firstbank."
MARKETS AND MARKET PRICES
MBI Common Stock is currently listed on the NYSE under the symbol
"MTL." Firstbank Common Stock is currently quoted on Nasdaq under the symbol
"FBIC." The following table
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<PAGE> 24
sets forth the last sale price per share for MBI Common Stock reported on the
NYSE Composite Transactions Tape and for Firstbank Common Stock quoted on
Nasdaq, each as of January 30, 1998, the last full trading day preceding public
announcement of the Merger, and on ________, 1998, the most recent practicable
date prior to the mailing of this Proxy Statement/Prospectus. The table also
sets forth the per share equivalent price for Firstbank Common Stock (calculated
by multiplying the last sale price per share of MBI Common Stock on the date
reported by the Exchange Ratio).
<TABLE>
<CAPTION>
LAST SALE PRICE PER SHARE
LAST SALE PRICE LAST SALE PRICE PER OF FIRSTBANK COMMON STOCK
PER SHARE FOR MBI SHARE FOR FIRSTBANK ON AN EQUIVALENT PER
DATE: COMMON STOCK: COMMON STOCK: SHARE BASIS (a):
<S> <C> <C> <C>
January 30, 1998 $ 50.50 $ 38.00 $ 41.96
________ __, 1998 $ $ $
</TABLE>
(a) Based upon the Exchange Ratio of .8308.
Because the market price of MBI Common Stock is subject to fluctuation
and the Exchange Ratio is fixed, the value of the shares of MBI Common Stock
that Firstbank Stockholders will receive in the Merger may materially increase
or decrease prior to the Merger. Stockholders are advised to obtain current
market quotations for MBI Common Stock and Firstbank Common Stock. There can be
no assurance as to the market price of MBI Common Stock or Firstbank 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 Nasdaq, as
the case may be) and per share cash dividend declared with respect to MBI Common
Stock and Firstbank Common Stock. MBI sale prices and dividends have been
adjusted for a three-for-two stock split distributed as a dividend on October 1,
1997, and Firstbank sale prices and dividends have been adjusted for
three-for-two stock splits distributed as dividends on April 1, 1995 and
September 1, 1997.
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<PAGE> 25
<TABLE>
<CAPTION>
MBI CASH FIRSTBANK CASH
COMMON STOCK(1) DIVIDEND COMMON STOCK DIVIDEND
HIGH LOW DECLARED HIGH LOW DECLARED
<S> <C> <C> <C> <C> <C> <C>
1995
First Quarter.................... $24.8125 $20.8125 $0.22 $18.00 $17.00 $0.147
Second Quarter................... 29.9375 24.0000 0.22 18.50 17.83 0.147
Third Quarter.................... 31.3125 27.7500 0.22 19.17 18.00 0.147
Fourth Quarter................... 31.0000 27.6875 0.22 21.00 18.67 0.147
1996
First Quarter.................... $31.0000 $27.6875 $0.273 $21.33 $20.33 $0.16
Second Quarter................... 31.9375 29.0000 0.273 21.00 19.67 0.16
Third Quarter.................... 35.2500 28.9375 0.273 21.50 19.67 0.16
Fourth Quarter................... 36.0000 32.6875 0.273 23.17 21.25 0.16
1997
First Quarter.................... $39.6875 $33.3125 $0.287 $25.67 $22.50 $0.18
Second Quarter................... 41.6875 35.0000 0.287 26.50 24.09 0.18
Third Quarter.................... 53.5000 40.5000 0.287 32.75 26.00 0.18
Fourth Quarter................... 61.6250 45.5000 0.287 38.00 30.75 0.18
1998
First Quarter ................... $61.250 $49.5625 $0.31 $49.00 $35.00 $0.2575
Second Quarter (through
- --------)........................
</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, Firstbank has agreed that, during the
period from the date of the Merger Agreement to the Effective Time, Firstbank
will not declare, set aside or pay any dividends or other distributions on the
Firstbank Common Stock, except that Firstbank may declare and pay dividends on
the Firstbank Common Stock equal to the product of (i) the Exchange Ratio and
(ii) the amount of the dividends per share declared by the Board of Directors of
MBI; provided further, however, that Firstbank shall not declare or pay a
quarterly dividend for any quarter in which Firstbank stockholders will be
entitled to receive a quarterly dividend on the shares of MBI Common Stock to be
issued in the Merger.
14
<PAGE> 26
COMPARATIVE UNAUDITED PER SHARE DATA
The following table sets forth for the periods indicated selected
historical per share data of MBI and Firstbank and the corresponding pro forma
and pro forma equivalent per share amounts giving effect to the proposed Merger.
The data presented is based upon the consolidated financial statements and
related notes of MBI and the consolidated financial statements and related notes
of Firstbank in this Proxy Statement/Prospectus or in documents prepared by the
respective companies and provided 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 Proxy
Statement/Prospectus. See "PRO FORMA FINANCIAL INFORMATION."
MBI and Firstbank 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 and Firstbank 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 Firstbank, 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 Statements
(Unaudited)." Pro forma amounts are not necessarily indicative of results of
operations or the combined financial position that would have resulted had the
Merger 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.
15
<PAGE> 27
<TABLE>
<CAPTION>
AT OR FOR THE YEAR ENDED
DECEMBER 31,
1997 1996 1995
<S> <C> <C> <C>
Basic Earnings per Share:
MBI - Historical............................... $1.68 $2.11 $2.41
Firstbank - Historical......................... 1.90 1.80 1.66
MBI/Firstbank Pro Forma Combined (1)........... 1.74 2.12 2.38
MBI/Firstbank Equivalent Pro Forma (2)......... 1.45 1.76 1.98
MBI/All Entities Pro Forma Combined (3)...... 1.45 2.13 2.38
MBI/All Entities Equivalent Pro Forma (4).... 1.20 1.77 1.98
Diluted Earnings per Share:
MBI - Historical............................... $1.65 $2.08 $2.37
Firstbank - Historical......................... 1.86 1.78 1.64
MBI/Firstbank Pro Forma Combined (1) .......... 1.70 2.09 2.34
MBI/Firstbank Equivalent Pro Forma(2).......... 1.41 1.74 1.94
MBI/All Entities Pro Forma Combined (3)...... 1.42 2.10 2.34
MBI/All Entities Equivalent Pro Forma (4).... 1.18 1.74 1.94
Cash Dividends per Share:
MBI - Historical............................... $1.148 $1.092 $ 0.88
Firstbank - Historical......................... 0.720 0.640 0.588
MBI/Firstbank Pro Forma Combined (1)........... 1.148 1.092 0.88
MBI/Firstbank Equivalent Pro Forma (2)......... 0.950 0.910 0.73
MBI/All Entities Pro Forma Combined (3)...... 1.148 1.092 0.88
MBI/All Entities Equivalent Pro Forma (4).... 0.950 0.910 0.73
Book Value per Share:
MBI - Historical............................... $18.47
Firstbank - Historical......................... 14.77
MBI/Firstbank Pro Forma Combined (1)........... 17.83
MBI/Firstbank Equivalent Pro Forma (2)......... 14.81
MBI/All Entities Pro Forma Combined (3)...... 17.77
MBI/All Entities Equivalent Pro Forma (4).... 14.76
</TABLE>
(1) Includes the effect of pro forma adjustments for Firstbank, as
appropriate. See "PRO FORMA FINANCIAL INFORMATION -- Notes to Pro Forma
Combined Consolidated Financial Statements."
(2) Based on the MBI/Firstbank Pro Forma Combined per share amounts
multiplied by the Exchange Ratio. Further explanation of the
assumptions used in the preparation of the pro forma combined
consolidated financial statement is included in the notes to pro forma
combined consolidated financial statements. See "PRO FORMA FINANCIAL
INFORMATION -- Notes to Pro Forma Combined Consolidated Financial
Statements."
(3) Includes the effects of pro forma adjustments for Firstbank, CBT and
Roosevelt, as appropriate. Due to the immateriality of the financial
condition and results of operations of Horizon, HomeCorp and Financial
Services Corporation of the Midwest to that of MBI, does not include
the effect of pro forma adjustments of Horizon Bancorp Inc.
("Horizon"), HomeCorp Inc. ("HomeCorp") and Financial Services. The
unaudited pro forma comparative per share data combines the financial
information of MBI with the financial information of Firstbank, each as
of and for the fiscal years ended December 31, 1997, 1996 and 1995. See
"PRO FORMA FINANCIAL INFORMATION -- Notes to Pro Forma Combined
Consolidated Financial Statements."
(4) Based on the MBI/All Entities Pro Forma Combined per share amounts
multiplied by the Exchange Ratio. Further explanation of the
assumptions used in the preparation of the pro forma combined
consolidated
16
<PAGE> 28
financial statement is included in the notes to pro forma combined
consolidated financial statements. See "PRO FORMA FINANCIAL INFORMATION
-- Notes to Pro Forma Combined Consolidated Financial Statements."
SUMMARY FINANCIAL DATA
The following tables set forth for the periods indicated certain
summary historical consolidated financial information for MBI and Firstbank.
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 Firstbank as of and for such periods. These data include
all adjustments which are, in the opinion of the respective managements of MBI
and Firstbank, 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 Firstbank, and the related notes
thereto, included in documents incorporated herein by reference and in
conjunction with the unaudited pro forma combined consolidated financial
information, including notes thereto, appearing elsewhere in this Proxy
Statement/Prospectus. See "INCORPORATION OF CERTAIN INFORMATION BY REFERENCE"
and "PRO FORMA FINANCIAL INFORMATION."
17
<PAGE> 29
MERCANTILE BANCORPORATION INC.
SUMMARY FINANCIAL DATA
<TABLE>
<CAPTION>
ALL ENTITIES PRO
FORMA COMBINED
CONSOLIDATED AS OF
OR FOR THE AS OF OR FOR THE
YEAR ENDED YEAR ENDED DECEMBER 31,
DECEMBER 31, -----------------------------------------------------------
1997 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
Basic earnings per share ............... $ 1.45 $ 1.68 $ 2.11 $ 2.41 $ 2.06 $ 1.81
Diluted earnings per share ............. 1.42 1.65 2.08 2.37 2.02 1.77
Dividends declared ..................... 1.148 1.148 1.092 0.88 0.748 0.66
Book value at period end ............... 17.77 18.47 16.74 16.29 14.48 13.41
EARNINGS (THOUSANDS)
Interest income ........................ $2,386,824 $1,878,194 $1,552,863 $1,516,156 $1,311,928 $1,269,680
Interest expense ....................... 1,264,664 957,690 724,910 715,466 521,542 508,469
---------- ---------- ---------- ---------- ---------- ----------
Net interest income .................... 1,122,160 920,504 827,953 800,690 790,386 761,211
Provision for possible loan losses ..... 89,829 79,309 73,015 41,533 48,791 70,584
Other income ........................... 400,549 378,684 337,480 311,649 272,368 290,380
Other expense .......................... 1,076,787 894,780 718,668 640,519 645,011 666,067
Income taxes ........................... 142,402 120,506 128,535 149,898 135,896 114,768
---------- ---------- ---------- ---------- ---------- ----------
Net income .......................... $ 213,691 $ 204,593 $ 245,215 $ 280,389 $ 233,056 $ 200,172
========== ========== ========== ========== ========== ==========
ENDING BALANCE SHEET (MILLIONS)
Total assets ........................... $ 32,867 $ 29,955 $ 22,030 $ 20,883 $ 19,397 $ 18,878
Earning assets ......................... 29,771 27,278 20,061 18,997 17,904 17,390
Investment securities .................. 8,385 7,546 4,746 4,964 4,895 5,234
Loans and leases, net of unearned income 21,145 19,200 14,953 13,703 12,764 11,637
Deposits ............................... 24,520 22,080 17,336 16,172 15,137 15,435
Long-term debt (1) ..................... 1,518 1,469 305 344 351 340
Shareholders' equity ................... 2,626 2,410 1,946 1,915 1,643 1,510
Reserve for possible loan losses ....... 291 255 230 232 245 233
SELECTED RATIOS
Return on average assets ............... 0.66% 0.79% 1.16% 1.39% 1.22% 1.08%
Return on average equity ............... 7.99 9.55 12.95 15.64 14.66 14.06
Net interest rate margin (2) ........... 3.84 3.93 4.34 4.38 4.61 4.58
Equity to assets ....................... 7.99 8.05 8.83 9.17 8.47 8.00
Reserve for possible loan losses to
Outstanding loans ................... 1.38 1.33 1.54 1.70 1.92 2.00
Non-performing loans ................ 247.96 249.51 318.99 241.79 552.34 289.13
Dividend payout ratio (3) .............. 80.85 69.58 52.50 37.13 37.03 37.29
</TABLE>
(1) Includes company-obligated mandatorily redeemable preferred securities
of Mercantile Capital Trust I.
(2) Taxable-equivalent basis. Includes tax-equivalent adjustments for MBI
of $15,086,000, $16,353,000, $17,758,000, $17,962,000, and $18,598,000
for December 31, 1997, 1996, 1995, 1994 and 1993, respectively, and for
all entities pro forma combined consolidated for December 31, 1997 of
$17,820,000. These adjustments are based upon a federal tax rate of 35%
for all periods.
(3) Based upon diluted earnings per share.
18
<PAGE> 30
FIRSTBANK OF ILLINOIS CO.
SUMMARY FINANCIAL DATA
<TABLE>
<CAPTION>
As of or for the year ended December 31,
1997 1996 1995 1994 1993
------ ----- ---- ------- -----
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Basic earnings per share............ $ 1.90 $ 1.80 $ 1.66 $ 1.55 $ 1.27
Diluted earnings per share.......... 1.86 1.78 1.64 1.53 1.25
Dividends declared.................. 0.72 0.64 0.59 0.53 0.48
Book value at period end............ 14.77 13.45 12.31 10.55 10.25
EARNINGS (THOUSANDS)
Interest income..................... 157,373 140,611 134,401 124,254 124,010
Interest expense.................... 71,472 61,005 57,486 45,057 45,406
--------- --------- --------- --------- ---------
Net interest income................. 85,901 79,606 76,915 79,197 78,604
Provision for possible loan losses.. 2,958 2,868 2,313 2,942 5,535
Noninterest income.................. 24,618 21,798 20,168 18,902 18,242
Noninterest expense................. 61,121 55,137 54,921 59,426 62,827
Income taxes........................ 16,796 15,526 14,107 11,697 9,385
Income before cumulative effect of - - - - -
change in accounting principle.... 29,644 27,873 25,742 24,034 19,099
Cumulative effect of change in
accounting principle.............. - - - - 386
--------- --------- --------- --------- ---------
Net income...................... 29,644 27,873 25,742 24,034 19,485
========= ========= ========= ========= =========
ENDING BALANCE SHEET (THOUSANDS)
Total assets........................ 2,281,818 2,005,204 1,863,294 1,816,902 1,758,902
Investment securities............... 655,146 478,184 456,919 468,217 443,046
Loans, net of unearned discount..... 1,427,304 1,297,406 1,236,798 1,178,550 1,129,894
Deposits............................ 1,982,046 1,738,263 1,618,269 1,534,990 1,523,700
Other borrowings.................... 47,266 39,585 35,496 103,402 60,248
Shareholders' equity................ 232,573 207,636 190,981 163,311 157,925
Reserve for possible loan losses.... 19,939 19,103 18,047 18,360 18,252
SELECTED RATIOS
Return on average assets............ 1.40% 1.46% 1.41% 1.33% 1.11%
Return on average equity............ 13.52 14.07 14.47 14.99 12.78
Net interest margin (1)............. 4.43 4.57 4.66 4.86 5.03
Shareholders' equity to assets...... 10.19 10.35 10.25 8.99 8.98
Reserve for possible loan losses to:
Outstanding loans.................. 1.40 1.47 1.46 1.56 1.62
Nonperforming loans................. 174.81 176.81 164.08 257.40 167.16
Dividend payout ratio (2)........... 38.71 35.96 35.98 34.64 38.40
</TABLE>
(1) Taxable equivalent basis. Includes tax-equivalent adjustments of
$761,000, $975,000, $1,231,000 $1,638,000, and $2,113,000 for 1997,
1996, 1995, 1994 and 1993, respectively. These adjustments are based
upon a federal tax rate of 35% for all periods.
(2) Based upon diluted earnings per share.
19
<PAGE> 31
INFORMATION REGARDING ANNUAL MEETING
GENERAL
This Proxy Statement/Prospectus is being furnished to Firstbank
Stockholders as a proxy statement in connection with the solicitation of proxies
by the Firstbank Board for use at the Annual Meeting and any adjournment or
postponement thereof at which the Firstbank Stockholders will consider and vote
on a proposal to approve and adopt the Merger Agreement and a proposal to elect
three directors to the Firstbank Board, and will transact such other business as
may properly come before the Annual Meeting or any adjournment or postponement
thereof. Each copy of this Proxy Statement/Prospectus is accompanied by a Letter
to Firstbank Stockholders, the Notice of Annual Meeting of Stockholders, a proxy
card and a self-addressed return envelope to Harris Trust & Savings Bank for the
proxy card.
This Proxy Statement/Prospectus is also furnished by MBI to each holder
of Firstbank Common Stock as a prospectus in connection with the issuance by MBI
of shares of MBI Common Stock to Firstbank Stockholders upon the consummation of
the Merger. This Proxy Statement/Prospectus, the letter to Firstbank
Stockholders, the Notice of Annual Meeting of Stockholders and the form of proxy
are first being mailed to Firstbank Stockholders on or about ______, 1998.
THE FIRSTBANK BOARD UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE "FOR"
APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND THE CONSUMMATION OF THE
TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE MERGER, AS WELL AS EACH OF THE
FOREGOING ADDITIONAL ACTIONS.
DATE, TIME AND PLACE
The Annual Meeting will be held at 3:00 p.m., Central Daylight Savings
Time, on June 29, 1998, in the main ballroom of the Renaissance Springfield
Hotel, 701 East Adams Street, Springfield, Illinois 62701.
FIRSTBANK RECORD DATE; VOTE REQUIRED
The Firstbank Board has fixed May 15, 1998 as the Record Date for
determination of Firstbank Stockholders entitled to notice of and to vote at the
Annual Meeting. Accordingly, only holders of record of Firstbank Common Stock at
the close of business on such date will be entitled to notice of, and to vote
at, the Annual Meeting. As of the Record Date, there were ________ shares of
Firstbank Common Stock outstanding and entitled to vote which were held by
approximately _____ holders of record. Each such share is entitled to one vote
on each matter properly brought before the Annual Meeting. The affirmative vote
of the holders of at least a majority of the outstanding shares of Firstbank
Common Stock entitled to vote at the Annual Meeting is required to approve the
Merger Agreement. The election of directors requires a plurality of the votes of
the shares present in person or represented by proxy and entitled to vote.
20
<PAGE> 32
VOTING AND REVOCATION OF PROXIES
Shares of Firstbank Common Stock entitled to vote and which are
represented at the Annual Meeting by a properly executed proxy received prior to
the vote at the Annual Meeting will be voted at such 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 FIRSTBANK STOCKHOLDER 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 AND THE ELECTION OF THE PROPOSED
SLATE OF DIRECTORS. Failure to return a properly executed proxy card or to vote
in person at the Annual 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 Annual 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 be treated as shares that are present at the
Annual Meeting for purposes of determining the presence of a quorum but will not
be considered as voted for purposes of determining the approval of stockholders
on a particular proposal. Since the approval of the Merger Agreement requires
the affirmative vote of the holders of at least a majority of the outstanding
shares of Firstbank Common Stock entitled to vote at the Annual Meeting,
abstentions and broker non-votes will have the same effect as votes against the
approval of the Merger Agreement. Broker non-votes and votes withheld will have
no effect on the election of directors, which requires a plurality of the votes
of the shares present and entitled to vote.
Any stockholder of Firstbank giving a proxy may revoke it at any time
prior to the vote at the Annual Meeting. Stockholders of Firstbank 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, by
execution of any later dated proxy relating to the same shares, or by attending
the Annual Meeting and voting in person. Attendance at the Annual Meeting will
not in itself constitute the revocation of a proxy.
The Firstbank Board is not currently aware of any business to be
brought before the Annual Meeting other than that described herein. If, however,
other matters are properly brought before such 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
Firstbank.
21
<PAGE> 33
SOLICITATION OF PROXIES
Firstbank will bear its own costs of soliciting proxies. Proxies will
initially be solicited by mail, but directors, officers and selected other
employees of Firstbank may also solicit proxies in person or by telephone,
telegram or other means of communication. Directors, officers and any other
employees of Firstbank 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. Firstbank has retained Morrow & Co. at an
estimated cost of $_____, 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 FIRSTBANK COMMON STOCK ARE REQUESTED TO COMPLETE, DATE AND
SIGN THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE.
22
<PAGE> 34
PROPOSAL I - APPROVAL OF THE MERGER AGREEMENT
THE 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
PROXY STATEMENT/PROSPECTUS.
GENERAL DESCRIPTION OF THE MERGER
The Merger Agreement provides that Firstbank will merge at the
Effective Time with and into Merger Sub, subject to Stockholder Approval and the
satisfaction or waiver of the other conditions to the Merger. Upon consummation
of the Merger, Firstbank's corporate existence will cease, with Merger Sub
continuing as the surviving corporation.
Simultaneously with the effectiveness of the Merger, each outstanding
share of Firstbank Common Stock, other than shares of Firstbank Common Stock
held by Firstbank, MBI, or any of their respective subsidiaries (other than in a
fiduciary capacity or as a result of debts previously contracted), will be
converted into 0.8308 shares of MBI Common Stock. In addition, at the Effective
Time, all rights with respect to Firstbank Common Stock pursuant to Firstbank
Stock Options under the Firstbank 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
Firstbank Stock Option in accordance with the terms of the Firstbank Stock Plan
under which it was issued and the stock option agreement by which it is
evidenced.
The shares of MBI Common Stock to be issued pursuant to the Merger will
be freely transferable except by certain Firstbank Stockholders who are deemed
to be "affiliates" (as defined herein) of Firstbank. 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 Common Stock by Affiliates; Affiliate
Agreements."
The amount and nature of the Merger Consideration was established
through arms'-length negotiations between MBI and Firstbank, and reflects the
balancing of a number of countervailing factors. The total amount of the Merger
Consideration reflects a price both parties concluded was appropriate. See " --
Background of the Merger" and " -- Reasons for the Merger; Firstbank Board
Recommendation."
CLOSING AND EFFECTIVE TIME
Unless the parties otherwise agree, the Closing of the Merger will take
place at 10:00 a.m., local time, on the date on which the Effective Time occurs,
which shall be any such date as
23
<PAGE> 35
MBI notifies Firstbank 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 Secretaries of State of the States of Delaware and Missouri. MBI
and Firstbank currently anticipate that the Effective Time will occur in the
third quarter of 1998.
CONVERSION OF FIRSTBANK COMMON STOCK; TREATMENT OF FIRSTBANK STOCK OPTIONS
As soon as practicable after the Effective Time, a letter of
transmittal that MBI will deliver or cause to be delivered to holders of record
of Certificates will instruct such holders as to the actions to be taken by such
holders in order to receive such individual holder's portion of the Merger
Consideration and will explain that risk of loss and title to Certificates will
pass only upon delivery of such Certificates to the Exchange Agent.
FIRSTBANK STOCK CERTIFICATES SHOULD NOT BE RETURNED WITH THE ENCLOSED
PROXY AND SHOULD NOT BE FORWARDED TO THE EXCHANGE AGENT UNLESS AND UNTIL THE
FIRSTBANK STOCKHOLDER RECEIVES A LETTER OF TRANSMITTAL FOLLOWING THE EFFECTIVE
TIME.
Each holder of a Certificate that surrenders such Certificate together
with duly executed transmittal materials to the Exchange Agent will, after the
Effective Time and upon acceptance thereof by the Exchange Agent, be entitled to
a certificate or certificates representing the number of full shares of MBI
Common Stock into which the Certificate so surrendered will have been converted
pursuant to the Merger Agreement and any distribution theretofore declared and
not yet paid with respect to such shares of MBI Common Stock, without interest.
See " -- Fractional Shares."
The Exchange Agent will accept Certificates upon compliance with such
reasonable terms and conditions as MBI or the Exchange Agent may impose to
effect an orderly exchange thereof in accordance with customary exchange
practices. Certificates shall be appropriately endorsed or accompanied by such
instruments of transfer as MBI or the Exchange Agent may require. See " --
General Description of the Merger."
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 rights shall be to exchange such Certificates for
the Merger Consideration provided for in the Merger Agreement. After the
Effective Time, there will be no further transfers on the records of Firstbank
of Certificates, and if such Certificates are presented to Firstbank for
transfer they will be canceled against delivery of the Merger Consideration.
MBI will not be obligated to deliver the Merger Consideration to which
any former holder of Firstbank Common Stock is entitled as a result of the
Merger until such holder
24
<PAGE> 36
surrenders the Certificates as provided in the Merger Agreement and duly
executes and provides transmittal materials. No dividends declared will be
remitted to any person entitled to receive MBI Common Stock under the Merger
Agreement until such person surrenders the Certificate representing the right
to receive such MBI Common Stock and duly executes and provides transmittal
materials at which time such dividends will be remitted to such person,
without interest and less any taxes that may have been imposed thereon.
Neither the Exchange Agent nor any party to the Merger Agreement nor
any affiliate thereof will be liable to any holder of stock represented by any
Certificate for any Merger Consideration paid to a public official pursuant to
applicable abandoned property, escheat or similar laws. MBI and the Exchange
Agent will be entitled to rely upon the stock transfer books of Firstbank 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 shall be entitled to deposit any Merger Consideration
represented thereby in escrow with an independent third party and thereafter be
relieved with respect to any claims thereto.
From and after the Effective Time, (i) each Firstbank 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 Firstbank Stock Option
will be equal to the number of shares of Firstbank Common Stock subject to such
Firstbank Stock Option immediately prior to the Effective Time multiplied by the
Exchange Ratio and (iii) the per share exercise price under each Firstbank Stock
Option will be adjusted by dividing the per share exercise price under such
Firstbank Stock Option by the Exchange Ratio and rounding down to the nearest
cent; provided, however, that the terms of each Firstbank 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 Code) of any Firstbank Stock Option that is an
"incentive stock option." Each holder of a Firstbank Stock Option that is
converted into an option with respect to MBI Common Stock should 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.
FRACTIONAL SHARES
No fractional shares of MBI Common Stock will be issued to the former
Firstbank Stockholders in connection with the Merger. Each former holder of
Firstbank 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 Firstbank Stockholder 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 Firstbank
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Stockholders in lieu of fractional shares may give rise to taxable income. See
"CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER."
STOCK OPTION AGREEMENT
In connection with the execution of the Merger Agreement, MBI and
Firstbank entered into the Stock Option Agreement pursuant to which Firstbank
has issued to MBI an Option to purchase up to 3,134,858 shares of Firstbank
Common Stock (or approximately 19.9% of the outstanding shares of Firstbank
Common Stock as of the Record Date, without including shares subject to the
Option) at an exercise price of $37.75 per share (the "Purchase Price"). MBI can
exercise the Option (after receipt of the required regulatory approvals) only if
it is not then in material breach of the Merger Agreement and only upon the
occurrence of one of the following events (each, a "Purchase Event"): (i)
Firstbank or any of its Significant Subsidiaries (as defined in Rule 1-02 of
Regulation S-X of the Commission), 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 Firstbank or any of its Significant Subsidiaries, other
than internal mergers, reorganizing actions, consolidations or dissolutions
involving only existing subsidiaries of Firstbank, (B) purchase, lease or
otherwise acquire 20% or more of the assets of Firstbank or any of its
Significant Subsidiaries 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 20% or more of the voting power of Firstbank or any of its
Significant Subsidiaries, provided that the making of any agreement to divest or
the actual divestiture by Firstbank of any of Firstbank's Missouri-chartered
banks shall not constitute such an event; (ii) any person (other than MBI or any
subsidiary of MBI, or any person acting in concert with MBI, or Firstbank or any
subsidiary of Firstbank in a fiduciary capacity) shall have acquired Beneficial
Ownership or the right to acquire Beneficial Ownership of 20% or more of the
voting power of Firstbank; (iii) the Firstbank Board shall have withdrawn or
modified in a manner adverse to MBI the recommendation of the Firstbank Board
with respect to the Merger Agreement, unless the Firstbank Board reasonably
determines not to so recommend based upon the written opinion of counsel to the
effect that to so recommend would constitute a breach of the Firstbank Board's
fiduciary duties under applicable law, in each case after an Extension Event (as
defined below); or (iv) the holders of Firstbank Common Stock shall not have
approved the Merger Agreement at the Annual Meeting, or such Annual Meeting
shall not have been held or shall have been canceled prior to termination of the
Merger Agreement in accordance with its terms, in each case after an Extension
Event. No Extension Event or Purchase Event has occurred as of the date of this
Proxy Statement/Prospectus.
The Option terminates (i) on the earliest to occur of (A) the Effective
Time of the Merger, (B) the termination of the Merger Agreement (1) by mutual
consent of MBI and Firstbank, (2) after January 27, 1999, by a party not then in
material breach of the Merger Agreement, if the Merger Agreement has not been
consummated, (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
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<PAGE> 38
(y) Firstbank Stockholders shall not have approved the Merger Agreement at the
Annual Meeting following a favorable recommendation of the Firstbank Board, (4)
by Firstbank in the event of a material breach by MBI of the Merger Agreement
which is not cured within 30 days of written notice thereof, and (5) by MBI in
the event that after-tax costs, if any, of remedial or other corrective actions
or measures with regard to specified properties exceed $7,000,000, and (C) two
years following the termination of the Merger Agreement by MBI in the event of a
material breach by Firstbank of the Merger Agreement which is not cured within
30 days of written notice thereof, provided that, with respect to any of the
foregoing, if such termination follows an Extension Event, 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. Any exercise of the Option will be subject to
compliance with applicable law, including the BHCA. 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 Firstbank 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
Ownership of 20% or more of the voting power of Firstbank; or (iii) any person
(other than MBI or any subsidiary of MBI, or Firstbank or any subsidiary of
Firstbank in a fiduciary capacity) shall have publicly announced (A) an offer
described in clause (ii) of this sentence or (B) 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 Purchase Event
until 13 months immediately thereafter (the "Repurchase Period"), MBI will be
entitled to require Firstbank (or any successor) to repurchase for cash the
Option from MBI together with all (but not less than all) shares of Firstbank
Common Stock purchased by MBI pursuant thereto, at a price per share equal to
the sum of: (i) the exercise price paid by MBI for any shares of Firstbank
Common Stock acquired pursuant to the Option; (ii) the difference between (A)
the "Market/Tender Offer Price" for shares of Firstbank 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 Firstbank Common Stock or (2) the highest
closing mean of the "bid" and the "ask" price per share of Firstbank Common
Stock reported by Nasdaq for any day within that portion of the Repurchase
Period which precedes the date MBI gives notice of the required repurchase) and
(B) the Purchase Price multiplied by the number of shares of Firstbank Common
Stock with respect to which the Option has not been exercised, but only if the
Market/Tender Offer Price is greater than such exercise price; (iii) the
difference between the Market/Tender Offer Price and the Purchase Price paid by
MBI for any shares of Firstbank Common Stock purchased pursuant to the exercise
of the Option, multiplied by the number of shares so purchased, but only if the
Market/Tender Offer Price is greater than such exercise price; and (iv) MBI's
reasonable out-of-pocket expenses incurred in connection
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<PAGE> 39
with the transactions contemplated by the Merger Agreement, including, without
limitation, legal, accounting and investment banking fees.
The Option, which MBI required that Firstbank grant as a condition to
MBI's entering into the Merger Agreement, is intended to increase the likelihood
of consummation of the Merger by discouraging competing offers for Firstbank.
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 Firstbank from considering or
proposing such an acquisition, even if such person were prepared to offer to pay
consideration to Firstbank Stockholders with a higher current market price than
the Merger Consideration.
The foregoing summary of the material provisions of the Stock Option
Agreement, a copy of which is attached as Annex B to this Proxy
Statement/Prospectus and incorporated herein by reference is qualified in its
entirety by reference to the Stock Option Agreement.
SUPPORT AGREEMENTS
Concurrently with the execution of the Merger Agreement, the Supporting
Stockholders, who, as of January 30, 1998, beneficially owned in the aggregate
approximately 7.9% of the outstanding shares of Firstbank Common Stock,
executed separate Support Agreements with MBI pursuant to which each
Supporting Stockholder agreed, among other things: (i) not to sell, agree to
sell, or otherwise transfer or dispose of any shares of Firstbank Common Stock
owned by the Supporting Stockholder, other than (A) pursuant to the Merger, (B)
with MBI's prior written consent, and (C) Firstbank Common Stock transferred to
Firstbank in connection with the exercise of stock options to the extent that
as of the date of such Support Agreement the related option agreement permits
shares of Firstbank Common Stock to be so used in connection with the exercise
of stock options; (ii) to vote all of the shares of Firstbank Common Stock
beneficially owned by such Supporting Stockholder as of the record date for any
meeting of Firstbank Stockholders called to consider and vote to approve the
Merger Agreement and/or the transactions contemplated thereby in favor of the
Merger Agreement; and (iii) to not, 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 an Alternative
Transaction. The Support Agreements provide that no action taken by a
Supporting Stockholder in his or her capacity as a director of Firstbank that
does not violate the Merger Agreement is prohibited by the Support Agreements.
Each Support Agreement terminates upon the earlier of termination of the Merger
Agreement or the day following the Closing Date.
Each Supporting Stockholder and the approximate number of shares of
Firstbank Common Stock beneficially owned by such Supporting Stockholder over
which such person has voting power or control (including exercisable options to
purchase such shares) as of January 30, 1998 are as
follows:
William B. Hopper 708,507
Robert L. Sweney 268,576
Mark H. Ferguson 100,610
William T. Grant, Jr 70,688
William R. Schnirring 37,275
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P. Richard Ware 28,520
Leo J. Dondanville, Jr. 22,950
Richard E. Zemenick 12,110
Robert W. Jackson 9,835
William R. Enlow 6,055
---------
All Supporting Stockholders as a Group 1,265,125
The foregoing is a summary of the material provisions of the Support
Agreement. See "AVAILABLE INFORMATION."
BACKGROUND OF THE MERGER
From time to time, as part of its ongoing strategic planning process,
Firstbank has considered the possibility of a strategic business combination
with a larger institution such as Mercantile as one of a multitude of strategic
alternatives. During the second and third quarters of 1997, management
tentatively concluded that, in light of the challenges that Firstbank faced in
the prevailing environment in the banking and financial services industry, such
a strategic business combination was a more attractive alternative, from a
stockholders' perspective, than it had been in the past.
During the third quarter of 1997, Mark H. Ferguson, Chairman of the
Board, President and Chief Executive Officer of Firstbank, began one-on-one
discussions with individual directors of Firstbank concerning management's
ongoing examination of strategic alternatives. On November 12, 1997, this review
was brought to the full Firstbank Board at a special meeting. The November 12
meeting was attended by special counsel from Suelthaus & Walsh, P.C., of St.
Louis, Missouri, and Mayer, Brown & Platt, of Chicago, Illinois, as well as by
representatives of PaineWebber.
At the November 12 meeting, Mr. Ferguson presented the results of a
management study that analyzed whether Firstbank should remain independent or
pursue a strategic business combination. A number of stockholder value issues
were reviewed at the meeting, including Firstbank's prospects on an independent
basis, its prospects as part of a strategic business combination, and the
relative value of the consideration that could be expected to be received by
Firstbank Stockholders. Mr. Ferguson also reviewed the impact customer,
community, and employee-related issues would have on stockholder value, both
with and without a strategic business combination, as well as the affect such a
combination would have on these constituencies.
Mr. Ferguson reviewed suggested criteria for selecting prospective
partners, including their management ability; their historical performance and
future outlook; their operating style; risk and potential upside with respect to
their currencies; their ability and willingness to pay; and integration issues.
He also reviewed management's overall evaluations of various prospective
partners that had been identified by management based on their likely interest
in a strategic business combination with Firstbank. Mr. Ferguson then called
upon representatives of
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PaineWebber to provide information to the Board concerning various financial
advisory matters.
The Firstbank Board then discussed the issues raised by management and
PaineWebber to determine the course of action that would be in the best
interests of Firstbank and its stockholders. Included in the discussion was a
comparison of continuing as an independent organization with the strategic
business combination options believed to be available. Several variations of
these two primary alternatives were explored, including, but not limited to,
remaining independent while continuing to make acquisitions of smaller companies
and more aggressively managing Firstbank's capital through the repurchase of
treasury shares, and seeking a business combination with a similarly sized
financial institution. The Firstbank Board also discussed the implications of
the various strategic alternatives on capital levels, future dividends, and the
overall franchise value of Firstbank. Management provided its preliminary
conclusions regarding steps that would be required to be taken to enhance the
earnings of Firstbank under each of the alternatives.
The representatives from PaineWebber discussed with the Board of
Directors the possibility of making an informal approach to some or all of
several potential strategic partners. The Firstbank Board determined that before
it proceeded further, it was advisable to obtain additional information
concerning how the potential candidates might view Firstbank as a strategic
business combination partner. Accordingly, Mr. Ferguson was authorized to employ
PaineWebber for this limited purpose, and to further discuss with its
representatives the various issues and alternatives. No decision as to whether
to engage in a transaction was made at that time.
On December 1, 1997, the Firstbank Board met again. Representatives
from PaineWebber attended and representatives from Suelthaus & Walsh, P.C.
participated via teleconference. A review of the information gathered to date
was presented by Mr. Ferguson and PaineWebber. The Firstbank Board also
discussed various actions that would be appropriate to take should Firstbank
elect to remain independent. The Firstbank Board authorized management and
PaineWebber to continue exploring opportunities for a strategic business
combination, and adopted resolutions formally authorizing the engagement of each
of PaineWebber, Suelthaus & Walsh, P.C., and Mayer, Brown & Platt in connection
with such exploration.
The Firstbank Board next met on December 16, 1997, and management,
together with representatives from PaineWebber, continued its discussion with
the Firstbank Board regarding the various strategic alternatives. At this point
MBI was identified as the leading candidate for a strategic business combination
based upon a variety of factors, including its initial expressions of interest
and the strength with which it met the criteria previously identified by the
Firstbank Board for potential partners. The Board of Directors instructed
management to continue its discussions with MBI and to gather additional
information regarding its level of interest in a strategic business combination,
integration plans if such a combination were accomplished, and its senior
management's overall operating philosophy. Mr. Ferguson met with Thomas H.
Jacobsen, Chairman of the Board, President, and Chief Executive Officer of MBI,
later that day. The focus of the meeting was on each company's operations and
strategic plans, and a preliminary discussion regarding an appropriate exchange
ratio. However, no substantive
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negotiations regarding the exchange ratio or other significant terms of a merger
or other transaction took place.
On December 19, 1997, the Board of Directors met again, and Mr.
Ferguson reviewed the progress of discussions with MBI with the Board. It was
agreed that discussions should be continued. By this point, both Firstbank and
MBI had begun preparing for due diligence reviews to be made by their respective
management and advisors, and thereafter, during the last week in December 1997,
MBI conducted a due diligence review of Firstbank and Firstbank began its due
diligence review of MBI.
On January 16, 1998, the Firstbank Board met again, together with
management and representatives from PaineWebber, Suelthaus & Walsh, P.C. and
Mayer, Brown & Platt. Management reviewed in depth the process that had occurred
to date, including information regarding strategic alternatives that had been
developed by management during the course of 1997, the examination of potential
partners for a strategic business combination, and the negotiations and other
processes engaged in with MBI, including a second meeting between Mr. Jacobsen
and Mr. Ferguson on January 9, 1998. Through a series of face-to-face meetings,
telephone discussions, and exchanges of correspondence between MBI and its
advisors on the one hand, and Firstbank and its advisors on the other hand,
extending from mid-December through the date of the January 16 board meeting,
most of the details of the strategic business combination had been agreed upon,
but serious negotiations remained regarding, among other things, the Exchange
Ratio and the Option. Draft versions of the Merger Agreement and the Option were
provided to the Directors for their review and comment. Final negotiations with
MBI regarding the Exchange Ratio, the Option, and other remaining issues
followed over the course of the next two weeks.
On January 29, 1998, the Board of Directors of Firstbank met again to
review the proposed definitive Merger Agreement and related documents.
Management described the events of that period. Special counsel reviewed various
legal aspects of the Merger Agreement, the Option, and related matters.
Representatives from PaineWebber reviewed the proposed transaction from a
financial point of view, and delivered its oral opinion (which was confirmed by
a written opinion, dated as of that date) stating that, subject to the various
factors set forth in the opinion letter, the exchange ratio provided in the
Merger Agreement was fair from a financial point of view to the Firstbank
Stockholders. After deliberating with respect to the Merger Agreement and the
transactions contemplated in connection therewith, the Firstbank Board
unanimously approved the Merger Agreement and the transactions contemplated
thereby as being in the best interests of Firstbank and the Firstbank
Stockholders. The Firstbank Board voted twice: first, with all directors voting,
then with all directors except for Messrs. Ferguson and Zemenick voting (the
interests of Messrs. Ferguson and Zemenick in the merger are discussed herein
under the caption "THE MERGER -- Interests of Certain Persons in the Merger").
REASONS FOR THE MERGER; FIRSTBANK BOARD RECOMMENDATION
In reaching its determination to approve the Merger Agreement and
recommend approval
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of the Merger Agreement to Firstbank Stockholders, the Firstbank Board consulted
with Firstbank's management and its financial and legal advisors, and considered
a number of factors. The following include all of the material factors, both
positive and negative, considered by the Firstbank Board:
(i) the Firstbank Board's familiarity with and review of
Firstbank's business, operations, financial condition and earnings on
an historical and a prospective basis;
(ii) the Firstbank Board's review, based in part on
presentations by its financial advisor and the Firstbank management,
of the business, operations, financial condition and earnings of MBI
on an historical and a prospective basis and of the combined company
on a pro forma basis and the historical stock price performance of
the MBI Common Stock, the resulting relative interests of Firstbank
Stockholders and MBI Shareholders in the common equity of the
combined company and the potential for appreciation in the market
value of MBI Common Stock following the proposed Merger;
(iii) the oral and/or written presentations of management
and PaineWebber to the Firstbank Board at its meetings held on
November 12, 1997, December 1, 1997, December 16, 1997, December 19,
1997, January 16, 1998, and January 29, 1998, and the financial
information reviewed by PaineWebber at the meetings of the Firstbank
Board on November 12, 1997, December 1, 1997, January 16, 1998, and
January 29, 1998, and the opinion of PaineWebber, rendered on January
29, 1998, that, as of such date, the Exchange Ratio was fair from a
financial point of view to Firstbank Stockholders (see " --Opinion of
Firstbank's Financial Advisor";
(iv) the process conducted by Firstbank's management and
its financial advisor in exploring and determining the potential
value which could be realized by Firstbank Stockholders in a business
combination transaction (including the contacts between Firstbank and
its financial advisor and certain bank holding companies determined
to be the most likely companies to be both interested in and
financially and otherwise capable of engaging in a business
combination transaction with Firstbank) relative to the prospects of
Firstbank on an independent basis or as part of a combination
involving a similarly sized financial institution (see " --
Background of the Merger");
(v) the terms of the Merger Agreement and the Merger,
including the Exchange Ratio, noting that it reflected a 13.2%
premium for the holders of Firstbank Common Stock based on the
closing prices of MBI Common Stock and Firstbank Common Stock on
January 28, 1998, the last trading day prior to the approval by the
Firstbank Board of the Merger, and multiples of price-to-1998
consensus earnings and price-to-tangible book value (as of December
31, 1997) of approximately 21.1x and 324%, respectively;
(vi) the current and prospective economic and competitive
environment facing the financial services industry generally, and
Firstbank in particular, including the need to develop new delivery
systems for its products and services; the relatively limited
opportunity to become more efficient through cost-reduction efforts;
the need for
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substantial investment in new technology; the dwindling number of
attractive acquisistion candidates and the accompanying escalation in
pricing expectations of the remaining candidates; and an operating
environment that required aggressive short-term pricing strategies
that diminished prospects for long-term revenue growth;
(vii) the Firstbank Board's review, based in part on the
presentations of management and PaineWebber at the November 12, 1997
and the December 1, 1997 meetings of the Firstbank Board, of
alternatives to the Merger for enhancing stockholder value, the range
of possible values to Firstbank Stockholders obtainable through
implementation of such alternatives, and the timing and likelihood of
actually achieving such value, and the Firstbank Board's belief,
based upon such review, that such alternatives were not likely to
result in greater value for Firstbank Stockholders than the value to
be realized in the Merger;
(viii) the general impact that the Merger could be expected
to have on the constituencies served by Firstbank, including its
customers, employees and communities;
(ix) the Firstbank Board's belief that MBI possesses
superior technological capabilities and information systems, and its
expectation that MBI will be able to successfully leverage those
capabilities and systems through the integration of the respective
operations of MBI and Firstbank in connection with the Merger;
(x) the expectation that the Merger would constitute a
"reorganization" under Section 368(a) of the Code and that it would
be accounted for as a pooling-of-interests for accounting and
financial reporting purposes (see "CERTAIN FEDERAL INCOME TAX
CONSEQUENCES" and " -- Accounting Treatment");
(xi) the anticipated cost savings, operating efficiencies
and opportunities for revenue enhancement available to the combined
company from the Merger, and the likelihood of the foregoing being
achieved following consummation of the Merger;
(xii) the fact that Mr. Ferguson entered into an employment
agreement with MBI pursuant to which he will continue to be employed
by MBI or its affiliates following the consummation of the Merger as
the Chairman, President, and Chief Executive Officer of MBI's banking
franchise in Illinois outside Madison, St. Clair, Monroe, and Jo
Davies Counties and will serve additionally as a member of the Board
of Directors of the banks comprising such franchise. The Firstbank
Board also considered the fact that under Mr. Zemenick's employment
agreement, the Merger will constitute a Change in Control, thereby
permitting Mr. Zemenick to terminate his employment and be paid the
remainder of his base salary through the end of the calendar year in
which his employment terminates and relieving Mr. Zemenick from
certain restrictive covenants under such agreement regarding
competition with Firstbank. The Firstbank Board also considered that
Mr. Ferguson and Mr. Zemenick might be deemed to have interests in
the Merger other than their interests generally as Firstbank
Stockholders (see " -- Interests of Certain Persons in the Merger");
and
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(xiii) the results of the due diligence investigation of
MBI conducted by Firstbank's management; the Firstbank Board's
assessment, with the assistance of counsel, concerning the likelihood
that MBI would obtain all regulatory approvals required for the
Merger (see " -- Regulatory Approvals"); and the terms of the Stock
Option Agreement, including the risk that the Stock Option Agreement
might discourage third parties from offering to acquire Firstbank by
increasing the cost of such an acquisition, and recognizing that the
execution of the Stock Option Agreement was a condition to MBI's
willingness to enter into the Merger Agreement (see " -- Stock Option
Agreement").
The foregoing discussion of the information and factors considered
by the Firstbank Board is not intended to be exhaustive but includes all of
the material factors considered by the Firstbank Board. In reaching its
determination to approve and recommend the Merger, the Firstbank Board did not
assign any relative or specific weights to the foregoing factors, and individual
directors may have given differing weights to different factors.
THE FIRSTBANK BOARD BELIEVES THE MERGER IS FAIR TO, AND IN
THE BEST INTERESTS OF, FIRSTBANK AND ITS STOCKHOLDERS, AND UNANIMOUSLY
RECOMMENDS THAT FIRSTBANK STOCKHOLDERS VOTE "FOR" THE APPROVAL AND ADOPTION OF
THE MERGER AGREEMENT AND THE CONSUMMATION OF THE TRANSACTIONS CONTEMPLATED
THEREBY.
OPINION OF FIRSTBANK'S FINANCIAL ADVISOR
Pursuant to an engagement letter dated December 10, 1997, Firstbank
retained the investment banking firm of PaineWebber Incorporated ("PaineWebber")
to act as financial advisor to Firstbank. At a meeting of the Firstbank Board on
January 16, 1998, PaineWebber reviewed various valuation analyses with respect
to the proposed Merger and at the meeting of the Firstbank Board on January 29,
1998, PaineWebber updated certain of these analyses and delivered its opinion
stating that, on and as of the date of such opinion and based upon and subject
to the assumptions described in such opinion, the Exchange Ratio was fair to
Firstbank Stockholders from a financial point of view. In arriving at its
opinion, PaineWebber made its determination as to the fairness from a financial
point of view of the Exchange Ratio in light of the financial and comparative
analyses described below. In connection with the preparation and mailing of this
Proxy Statement/Prospectus, PaineWebber delivered an updated opinion dated
______, a copy of which is included herein as Annex D and which is incorporated
by reference herein (the "Opinion"). The Opinion is substantially identical to
the opinion delivered to the Firstbank Board on January 29, 1998, and is based
on financial and comparative analyses substantially identical to those described
below. Holders of Firstbank Common Stock are urged to read the Opinion in its
entirety for a description of factors considered and assumptions made by
PaineWebber in rendering the Opinion.
The Opinion does not address the relative merits of the Merger and
any other transactions or business strategies discussed by the Firstbank Board
as alternatives to the Merger or the decision of the Firstbank Board to proceed
with the Merger. No opinion is expressed as to the
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price at which the securities to be issued in the Merger to the
Firstbank Stockholders may trade at any time. In rendering the Opinion,
PaineWebber has not been engaged to act as agent or fiduciary of
Firstbank's equity holders or any other third party.
In arriving at the Opinion, PaineWebber, among other things:
(i) Reviewed Firstbank's audited Annual Reports, Forms 10-K, Forms
10-Q and related financial information for the five fiscal years ended
December 31, 1996, and Firstbank's Form 10-Q and related unaudited
financial information for the nine months ended September 30, 1997;
(ii) Reviewed certain unaudited financial information for the eleven
months ended November 30, 1997, relating to Firstbank;
(iii) Reviewed MBI's audited Annual Reports, Forms 10-K and related
financial information for the five fiscal years ended December 31,
1996, and MBI's Form 10-Q and related unaudited financial information for
the nine months ended September 30, 1997;
(iv) Reviewed certain unaudited financial information for the eleven
months ended November 30, 1997, relating to MBI;
(v) Reviewed certain information, including financial forecasts,
relating to the business, earnings, cash flow, assets and prospects of
Firstbank and MBI furnished to PaineWebber by Firstbank and MBI;
(vi) Conducted discussions with members of senior management of
Firstbank concerning businesses and prospects of Firstbank;
(vii) Conducted discussions with members of senior management of MBI
concerning the businesses and prospects of MBI;
(viii) Reviewed the historical market prices and trading activity for
the shares of Firstbank Common Stock and the shares of MBI Common Stock
and compared them with those of certain publicly traded companies which
PaineWebber deemed to be relevant;
(ix) Compared the results of operations of Firstbank and MBI with
those of certain companies which PaineWebber deemed to be relevant;
(x) Compared the proposed financial terms of the Merger with the
financial terms of certain other mergers and acquisitions which
PaineWebber deemed to be relevant;
(xi) Reviewed drafts of the Agreement and Plan of Reorganization
dated January 27, 1998 and the related Stock Option Agreement dated January
28, 1998, relating to the Merger, which are substantially identical to the
final Merger Agreement and Stock Option Agreement; and
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(xii) Reviewed such other financial studies and analyses and
performed such other investigations and taken into account such other
matters as PaineWebber deemed necessary, including its assessment of
general economic, market and monetary conditions.
As set forth in its opinion, PaineWebber relied upon the accuracy and
completeness of all information supplied or otherwise made available by
Firstbank and MBI and PaineWebber and did not assume any responsibility to
independently verify such information or undertake an independent appraisal of
the assets of Firstbank or MBI. PaineWebber did not conduct a physical
inspection of the properties and facilities of Firstbank or MBI, did not conduct
a review of the loan files of Firstbank or MBI and did not make or obtain any
evaluation or appraisal of the assets or liabilities of Firstbank or MBI.
PaineWebber relied upon the accuracy of Firstbank's and MBI's earnings
projections and possible cost savings projections as a result of the Merger, and
PaineWebber did not assume any responsibility to independently verify
assumptions underlying such projections. The projections confidentially
furnished to PaineWebber were prepared by the respective managements of
Firstbank and MBI, and PaineWebber has assumed that they were reasonably
prepared and reflect good faith estimates and judgments of the managements of
Firstbank and MBI, respectively, as to the future performance of Firstbank and
MBI. Firstbank and MBI do not publicly disclose internal management projections
of the type provided to PaineWebber in connection with its review of the Merger.
Such projections were not prepared with a view toward public disclosure. The
projections were based on numerous variables and assumptions which are
inherently uncertain, including, without limitation, factors related to future
economic and competitive conditions, the future financial condition and results
of operations of Firstbank and MBI and the future cost savings associated with
the Merger. Accordingly, actual results could vary significantly from those
reflected in such projections. SEE "CAUTIONARY STATEMENTS FOR PURPOSES OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995." The Opinion is necessarily
based upon market, economic, and other conditions as they existed on, and can be
evaluated as of, the date thereof. The Opinion is directed only to the Firstbank
Board and does not constitute a recommendation to any holder of Firstbank Common
Stock or MBI Common Stock as to how such stockholders should vote on the Merger.
The preparation of a fairness opinion involves various determinations
as to the most appropriate and relevant methods of financial analysis and the
application of those methods to the particular circumstances and, therefore,
such an opinion is not readily susceptible to summary description. Furthermore,
in arriving at its fairness opinion, PaineWebber did not attribute any
particular weight to any analysis or factor considered by it, but rather made
qualitative judgments as to the significance and relevance of each analysis and
factor. Accordingly, PaineWebber believes that its analyses must be considered
as a whole and that considering any portions of such analyses and factors
considered, without considering all analyses and factors, could create a
misleading or incomplete view of the process underlying its fairness opinion. In
its analyses, PaineWebber made numerous assumptions with respect to industry
performance, general business and economic conditions and other matters, many of
which are beyond the control of Firstbank and MBI. Any estimates contained in
these analyses are not necessarily indicative of actual values or predictive of
future results or values, which may be significantly more or less
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favorable than as set forth therein. In addition, analyses relating to the value
of businesses do not purport to be appraisals or to reflect the prices at which
businesses actually may be sold.
The following paragraphs summarize certain financial analyses
performed by PaineWebber and presented to the Firstbank board on January 16,
1998 and January 29, 1998 and used in arriving at its opinion dated January 29,
1998 as to the fairness, from a financial point of view, of the Exchange Ratio.
The following does not purport to be a complete description of the analyses
performed, or the matters considered, by PaineWebber in arriving at its opinion.
Selected Comparable Company Trading Analysis: Firstbank. Using
publicly available information, PaineWebber compared certain ratios of the
financial performance of Firstbank (for which September 30, 1997 financial data
was used) to the stock market price of Firstbank at January 14, 1998 with such
ratios for the following selected midwestern banks with assets between $1.0
billion and $3.5 billion deemed relevant by PaineWebber ("Comparable Group I"):
AMCORE Financial Inc., First Midwest Bancorp Inc., First Financial Bancorp., 1st
Source Corp., Park National Corp., Corus Bancshares Inc., Mid Am Inc., First
Commerce Bancshares, Trans Financial Inc., Area Bancshares Corp., Community
Trust Bancorp, Republic Bancorp Inc., Chemical Financial Corp., Brenton Banks
Inc., Grand Premier Financial, First Financial Corp., F&M Bancorp., Irwin
Financial Corp., Mid-America Bancorp, Mississippi Valley Bancshares, Heritage
Financial Services, National City Bancshares Inc., BancFirst Ohio Corp.,
Citizens Bancshares, and Pinnacle Banc Group Inc. (for all of which September
30, 1997 financial data was used). Such comparisons included market
price-to-book value ratios (a median of 262% for Comparable Group I and 249.1%
for Firstbank); market price-to-tangible book value ratios (a median of 274% for
Comparable Group I and 280% for Firstbank); market price to last twelve months
fully diluted earnings per share (a median of 20.0x for Comparable Group I and
19.5x for Firstbank); market price-to-estimated 1997 fully diluted earnings per
share (a median of 19.8x for Comparable Group I and 19.3x for Firstbank); and
market price-to-estimated 1998 fully diluted earnings per share (a median of
17.7x for Comparable Group I and 18.2x for Firstbank). The 1997 and 1998
estimated fully diluted earnings per share were the median published earnings
estimates provided by First Call Research Network, as of January 14, 1998.
In connection with this analysis, and as previously discussed,
management of Firstbank confidentially provided PaineWebber with information
with regard to its projected future earnings. Because of the inherent
differences between the operations of Firstbank and the selected companies
included in Comparable Group I, PaineWebber believes that a purely quantitative
comparable company analysis would not be particularly meaningful in the context
of the Merger. PaineWebber believes that an appropriate use of comparable
company analysis in this instance would involve qualitative judgments concerning
differences between the financial and operating characteristics of Firstbank and
the selected companies included in Comparable Group I which would affect the
public trading values of Firstbank and the selected companies included in
Comparable Group I. These qualitative judgments made by PaineWebber in
connection with its opinion included PaineWebber's views as to business
conditions and prospects in the various markets in which these selected
companies operate and the business mixes, sources of revenue, risk profiles and
prospects for these selected companies.
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Selected Comparable Company Trading Analysis: MBI. Using publicly
available information, PaineWebber compared certain ratios of the financial
performance of MBI (for which September 30, 1997 financial data was used) to the
stock market price of MBI at January 26, 1998 with such ratios for the following
selected U.S. banks with assets between $20.0 billion and $50.0 billion deemed
relevant by PaineWebber ("Comparable Group II"): Wachovia Corp., Mellon Bank
Corp., Comerica Inc., State Street Corp., UnionBanCal Corp., SouthTrust Corp.,
Summit Bancorp, BB&T Corp., Northern Trust Corp., Huntington Bancshares Inc.,
Crestar Financial Corp., Regions Financial Corp., and Fifth Third Bancorp (for
all of which September 30, 1997 financial data was used). Such comparisons
included, among others, market price-to book value ratios (a median of 348% for
Comparable Group II and 287% for MBI); market price-to-tangible book value
ratios (a median of 382% for Comparable Group II and 441% for MBI); market
price-to last twelve months fully diluted earnings per share (a median of 21.7x
for Comparable Group II and 20.1x for MBI); market price-to-estimated 1997 fully
diluted earnings per share (a median of 18.7x for Comparable Group II and 18.8x
for MBI); and market price-to-estimated 1998 fully diluted earnings per share (a
median of 16.8x for Comparable Group II and 16.8x for MBI). The 1997 and 1998
estimated fully diluted earnings per share were the median published earnings
estimates provided by First Call Research Network, as of January 23, 1998.
Due to the inherent differences between the operations of MBI and the
selected companies included in Comparable Group II, PaineWebber believes that a
purely quantitative comparable company analysis would not be particularly
meaningful in the context of the Merger. PaineWebber believes that an
appropriate use of comparable company analysis in this instance would involve
qualitative judgments concerning differences between the financial and
operating characteristics of MBI and the selected companies included in
Comparable Group II which would affect the public trading values of MBI and the
selected companies included in Comparable Group II. These qualitative judgments
made by PaineWebber in connection with its opinion included PaineWebber's views
as to business conditions and prospects in the various markets in which these
selected companies operate and the business mixes, sources of revenue, risk
profiles and prospects for these selected companies.
Selected Comparable Transaction Analysis. Using publicly available
information, PaineWebber reviewed certain terms and financial characteristics
for the Merger, based on the Exchange Ratio of 0.8308 shares of MBI Common Stock
for each share of Firstbank Common Stock and a MBI stock price of $50.19 at
January 26, 1998 to selected midwestern bank merger and acquisition transactions
which PaineWebber deemed to be relevant (the "Comparable Transaction Group").
The Comparable Transaction Group consisted of the following transactions
(identified by buyer/seller): First Midwest Bancorp/Heritage Financial Services,
National City Corp./Fort Wayne National, Mercantile Bancorporation Inc. /CBT
Corporation, Union Planters Corp./Peoples First Corp., CNB Bankshares/Pinnacle
Financial Services, Huntington Bancshares/First Michigan Bank, Mercantile
Bancorporation Inc. /Mark Twain Bancshares, and Magna Group/Homeland Bankshares.
Among other financial characteristics of these transactions, PaineWebber
reviewed (i) offer price per share to book value per share multiple, (ii) offer
price per share to tangible book value per share multiple, (iii) offer price per
share to last twelve months fully diluted earnings per share multiples, (iv)
offer price per share to
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estimated fully diluted earnings per share multiples, and (v) deal
price/earnings ratio premium to buyer's price/earnings ratio. The median values
for the Comparable Transaction Group for the transaction value-to-book value per
share, transaction value-to-tangible book value per share, transaction value-to
last twelve months fully diluted earnings per share, and transaction value-to
estimated fully diluted earnings per share were 297%, 305%, 21.0x, 17.4x, and
22.2% respectively, compared with 288%, 324%, 22.5x, 21.1x, and 30.1% for the
Merger.
In the case of the Comparable Transaction Group, PaineWebber believes
that a purely quantitative comparable transaction analysis would not be
particularly meaningful in the context of the Merger, because the reasons for
and circumstances surrounding each of the transactions analyzed were so diverse
and because of the inherent differences between the operations of MBI,
Firstbank, and the selected companies included in the Comparable Transaction
Group. PaineWebber believes that an appropriate use of a comparable transaction
analysis in this instance would involve qualitative judgments concerning
differences between the characteristics of these transactions and the Merger
which would affect the acquisition value of the acquired companies and
Firstbank. These qualitative judgments made by PaineWebber in connection with
its opinion included: PaineWebber's views as to the universe of potential buyers
in each of these transactions, their potential level of interest in an
acquisition of these companies and the ability of the acquirors to implement
cost savings; business conditions and prospects in various markets in which
these acquired companies operate; and the business mixes, sources of revenue,
risk profiles and prospects for these acquired companies.
Discounted Cash Flow Analysis. PaineWebber performed an analysis to
calculate a range of present values per share of Firstbank Common Stock assuming
Firstbank continued to operate on a stand-alone basis. The range was calculated
by adding, for each of the annual periods from 1998 through 2002, (i) the
present value of the estimated cumulative dividends through the end of each such
annual period and (ii) the present value of the estimated stock price at each
such period-end. To calculate these present values, PaineWebber formulated three
scenarios: (i) a 5% growth scenario, (ii) a 7% growth scenario, and (iii) a 10%
growth scenario. Under all scenarios, Firstbank's 1998 fully diluted earnings
per share were estimated to be $1.98 with an annual dividend of $0.72 per share
for 1998. PaineWebber assumed that earnings and dividends in the years 1999
through 2002 would grow annually at 5%, 7% and 10%, respectively under the three
scenarios. For comparison purposes, multiples of 16 and 20 times the earnings
per share were applied in order to estimate the value of the stock at the end of
each of the years 1998 through 2002. Based on earnings multiples applied to the
projected fully diluted earnings per share in the respective years, PaineWebber
calculated trading and control valuations for Firstbank at the end of such
years. PaineWebber then calculated the present value of the implied future stock
prices and the cumulative projected dividend streams using a range of discount
rates between 8.0 to 12.0%. Applying the aforementioned discount rates, growth
rates and multiples of earnings, PaineWebber calculated the fully diluted per
share value of Firstbank Common Stock to range from approximately $24.91 to
$36.24 per share under the 5% growth scenario, $26.82 to $39.01 under the 7%
growth scenario and $29.76 to $43.37 under the 10% growth scenario.
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Potential Partner Dilution Analysis. Using publicly available
information, PaineWebber estimated the share price that potential partners
("Partner Group") could pay for Firstbank's Common Stock, based on Firstbank's
internally estimated 1998 earnings, without diluting the acquirer's estimated
1998 estimated earnings per share based on the median published earnings
estimates provided by First Call Research Network as of January 14, 1998. The
Partner Group considered by PaineWebber in its analysis consisted of: MBI, US
Bancorp, Norwest Corp., National City Corp., Union Planters Corp., Commerce
Bancshares Inc., First of America Bank Corp., Magna Group, NationsBank Corp.,
BancOne Corporation, First Chicago NBD Corp., Huntington Bancshares, Firstar
Corporation, Marshall & Ilsley Corporation, Old Kent Financial Corp., and UMB
Financial. In this analysis, Firstbank's internally estimated 1998 earnings per
share, assuming various cost savings projections based on Firstbank's estimated
1998 non-interest expense, were multiplied by the price-to-earnings multiple of
each member of the Partner Group to arrive at the maximum price per share that
each member of such group could pay without diluting their respective estimated
1998 earnings. PaineWebber noted that the hypothetical cost savings projections
assumed in this analysis are independent of the cost savings assumed by MBI and
Firstbank's respective managements as related to their proposed Merger and
therefore cannot be used to estimate acquisition prices for Firstbank in the
proposed Merger. The cost savings projections assumed in this analysis reflect
general assumptions about cost savings that might be attainable but there can be
no assurance that any potential partner could achieve such cost savings. The
savings assumed to be achieved by the Partner Group depend on a variety of
factors which cannot be predicted with certainty, including the timing of the
closing of the acquisitions, the pace and success of consolidation and the
future results of operations of the new entities. PaineWebber believed that an
appropriate use of a Potential Partner Dilution Analysis in this instance would
involve qualitative judgments concerning differences between the characteristics
of the partners which would affect the acquisition price range. These
qualitative judgments made by PaineWebber in connection with its opinion
included PaineWebber's views as to the universe of potential buyers and their
ability to implement cost savings and business synergies with Firstbank, and, in
addition, PaineWebber's views as to the regulatory environment, prospects in
various markets in which Firstbank operates and business mix, sources of
revenue, and risk profile.
Pro Forma Merger Analysis. PaineWebber estimated the impact of the
proposed Merger on MBI's projected fully diluted estimated earnings per share
for 1998, book and tangible book value per share and pro forma dividends per
share. In connection with this analysis and as previously discussed, management
of Firstbank and MBI confidentially provided PaineWebber with information with
regard to projected future earnings. Based on such information and the terms of
the proposed Merger, PaineWebber concluded that, for MBI, the Merger could have
a dilutive effect (before taking into account various cost savings which could
be accomplished upon consolidation of Firstbank's and MBI's operations) on
estimated fully diluted earnings per share in 1998 of approximately 2.2%, and,
based on financial information at September 30, 1997, would have a dilutive
effect to MBI's book value per share of approximately 1.0% and an accretive
effect to MBI's tangible book value per share of approximately 3.3%. PaineWebber
concluded that for Firstbank, the Merger would have an accretive effect to
Firstbank's book value per share of approximately 6.7% and a dilutive effect to
Firstbank's tangible book value per share of approximately 16.7%, based on
financial information at September 30, 1997.
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PaineWebber also concluded that the proposed Merger would have an accretive
effect on Firstbank's estimated 1998 earnings per share of approximately 23.2%
(before taking into account various cost savings which could be accomplished
upon consolidation of Firstbank and MBI's operations) and on Firstbank's
dividend per share of approximately 32.5%, based on the current dividend rates
for Firstbank and MBI. PaineWebber's analysis of the pro forma effect of the
Merger on such per share information for Firstbank was based on a comparison of
such current information for Firstbank versus such pro forma per share
information for MBI multiplied by the Exchange Ratio. PaineWebber calculated
that the proposed Merger would become accretive to MBI's 1998 earnings per share
if pre-tax cost savings of greater than approximately $15.4 million could be
achieved.
PaineWebber is an internationally recognized investment banking firm
and, as part of its investment banking activities, PaineWebber is regularly
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive bids, secondary
distributions of listed and unlisted securities, private placements and
valuations for corporate and other purposes. The Firstbank Board selected
PaineWebber because of its expertise, its reputation and its familiarity with
Firstbank and the thrift and banking industries in general.
PaineWebber has acted as financial advisor to Firstbank in connection
with the Merger. As compensation for its services in connection with the
Merger, Firstbank has agreed to pay PaineWebber (i) $150,000 upon the signing
of the engagement letter dated December 10, 1997, (ii) $500,000 upon the
signing of a fairness opinion and (iii) a transaction fee of (a) 0.75% of the
final transaction value in the event that the purchase price, on a per share
basis, is below $40 per share or (b) 0.80% of the final transaction value in
the event that the purchase price, on a per share basis, is equal to or greater
than $40 per share, but not less than $4,500,000, payable upon consummation of
the Merger (which fee would be approximately $6,147,810 million if calculated
as of April 24, 1998, based on 16,610,254 shares of Firstbank Common Stock
outstanding as of such date (on a fully diluted basis) and a share price of
$55.6875 (the closing price per share for Firstbank Common Stock reported on
the NYSE Composite Transactions Tape on April 24, 1998), provided that the
actual fee payable upon consummation of the Merger will be calculated based on
the actual aggregate consideration as of the Effective Date and not as of
April 24, 1998). Firstbank has paid PaineWebber $650,000 to date. Any fees
already paid to PaineWebber will be deducted in whole from any transaction fee.
In addition, Firstbank has agreed to reimburse PaineWebber for reasonable
out-of-pocket expenses incurred in connection with the Merger and to indemnify
PaineWebber against certain liabilities, including liabilities that may arise
under the federal securities law.
In the ordinary course of its business, PaineWebber actively trades
in the securities of Firstbank and MBI for its own account and for the accounts
of others and, accordingly, may at any time hold a long or short position in
such securities.
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INTERESTS OF CERTAIN PERSONS IN THE MERGER
General. As described below, certain members of Firstbank management
and of the Firstbank Board have certain arrangements with respect to certain
benefits under existing employment agreements and severance and benefits plans.
In addition, the Merger Agreement contains certain provisions relating to the
indemnification of Firstbank directors and officers and directors' and officers'
liability insurance. The Firstbank Board was aware of these interests and
considered them, among other matters, in approving the Merger Agreement and
transactions contemplated in connection therewith.
New Employment Agreement. Mark H. Ferguson, Chairman, President, and
Chief Executive Officer of Firstbank, entered into an employment agreement with
MBI pursuant to which he will be employed by MBI or its affiliates following
the consummation of the Merger.
Pursuant to Mr. Ferguson's employment agreement, Mr. Ferguson will
serve as the Chairman, President and Chief Executive Officer of MBI's banking
franchise in Illinois (except with respect to Madison, St. Clair, Monroe, and Jo
Davies counties) and will serve additionally as a member of the board of
directors of the banks comprising such franchise. In consideration of such
services, Mr. Ferguson will receive an annual base salary of not less than
$425,000, inclusive of all customary directors' fees. Mr. Ferguson also will be
eligible to receive an annual bonus for each of the three years in an amount to
be determined by the Board of Directors of MBI, initially up to 40% of his base
salary, but in no event less than $125,000 in 1998. In addition to the base
salary and annual bonus, Mr. Ferguson will receive a restricted stock grant of
50,000 shares of MBI Common Stock, which will vest as follows: (i) 20,000 shares
on the third anniversary of the Effective Time; (ii) 15,000 shares on the fourth
anniversary of the Effective Time; and (iii)15,000 shares on the fifth
anniversary of the Effective Time; provided that he is in the employ of MBI as
of each such applicable date.
Pursuant to Mr. Ferguson's employment agreement, MBI will assume all
of Firstbank's obligations under that certain severance compensation agreement
between Mr. Ferguson and Firstbank, dated December 26, 1997 (the "Severance
Agreement") until the earlier to occur of the third anniversary of the Effective
Time or Mr. Ferguson's termination by MBI or payment of all obligations under
the Severance Agreement. Under the Severance Agreement as assumed by MBI, if Mr.
Ferguson's employment with MBI is terminated involuntarily by MBI other than for
"cause" (as defined in the Severance Agreement), or if Mr. Ferguson voluntarily
terminates his employment with MBI for any reason, in each case within three
years after the Merger, or if such termination otherwise results from a Change
in Control (as defined in the Severance Agreement), MBI shall (i) pay to Mr.
Ferguson an amount equal to three times the sum of (a) the higher of his annual
base salary as of the date of termination or his annual base salary as of the
effective date of the Change in Control, plus (b) the highest bonus paid to him
with respect to the three fiscal years of MBI or Firstbank immediately
preceding the effective date of the Change in Control, which amount shall be
paid in a lump sum to Mr. Ferguson as soon as practicable after the date of
termination; and (ii) continue to pay for 24 months any premiums (to the extent
such premiums are due) for Mr. Ferguson's health, dental, disability, and life
insurance paid prior to such date of termination. In addition, if payments
under the Severance Agreement cause Mr. Ferguson to become liable for any
excise tax with respect to such payments, Mr. Ferguson will be reimbursed in
such amount plus any additional amount equal to the taxes on the reimbursed
amount.
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Existing Employment and Severance Agreements. On January 2, 1997,
Firstbank purchased certain of the assets of Zemenick & Walker, Inc., a
registered investment advisory firm, partially owned by Richard E. Zemenick, a
director of Firstbank. As a part of that transaction, Mr. Zemenick entered into
an employment agreement with a subsidiary of Firstbank (also named Zemenick &
Walker, Inc.) that provides for Mr. Zemenick to render services to the
subsidiary in connection with its operation of the assets acquired by Firstbank
from Zemenick & Walker, Inc. The employment agreement provides, among other
things, for a multiple-year term, a base salary for Mr. Zemenick of $250,000
annually, plus an annual bonus based upon total revenues of the subsidiary, and
a covenant by Mr. Zemenick not to engage in a broad range of competitive
activities for a period generally lasting five years after termination of his
employment.
Mr. Zemenick's employment agreement has certain provisions which
become operative only upon a Change in Control (as defined in his employment
agreement). The Merger will constitute such a Change in Control. Among other
things, after a Change in Control Mr. Zemenick may terminate his employment at
any time without advance notice, and in such circumstances will be paid the
remainder of his base salary through the end of the calendar year in which his
employment terminates. Additionally, Mr. Zemenick, upon a Change in Control,
will no longer be bound by his restrictive covenants regarding competition with
respect to clients of Zemenick & Walker, Inc. to whom services were rendered
prior to January 2, 1997. See "EMPLOYMENT CONTRACTS AND TERMINATION OF
EMPLOYMENT AND CHANGE IN CONTROL" for information regarding severance
agreements between Firstbank and certain executive officers.
Indemnification and Insurance. Under the Merger Agreement, MBI agreed
to (i) indemnify and hold harmless the past and present employees, agents,
directors or officers of Firstbank 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 Firstbank as of the date of the Merger
Agreement (whether by operation of Firstbank's or one of its subsidiaries'
certificate or articles of incorporation, corporate resolution, contract or
similar agreement or by operation of law), and (ii) assume the obligations of
Firstbank with respect to directors' and officers' insurance under its prior
acquisition agreements, which obligations are set forth in the Merger Agreement.
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 Firstbank 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.
CONDITIONS OF THE MERGER
The respective obligations of MBI and Firstbank 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 Firstbank Stockholders.
(ii) All requisite approvals of the Merger Agreement and
the transactions contemplated thereby shall have been received from
the Federal Reserve Board, and any
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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 Firstbank shall be subject to any
order, decree or injunction, and there shall be no pending or
threatened order, decree or injunction, of a court or agency of
competent jurisdiction which enjoins or prohibits the consummation of
the Merger or any of the transactions related thereto.
(v) There shall be no legislative, statutory or regulatory
action (whether federal or state) pending which prohibits or
threatens in a material way to prohibit consummation of, or which
otherwise materially adversely affects the Merger or any of the
transactions contemplated in the Merger Agreement.
(vi) Each of MBI and Firstbank shall have received, from
counsel reasonably satisfactory to the recipient, an opinion, dated
the Closing Date, reasonably satisfactory in form and substance to
the recipient, substantially to the effect that, on the basis of
facts, representations and assumptions set forth in such opinion
which are consistent with the state of facts existing at the
Effective Time, (i) the Merger will constitute a reorganization
within the meaning of Section 368(a) of the Code and (ii) no gain or
loss will be recognized by the Firstbank Stockholders who receive
solely MBI Common Stock in exchange for shares of Firstbank Common
Stock pursuant to the Merger (except with respect to cash received in
lieu of a fractional share interest in MBI Common Stock).
Firstbank's obligation to effect the Merger is subject to the
fulfillment or waiver at or prior to the Effective Time of the following
additional conditions:
(i) The representations and warranties of MBI set forth in
Article III of the Merger Agreement shall be true and correct in all
respects as of January 30, 1998 and as of the Effective Time (as
though made on and as of the Effective Time except (A) to the extent
such representations and warranties are by their express provisions
made as of a specified date or period and (B) for the effect of
transactions contemplated by the Merger Agreement), except for such
failures to be true and correct as would not have and could not
reasonably be expected to have, in the aggregate, a material adverse
effect on the condition of MBI and its subsidiaries, taken as a
whole.
(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) Firstbank shall have received a certificate of the
Chairman or Vice Chairman of MBI as to the satisfaction of the
conditions set forth in clauses (i) and (ii).
MBI's obligation to effect the Merger is subject to the fulfillment
or waiver at or prior to the Effective Time of the following additional
conditions:
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(i) The representations and warranties of Firstbank set
forth in Article II of the Merger Agreement shall be true and correct
in all respects as of January 30, 1998 and as of the Effective Time
(as though made on and as of the Effective Time except (A) to the
extent such representations and warranties are by their express
provisions made as of a specified date or period and (B) for the
effect of transactions contemplated by the Merger Agreement), except
for such failures to be true and correct as would not have and could
not reasonably be expected to have, in the aggregate, a material
adverse effect on the condition of MBI and its subsidiaries, taken as
a whole.
(ii) Firstbank 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 of Firstbank and a certificate of the Chief
Financial Officer of Firstbank as to the satisfaction of the
conditions set forth in clauses (i) and (ii).
(iv) MBI shall have received as soon as practicable after
January 30, 1998 an opinion of KPMG Peat Marwick LLP, reasonably
satisfactory in form and substance to MBI, to the effect that the
Merger will qualify for pooling-of-interests accounting treatment,
which opinion shall not have been withdrawn.
(v) Firstbank shall have divested or shall have entered
into binding agreements to divest, in each case on a basis reasonably
acceptable to MBI and as required by applicable law or by any
Regulatory Authority, the Missouri bank subsidiaries of Firstbank.
TERMINATION OF THE MERGER AGREEMENT
The Merger Agreement may be terminated at any time prior to the
Effective Time, whether before or after Stockholder Approval: (i) by mutual
consent of the Executive Committee of the MBI Board (the "MBI Executive
Committee") and the Firstbank Board; (ii) by the MBI Executive Committee or the
Firstbank Board (A) at any time after January 27, 1999 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 in 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 Firstbank Stockholders shall not have approved the
Merger Agreement at the Annual Meeting following a favorable recommendation of
the Firstbank Board; (iii) by the MBI Executive Committee in the event of a
material breach by Firstbank of the Merger Agreement, which breach is not cured
within 30 days after written notice thereof to Firstbank by MBI; (iv) by the
Firstbank 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 Firstbank; or (v) by the MBI Executive Committee in the event
that costs, if any, of remedial or other corrective actions or measures with
regard to specified properties exceed $7,000,000.
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No assurance can be given that the Merger will be consummated, that
MBI and Firstbank will not mutually agree to terminate the Merger Agreement or
that either MBI or Firstbank will not elect to terminate the Merger Agreement if
the Merger has not been consummated on or before January 27, 1999.
REGULATORY APPROVAL
The obligations of the parties to effect the Merger are subject to
prior approval of the Federal Reserve Board 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, 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 30th 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.
MBI is also required to file a change in control application with the
Illinois Office of Banks and Real Estate.
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<PAGE> 58
MBI and Firstbank have filed (or will promptly file) all applications
and notices, and have taken (or will promptly take) other appropriate action
with respect to any requisite approvals or other action of any Regulatory
Authority. MBI and Firstbank 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."
In addition, upon consummation of the Merger, applicable Missouri law
requires MBI to divest itself of two bank subsidiaries of Firstbank. Such
divestitures must be completed within 90 days of the Effective Time. See " --
Management and Operations After the Merger; Operations after the Merger" and
"PRO FORMA FINANCIAL INFORMATION - Mercantile Bancorporation Inc. -- Pro Forma
Combined Consolidated Balance Sheet For the Year Ended December 31, 1997."
BUSINESS PENDING THE MERGER
From January 30, 1998 to the Effective Time, each of MBI and
Firstbank agreed, and agreed to cause each of their respective subsidiaries,
to conduct its business according to the ordinary and usual course consistent
with past practices and to use its best efforts to maintain and preserve its
business organization, employees and advantageous business relationships and
retain the services of its officers and key employees.
Pursuant to the Merger Agreement, Firstbank has agreed not to, and to
cause each of its subsidiaries not to, except as provided in the Merger
Agreement or with 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 Firstbank to
Firstbank or another subsidiary of Firstbank), except that Firstbank
may declare and pay cash dividends on the Firstbank Common Stock
equal to the product of (A) the Exchange Ratio and (B) the amount of
the dividends per share declared by the Board of Directors of MBI;
provided further, however, that Firstbank shall not declare or pay a
quarterly dividend for any quarter in which Firstbank Stockholders
will be entitled
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<PAGE> 59
to receive a 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 Firstbank's employee benefit
plans specified in the Merger Agreement or grant any salary or wage
increase or materially increase any employee benefit (including
incentive or bonus payments), except normal individual increases in
compensation to employees consistent with past practice, or as
required by law or contract;
(iii) authorize, recommend, propose or announce an
intention to authorize, recommend or propose, or enter into an
agreement in principle with respect to, any merger, consolidation or
business combination (other than the Merger), any acquisition of a
material amount of assets or securities, any disposition of a
material amount of assets or securities or any release or
relinquishment of any material contract rights;
(iv) propose or adopt any amendments to its certificate or
articles of incorporation, association or other charter document or
by-laws;
(v) issue, sell, grant, confer or award any of its Equity
Securities (as defined in the Merger Agreement) (except that
Firstbank may (A) issue shares of Firstbank Common Stock upon
exercise of Firstbank Stock Options outstanding on January 30, 1998,
and (B) issue shares of Firstbank Common Stock purchased by Firstbank
on the open market for such purpose, and only such shares, pursuant
to its dividend reinvestment plan) or effect any stock split or
adjust, combine, reclassify or otherwise change its capitalization as
it existed on January 30, 1998;
(vi) purchase, redeem, retire, repurchase, or exchange, or
otherwise acquire or dispose of, directly or indirectly, any of its
Equity Securities, whether pursuant to the terms of such Equity
Securities or otherwise;
(vii) without first consulting with MBI and MBI not
objecting to such action in writing, 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 in excess of $3,000,000, or in
an amount which, or when aggregated with any and all loans or credit
commitments to such person or entity, would be in excess of
$3,000,000, provided that Firstbank and its subsidiaries are not
prohibited from (A) honoring any contractual obligations in existence
as of January 30, 1998, and (B) increasing the aggregate amount of
any credit facilities established as of January 30, 1998, beyond
$3,000,000, provided that the aggregate amount of any and all such
increases shall not be in excess of the lesser of 5% of such credit
facility or $100,000;
(viii) directly or indirectly (including through its
officers, directors, employees or other representatives), initiate,
solicit or encourage any discussions, inquiries or
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<PAGE> 60
proposals with any third party relating to the disposition of any
significant portion of the business or assets of Firstbank or any
Firstbank subsidiary or the acquisition of Equity Securities of
Firstbank or any Firstbank subsidiary or the merger of Firstbank or
any Firstbank 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 Firstbank agreed to
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 Firstbank 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(a)
of the Code or (C) prevent the Merger from qualifying for
pooling-of-interests accounting treatment;
(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, pay without prior
approval of MBI, which will not be unreasonably withheld, any 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, without prior written consent of
MBI, which consent will not be unreasonably withheld or delayed,
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 (A) in securities backed
by the full faith and credit of the United States or an agency
thereof in excess of $10,000,000 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 Firstbank 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 January 30, 1998 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 Firstbank:
(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
49
<PAGE> 61
subsidiaries to MBI or to another of the MBI subsidiaries), except
that MBI may pay its regular quarterly dividends in amounts as it
will 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 Firstbank 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, (B) prevent the Merger from
qualifying as a reorganization within the meaning of Section 368(a)
of the Code or (C) unless MBI shall have waived the condition set
forth in Section 6.03 of the Merger Agreement, prevent the Merger
from qualifying for pooling-of-interests accounting treatment; 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 Firstbank Board at any time before or after
Stockholder Approval, by an instrument in writing signed on behalf of each
party; provided that after Stockholder Approval no such modification may alter
or change the amount or kind of consideration to be received by holders of
Firstbank Common Stock in the Merger.
ACCOUNTING TREATMENT
It is intended that the Merger will be accounted for as a
"pooling-of-interests" under generally accepted accounting principles.
Receipt of an opinion by KPMG Peat Marwick LLP, MBI's independent accountants,
to such effect is a condition to MBI's obligation to consummate the Merger. The
unaudited pro forma data included herein reflects the pooling-of-interests
method of accounting. See "SUMMARY INFORMATION -- Comparative Unaudited Per
Share Data" and " -- 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 by-laws of Merger Sub as in effect immediately
prior to the Merger, until otherwise amended or repealed after the Effective
Time.
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<PAGE> 62
Management. In connection with the proposed Merger, Mark H. Ferguson,
Chairman, President, and Chief Executive Officer of Firstbank, has entered into
an employment agreement with MBI pursuant to which he will continue to be
employed by MBI or its affiliates following the consummation of the Merger.
Pursuant to Mr. Ferguson's employment agreement, in addition to certain other
terms and conditions, Mr. Ferguson will serve as the Chairman, President, and
Chief Executive Officer of MBI's banking franchise in Illinois (except with
respect to Madison, St. Clair, Monroe, and Jo Davies counties) and will serve
additionally as a member of the Board of Directors of the banks comprising such
franchise. See " - Interests of Certain Persons in the Merger; Employment
Agreements."
Operations after the Merger. Following the Merger and subject to
necessary preparations for systems integration, MBI intends to combine the
operations and, subject to required regulatory approvals, to merge subsidiary
banks of MBI and Firstbank and to consolidate the operations of other
subsidiaries of MBI and Firstbank that provide similar services. Receipt of such
regulatory approvals is not a condition to the Merger.
In order to comply with the law of the State of Missouri relating to
the percentage of the State's deposits that may be held by a bank holding
company seeking to obtain control of a Missouri banking institution, Firstbank
is soliciting indications of interest in Colonial Bank and Duschesne Bank, both
of which are Missouri banking institutions owned by Firstbank. If the Merger is
consummated, both such banks must be sold within 90 days of the Effective Time.
See " -- Regulatory Approval" and "PRO FORMA FINANCIAL INFORMATION - Mercantile
Bancorporation Inc. - Pro Forma Combined Consolidated Balance Sheet For the
Year Ended December 31, 1997."
At or following the Effective Time, MBI may merge or otherwise
consolidate legal entities to the extent desirable for regulatory or other
reasons.
EMPLOYEE BENEFITS
MBI has not agreed to continue the employment of any Firstbank
employee other than Mr. Ferguson. With respect to employees who continue their
employment with MBI (except as mentioned in the preceding sentence), MBI has not
agreed to any minimum period of employment, and such employment will be solely
at the will of MBI on the same basis as other MBI employees without contractual
rights of employment. MBI has agreed, however, that Firstbank's pension,
retirement, savings, profit sharing, medical, vacation, severance and other
material employee benefit, incentive and welfare policies, contracts, plans and
arrangements ("Firstbank Plans") will not be terminated as a result of the
Merger but will continue after the Merger as plans of Merger Sub until such time
as employees of Firstbank and its subsidiaries are integrated into MBI's plans.
Mercantile has agreed to take such steps as are necessary for integration as
soon as practicable after the Effective Time, (i) with full credit for prior
service with Firstbank or its subsidiaries for all purposes other than
determining the amount of benefit accruals under any MBI defined benefit plan
(provided that in no event will benefits as of the Effective Time under any
Firstbank Plan be extinguished), (ii) without waiting periods, evidence of
insurability, or application of any pre-existing condition limitations, and
(iii) with full credit
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<PAGE> 63
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.
ABSENCE OF DISSENTERS' APPRAISAL RIGHTS
Firstbank Stockholders do not have appraisal rights under the
Delaware General Corporation Law or any other statute in connection with the
Merger. See " INFORMATION REGARDING MBI COMMON STOCK - Comparison of the Rights
of Shareholders of MBI and Stockholders of Firstbank; Dissenters' Rights."
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<PAGE> 64
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following discussion summarizes the material anticipated federal
income tax consequences of the Merger to Firstbank Stockholders. The discussion
does not address all aspects of federal taxation that may be relevant to
particular Firstbank Stockholders, and it may not be applicable to Firstbank
Stockholders who, for federal income tax purposes, are subject to special
treatment, such as nonresident alien individuals, foreign corporations, foreign
partnerships, foreign trusts or foreign estates, insurance companies, tax-exempt
organizations, financial institutions, dealers in securities, persons who
acquired their Firstbank Common Stock pursuant to the exercise of employee stock
options or otherwise as compensation, and persons who hold shares of Firstbank
Common Stock as part of a hedge, straddle or conversion transaction. 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 FIRSTBANK STOCKHOLDER SHOULD CONSULT SUCH STOCKHOLDER'S OWN TAX ADVISOR AS
TO THE PARTICULAR TAX CONSEQUENCES OF THE MERGER TO SUCH STOCKHOLDER.
This discussion is based on the Code and current regulations,
administrative rulings and court decisions, all of which are subject to change,
possibly with retroactive effect. Any such change could alter the tax
consequences to Firstbank Stockholders 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 by MBI and
Firstbank. This discussion assumes that Firstbank Stockholders hold their
Firstbank Common Stock as a capital asset within the meaning of Section 1221 of
the Code.
The obligations of each of MBI and Firstbank to effect the Merger are
conditioned upon receipt by MBI and Firstbank of an opinion of counsel
reasonably acceptable to the recipient, dated as of the Closing Date,
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 Code and (ii) no gain or loss will be recognized by the Firstbank
Stockholders who receive solely MBI Common Stock in exchange for shares of
Firstbank Common Stock (except with respect to cash received in lieu of a
fractional share interest in MBI Common Stock).
MBI and Firstbank, respectively, have received opinions of Wachtell,
Lipton, Rosen & Katz, special counsel to MBI, and Suelthaus & Walsh, P.C.,
special counsel to Firstbank, each dated as of the date of this Proxy
Statement/Prospectus, to the foregoing effect. Accordingly, the material federal
income tax consequences expected to result from the Merger, under currently
applicable law, are as follows:
(i) The Merger will constitute a reorganization within the
meaning of Section 368(a) of the Code.
(ii) No gain or loss will be recognized by Firstbank or
MBI as a result of the Merger.
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<PAGE> 65
(iii) Firstbank Stockholders who receive solely shares of
MBI Common Stock in exchange for their Firstbank Common Stock
pursuant to the Merger will recognize no gain or loss, except with
respect to cash received in lieu of fractional shares, if any, as
discussed below.
(iv) The aggregate adjusted tax basis of the shares of MBI
Common Stock received by each Firstbank stockholder in the Merger
(including any fractional share of MBI Common Stock deemed to be
received, as described below), will be equal to the aggregate
adjusted tax basis of the shares of Firstbank Common Stock
surrendered therefor.
(v) The holding period of the shares of MBI Common Stock
(including any fractional share of MBI Common Stock deemed to be
received, as described below) will include the holding period of the
shares of Firstbank Common Stock exchanged therefor.
(vi) A Firstbank Stockholder who receives cash in the
Merger in lieu of a fractional share of MBI Common Stock
should be treated as if the fractional share had been received in
the Merger and then redeemed by MBI in return for the cash. The
receipt of such cash should generally cause the recipient to
recognize capital gain or loss equal to the difference between the
amount of cash received and the portion of such holder's adjusted
tax basis allocable to the fractional share. Such capital gain or
loss will be long-term capital gain or loss if the holder's holding
period (determined as described in paragraph (v) above) is more than
one year. In the case of an individual holder, any such capital gain
will be subject to tax at a maximum rate of 28% if the holder's
holding period is more than one year but not more than 18 months and
at a maximum rate of 20% if the holder's holding period is more than
18 months.
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<PAGE> 66
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 Firstbank and the corresponding pro forma
and pro forma equivalent per share amounts giving effect to the proposed Merger
and the proposed acquisitions of CBT and Financial Services (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 Firstbank included in this Proxy Statement/Prospectus or in
documents prepared by the respective companies and provided 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
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/ MBI/ MBI/
FIRSTBANK FIRSTBANK ALL ENTITIES ALL ENTITIES
MBI FIRSTBANK PRO FORMA PRO FORMA PRO FORMA PRO FORMA
REPORTED REPORTED COMBINED(2) EQUIVALENT(3) COMBINED EQUIVALENT(3)
Book Value per Share:
<S> <C> <C> <C> <C> <C> <C>
December 31, 1997(1), (4) ................ $18.47 $14.77 $17.83 $14.81 $17.77 $14.76
Cash Dividends Declared per
Common Share:
Year ended December 31, 1997 ............. 1.148 0.72 1.148 .95 1.148 .95
Earnings per Share:
Year ended December 31, 1997 -- Basic .... 1.68 1.90 1.74 1.45 1.45 1.20
Year ended December 31, 1997 -- Diluted .. 1.65 1.86 1.70 1.41 1.42 1.18
Market Price per Common Share:
January 30, 1998(5) ...................... 50.50 38.00 50.50 41.96 50.50 41.96
______, 1998(5) ..........................
</TABLE>
- -------------------
(1) Includes the effect of pro forma adjustments for Firstbank as
appropriate.
(2) Includes the effect of pro forma adjustments for Firstbank, CBT and
Roosevelt as appropriate. Due to the immateriality of the financial
condition and results of operations of Horizon Bancorp Inc.
("Horizon"), HomeCorp Inc. ("HomeCorp") and Financial Services to
that of MBI, does not include the effect of pro forma adjustments
of Horizon, HomeCorp and Financial Services. The unaudited pro
forma comparative per share data combines the financial information
of MBI with the financial information of Firstbank, each as of and
for the fiscal years ended December 31, 1997, 1996 and 1995. See " -
Notes to Pro Forma Combined Consolidated Financial Statements
(Unaudited)."
(3) Based upon the pro forma combined per share amounts multiplied by
.8308, the Exchange Ratio applicable to one share of Firstbank Common
Stock.
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<PAGE> 67
(4) Based upon the following number of shares outstanding as of December
31, 1997:
<TABLE>
<S> <C>
Shares of MBI Common Stock, as reported................................. 130,508,090
Aggregate number of shares of MBI Common Stock to be issued in the
Merger, net of treasury shares..................................... 12,419,819
-----------
MBI/Firstbank Pro Forma Combined........................................ 142,927,909
Aggregate number of shares of MBI Common Stock to be issued in the
Merger with CBT, net of treasury shares............................ 4,864,429
-----------
MBI/All Entities Pro Forma Combined..................................... 147,792,338
===========
</TABLE>
(5) The market values of MBI Common Stock and Firstbank Common Stock were
determined as of the last trading day preceding the public
announcement of the Merger and as of the most recent practicable date
prior to the mailing of this Proxy Statement/Prospectus based on the
last sales price as reported on the NYSE Composite Tape or Nasdaq.
PRO FORMA COMBINED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
RECENT ACQUISITIONS. 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 that summarizes such completed and pending
acquisitions, including the name of the acquired entity, the date of
consummation of the acquisition, the assets and deposits of the acquired
entities at the date of consummation for the completed acquisitions, the assets
and deposits at December 31, 1997 for pending acquisitions; the consideration
paid in cash and/or shares of MBI Common Stock and the accounting method
utilized.
ACQUISITIONS COMPLETED BY MBI (1995-PRESENT)
<TABLE>
<CAPTION>
CONSIDERATION
-------------------------- ACCOUNTING
NAME DATE ASSETS DEPOSITS CASH GROSS SHARES METHOD
---- ------------- ---------- ---------- -------- ------------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
HomeCorp, Inc........................... Mar. 2, 1998 $ 335,137 $ 309,157 $ 14 854,760 Pooling(1)
Horizon Bancorp, Inc.................... Feb. 2, 1998 536,507 454,230 2 2,549,970 Pooling(1)
Roosevelt Financial Group, Inc.......... July 1, 1997 7,251,985 5,317,514 374,477 18,948,884 Purchase
Mark Twain Bancshares, Inc.............. Apr. 25, 1997 3,227,972 2,519,474 73 24,088,713 Pooling
Regional Bancshares, Inc................ Mar. 5, 1997 171,979 135,954 12,300 900,625 Purchase
TODAY'S Bancorp, Inc.................... Nov. 7, 1996 501,418 432,104 34,912 1,690,587 Purchase
First Financial Corporation of America.. Nov. 1, 1996 87,649 76,791 3,253 388,113 Purchase
Peoples State Bank...................... Aug. 22, 1996 95,657 75,149 -- 488,756 Purchase
Metro Savings Bank, F.S.B............... Mar. 7, 1996 80,857 73,843 5 296,853 Purchase
Security Bank of Conway, F.S.B.......... Feb. 9, 1996 102,502 89,697 1 482,946 Purchase
Hawkeye Bancorporation.................. Jan. 2, 1996 1,978,540 1,739,811 80 11,838,294 Pooling
First Sterling Bancorp, Inc............. Jan. 2, 1996 167,610 147,588 1 782,126 Pooling(1)
Southwest Bancshares, Inc............... Aug. 1, 1995 187,701 155,628 1 1,012,463 Pooling(1)
AmeriFirst Bancorporation, Inc.......... Aug. 1, 1995 155,521 130,179 1 992,034 Pooling(1)
Plains Spirit Financial Corporation..... July 7, 1995 400,754 276,887 6,697 1,951,770 Purchase
TCBankshares, Inc....................... May 1, 1995 1,422,798 1,217,740 -- 7,124,999(2) Pooling
Central Mortgage Bancshares, Inc........ May 1, 1995 654,584 571,105 8 3,806,585 Pooling
UNSL Financial Corp..................... Jan. 3, 1995 508,346 380,716 11 2,367,161 Pooling
Wedge Bank.............................. Jan. 3, 1995 195,716 152,865 1 1,454,931 Pooling(1)
</TABLE>
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PENDING ACQUISITIONS BY MBI
<TABLE>
<S> <C> <C> <C> <C> <C>
CBT Corporation........................ 3rd Qtr. 1998 1,078,475 746,520 5,399,763(3) Pooling
Firstbank of Illinois Co............... 3rd Qtr. 1998 2,281,818 1,982,046 13,799,799(3) Pooling
Financial Services Corporation of the
Midwest............................. 3rd Qtr. 1998 518,046 408,995 2,077,000(3) Pooling
</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 number of shares to be issued in acquisition.
The following unaudited pro forma combined consolidated balance sheet
gives effect to the proposed Merger as if it were consummated on December 31,
1997.
The unaudited pro forma combined consolidated financial statements
should be read in conjunction with the accompanying Notes to the Pro Forma
Combined Consolidated Financial Statements (Unaudited). These pro forma combined
consolidated financial statements may not be indicative of the results of
operations that actually would have occurred if the proposed acquisitions had
been consummated on the dates assumed above or of the results of operations that
may be achieved in the future.
57
<PAGE> 69
MERCANTILE BANCORPORATION INC.
PRO FORMA COMBINED CONSOLIDATED BALANCE SHEET
FOR THE YEAR ENDED DECEMBER 31, 1997
(THOUSANDS)
<TABLE>
<CAPTION>
COLONIAL MBI
BANK AND FIRSTBANK
DUCHESNE PRO FORMA COMBINED
FIRSTBANK BANK CONSOLIDATED
MBI (1) FIRSTBANK ADJUSTMENTS DIVESTITURES(6)
----------- ---------- ------------- ------------ ------------------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and due from banks $ 1,171,727 $ 104,339 $ (69,689)(2) $ 12,366 $ 1,185,293
(33,450)(5)
Due from banks - interest bearing 240,578 3,545 -- (198) 243,925
Federal funds sold and repurchase
agreements 292,384 0 -- (4,200) 288,184
Investments in debt and equity
securities
Trading 70,486 0 -- 0 70,486
Available-for-sale 7,225,638 628,322 -- (74,035) 7,779,925
Held-to-maturity 249,434 26,824 -- (4,908) 271,350
----------- ---------- ------------- ----------- -----------
Total $ 7,545,558 $ 655,146 $ 0 $ (78,943) $ 8,121,761
Loans and leases 19,199,917 1,427,304 -- (213,816) 20,413,405
Reserve for possible loan losses (254,983) (19,939) (5,000)(5) 3,145 (276,777)
----------- ---------- ------------- ----------- -----------
Net Loans and Leases $18,944,934 $1,407,365 $ (5,000) $ (210,671) $20,136,628
Intangible assets 807,666 24,768 0 832,434
Other assets 952,564 86,655 232,573 (3) (8,994) 1,030,225
(232,573)(4)
----------- ---------- ------------- ----------- -----------
Total Assets $29,955,411 $2,281,818 $ (108,139) ($290,640) $31,838,450
=========== ========== ============= =========== ===========
LIABILITIES
Deposits
Non-interest bearing $ 3,586,011 $ 300,166 -- $ (60,879) $ 3,825,298
Interest bearing 17,908,477 1,681,880 -- (227,901) 19,362,456
Foreign 585,439 0 -- 0 585,439
----------- ---------- ------------- ----------- -----------
Total Deposits $22,079,927 $1,982,046 $ 0 $ (288,780) $23,773,193
=========== ========== ============= =========== ===========
Short-term borrowings 3,465,822 47,266 -- (223) 3,512,865
Bank notes 175,000 0 -- 0 175,000
Long-term debt 1,319,153 2 -- 0 1,319,155
Company-obligated mandatorily
redeemable preferred securities
of Mercantile Capital Trust I 150,000 0 -- 0 150,000
Other liabilities 355,340 19,931 (13,842)(5) (1,637) 359,792
----------- ---------- ------------- ----------- -----------
Total Liabilities $27,545,242 $2,049,245 $ (13,842) $ (290,640) $29,290,005
=========== ========== ============= =========== ===========
</TABLE>
<TABLE>
<CAPTION>
ALL ENTITIES
PRO FORMA
CBT COMBINED
CBT ADJUSTMENTS CONSOLIDATED
---------- ------------- ------------
<S> <C> <C> <C>
ASSETS
Cash and due from banks $ 52,870 $ (28,240)(7) $ 1,193,473
(16,450)(5)
Due from banks - interest bearing 0 243,925
Federal funds sold and repurchase
Agreements 0 288,184
Investments in debt and equity
securities
Trading 0 -- 70,486
Available-for-sale 203,923 -- 7,983,848
Held-to-maturity 60,146 -- 331,496
---------- ------------- ------------
Total 264,069 0 8,385,830
Loans and leases 731,194 21,144,599
Reserve for possible loan losses (9,243) (5,100)(5) (291,120)
---------- ------------- ------------
Net Loans and Leases 721,951 (5,100) 20,853,479
Intangible assets 5,802 838,236
Other assets 33,783 120,080 (8) 1,064,008
(120,080)(9)
---------- ------------- ------------
Total Assets $1,078,475 ($ 49,790) $32,867,135
========== ============= ============
LIABILITIES
Deposits
Non-interest bearing $ 79,540 -- $ 3,904,838
Interest bearing 666,980 -- 20,029,436
Foreign 0 -- 585,439
---------- ------------- ------------
Total Deposits $ 746,520 $ 0 $ 24,519,713
========== ============= ============
Short-term borrowings 147,507 -- 3,660,372
Bank notes 0 -- 175,000
Long-term debt 48,990 -- 1,368,145
Company-obligated mandatorily
redeemable preferred securities
of Mercantile Capital Trust I 0 150,000
Other liabilities 15,378 (7,758)(5) 367,412
---------- ------------- ------------
Total Liabilities $ 958,395 $ (7,758) $ 30,240,642
========== ============= ============
</TABLE>
58
<PAGE> 70
MERCANTILE BANCORPORATION INC.
PRO FORMA COMBINED CONSOLIDATED BALANCE SHEET -- CONTINUED
FOR THE YEAR ENDED DECEMBER 31, 1997
(THOUSANDS)
<TABLE>
<CAPTION>
COLONIAL MBI
BANK AND FIRSTBANK
DUCHESNE PRO FORMA
FIRSTBANK BANK COMBINED
MBI(1) FIRSTBANK ADJUSTMENTS DIVESTITURES(6) CONSOLIDATED CBT
----------- ---------- ----------- --------------- ------------- ----------
SHAREHOLDERS' EQUITY
<S> <C> <C> <C> <C> <C> <C>
Common stock $ 1,307 $ 15,794 $ 124 (3) -- $ 1,431 $ 4,100
(15,794)(4) -- --
Capital surplus 940,197 41,980 (13,127)(3) -- 927,070 16,043
(41,980)(4) -- -- --
Retained earnings 1,474, 175,887 175,887 (3) -- 1,625,949 99,937
(175,887)(4)
5 (24,608)(5)
5670
Treasury stock (6,005) (1,088) (69,689)(2) -- 0
69,689 (3) --
1,088 (4) -- (6,005)
----------- ---------- --------- --------- ------------- ----------
Total Shareholders' $ 2,410,169 $ 232,573 ($ 94,297) 0 $ 2,548,445 $ 120,080
Equity
=========== ========== ========= ========= ============= ==========
Total Liabilities and
Shareholder's Equity $29,955,411 $2,281,818 ($108,139) ($290,640) $ 31,838,450 $1,078,475
=========== ========== ========= ========= ============= ==========
</TABLE>
<TABLE>
<CAPTION>
ALL ENTITIES
PRO FORMA
CBT COMBINED
ADJUSTMENTS CONSOLIDATED
----------- ------------
SHAREHOLDERS' EQUITY
<S> <C> <C>
Common stock $ 49 (8) $ 1,480
(4,100)(9)
Capital surplus (8,146)(8) 918,924
(16,043)(9)
Retained earnings 99,937 (8) 1,712,094
(99,937)(9)
(13,792)(5)
Treasury stock (28,240)(7) (6,005)
28,240 (8)
-------- -----------
Total Shareholders' $(42,032) $ 2,626,493
Equity
======== ===========
Total Liabilities and
Shareholder's Equity ($49,790) $32,867,135
======== ===========
</TABLE>
See Notes to Pro Forma Combined Consolidated Financial Statements.
59
<PAGE> 71
MERCANTILE BANCORPORATION INC.
PRO FORMA COMBINED CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1997
(THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
MBI,
FIRSTBANK ROOSEVELT
PRO FORMA FOR THE SIX
FIRSTBANK COMBINED MONTHS ENDED
MBI(1) FIRSTBANK ADJUSTMENTS CONSOLIDATED JUNE 30, 1997
---------- --------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Interest Income $1,878,194 $ 157,373 $($3,484)(10) $2,032,083 $ 272,169
Interest Expense 957,690 71,472 -- 1,029,162 178,306
---------- --------- ----------- ------------ -------------
Net Interest Income 920,504 85,901 (3,484) 1,002,921 93,863
Provision for Possible Loan Losses 79,309 2,958 -- 82,267 3,474
---------- --------- ----------- ------------ -------------
Net Interest Income after Provision
for Possible Loan Losses $ 841,195 $ 82,943 $ (3,484) $ 920,654 $ 90,389
Other Income
Trust $ 96,055 $ 5,010 -- $ 101,065 $ 0
Service charges 98,733 7,441 -- 106,174 13,018
Credit card fees 20,480 0 -- 20,480 0
Net loss from financial instruments 0 0 -- 0 (35,630)
Securities gains (losses) 6,985 636 -- 7,621 0
Other 156,431 11,531 -- 167,962 10,038
---------- --------- ----------- ------------ -------------
Total Other Income $ 378,684 $ 24,618 $ 0 $ 403,302 $ (12,574)
Other Expense
Salaries and employee benefits 414,882 35,009 -- 449,891 23,717
Net occupancy and equipment 118,758 10,082 -- 128,840 9,291
Loss on the sale of credit card 50,000 0 -- 50,000 0
loans
Other 311,140 16,030 -- 327,170 36,555
---------- --------- ----------- ------------ -------------
Total Other Expense $ 894,780 $ 61,121 $ 0 $ 955,901 $ 69,563
---------- --------- ----------- ------------ -------------
Income Before Income Taxes 325,099 46,440 (3,484) 368,055 8,252
Income Taxes 120,506 16,796 (1,254)(11) 136,048 7,630
---------- --------- ----------- ------------ -------------
Net Income $ 204,593 $ 29,644 ($2,230) $ 232,007 $ 622
========== ========= =========== ============ =============
Per Share Data(21)
Basic Earnings per Share $ 1.68 $ 1.74
Diluted Earnings per Share 1.65 1.70
</TABLE>
<TABLE>
<CAPTION>
MBI,
ALL ENTITIES
ROOSEVELT/ PRO FORMA
CBT ADJUST- COMBINED
CBT MENTS(14) CONSOLIDATED
---------- ---------- ------------
<S> <C> <C> <C>
Interest Income $ 83,984 $ (1,412)(12) $2,386,824
Interest Expense 40,616 858(15) 1,264,664
15,722(16)
---------- ---------- ----------
Net Interest Income 43,368 (17,992) 1,122,160
Provision for Possible Loan Losses 4,088 -- 89,829
---------- ---------- ----------
Net Interest Income after Provision
for Possible Loan Losses $ 39,280 $ (17,992) $1,032,331
Other Income
Trust $ 2,247 -- $ 103,312
Service charges 3,338 -- 122,530
Credit card fees 0 -- 20,480
Net loss from financial instruments 0 -- (35,630)
Securities gains (losses) 22 -- 7,643
Other 4,214 -- 182,214
---------- ---------- ----------
Total Other Income $ 9,821 -- $ 400,549
Other Expense
Salaries and employee benefits 16,434 -- 490,042
Net occupancy and equipment 3,841 -- 141,972
Loss on the sale of credit card 0 -- 50,000
loans
Other 10,779 20,269(17) 394,773
---------- ---------- ----------
Total Other Expense $ 31,054 $ 20,269 $1,076,787
---------- ---------- ----------
Income Before Income Taxes 18,047 (38,261) 356,093
Income Taxes 5,201 (508)(13) 142,402
(5,969)(18)
---------- ---------- ----------
Net Income $ 12,846 ($31,784) $ 213,691
========== ========== ==========
Per Share Data(21)
Basic Earnings per Share $ 1.45
Diluted Earnings per Share 1.42
</TABLE>
See Notes to Pro Forma Combined Consolidated Financial Statements
60
<PAGE> 72
MERCANTILE BANCORPORATION INC.
PRO FORMA COMBINED CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1996
(THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
MBI,
FIRSTBANK
PRO FORMA
FIRSTBANK COMBINED
MBI (1) FIRSTBANK ADJUSTMENTS CONSOLIDATED
---------- --------- ------------- ------------
<S> <C> <C> <C> <C>
Interest Income $1,552,863 $ 140,611 $($3,484)(10) $1,689,990
Interest Expense 724,910 61,005 -- 785,915
---------- --------- -------- ------------
Net Interest Income 827,953 79,606 (3,484) 904,075
Provision for Possible Loan Losses 73,015 2,868 -- 75,883
---------- --------- -------- ------------
Net Interest Income after Provision
for Possible Loan Losses $ 754,938 $ 76,738 $ (3,484) $ 828,192
Other Income
Trust $ 86,616 $ 4,292 -- 90,908
Service charges 88,916 6,142 -- 95,058
Credit card fees 27,962 0 -- 27,962
Securities gains (losses) (83) 340 -- 257
Other 134,069 11,024 -- 145,093
---------- --------- -------- ------------
Total Other Income $ 337,480 $ 21,798 $ 0 $ 359,278
Other Expense
Salaries and employee benefits 365,729 31,919 -- 397,648
Net occupancy and equipment 103,715 9,259 -- 112,974
Other 249,224 13,959 -- 263,183
---------- --------- -------- ------------
Total Other Expense $ 718,668 $ 55,137 $ 0 $ 773,805
---------- --------- -------- ------------
Income Before Income Taxes 373,750 43,399 (3,484) 413,665
Income Taxes 128,535 15,526 (1,254)(11) 142,807
---------- --------- -------- ------------
Net Income $ 245,215 $ 27,873 ($2,230) $ 270,858
========== ========= ======== ============
Per Share Data
Basic Earnings per Share $ 2.11 $ 2.12
Diluted Earnings per Share 2.08 2.09
</TABLE>
<TABLE>
<CAPTION>
ALL ENTITIES
PRO FORMA
CBT COMBINED
CBT ADJUSTMENTS(14) CONSOLIDATED
------- ------------- ------------
<S> <C> <C> <C>
Interest Income $77,646 $ ($1,412)(12) $1,766,224
Interest Expense 36,242 -- 822,157
------- ----------- ------------
Net Interest Income 41,404 (1,412) 944,067
Provision for Possible Loan Losses 2,883 -- 78,766
------- ----------- ------------
Net Interest Income after Provision
for Possible Loan Losses $38,521 $ (1,412) $ 865,301
Other Income
Trust $ 2,111 -- $ 93,019
Service charges 3,341 -- 98,399
Credit card fees 0 -- 27,962
Securities gains (losses) 35 -- 292
Other 3,245 -- 148,338
------- ----------- ------------
Total Other Income $ 8,732 $ 0 $ 368,010
Other Expense
Salaries and employee benefits 15,592 -- 413,240
Net occupancy and equipment 3,584 -- 116,558
Other 11,806 -- 274,989
------- ----------- ------------
Total Other Expense $30,982 $ 0 $ 804,787
------- ----------- ------------
Income Before Income Taxes 16,271 (1,412) 428,524
Income Taxes 4,646 (508)(13) 146,945
------- ----------- ------------
Net Income $11,625 ($904) $ 281,579
======= =========== ============
Per Share Data
Basic Earnings per Share $ 2.13
Diluted Earnings per Share 2.10
</TABLE>
See Notes to Pro Forma Combined Consolidated Financial Statements
61
<PAGE> 73
MERCANTILE BANCORPORATION INC.
PRO FORMA COMBINED CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1995
(THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
MBI,
FIRSTBANK
PRO FORMA
FIRSTBANK COMBINED
MBI (1) FIRSTBANK ADJUSTMENTS CONSOLIDATED
------------- ------------- ------------------ ----------------
<S> <C> <C> <C> <C>
Interest Income $1,516,156 $ 134,401 $ ($3,484)(10) $ 1,647,073
Interest Expense 715,466 57,486 -- 772,952
------------- ------------- ------------- ----------------
Net Interest Income 800,690 76,915 (3,484) 874,121
Provision for Possible Loan Losses 41,533 2,313 -- 43,846
------------- ------------- ------------- ----------------
Net Interest Income after Provision
for Possible Loan Losses $ 759,157 $ 74,602 $ (3,484) $ 830,275
Other Income
Trust $ 77,115 $ 5,986 -- $ 83,101
Service charges 82,459 5,836 -- 88,295
Credit card fees 20,366 0 -- 20,366
Securities gains (losses) 4,338 28 -- 4,366
Other 127,371 8,318 -- 135,689
------------- ------------- ------------- ----------------
Total Other Income $ 311,649 $ 20,168 $ 0 $ 331,817
Other Expense
Salaries and employee benefits 346,156 30,882 -- 377,038
Net occupancy and equipment 95,896 9,215 -- 105,111
Other 198,467 14,824 -- 213,291
------------- ------------- ------------- ----------------
Total Other Expense $ 640,519 $ 54,921 $ 0 $ 695,440
------------- ------------- ------------- ----------------
Income Before Income Taxes 430,287 39,849 (3,484) 466,652
Income Taxes 149,898 14,107 (1,254)(11) 162,751
------------- ------------- ------------- ----------------
Net Income $ 280,389 $ 25,742 ($2,230) $ 303,901
============= ============= ============= ================
Per Share Data(21)
Basic Earnings per Share $ 2.41 $ 2.38
Diluted Earnings per Share 2.37 2.34
</TABLE>
<TABLE>
<CAPTION>
ALL ENTITIES
PRO FORMA
CBT COMBINED
CBT ADJUSTMENTS CONSOLIDATED
------------- ------------- ---------------
<S> <C> <C> <C>
Interest Income $ 75,762 $ ($1,412)(12) $1,721,423
Interest Expense 35,588 -- 808,540
------------- ------------- ---------------
Net Interest Income 40,174 (1,412) 912,883
Provision for Possible Loan Losses 1,106 -- 44,952
------------- ------------- ---------------
Net Interest Income after Provision
for Possible Loan Losses $ 39,068 $ (1,412) $ 867,931
Other Income
Trust $ 1,469 -- $ 84,570
Service charges 3,656 -- 91,951
Credit card fees 0 -- 20,366
Securities gains (losses) 268 -- 4,634
Other 2,779 -- 138,468
------------- ------------- ---------------
Total Other Income $ 8,172 $ 0 $ 339,989
Other Expense
Salaries and employee benefits 15,798 -- 392,836
Net occupancy and equipment 3,045 -- 108,156
Other 11,632 -- 224,923
------------- ------------- ---------------
Total Other Expense $ 30,475 $ 0 $ 725,915
------------- ------------- ---------------
Income Before Income Taxes 16,765 (1,412) 482,005
Income Taxes 4,741 (508)(13) 166,984
------------- ------------- ---------------
Net Income $ 12,024 ($904) $ 315,021
============= ============= ===============
Per Share Data(21)
Basic Earnings per Share $ 2.38
Diluted Earnings per Share 2.34
</TABLE>
See Notes to Pro Forma Combined Consolidated Financial Statements
62
<PAGE> 74
MERCANTILE BANCORPORATION INC.
NOTES TO PRO FORMA COMBINED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) Represents MBI restated historical consolidated financial statements
reflecting the acquisition of Mark Twain Bancshares Inc. effective
April 25, 1997, which was accounted for as a pooling-of-interests. The
recently completed acquisitions of Horizon and HomeCorp were
also accounted for as poolings-of-interests; however, due to
the immateriality of the financial condition and results of operations
of Horizon, HomeCorp and Financial Services to that of MBI, the
historical financial statements were not restated. Regional Bancshares,
Inc. was accounted for as a purchase and 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.
MBI completed its acquisition of Roosevelt on July 1, 1997. The
acquisition of Roosevelt was accounted for as a purchase; as such,
historical financial statements were not restated. The estimated full
impact of the Roosevelt acquisition is included in the pro forma
combined consolidated income statement for the year ended
December 31, 1997.
All per share data reflects the 3-for-2 stock split declared by MBI on
July 16, 1997 that was distributed on October 1, 1997.
(2) In conjunction with the proposed acquisition of Firstbank, MBI plans to
repurchase up to 1,379,980 shares of MBI Common Stock in the open
market. The assumed repurchase price per share is $50.50, the closing
price of MBI Common Stock on January 30, 1998, the last trading date
preceding the announcement of the merger agreement between MBI and
Firstbank.
(3) Acquisition of Firstbank with 13,799,799 shares of issued MBI Common
Stock, including up to 1,379,980 reissued treasury shares, based on the
exchange ratio of 0.8308 of a share of MBI Common Stock per share of
Firstbank 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 Firstbank Common Stock 15,747,819
Maximum number of shares of Firstbank
Common Stock which could be issued
pursuant to Firstbank's stock option plans 862,435
Maximum number of shares of Firstbank
Common Stock to be canceled in the
----------
Merger 16,610,254
Exchange Ratio x 0.8308
----------
Aggregate number of shares of MBI
Common Stock to be issued in the merger 13,799,799
==========
</TABLE>
(4) Elimination of MBI's investment in Firstbank.
(5) Balance sheet impact of adjustments related to the mergers with
Firstbank and CBT (see footnote 19 below). These adjustments will be
initially recorded as a credit to accrued liabilities and the reserve
for possible loan losses. Because the credit to accrued liabilities
will be paid out in cash within an estimated 18-month period following
the mergers, 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 these adjustments.
(6) Estimated impact of sales of Firstbank subsidiaries, Colonial Bank and
Duchesne Bank, mandated by certain restrictions on deposit
concentration. See "THE MERGER - Regulatory Approval" and "--
Management and Operations After the Merger; Operations after the
Merger". MBI currently is in the process of evaluating such sales, and
expects to record a gain in connection with the sales. The pro forma
combined consolidated balance sheet does not reflect gain because the
amount of gain is not known at this time.
63
<PAGE> 75
(7) In conjunction with the proposed acquisition of CBT, MBI plans to
repurchase up to 535,334 shares of MBI Common Stock in the open market.
The assumed repurchase price per share is $52.75, the closing price of
MBI Common Stock on January 9, 1998, the last trading date preceding
the announcement of the merger agreement between MBI and CBT.
(8) Acquisition of CBT with 5,400,000 shares of issued MBI Common Stock,
including up to 535,334 reissued treasury shares, based on the exchange
ratio of 0.6513 of a share of MBI Common Stock per share of CBT 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 CBT Common Stock 7,862,627
Maximum number of shares of CBT
Common Stock which could be issued
pursuant to CBT's stock option plans 428,118
----------
Maximum number of shares of CBT
Common Stock to be canceled in the
Merger 8,290,745
Exchange Ratio x 0.6513
----------
Aggregate number of shares of MBI
Common Stock to be issued in the merger 5,399,763
==========
</TABLE>
(9) Elimination of MBI's investment in CBT.
(10) Interest income foregone as a result of MBI repurchasing 1,379,980
treasury shares in conjunction with the acquisition of Firstbank by
MBI. The assumed interest rate is 5%.
(11) Income tax benefit associated with interest income foregone as the
result of repurchasing shares in conjunction with the acquisition of
Firstbank by MBI. The assumed effective tax rate is 36%.
(12) Interest income foregone as a result of MBI repurchasing 535,334
treasury shares in conjunction with the acquisition of CBT by MBI. The
assumed interest rate is 5%.
(13) Income tax benefit associated with interest income foregone as the
result of repurchasing shares in conjunction with the acquisition of
CBT by MBI. The assumed effective tax rate is 36%.
(14) The acquisition of Roosevelt was accounted for as a purchase
transaction. Included herein is the amortization of goodwill over a
15-year period (see footnote 17 below) and interest expense related to
the issuance of subordinated debt securities and notes as described in
footnotes 15 and 16 below. The impact of interest income lost on the
cash consideration and stock buybacks is immaterial to the Pro Forma
Combined Consolidated Financial Statements. The income tax benefit
associated with taxable income statement adjustments is computed at an
effective tax rate of 36%.
(15) On January 29, 1997, MBI issued $150,000,000 of subordinated debt
securities, that were issued at a floating rate equal to the
three-month LIBOR plus 85 basis points. The rate assumed in calculating
the expense from January 1 through January 29, 1997 for the Pro Forma
Combined Consolidated Financial Statements is 6.86%.
(16) On June 11, 1997, MBI issued $200,000,000 of 7.3% subordinated notes
due 2007, $150,000,000 of 6.8% senior notes due 2001 and $150,000,000
of 7.05% senior notes due 2004. This is the pro forma impact of
interest expense on such notes.
(17) The pro forma excess of cost over fair value of net assets acquired was
$608,076,000 for Roosevelt as of December 31, 1997. This is one-half
the annual amount of goodwill amortization, given a 15-year
amortization period.
(18) Income tax benefit associated with interest expense on debt issues (see
footnotes 15 and 16 above). The assumed effective tax rate is 36%.
64
<PAGE> 76
(19) Upon consummation of the acquisition of Firstbank, MBI expects to
record certain adjustments related to the merger with an approximate
pre-tax total between $25,000,000 and $40,000,000. Upon consummation of
the merger with CBT, MBI expects to record certain adjustments related
to the merger with an approximate pre-tax total between $15,000,000 and
$25,000,000. The pre-tax adjustments for Firstbank and CBT are
estimated as follows:
<TABLE>
<CAPTION>
(in thousands)
Firstbank CBT
--------- ---
<S> <C> <C>
Contract penalties, equipment abandonment $ 14,250 $9,700
costs and transition and duplicative costs
related to system standardization and
signage
Provision for possible loan losses 5,000 5,100
Accruals for severance and change of 10,600 3,500
control payments
Investment banking, legal and accounting 8,600 3,250
fees -------- -------
Total $38,450 $21,550
======= =======
</TABLE>
(20) Basic earnings per share was based upon the average shares listed
below:
<TABLE>
<CAPTION>
For the Year Ended December 31
----------------------------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
MBI average shares as reported 121,933,113 115,938,311 115,754,877
Firstbank average shares 15,599,571 15,478,554 15,502,544
Exchange Ratio 0.8308 0.8308 0.8308
------------ ------------ ------------
MBI equivalent average shares 12,960,124 12,859,583 12,879,514
Less treasury share repurchases in
conjunction with Firstbank acquisition (1,379,980) (1,379,980) (1,379,980)
Shares of MBI Common Stock issued in
the Roosevelt acquisition 18,948,884
Less effect of shares of MBI shares
issued in the Roosevelt acquisition
in the second half of 1997 (9,474,442)
CBT average shares 7,862,848 7,873,182 7,928,155
Exchange Ratio 0.6513 0.6513 0.6513
------------ ------------ ------------
MBI equivalent average shares 5,121,073 5,127,803 5,163,607
Less treasury share repurchases in
conjunction with CBT acquisition (535,358) (535,358) (535,358)
Average shares outstanding for basic
earnings per share 147,573,414 132,010,359 131,882,660
============ ============ ============
</TABLE>
Diluted earnings per share was based upon the average shares below:
<TABLE>
<CAPTION>
For the Year Ended December 31
---------------------------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
MBI diluted shares as reported (a) 124,338,414 117,789,773 118,059,213
MBI equivalent average shares for
</TABLE>
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<TABLE>
<S> <C> <C> <C>
Firstbank acquisition 12,960,124 12,859,583 12,879,514
Less treasury share repurchases in
conjunction with Firstbank acquisition (1,379,980) (1,379,980) (1,379,980)
MBI equivalent average shares for
Firstbank dilutive stock options 246,677 185,452 178,084
Shares of MBI Common Stock issued in
the Roosevelt acquisition 18,948,884
Less effect of MBI shares issued in
the Roosevelt acquisition in the
second half of 1997 (9,474,442)
MBI equivalent average shares for CBT
acquisition 5,121,073 5,127,803 5,163,607
Less treasury share repurchases in
conjunction with CBT acquisition (535,358) (535,358) (535,358)
MBI equivalent average shares for
CBT dilutive stock options 40,918 33,418 34,236
------------ ------------ ------------
Average shares outstanding for diluted
earnings per share 150,266,310 134,080,691 134,399,316
============ ============ ============
</TABLE>
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DESCRIPTION OF FIRSTBANK
Firstbank is a corporation organized under the laws of Delaware. With
its principal offices in Springfield, Illinois, Firstbank owns all of the
outstanding capital stock of eight banking institutions which offer depository,
investment, loan and trust services at 42 offices throughout central,
southwestern and southern Illinois and five banking offices in Missouri.
Illinois Banks. Central Bank, headquartered in Fairview Heights,
operates 22 banking locations in the St. Louis Metro East market and southern
Illinois; Central National Bank of Mattoon operates 4 banking offices in east
central Illinois; Elliott State Bank operates 4 banking offices in the central
Illinois community of Jacksonville; Farmers and Merchants Bank of Carlinville
operates a single location in this central Illinois community; First National
Bank of Central Illinois operates 7 banking offices in Springfield and 2 in
Bloomington/Normal; and First Trust & Savings Bank operates 2 banking offices in
the central Illinois community of Taylorville.
Missouri Banks. Colonial Bank, headquartered in Des Peres, operates 2
banking offices in that St. Louis metropolitan community and one office in
nearby Wildwood; Duchesne Bank headquartered in the St. Louis metropolitan
community of St. Peters, operates one banking office in St. Peters and one in
nearby St. Charles.
Firstbank also operates FFG Investments Inc., a registered securities
broker/dealer. Originally involved in full-service brokerage activities, this
subsidiary primarily provided discount brokerage and trade execution services
from its Springfield office during 1997.
In July, 1994, Firstbank organized a state-chartered trust company
called FFG Trust, Inc. Headquartered in Springfield, Illinois, FFG Trust handles
company-wide corporate trust business and agricultural services. The trust
company also provides operational support to the affiliate banks for their
personal trust activities.
On January 2, 1997, Firstbank purchased certain assets of Zemenick &
Walker, Inc., a registered investment advisory firm headquartered in St. Louis,
Missouri. During 1997 a Springfield, Illinois office was opened to allow
Firstbank customers easier access to its unique non-discretionary investment
advisory services.
Firstbank is registered with and subject to regulation by the Federal
Reserve Board. Each of Firstbank's non-bank subsidiaries is also subject to
regulation by the Federal Reserve Board. The subsidiary state-chartered banks
are subject to regulation and supervision by the banking regulators in the
states in which the banking units are chartered. The subsidiary national banks
are subject to regulation and supervision by the Office of the Comptroller of
the Currency. All subsidiary banks are subject to regulation by and are insured
by the Federal Deposit Insurance Corporation.
The principal executive offices of Firstbank are located at 205 South
Fifth Street, Springfield, Illinois 62701, telephone (217) 753-7543. Firstbank
maintains a web page at http://www.fbic.com. for further information concerning
Firstbank, see "summary information-business of Firstbank," "The Merger," "Pro
Forma Financial
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INFORMATION" AND "INCORPORATION OF CERTAIN INFORMATION BY REFERENCE."
INFORMATION REGARDING MBI STOCK
DESCRIPTION OF MBI COMMON STOCK AND ATTACHED PREFERRED SHARE PURCHASE RIGHTS
General. MBI has 400,000,000 authorized shares of MBI Common Stock and
5,000,000 authorized shares of preferred stock, no par value ("MBI Preferred
Stock"). At ______, 1998, MBI had _______ 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 2,000,000 shares of Series A Junior Participating Preferred Stock
pursuant to MBI's 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.
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<PAGE> 80
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 (i) on the tenth 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
(ii) upon commencement or announcement, or notice to MBI, of intent to make a
tender offer for 20% or more of the outstanding shares of MBI Common Stock, in
either case, without prior written consent of a majority of the 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. The MBI Board intends to take all action necessary to replace the
Rights with rights to purchase substantially similar Participating
Preferred Stock under a rights plan to take effect upon such expiration.
Classification of the MBI Board. 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. MBI's Restated Articles of Incorporation and By-Laws
also contain provisions which: (i) require the affirmative vote of holders of at
least 75% of the voting power
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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. MBI's Restated Articles of
Incorporation also require 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 the communities and
geographic areas served by MBI and its subsidiaries and on any of their
businesses and properties, as well as 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 COMMON STOCK BY AFFILIATES; AFFILIATE AGREEMENTS
The issuance of shares of MBI Common Stock to Firstbank Stockholders
upon consummation of the Merger has been registered under the Securities Act.
Such securities may be traded freely without restriction by those stockholders
who are not deemed to be "affiliates" (as that term is defined in the rules
promulgated under the Securities Act) of Firstbank or MBI.
Under Rule 145 of the Securities Act, all of the executive officers and
directors of Firstbank, including the Supporting Stockholders, by virtue of
being affiliates of Firstbank, as well as any person who becomes an affiliate of
MBI following the Merger, will be limited in their ability to resell the MBI
Common Stock received in the Merger, and will be able to resell such stock only
as permitted by Rule 145 under the Securities Act or as otherwise permitted
thereunder.
Commission guidelines regarding qualifying for the
"pooling-of-interests" method of accounting also limit sales of shares of MBI
Common Stock by affiliates. Commission guidelines indicate that the
pooling-of-interests method of accounting generally will not be challenged on
the basis of sales by affiliates if such affiliates do not dispose of any of the
shares of the corporation that they own or shares of a corporation that they
receive in connection with a merger during the period beginning 30 days before
consummation of the merger and ending when financial results covering at least
30 days of post-merger operations of the combined companies have been published.
Firstbank has agreed in the Merger Agreement to use all reasonable
efforts to cause each person who is an affiliate of Firstbank (for purposes of
both Rule 145 under the Securities Act and for purposes of qualifying the Merger
for pooling-of-interests accounting treatment) to deliver to MBI a written
agreement intended to ensure compliance with the Securities Act and to preserve
the ability of the Merger to be accounted for as a pooling-of-interests. MBI has
agreed in the Merger Agreement to use all reasonable efforts to publish, as
promptly as practicable but in no event later than 90 days after the end of the
first month after the Effective Time in which
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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
Accounting Series Release No. 135 issued by the Commission.
The shares of MBI Common Stock to be received by affiliates of
Firstbank 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 STOCKHOLDERS OF FIRSTBANK
MBI is incorporated under the laws of the State of Missouri. Firstbank
is organized under the laws of the State of Delaware. The rights of MBI's
shareholders are governed by MBI's Restated Articles of Incorporation and
By-Laws and the Missouri Law. The rights of Firstbank's stockholders are
governed by Firstbank's Certificate of Incorporation and By-Laws and the
Delaware Law. The rights of Firstbank Stockholders who receive shares of MBI
Common Stock in the Merger will thereafter be governed by MBI's Restated
Articles of Incorporation and By-Laws and by the Missouri Law. The material
rights of such stockholders, and, where applicable, the differences between the
rights of MBI shareholders and Firstbank Stockholders, are summarized below. The
summary is qualified in its entirety by reference to the Missouri Law, the
Delaware Law, the Restated Articles of Incorporation and the By-Laws of MBI and
the Certificate of Incorporation and By-Laws of Firstbank.
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. Firstbank does not have a
shareholder rights plan.
Supermajority Provisions. MBI's Restated Articles of Incorporation and
By-Laws contain provisions requiring a supermajority vote of the shareholders of
MBI to approve certain proposals. Under both MBI's Restated Articles of
Incorporation and 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. However, if less than the
entire MBI Board is to be so removed without cause, no individual director may
be so removed if the votes cast against such director's removal would be
sufficient to be elect such director if then cumulatively voted at an election
of the class of directors of which such director is a part. Amendment by the
shareholders of MBI's Restated Articles of Incorporation or 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 at a meeting,
voting together as a single class, unless such amendment has previously been
expressly approved by at least two-thirds of the MBI Board, in which case, the
only required vote of stockholders is the vote provided for by the
Delaware Law or otherwise.
The provisions of the Firstbank Certificate with respect to: (i) the
requirement that stockholder action need not take place at a meeting; (ii)
calling special meetings; (iii) removal of directors; (iv) classification of the
Board of Directors; and (v) amendment of the Certificate of Incorporation are
all subject to repeal or amendment only upon approval of the holders of at least
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70 percent of the voting stock. All other provisions of the Firstbank
Certificate can be amended by the holders of a majority of the outstanding
Firstbank voting stock, unless a different vote is required by applicable law.
The Restated Articles of Incorporation of MBI 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 (the "Voting Stock"), shall be required for the approval of any
Business Combination. A "Business Combination" is defined generally to include
sales, exchanges, leases, transfers or other dispositions of assets, mergers or
consolidations, issuances of securities, liquidations or dissolutions of MBI,
reclassifications of securities or recapitalizations of MBI, involving MBI on
the one hand, and an Interested Shareholder or an affiliate of an Interested
Shareholder (as defined in MBI's Restated Articles) on the other hand. If,
however, at least two-thirds of the MBI Board approve the Business Combination,
such Business Combination shall require only the vote of shareholders as
provided by the Missouri Law or otherwise. The amendment of the provisions of
MBI's Restated Articles of Incorporation relating to the approval of Business
Combinations requires the affirmative vote of the holders of at least 75% of the
Voting Stock unless such amendment has previously been approved by at least
two-thirds of the MBI Board. Firstbank does not have a similar provision in
either its Certificate of Incorporation or its By-Laws.
The provisions of MBI's Restated Articles of Incorporation and By-Laws
requiring a supermajority vote may have the effect of discouraging takeover
attempts that do not have MBI Board approval.
With certain exceptions, Section 203 of the Delaware General
Corporation Law (the "DGCL") prohibits a corporation from engaging in any
Business Combination with any Interested Stockholder for a period of three years
following the time that such stockholder became an Interested Stockholder,
unless the Business Combination is approved by the board of directors and
authorized at an annual or special meeting of stockholders, and not by written
consent, by the affirmative vote of two-thirds of the outstanding voting stock
which is not owned by the Interested Stockholder. Delaware law defines a
"Business Combination" as: (i) any merger or consolidation of the corporation or
any majority-owned subsidiary of the corporation with (A) the Interested
Stockholder or (B) with any other entity if the Business Combination is caused
by the Interested Stockholder; (ii) any sale, lease exchange, mortgage, pledge,
transfer or other disposition, except proportionately as a stockholder of the
corporation, to or with the Interested Stockholder; (iii) any transaction which
results in the issuance or transfer by the corporation or any majority-owned
subsidiary of the corporation to the Interested Stockholder of any stock of the
corporation or of such subsidiary, except pursuant to (A) the exercise, exchange
or conversion of securities, (B) a merger under Section 251(g) of the DGCL, (C)
a dividend or distribution made pro rata, (D) an exchange offer, or (E) any
issuance or transfer of stock that does not increase the Interested
Stockholder's proportionate share of the common stock of the corporation; (iv)
any transaction which has the effect of increasing the Interested Stockholder's
proportionate share of the stock of the corporation; or (v) any receipt by the
Interested Stockholder of the benefit of any loans, advances, guarantees,
pledges or other financial benefits. "Interested Stockholder" means, with
certain exceptions, any person that (i) is the owner of 15%
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or more of the outstanding voting stock of the corporation, or (ii) is an
affiliate or associate of the corporation.
Voting for 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. Where cumulative voting is not
permitted, holders of a majority of outstanding shares of voting stock of a
corporation may elect the entire board of directors of such corporation, thereby
precluding the election of any directors by the holders of less than a majority
of the outstanding shares of voting stock. Both MBI's By-Laws and Firstbank's
Certificate provide for cumulative voting.
Classified Board. As described under " -- Description of MBI Common
Stock and Attached Preferred Share Purchase Rights -- Classification of the MBI
Board," 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
of MBI. Firstbank also has a classified board of directors with three classes of
directors and its Certificate of Incorporation, as noted above, permits
cumulative voting in the election of directors.
Action by Shareholders or Stockholders Without a Meeting. Under the
Missouri Law and the Delaware Law, written action of stockholders in lieu of a
meeting is permitted unless the articles or certificate of incorporation or
by-laws of the corporation provide otherwise. MBI's By-Laws provide that any
action which must or may be taken at a meeting of the shareholders, may be taken
without a meeting of the shareholders if a consent in writing, setting forth the
action so taken, is signed by all of the shareholders. Firstbank's Certificate
of Incorporation provides that Firstbank shareholders may take action by written
consent only if such written consent shall have been signed by the holders of
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted.
Special Meetings. MBI's By-Laws provide that special meetings of
stockholders, for any purpose, may be called by the Chairman of the Board or by
the MBI Board at any time in their sole discretion. Firstbank's By-Laws provide
that special meetings of Firstbank Stockholders may be called only by the
directors or by any officer instructed by the directors to call a special
meeting.
Anti-takeover Statutes. The Missouri Law contains certain provisions
applicable to Missouri corporations 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 from hostile takeovers (and action following such a takeover) by
prohibiting certain transactions once an acquiror has gained a significant
holding in the company. 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
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Combination" includes a merger or consolidation, certain sales, leases,
exchanges, pledges and similar dispositions of corporate assets or stock and
certain reclassifications and recapitalizations. An "Interested Shareholder"
includes any person or entity which beneficially owns or controls 20% or more of
the outstanding voting shares of the corporation.
During the initial five-year restricted period, no Business Combination
may occur unless such Business Combination or the transaction in which an
Interested Shareholder becomes an Interested Shareholder is approved by the
board of directors of the corporation. Business Combinations may occur following
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 adopted provisions in their articles of incorporation or
by-laws expressly electing not to be covered by the statute; and (iii) certain
circumstances in which a shareholder inadvertently becomes an Interested
Shareholder. MBI's Restated Articles of Incorporation and By-Laws were not
amended to "opt out" of the Missouri business combination statute.
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 already owned or controlled by the Acquiring Person, to
exercise or direct the exercise of: (i) 20% or more but less than 33 1/3%, (ii)
33 1/3% or more but less than a majority or (iii) a majority, of the voting
power of outstanding stock of such corporation, must obtain shareholder approval
for the purchase of the "Control Shares." If approval is not given, the
Acquiring Person loses the right to vote the Control Shares. The statute
prohibits an Acquiring Person from voting its shares unless certain disclosure
requirements are met and the retention or restoration of voting rights is
approved by both: (i) a majority of the outstanding voting stock, and (ii) a
majority of the outstanding voting stock after exclusion of "Interested Shares."
"Interested Shares" are defined as shares owned by the Acquiring Person, by
directors who are also employees, and by officers of the corporation.
Shareholders are given dissenters' rights with respect to the vote on control
share acquisitions and may demand payment of the fair value of their shares by
following certain procedures set forth in the control share acquisition statute.
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 of shares by the corporation, mergers
involving the corporation which satisfy the other requirements of the Missouri
Law, 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 as previously
satisfied the provisions of the control share acquisition statute so long as the
transaction does not result in the purchasing party having voting power after
the purchase in a percentage range (such ranges are as set forth in the
immediately preceding paragraph) beyond the range for which the selling party
previously satisfied the provisions of the statute.
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Additionally, a corporation may exempt itself from application of the statute by
including a provision in its articles of incorporation or by-laws expressly
electing not to be covered by the statute. MBI's Restated Articles of
Incorporation and By-Laws do not "opt out" of the Control Share Acquisition
Statute.
The Delaware Law contains a business combination statute similar to
that contained in the Missouri Law. See "-- Supermajority provisions."
The Missouri Law imposes a longer prohibition period on transactions
with Interested Persons (five years) than the Delaware Law (three years),
thereby potentially increasing the period during which a hostile takeover may be
frustrated. In addition, the Delaware Law, unlike its Missouri counterpart, does
not apply if the Interested Person obtains at least 85% of the corporation's
voting stock upon consummation of the transactions which resulted in the
stockholder becoming an Interested Person. Thus, a person acquiring at least 85%
of the corporation's voting stock could circumvent the defensive provisions of
the Delaware Law while being unable to do so under the Missouri Law.
The Delaware Law does not contain a control share acquisition statute
similar to that contained in the Missouri Law.
Dissenters' Rights. Under 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 value of his shares. Under the Delaware Law,
stockholders of a corporation are entitled to certain appraisal rights upon the
consolidation or merger of the corporation; however, under the Delaware law (but
not the Missouri Law), stockholders are not entitled to appraisal rights in
circumstances in which the stockholder seeking to exercise such rights owns
shares in a widely held, publicly traded corporation and is to receive, or
continue to hold after the transaction under which such shareholder is seeking
to exercise dissenters' rights, shares of a widely held, publicly traded
corporation. In addition, the procedures and the filing deadlines applicable to
dissenters' rights under the Missouri Law are somewhat different than those
applicable in appraisal rights proceedings under the Delaware Law.
Advance Notice Requirements for Nominations of Directors and Proposals
for New Business at Annual Meetings of Stockholders. MBI's By-Laws provide that
a shareholder may make nominations of persons for election to the MBI Board
providing notice in writing to MBI
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not less than 30 days nor more than 60 days prior to the meeting; however, in
the event that less than 40 days' notice of the date of the meeting is given to
the shareholders, such notice of nomination must be received by MBI no later
than the tenth day following the day on which notice of the meeting was provided
to shareholders. MBI's By-Laws provide that a shareholder desiring to present a
proposal at an annual meeting must provide notice of such proposal in writing to
the Secretary of MBI not less than 30 days nor more than 60 days prior to the
meeting; however, in the event that less than 40 days' notice of the date of the
meeting is given to the shareholders, such notice of proposal must be received
by MBI no later than the tenth day following the day on which notice of the
meeting was provided to shareholders. The notice of proposal must contain a
brief description of the proposal and the reasons for the proposal, the
shareholder's name and address and the class and number of shares beneficially
owned by the shareholder and any interest of the shareholder in the business
proposed to be conducted. The presentation of a proposal at an annual meeting
will not be permitted if the shareholder proponent does not follow the
procedures described above.
Firstbank's By-Laws provide that Firstbank Stockholders may make
nominations for the election of directors by delivering written notice of such
nominations to the Secretary of Firstbank at least 14 days prior to the date of
the annual meeting of stockholders; provided, however, that if less than 21 days
notice of the meeting is given to stockholders such written notice shall be
delivered or mailed, as prescribed, not later than the close of business on the
seventh day following the day on which notice of the meeting has been mailed to
stockholders.
Stockholders' Right to Inspect. Under the Delaware Law, any stockholder
may inspect the corporation's stock ledger, stockholder list and other books and
records for any proper purpose. A "proper purpose" is defined as a purpose
reasonably related to such person's interest as a stockholder. The Delaware Law
specifically provides that a stockholder may appoint an agent for the purpose of
examining the stock ledger, list of stockholders or other books and records of
the corporation. A stockholder may apply to the Delaware Court of Chancery to
compel inspection in the event the stockholder's request to examine the books
and records is refused. In general, the corporation has the burden of proving an
improper purpose where a stockholder requests to examine the stockholder ledger
or stockholder list and otherwise complies with the procedures set forth in the
statute. The right of stockholders to inspect under the Missouri Law is similar
to that of stockholders under the Delaware Law. Neither the Missouri Law nor
Missouri case law, however, provides any specific guidance as to whether a
shareholder may appoint an agent for the purpose of examining books and records
or the extent to which a shareholder must have a "proper purpose" for
inspection. Accordingly, in a given situation a shareholder of a Missouri
corporation may be provided with less guidance as to the scope of his or her
ability to inspect the books and records of the corporation than a shareholder
of a Delaware corporation.
Size of Board of Directors. As permitted under the Missouri Law, the
number of members of the MBI Board is set forth in MBI's By-Laws (currently 19)
which provide that the number of directors may be fixed from time to time at not
less than 12 nor more than 24 by an amendment of the By-Laws or by a resolution
of the 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.
Similar to the Missouri Law, the Delaware Law provides that a corporation may
fix the number of directors in its Certificate of Incorporation or By-Laws. The
By-Laws of Firstbank
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<PAGE> 88
provide that the number of directors shall be no more than 25, as fixed
exclusively by the Firstbank Board.
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.
MBI and its subsidiaries are subject to supervision and examination by
applicable federal and state banking and other 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 Office of Thrift Supervision (the "OTS"), the Federal Deposit Insurance
Corporation (the "FDIC"), the Comptroller of the Currency (the "Comptroller")
and various state financial institution 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 certain of its nonbank subsidiaries can borrow
or otherwise obtain credit from its bank subsidiaries. In general, these
restrictions require that any such extensions of credit must be on
non-preferential terms and secured by designated amounts of specified collateral
and be limited, as to any one of the holding company or such nonbank
subsidiaries, to 10% of the lending bank's capital stock and surplus, and as to
the holding company and all such nonbank subsidiaries in the aggregate, to 20%
of such capital stock and surplus.
PAYMENT OF DIVIDENDS
MBI is a legal entity separate and distinct from its wholly owned
financial institutions and other subsidiaries. The principal source of MBI's
revenues is dividends from its financial institution subsidiaries. Various
federal and state statutory provisions limit the amount of dividends the
affiliate financial institution can pay to MBI without regulatory approval. The
approval of federal and state bank regulatory agencies, as appropriate, is
required for any dividend if the total of all dividends declared in any calendar
year would exceed the total of the institution's net profits, as defined by
regulatory agencies, for such year combined with its retained net profits for
the preceding two years. In addition, a national bank or a state member bank may
not pay a dividend in an amount greater than its net profits then on hand. The
payment of dividends by any financial institution subsidiary may also be
affected by other factors, such as the maintenance of adequate capital.
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<PAGE> 89
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
to, but not identical with, the standards for bank holding companies.
In general, the risk-related standards require financial institutions
and financial institution holding companies to maintain certain capital levels
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 credit) 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, 1997, MBI's Tier I Capital and total capital to
risk adjusted assets ratios were 8.84% and 12.05%, respectively. At December 31,
1997, on a pro forma combined basis after giving effect to the Merger, MBI's
estimated consolidated Tier I Capital and total capital to risk-adjusted assets
ratios would be 8.97% and 12.08%, 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 I 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
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<PAGE> 90
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 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, 1997, MBI's Leverage Ratio was 6.15%. At December
31, 1997, on a pro forma combined basis after giving effect to the Merger, MBI's
estimated consolidated Leverage Ratio would be 6.21%.
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 may not choose to do so
absent such a policy. This support may be required at times when MBI may not
find itself able to provide it. 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.
Consistent with the policy regarding bank holding companies serving as
a source of financial strength for their subsidiary banks, the Federal Reserve
Board has stated that, as a matter of prudent banking, a bank holding company
generally should not maintain a rate of cash dividends unless its net income
available to common shareholders has been sufficient to fully fund the
dividends, and the prospective rate of earnings retention appears consistent
with the bank holding company's capital needs, asset quality and overall
financial condition.
FIRREA AND FDICIA
The Financial Institutions Reform, Recovery and Enforcement Act of 1989
("FIRREA") contains a cross-guarantee provision which could result in insured
depository institutions owned by MBI being assessed for losses incurred by the
FDIC in connection with assistance provided to, or the failure of, any other
insured depository institution owned by MBI. Under FIRREA, failure to meet the
capital guidelines could subject a banking institution to a variety of
enforcement remedies available to federal regulatory authorities, including the
termination of deposit insurance by the FDIC.
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") made extensive changes to the federal banking laws. FDICIA instituted
certain changes to the supervisory process, including provisions that mandate
certain regulatory agency actions against undercapitalized institutions within
specified time limits. FDICIA contains various other provisions that may affect
the operations of banks and savings institutions.
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<PAGE> 91
The prompt corrective action provision of FDICIA requires the federal
banking regulators to assign each insured institution to one of five capital
categories ("well capitalized," "adequately capitalized" or one of three
"undercapitalized" categories) and to take progressively more restrictive
actions based on the capital categorization, as specified below. Under FDICIA,
capital requirements would include a leverage limit, a risk-based capital
requirement and any other measure of capital deemed appropriate by the federal
banking regulators for measuring the capital adequacy of an insured depository
institution. All institutions, regardless of their capital levels, are
restricted from making any capital distribution or paying any management fees
that would cause the institution to fail to satisfy the minimum levels for any
relevant capital measure.
The FDIC and the Federal Reserve Board adopted capital-related
regulations under FDICIA. Under those regulations, a bank will be well
capitalized if it: (i) had a risk-based capital ratio of 10% or greater; (ii)
had a ratio of Tier I Capital to risk-adjusted assets of 6% or greater; (iii)
had a ratio of Tier I Capital to average assets of 5% or greater; and (iv) was
not subject to an order, written agreement, capital directive, or prompt
corrective action directive to meet and maintain a specific capital level for
any capital measure. An institution will be adequately capitalized if it was not
"well capitalized" and: (i) had a risk-based capital ratio of 8% or greater;
(ii) had a ratio of Tier I Capital to risk-adjusted assets of 4% or greater; and
(iii) had a ratio of Tier I Capital to average assets of 4% or greater (except
that certain associations rated "Composite 1" under the federal banking
agencies' CAMEL rating system may be adequately capitalized if their ratios of
core capital to average assets were 3% or greater). As previously discussed, all
MBI subsidiary financial institutions as of December 31, 1996 were categorized
as "well capitalized."
FDICIA makes extensive changes in existing rules regarding audits,
examinations and accounting. It generally requires annual on-site, full scope
examinations by each bank's primary federal regulator. It also imposes new
responsibilities on management, the independent audit committee and outside
accountants to develop or approve reports regarding the effectiveness of
internal controls, legal compliance and off-balance-sheet liabilities and
assets.
DEPOSITOR PREFERENCE STATUTE
Legislation enacted in August 1993 provides a preference for deposits
and certain claims for administrative expenses and employee compensation against
an insured depository institution in the liquidation or other resolution of such
an institution by any receiver. Such obligations would be afforded priority over
other general unsecured claims against such an institution, including federal
funds and letters of credit, as well as any obligation to shareholders of such
an institution in their capacity as such.
FDIC INSURANCE ASSESSMENTS
The subsidiary depository institutions of MBI are subject to FDIC
deposit insurance assessments. The FDIC has adopted a risk-based premium
schedule. Each financial institution is assigned to one of three capital groups
- -- well capitalized, adequately capitalized or undercapitalized -- and further
assigned to one of three subgroups within a capital group, on the basis of
supervisory evaluations by the institution's primary federal and, if applicable,
state supervisors, and on the basis of other information relevant to the
institution's financial condition
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and the risk posed to the applicable insurance fund. The actual assessment rate
applicable to a particular institution will, therefore, depend in part upon the
risk assessment classification so assigned to the institution by the FDIC. See
"-- FIRREA and FDICIA."
FIRREA, adopted in August 1989 to provide for the resolution of
insolvent savings associations, required the FDIC to establish separate deposit
insurance funds -- the Bank Insurance Fund ("BIF") for banks and the Savings
Association Insurance Fund ("SAIF") for savings associations. FIRREA also
required the FDIC to set deposit insurance assessments at such levels as would
cause BIF and SAIF to reach their "designated reserve ratios" of 1.25 percent of
the deposits insured by them within a reasonable period of time. Due to low
costs of resolving bank insolvencies in the last few years, BIF reached its
designated reserve ratio in May 1995. As a result, effective January 1, 1996,
the FDIC eliminated deposit insurance assessments (except for the minimum $2,000
payment required by law) for banks that are well capitalized and well managed
and reduced the deposit insurance assessments for all other banks. As of January
1, 1996, the SAIF had not reached the designated reserve ratio. MBI, which has
acquired substantial amounts of SAIF-insured deposits during the years from 1989
to the present, is required to pay SAIF deposit insurance premiums on these
SAIF-insured deposits.
The Deposit Insurance Funds Act of 1996 (the "Funds Act"), enacted as
part of the Omnibus Appropriations Bill on September 30, 1996, required the FDIC
to take immediate steps to recapitalize the SAIF and to change the basis on
which funds are raised to make the scheduled payments on the FICO bonds issued
in 1987 to replenish the Federal Savings and Loan Insurance Corporation. The new
legislation, combined with regulations issued by the FDIC immediately after
enactment of the Funds Act, provided for a special assessment in the amount of
65.7 basis points on SAIF-insured deposits held by depository institutions on
March 31, 1995 (the special assessment was required by the Funds Act to
recapitalize the SAIF to the designated reserve ratio of 1.25 percent of the
deposits insured by SAIF). Payments of this assessment were made in November
1996, but were accrued by financial institutions in the third calendar quarter
of 1996. Institutions such as MBI that have deposits insured by both the BIF and
the SAIF ("Oakar Banks") were required to pay the special assessment on 80% of
their "adjusted attributable deposit amounts" ("AADA"). In addition, for
purposes of future regular deposit insurance assessments, the AADA on which
Oakar Banks pay assessments to SAIF was also reduced by 20%. Commencing
January 1, 1997, BIF insured institutions will be responsible for a portion of
the annual carrying costs of the FICO bonds. Such institutions will be
assessed at 80% of the rate applicable to SAIF-insured institutions until
December 31, 1999. Effective January 1, 1997, the Funds Act also reduced
ongoing SAIF deposit insurance assessment rates to a range from $0.064 to
$0.23 (from previous rates of $0.23 to $0.31) per $100 of insured deposits and
increased ongoing BIF deposit insurance assessment rates to a range from $0.00
to $0.013 per $100 of insured deposits. Additionally, pursuant to the Funds
Act, if the reserves in BIF at the end of any semiannual assessment period
exceed 1.25% of insured deposits, the FDIC is required to refund the excess to
the BIF-insured institutions.
The Funds Act contemplates the merger of the 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 time,
however, depository 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
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guard against the shifting of deposits from SAIF to BIF. A report to Congress
regarding the merger of the SAIF and the BIF is required from the Treasury
Department by March 31, 1997.
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
("Riegle-Neal") facilitates the interstate expansion and consolidation of
banking organizations by permitting (i) bank holding companies that are
adequately capitalized and managed, one year after enactment of the legislation,
to acquire banks located in states outside their home states regardless of
whether such acquisitions are authorized under the law of the host state, (ii)
the interstate merger of banks (effective since June 1, 1997), subject to the
right of individual states to "opt in" or to "opt out" of this authority before
that date, (iii) banks to establish new branches on an interstate basis provided
that such action is specifically authorized by the law of the host state, (iv)
foreign banks to establish, with approval of the regulators in the United
States, branches outside their home states to the same extent that national or
state banks located in the home state would be authorized to do so, and (v)
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. One effect of Riegle-Neal is 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, including MBI.
Overall, Riegle-Neal may have the effects of increasing competition and
promoting geographic diversification in the banking industry.
In addition, the Funds Act 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 Funds
Act eliminates the requirement that a bank holding company seeking to acquire
control of a thrift 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 Funds Act 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.
There also have been a number of recent 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
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.
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PROPOSAL II -- ELECTION OF DIRECTORS
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
On May 15, 1998, the Record Date, Firstbank had outstanding and
entitled to vote ________ shares of common stock, par value $1.00 per share.
Only holders of common stock reflected on the records of Firstbank at the close
of business on the Record Date, will be entitled to vote at the meeting. Each
share entitles its owner to one vote on all matters submitted to a vote other
than the election of directors. In the election of directors, pursuant to
Firstbank's Certificate of Incorporation, stockholders are entitled to
cumulative voting. Thus, each stockholder has the number of votes equal to the
number of shares owned by him or her multiplied by the number of directors to be
elected. Those votes can be distributed among the candidates as the stockholder
deems appropriate. At the 1998 Annual Meeting, three directors will be elected.
The following table sets forth information as of January 31, 1998, with
respect to the ownership of Firstbank Common Stock held by (i) the only
stockholders known to management to be the beneficial owners of more than 5% of
Firstbank's outstanding common stock; (ii) each director of Firstbank; and (iii)
all directors and executive officers of Firstbank as a group. The table is based
upon information provided by such persons and upon Firstbank's records.
Beneficial ownership of securities generally means the power to vote or dispose
of the securities, regardless of any economic interest.
<TABLE>
<CAPTION>
Amount and Nature Percent
Name and Address of Beneficial Owner of Beneficial Ownership1 of Class
<S> <C> <C>
William B. Hopper, South Side Square, Taylorville, IL 708,507 4.48%
Robert L. Sweney, One Metropolitan Square, St. Louis, MO 268,576 1.70%
Mark H. Ferguson, 205 South Fifth Street, Springfield, IL 100,610 *
William T. Grant, Jr., 1800 South Dirksen Parkway, Springfield, IL 70,688 *
William R. Schnirring, 718 North Ninth Street, Springfield, IL 37,275 *
P. Richard Ware, 400 West State Street, Jacksonville, IL 28,520 *
Leo J. Dondanville, Jr., 1525 South Sixth Street, Springfield, IL 22,950 *
Richard E. Zemenick, 100 South Brentwood Blvd., St. Louis, MO 12,110 *
Robert W. Jackson, 1305 Southern Hills, Springfield, IL 9,835 *
William R. Enlow, 607 East Adams Street, Springfield, IL 6,055 *
All Executive Officers and Directors as a Group (Sixteen Persons) 1,575,647 9.80%
* Less than 1%
</TABLE>
- --------------
1 All shareholdings are stated as of January 31, 1998, and include,
without admission of beneficial ownership thereof by the named individual,
shares held of record by or jointly with the named person's wife or children
sharing the same household. Also included in the shares listed are shares voted
by the named individuals as a result of their participation in the Firstbank
Profit-Sharing Thrift Plan, which owns Firstbank shares and permits its
participants to direct the voting of their proportionate number of such shares.
The number of plan shares included in the table for each individual has been
rounded down to the nearest whole share. Also included are shares that can be
purchased pursuant to currently exercisable options granted pursuant to certain
stock option agreements. See "BOARD OF DIRECTORS," "EXECUTIVE COMPENSATION-
Incentive Stock Option" and "Profit-Sharing Thrift Plan."
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BOARD OF DIRECTORS
ELECTION OF DIRECTORS
Firstbank's Certificate of Incorporation provides for a Board of
Directors divided into three classes. The following persons have been nominated
by Firstbank management for election at the 1998 Annual Meeting, to serve a
three-year term expiring in 2001; provided, however that if the stockholders
approve the Merger Agreement and the Merger is consummated, the terms of all
directors of Firstbank shall cease upon completion of the Merger. It is the
intention of the persons named in the proxy to vote for the election of the
following nominees and to vote the proxies to secure the election of the largest
number of such nominees.
<TABLE>
<CAPTION>
Position(s) with Firstbank Director
Name Age (and Principal Occupation) Since
<S> <C> <C> <C>
William B. Hopper 59 Director and Vice Chairman of the Board 1982
Robert W. Jackson 67 Director (Retired Senior Vice President, Central Illinois 1984
Public Service Company, Springfield, IL)
P. Richard Ware 66 Director (Chairman of the Board, Wareco Service, Inc. 1989
Jacksonville, IL)
</TABLE>
Each of the foregoing nominees has been engaged in the principal
occupation described above, or in a similar position, for at least the past five
years.
DIRECTORS WHOSE TERMS EXPIRE IN 1999 AND 2000
The following table presents information with respect to the six
directors whose terms do not expire until 1999 or 2000 and who therefore will
continue to serve as directors beyond the 1998 Annual Meeting.
<TABLE>
<CAPTION>
Position(s) with Firstbank Director Term
Name Age (and Principal Occupation) Since Expires
<S> <C> <C> <C> <C>
Leo J. Dondanville, Jr. 67 Director (Chairman of the Board, Hanson Group 1984 1999
Inc., Springfield, IL)
Mark H. Ferguson 44 Director, Chairman of the Board, President and 1988 1999
Chief Executive Officer
William T. Grant, Jr. 58 Director (President, Landmark Automotive 1982 1999
Group, Springfield, IL and St. Louis, MO)
</TABLE>
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<TABLE>
<CAPTION>
Position(s) with Firstbank Director Term
Name Age (and Principal Occupation) Since Expires
<S> <C> <C> <C> <C>
William R. Enlow 50 Director (Attorney at Law Sorling Northrop 1988 2000
Hanna Cullen Cochran Ltd., Springfield, IL)
William R. Schnirring 69 Director (Chairman of the Board and Chief 1976 2000
Executive Officer, Springfield Electric Supply
Co., Springfield, IL)
Robert L. Sweney 70 Director (Attorney at Law, Of Counsel, Bryan 1988 2000
Cave, St. Louis, MO)
Richard E. Zemenick 55 Director (Chairman of the Board, Zemenick & 1994 2000
Walker, Inc., St. Louis, MO)
</TABLE>
Each of the foregoing directors has been engaged in the principal
occupation described above, or in a similar position, for at least the past five
years.
OTHER INFORMATION ON DIRECTORS
Robert W. Jackson is a director of Ameren CIPS, which has a class of
voting securities registered pursuant to Section 12 of the Securities Exchange
Act of 1934, as amended, or is subject to the reporting requirements of Section
15(d) of that Act. Mark H. Ferguson and Richard E. Zemenick are directors of
Zemenick & Walker, Inc., a wholly-owned subsidiary of Firstbank registered under
the Investment Advisors Act of 1940.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors of Firstbank has established the following
committees to provide assistance in the discharge of its duties and
responsibilities.
Examining Committee. This committee conducts examinations of the
financial affairs of Firstbank and its subsidiaries, through Firstbank's
internal auditors and the independent public accounting firm retained by the
Board of Directors. The results of such examinations are reported directly to
the Board of Directors. Members of the committee during 1997 were Messrs. Grant,
Hopper, Jackson and Sweney. The committee met four times in 1997.
Compensation, Benefits and Officer Nominating Committee. This committee
reviews the personnel policies of Firstbank, as well as salaries and other
compensation paid to employees, including officers and directors. Its
recommendations are reported to the Board of Directors. Members of the committee
during 1997 were Messrs. Dondanville, Grant, Schnirring, Sweney and Ware. The
committee met twice in 1997.
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Nominating Committee. This committee recommends individuals to be
appointed to the Board of Directors of Firstbank in the event a vacancy occurs
on the Board. Its recommendations are reported to the Board of Directors.
Members of the committee during 1997 were Messrs. Ferguson, Hopper, Jackson,
Schnirring and Zemenick. The committee met twice in 1997.
In 1997, the Board of Directors met ten times. No director attended
fewer than 75 percent of the aggregate of the total number of board meetings and
the total number of meetings of committees of which he was a member.
OTHER NOMINATIONS FOR BOARD OF DIRECTORS
Firstbank's Certificate of Incorporation specifies certain procedures
to govern the nomination of directors by stockholders. Any stockholder desiring
to nominate an individual for election as a director must notify the Secretary
of Firstbank, in writing, of his or her desire to do so. The notice must be
delivered or mailed by first class U.S. mail, postage prepaid, to the Secretary
at least 14 days in advance of any stockholders meeting called for the election
of directors. If less than 21 days, notice of such a stockholders meeting is
given, a stockholder must deliver or mail the prescribed notice not later than
the close of business on the seventh day following the day on which the notice
of the meeting was mailed to stockholders.
The required notice must set forth (a) the name, age, business address
and, if known, residence address of each nominee proposed in such notice, (b)
the principal occupation or employment of each nominee, and (c) the number of
shares of common stock of Firstbank beneficially owned by each such nominee.
Evidence of each nominee's willingness to serve must also be provided.
EXECUTIVE COMPENSATION
The following table summarizes compensation earned in 1997, 1996 and
1995 by Firstbank's chief executive officers and each of the four other most
highly compensated executive officers of Firstbank who earned in excess of
$100,000 during 1997 (the "Named Executive Officers").
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
--------------------------------------- -------------------------------
Other
Annual Options All Other
Compen- (Number Compen-
Name and Principal Position Year Salary Bonus sation1 of Shares)2 sation3
<S> <C> <C> <C> <C> <C> <C>
Mark H. Ferguson 1997 $384,000 $146,000 $16,800 6,000 $6,650
Chairman of the Board and Chief 1996 360,000 115,200 16,800 7,500 7,200
Executive Officer 1995 335,000 93,800 16,800 7,500 7,987
</TABLE>
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<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
--------------------------------------- -------------------------------
Other
Annual Options All Other
Compen- (Number Compen-
Name and Principal Position Year Salary Bonus sation(1) of Shares)(2) sation(3)
<S> <C> <C> <C> <C> <C> <C>
Larry A. Burton 1997 $190,000 $0 $0 0 6,650
Executive Vice President 1996 185,000 32,468 0 3,750 7,200
1995 180,000 14,400 0 3,750 7,837
Sandra L. Stolte 1997 $199,000 $35,000 $6,000 3,000 12,746
Executive Vice President(4) 1996 192,000 40,752 6,000 3,750 13,200
1995 178,500 31,292 6,000 3,750 13,087
David W. Waggoner 1997 $203,000 $58,200 $3,000 3,000 12,746
Executive Vice President 1996 196,000 42,187 3,000 3,750 13,200
1995 189,881 40,114 3,000 3,750 16,164
Chris R. Zettek 1997 $145,000 $43,500 $0 3,000 6,090
Executive Vice President and 1996 130,000 31,200 0 3,750 6,240
Chief Financial Officer 1995 120,000 25,200 0 3,750 6,390
</TABLE>
- --------
1 Directors' fees for Firstbank and its subsidiaries paid to Messrs. Ferguson
and Waggoner, and Ms. Stolte.
2 Option shares listed for 1997, 1996 and 1995 were actually awarded in
January 1998, 1997 and 1996, respectively.
3 Employer contributions to the Firstbank Profit Sharing Plan and subsidiary
bank profit sharing plan, if applicable.
4 Amounts for Ms. Stolte in 1997, 1996 and 1995 include amounts earned in her
capacity as a Firstbank subsidiary bank president.
INCENTIVE COMPENSATION PLAN
The Board of Directors adopted an incentive compensation program for
the benefit of the executive officers named in the Summary Compensation Table
and certain other officers of Firstbank and its subsidiaries. The program
provides that Firstbank and its subsidiaries must satisfy certain minimum net
income requirements as defined in the plan before any payments may be made.
Depending on the group in which an executive officer is included, the amount of
Firstbank's net income and progress toward individual goals, Mr. Ferguson may
receive up to 40% of his base salary and the remaining executive officers may
receive up to 30% of his or her base salary. Any payments under the program must
be approved by the Compensation, Benefits and Officer Nominating Committee of
the Firstbank Board of Directors. The cash compensation accrued in 1997 for
Firstbank's executive officers pursuant to this program for services rendered in
1997 is included under the "Bonus" category in the Summary Compensation Table.
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<PAGE> 99
INCENTIVE STOCK OPTION PLAN
Firstbank maintains the Firstbank Incentive Stock Option Plan and
Incentive Stock Option Plan II (the "Option Plans") to provide additional
benefits to employers of Firstbank's and its subsidiaries' employees. Under the
Option Plans, approved by stockholders at previous annual meetings, selected
officers or key employees of Firstbank and its subsidiaries may be granted
options to purchase Firstbank Common Stock at a purchase price equal to the fair
market value of Firstbank stock at the time the options are granted. The
grantees of the options and the number of options granted are determined by the
Board of Directors of Firstbank upon the recommendations of its Compensation,
Benefits and Officer Nominating Committee. Options granted pursuant to the
Option Plans can be exercised only during the period beginning two years after
the date they are granted and ending ten years after the date they are granted.
All options authorized under the Firstbank Incentive Stock Option Plan have been
granted.
Options granted to executive officers under the Option Plans approved
by the Compensation, Benefits and Officer Nominating Committee are reported in
the Summary Compensation Table. A total of 24,500 options were exercised by
Firstbank executive officers in 1997.
The following table summarizes the named executive officer's stock
option activity during 1997. Unexercised options reported include options
awarded January 2, 1998.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND DECEMBER 31, 1997 OPTION VALUES
<TABLE>
<CAPTION>
Number of Value of
Unexercised Unexercised In-the-
Options at Money Options at
Shares December 31, 1997 December 31, 1997
Acquired on Exercisable/ Exercisable/
Name Exercise Value Realized Unexercisable Unexercisable
- --------------- ----------- -------------- ----------------- -------------------
<S> <C> <C> <C> <C>
Mark H. Ferguson 6,000 $177,667 61,155/ $1,538,695/
19,050 186,127
Larry A. Burton 11,250 $321,875 36,375/ $869,242/
3,750 52,109
Sandra L. Stolte 3,000 $84,542 33,375/ $784,138/
6,750 47,796
David W. Waggoner 2,000 $78,389 28,750/ $652,935/
6,750 47,796
Chris R. Zettek 2,250 $65,115 31,350/ $726,692/
6,750 47,796
</TABLE>
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<PAGE> 100
OPTION GRANTS IN THE FISCAL YEAR ENDED DECEMBER 31, 1997
The following table sets forth, with respect to Firstbank's Chief
Executive Officer and the named Executive Officers, certain information about
option grants in the fiscal year ended December 31, 1997.
OPTION GRANTS IN THE FISCAL YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
Percentages of
Number of Total Options Granted to Exercise
Securities Underlying Employees in Price Expiration
Name Options Fiscal Year (per share) Date Grant Date Value (a)
- ------------------ --------------------- -------------------------- ----------- ---------- --------------------------
<S> <C> <C> <C> <C> <C>
Mark H. Ferguson 6,000 4.84% $38.25 01/02/08 $62,280
Larry A. Burton 0 -- -- -- --
Sandra L. Stolte 3,000 2.24% $38.25 01/02/08 $31,140
David W. Waggoner 3,000 2.24% $38.25 01/02/08 $31,140
Chris R. Zettek 3,000 2.24% $38.25 01/02/08 $31,140
</TABLE>
(a) Computed using the Black Scholes Valuation Model. The assumed values for
expected volatility, risk-free rate of return, dividend yield and expected
option life were, respectively, 20%, 5.68%, 2.09% and 7 years.
REPORT OF THE COMPENSATION, BENEFITS AND OFFICER NOMINATING COMMITTEE OF THE
BOARD OF DIRECTORS
The Compensation, Benefits and Officer Nominating Committee
("Compensation Committee" or "Committee") of the Board of Directors establishes
the general compensation policies of Firstbank, establishes the compensation
plans and specific compensation levels for executive officers and administers
the Incentive Compensation Plan, the Option Plans and the Thrift Plan. The
Compensation Committee is composed of five independent, non-employee directors.
The Compensation Committee, chaired by one of the independent directors,
receives input from Firstbank's Chief Executive Officer ("CEO") relative to
compensation for other executive officers.
The Compensation Committee believes that the CEO's compensation should
be heavily influenced by Firstbank's performance. Therefore, although there is
necessarily some subjectivity in setting the CEO's salary, major elements of the
compensation package are directly tied to company performance. The Committee
establishes the CEO's salary by considering the salaries of CEOs of
comparably-sized companies and their performance according to independently
accumulated data obtained by the Committee.
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<PAGE> 101
The CEO's incentive compensation award has been established primarily
as a direct function of Firstbank's earnings growth during the most recent
fiscal year. The Committee, in connection with Firstbank's budgeting process,
establishes a minimum target for earnings, and the CEO's bonus for the fiscal
year is largely a function of the amount by which the minimum earnings target is
met or exceeded during the fiscal year. In January of 1998, a cash bonus of
$146,000 was paid to the CEO based on 1997 earnings. For fiscal year 1998, a
target and formula have been established in a similar fashion.
Stock options were granted to the CEO, as well as to other key
employees, primarily based on the employee's contribution to the long-term
growth and profitability of Firstbank. In January 1998, 6,000 options were
granted to the CEO as approved by the Committee and Board of Directors.
The Compensation Committee has adopted similar policies with respect to
the compensation of other executive officers of Firstbank. Using independent
salary survey data, the Committee reviews the base salaries for persons holding
positions of similar responsibility at other companies. In addition, the
Committee also considers factors such as relative company performance, and each
individual's past performance and future potential in establishing the base
salaries of executive officers.
The Committee's policy regarding other elements of the compensation
package for executive officers is similar to the CEO's in that the annual bonus
payments are largely tied to the achievement of performance targets. The annual
incentive compensation award criteria for executives other than the CEO are
primarily composed of three elements: (i) Firstbank's earnings as compared to
the minimum target established; (ii) achievement of objectives related to the
executive's area of responsibility; and (iii) the executive's progress toward
individual goals.
As with the CEO, the number of options granted to other officers is
determined by the subjective evaluation of the executive's ability to influence
Firstbank's long-term growth and profitability. All options are granted with an
exercise price equal to the current market price. Since the value of the option
bears a direct relationship to Firstbank's stock price, it is an effective
incentive for managers to create value for stockholders. The Committee
therefore views stock options as an important component of its long-term,
performance-based compensation philosophy. In January 1998, options granted to
executive officers other than the CEO were approved by the Committee and Board
of Directors.
Members of the Compensation Committee for 1997: William R. Schnirring,
Chairman; William T. Grant, Jr.; Leo J. Dondanville, Jr.; Robert L. Sweney; and
P. Richard Ware.
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<PAGE> 102
PROFIT-SHARING THRIFT PLAN
The Firstbank Profit-Sharing Thrift Plan (the "Thrift Plan") was
initiated in 1982 for the benefit of Firstbank's and its subsidiaries' employees
through the investment in Firstbank stock. Each subsidiary of Firstbank has
elected to participate in the Thrift Plan. Participation is available to
employees of Firstbank and its subsidiaries who have completed one year of
service and have worked at least 1,000 hours during the applicable plan year.
The Thrift Plan was amended effective April 1, 1995, to allow each participating
employee (of Firstbank or its applicable subsidiary) the opportunity to defer up
to 15% of their annual compensation, to provide opportunity for diversification
from Firstbank stock through alternative investment options, and to adjust the
matching contribution schedule. The Thrift Plan currently matches between 50%
and 100% of employee contributions of up to 6% of their compensation, with the
employer's contribution depending upon Firstbank's return on equity for the
applicable year. At December 31, 1997, 683 employees of Firstbank and its
subsidiaries were participants in the Thrift Plan.
RETIREMENT PLAN
Firstbank has adopted the Firstbank Retirement Plan ("Retirement
Plan"), a defined benefit plan, to provide retirement benefits for Firstbank's
and its subsidiaries' employees. A subsidiary's employees are covered by the
Retirement Plan if and when the subsidiary adopts the Retirement Plan. Central
Bank, a wholly-owned subsidiary of Firstbank, has not adopted the Retirement
Plan. Accordingly, Mr. Waggoner and Ms. Stolte continue to be covered under a
separate profit sharing plan.
Set forth below are estimated annual benefits payable under the
Retirement Plan. These benefits are payable during the participants' lifetimes
upon retirement at age 65 in the remuneration and service classes specified.
Pension benefits may be paid in other forms which are actuarially equivalent to
the benefits listed below. For purposes of the table below, "Average Annual
Compensation" generally means the average of the participants' compensation, as
defined in the Retirement Plan, during the five consecutive calendar years prior
to retirement.
<TABLE>
<CAPTION>
Average Years of Credited Service
Annual Compensation 10 15 20 25 30 35
<S> <C> <C> <C> <C> <C> <C>
$50,000 $10,207 $15,311 $20,415 $25,518 $28,018 $30,518
75,000 16,207 24,311 32,415 40,518 44,268 48,018
100,000 22,207 33,311 44,415 55,518 60,518 65,518
125,000 28,207 42,311 56,415 70,518 76,768 83,018
150,000 34,207 51,311 68,415 85,518 93,018 100,518
</TABLE>
At December 31, 1997, Mr. Burton had 18 years, Mr. Ferguson had 11
years and Mr. Zettek had 10 years credited service for purposes of the
Retirement Plan. The
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<PAGE> 103
maximum annual benefit (defined in Code Section 415) payable from a qualified
defined benefit pension plan as a single life annuity during 1997 is $120,000.
The compensation limits of Code Section 401(a)(17) have also been taken into
account in determining the benefits listed in this table. For any Retirement
Plan participant in the 1997 Plan year, a qualified plan may not take into
account annual compensation greater than $150,000 (indexed annually).
Firstbank has amended and restated the Retirement Plan to conform to
regulations under the Tax Reform Act of 1986. All employees who terminate or
retire after December 31, 1988, will receive the greater of their benefit
calculated under the current formula or their frozen accrued benefit under any
prior formula.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL
ARRANGEMENTS
Each Named Executive Officer has entered into a severance agreement
with Firstbank. Pursuant to these agreements, if the employee is terminated
involuntarily other than for "cause" (as defined in such severance agreements)
Firstbank shall pay to the terminated employee (i) an amount equal to one year
of salary based on the employee's annual base salary in effect immediately
prior to such termination plus the bonus received by or due to the employee
with respect to Firstbank's most recently ended fiscal year, payable in twelve
substantially equal monthly installments commencing as soon as practicable
following the date of termination; and (ii) continue to pay for one year any
premiums (to the extent such premiums are due) for the employee's health,
dental, disability, and life insurance paid prior to such termination;
provided that such payments shall be reduced by the amount of compensation paid
to the employee from other sources during the twelve-month period and, if the
employee accepts employment with a bank or bank holding company that operates
in any of the same cities in which Firstbank or its subsidiaries operates, the
employee shall receive no compensation from Firstbank.
Additionally, such severance agreements provide that if the employee
is terminated involuntarily other than for cause within a period varying from
two to three years after a Change in Control (as defined in such severance
agreements) or such termination otherwise results from a Change in Control,
Firstbank shall: (i) pay the employee an amount equal to a multiple
(varying from two to three) of the sum of (a) the higher of such person's
annual base salary as of the date of termination or such person's annual base
salary as of the effective date of the Change in Control, plus (b) the highest
bonus paid to the employee with respect to the three fiscal years immediately
preceding the effective date of the Change in Control, which amount shall be
paid in a lump sum as soon as practicable after the date of termination; and
(ii) continue to pay for 24 months any premiums (to the extent such premiums
are due) for such employee's health, dental, disability, and life insurance
paid prior to such date of termination. In addition, if Mr. Feguson voluntarily
terminates his employment within three years of a Change in Control he will be
entitled to the benefits described in this paragraph. Mr. Ferguson's Severance
Agreement also provides that if the payments under the agreement cause
Mr. Ferguson to become liable for any excise tax with respect to such
payments, Mr. Ferguson will be reimbursed the amount of such excise tax, as
well as for any taxes on the reimbursed amount. If approved by the
stockholders of Firstbank and consummated, the Merger will constitute a
Change in Control under the Severance Agreements. See "THE MERGER-Interests
of Certain Persons in the Merger."
DIRECTORS' COMPENSATION
Firstbank paid each of its directors a fee of $13,800 in 1997 to serve
as a director. Directors serving on the Loan and Discount Committee were paid an
additional $150 per meeting and met twelve times during 1997. Beginning June 1,
1997, in addition to the Loan and Discount Committee, directors appointed to the
other board committees were paid $150 per board committee meeting attended.
In addition to the directors' fees, the stockholders of Firstbank
approved a Directors Stock Option Plan at the 1997 Annual Meeting. Under the
Directors Stock Option Plan, all non-employee directors are automatically
granted options each June 1, beginning in 1997 and ending in 2007, for 2,250
shares of Firstbank common stock exercisable immediately and expiring ten years
from the date granted or prior to the termination of his term as a director,
whichever is earlier. The purchase price is equal to the fair market value of
Firstbank stock at the time the options are granted or the book value of the
common stock at that time, whichever is greater. Under identical plans
previously in place, each June 1, beginning 1988 and 1994 and ending in 1992 and
1996, respectively, a non-employee director continuing, elected or re-elected as
a member of the Board received an option to purchase 2,250 shares of Firstbank
common stock. All the options granted under these Directors Stock Option Plans
are reflected in the table under "Voting Securities and Principal Holders
Thereof."
CERTAIN TRANSACTIONS
Several of the present and former officers and directors of Firstbank
and its subsidiaries and principal stockholders of Firstbank and/or their
associates have been or presently are indebted to one or more of Firstbank's
subsidiary banks. All such
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<PAGE> 104
indebtedness was incurred in the ordinary course of business and on
substantially the same terms, including interest rates, collateral and repayment
terms on extensions of credit, as those prevailing at the time for comparable
transactions with other persons, and did not involve more than normal risks of
collectibility or present other unfavorable features. Firstbank expects that
such persons and/or their associates will borrow additional funds from Firstbank
subsidiaries in the future, all of which borrowings will be obtained on a
similar basis.
Firstbank and its subsidiaries have for several years retained the
services of Zemenick & Walker, Inc., of which Richard E. Zemenick, a director,
is Chairman. On January 2, 1997, Zemenick & Walker, Inc. became a wholly-owned
subsidiary of Firstbank. Pursuant to the provisions of the purchase agreement
between Firstbank and Zemenick & Walker, Inc., Richard E. Zemenick and James C.
Walker entered into Employment Agreements for a period of five (5) years. See
"THE MERGER - Interests of Certain Persons."
FIRSTBANK PERFORMANCE
The following graph sets forth the cumulative stockholder return (assuming
reinvestment of dividends) to Firstbank's stockholders during the five year
period ended December 31, 1997, as well as the Standard & Poors overall stock
market index (S & P 500 Index) and Firstbank's peer group index published by
Keefe, Bruyette & Woods, Inc. (KBW 50 Index).
FIRSTBANK PERFORMANCE
CUMULATIVE STOCKHOLDER RETURN
[PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
----------------------- -------------- ------------- -------------- -------------- ------------- --------------
1992 1993 1994 1995 1996 1997
----------------------- -------------- ------------- -------------- -------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
S&P 500 100.00 110.08 111.53 153.45 188.68 251.62
----------------------- -------------- ------------- -------------- -------------- ------------- --------------
KBW 50 100.00 105.54 100.16 160.42 226.93 331.75
----------------------- -------------- ------------- -------------- -------------- ------------- --------------
Firstbank 100.00 98.56 108.42 133.26 154.16 249.71
----------------------- -------------- ------------- -------------- -------------- ------------- --------------
</TABLE>
Note: The stock performance graph assumes $100 was invested on January 1,
1993, and all dividends are reinvested.
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<PAGE> 105
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP, certified public accountants, were Firstbank's
independent auditors for, and reported on Firstbank's consolidated financial
statements for, the year ended December 31, 1997. The Firstbank Board has
appointed KPMG Peat Marwick LLP as Firstbank's auditors for the year ending
December 31, 1998. Representatives of KPMG Peat Marwick LLP are expected to
attend the Annual Meeting to respond to appropriate questions and will have the
opportunity to make a statement if they so desire.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires Firstbank's officers and
directors, and persons owning more than 10% of a registered class of Firstbank's
equity securities, to file periodic reports of ownership and changes in
ownership with the Commission and to provide Firstbank with copies of such
reports. Based solely upon its review of such reports received by it, or written
representation from such reporting persons, Firstbank believes that all filing
requirements applicable to such reporting persons were complied with during
1997.
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
February 27, 1998, beneficially owned 58,174 shares of MBI Common Stock,
including 31,875 restricted shares subject to forfeiture in certain
circumstances, and held options to acquire 71,773 additional shares of MBI
Common Stock.
EXPERTS
The consolidated financial statements of MBI as of December 31, 1997,
1996 and 1995, and for each of the years in the three-year period ended December
31, 1997, incorporated by reference in the 1997 MBI Form 10-K have been
incorporated by reference herein in reliance upon the report of KPMG Peat
Marwick LLP, independent certified public accountants, incorporated by reference
herein, and upon the authority of such firm as experts in accounting and
auditing.
The consolidated financial statements of Firstbank as of December 31,
1997, 1996 and 1995, and for each of the years in the three-year period ended
December 31, 1997, incorporated by reference in the 1997 Firstbank Form 10-K
have been incorporated by
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<PAGE> 106
reference herein in reliance upon the report of KPMG Peat Marwick LLP,
independent certified public accountants, incorporated by reference herein, and
upon the authority of such firm as experts in accounting and auditing.
OTHER MATTERS
The Firstbank Board, at the date hereof, is not aware of any business
to be presented at the Annual Meeting other than that referred to in the Notice
of Annual Meeting of Stockholders and discussed herein. If any other matter
should properly come before the Annual 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
Firstbank.
STOCKHOLDER PROPOSALS
If the Merger is consummated, Firstbank Stockholders 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 1999
Annual Meeting of MBI's shareholders and for 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 no later than November 16, 1998 in order to be
considered for inclusion in MBI's Proxy Statement and proxy for the 1998 Annual
Meeting.
In the event the Merger is not consummated, in order to be eligible for
inclusion in Firstbank's proxy materials for its next Annual Meeting of
Stockholders, any stockholder proposal to take action at such meeting must be in
writing and received at Firstbank's main office, 205 South Fifth Street,
Springfield, Illinois 62794, no later than ___________________, 1998. Any such
proposals shall be subject to the requirements of the proxy rules adopted under
the Exchange Act.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Mark H. Ferguson
Mark H. Ferguson
Chairman, President and Chief Executive Officer
Springfield, Illinois
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<PAGE> 107
Annex A
AGREEMENT AND PLAN OF REORGANIZATION
by and among
MERCANTILE BANCORPORATION INC.,
AMERIBANC, INC.,
and
FIRSTBANK OF ILLINOIS CO.
Dated January 30, 1998
A-1
<PAGE> 108
AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is made
and entered into on January 30, 1998, by and among MERCANTILE BANCORPORATION
INC., a Missouri corporation ("Mercantile"), Ameribanc, Inc., a Missouri
corporation and a wholly owned subsidiary of Mercantile ("Merger Sub"), and
FIRSTBANK OF ILLINOIS CO., a Delaware corporation ("Firstbank").
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 "BHCA"); and
WHEREAS, Firstbank is a registered bank holding company under the
BHCA; and
WHEREAS, the Board of Directors of Firstbank (the "Firstbank Board")
and the Executive Committee of the Board of Directors of Mercantile (the
"Mercantile Executive Committee") have approved the merger (the "Merger") of
Firstbank 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 "Code"); and
WHEREAS, it is intended that the Merger shall qualify for
pooling-of-interests accounting treatment; and
WHEREAS, as a condition to, and immediately after the execution of this
Agreement, Mercantile and certain directors of Firstbank will enter into Support
Agreements (the "Support Agreements") in the form attached hereto as Exhibit A;
and
WHEREAS, as a condition to, and immediately prior to execution of this
Agreement, Mercantile and Firstbank will enter 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:
A-2
<PAGE> 109
ARTICLE I
THE MERGER
1.01. The Merger. Subject to the terms and conditions of this
Agreement, Firstbank shall be merged with and into Merger Sub in accordance with
the Delaware General Corporation Law (the "DGCL") and the Missouri General and
Business Corporation Law (the "MGBCL") and the separate corporate existence of
Firstbank 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 Firstbank 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 Secretaries of State of the States of Delaware and
Missouri in such form as required by, and in accordance with, the relevant
provisions of the DGCL and MGBCL, respectively. Subject to the terms and
conditions of this Agreement, the Effective Time shall occur on any such date as
Mercantile shall notify Firstbank 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 and 6.02 (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. As soon as practicable following the Effective Time, Mercantile
and Firstbank shall cause a certificate or plan of merger reflecting the terms
of this Agreement to be delivered for filing and recordation with other
appropriate state or local officials in the States of Delaware and Missouri in
accordance with the DGCL and the MGBCL, respectively.
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 Firstbank or Merger Sub or (b) otherwise carry
out the purposes of this Agreement, Firstbank 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 Firstbank or otherwise to take any and
all such action.
1.05. Articles of Incorporation and Bylaws. The Articles of
Incorporation and Bylaws of Merger Sub in effect 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.
A-3
<PAGE> 110
1.06. Boards of Directors and Officers. At the Effective Time, the
directors and officers of Merger Sub immediately prior to the Effective Time
shall be directors and officers, respectively, of the Surviving Corporation
following the Merger; such directors and officers shall hold office in
accordance with the Surviving Corporation's Bylaws and applicable law.
1.07. Conversion of Securities. At the Effective Time, by virtue of the
Merger and without any action on the part of Mercantile, Firstbank 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) Subject to Sections 1.10 and 1.11 hereof, each share of the common
stock, $1.00 par value ("Firstbank Common Stock"), of Firstbank issued and
outstanding immediately prior to the Effective Time shall cease to be
outstanding and shall be converted into and become the right to receive 0.8308
(the "Exchange Ratio") shares of common stock, par value $.01 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 (the "Per
Share Stock Consideration"), provided, however, that any shares of Firstbank
Common Stock held by Firstbank, Mercantile or any of their respective
Subsidiaries, in each case other than in a fiduciary capacity or as a result of
debts previously contracted, shall be cancelled and shall not be exchanged for
shares of Mercantile Common Stock. The Exchange Ratio was computed by (i)
aggregating (A) the total number of shares of Firstbank Common Stock that were
issued and outstanding on the date of this Agreement (as set forth in Section
2.03 hereof) with (B) the total number of shares of Firstbank Common Stock that
are reserved for issuance pursuant to Firstbank Stock Options (as set forth in
Section 2.03 hereof) and dividing such number of shares of Firstbank Common
Stock (computed by aggregating (A) and (B) hereof) into (ii) 13,800,000, the
aggregate number of shares of Mercantile Common Stock to be issued in the
Merger.
1.08. Exchange Procedures. (a) Holders of record of certificates
formerly representing shares of Firstbank Common Stock (the "Certificates")
shall be instructed to tender such Certificates to Mercantile pursuant to a
letter of transmittal that Mercantile shall deliver or cause to be delivered to
such holders as soon as practicable following the Effective Time. Such letters
of transmittal shall specify that risk of loss and title to Certificates shall
pass only upon delivery of such Certificates to Mercantile or the Exchange Agent
(as defined below).
(b) Subject to Section 1.10, after the Effective Time, each
previous holder of a Certificate that surrenders such Certificate to Mercantile
or to Harris Trust and Savings Bank, as the exchange agent designated by
Mercantile (the "Exchange Agent"), will, upon acceptance thereof by Mercantile
or the Exchange Agent, be entitled to a certificate or certificates representing
the number of full shares of Mercantile Common Stock into which the shares
represented by 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
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of Mercantile Common Stock, without interest, and a check representing the
amount of any cash in lieu of fractional shares which such holder has the right
to receive with respect to the Certificate(s) surrendered.
(c) Mercantile or, at the election of Mercantile, the Exchange
Agent shall accept Certificates upon compliance with such reasonable terms and
conditions as Mercantile or 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 Mercantile or the Exchange Agent may reasonably require.
(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 Firstbank of Certificates,
and if such Certificates are presented to Firstbank for transfer, they shall be
cancelled against delivery of the consideration provided therefor in this
Agreement. Mercantile shall not be obligated to deliver the consideration to
which any former holder of Firstbank Common Stock is entitled as a result of the
Merger until such holder surrenders the Certificates as provided herein. 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. Certificates surrendered for exchange
by any person constituting an "affiliate" of Firstbank for purposes of Rule 145
of the Securities Act of 1933, as amended (together with the rules and
regulations thereunder, the "Securities Act"), shall not be exchanged for
certificates representing Mercantile Common Stock until Mercantile has received
a written agreement from such person in the form attached as Exhibit C. Neither
the Exchange Agent nor any party to this Agreement nor any affiliate thereof
shall be liable to any holder of stock represented by any Certificate for any
consideration paid to a public official pursuant to applicable abandoned
property, escheat or similar laws. Mercantile and the Exchange Agent shall be
entitled to rely upon the stock transfer books of Firstbank 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.
1.09. [Intentionally Omitted]
1.10. No Fractional Shares. Notwithstanding any other provision of this
Agreement, neither certificates nor scrip for fractional shares of Mercantile
Common Stock shall be issued in the Merger. Each holder who otherwise would have
been entitled to a fraction of a share of
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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.
1.11. Anti-Dilution Adjustments. If prior to the Effective Time
Mercantile shall declare a stock dividend or make distributions upon or
subdivide, split up, reclassify or 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 or on 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 adjustment or adjustments will be
made to the Exchange Ratio.
1.12. Reservation of Right to Revise Transaction. Mercantile may at any
time change the method of effecting the acquisition of Firstbank or Firstbank's
Subsidiaries by Mercantile and Firstbank shall cooperate in such efforts
(including without limitation (a) the provisions of this Article I and (b)
causing the merger of any of the Banks (as defined herein) with any depository
institution which is a Subsidiary of Mercantile (any such merger together with
the Merger being referred to herein as the "Transactions")) if and to the extent
it deems such change to be desirable, including without limitation to provide
for a merger of Firstbank directly into Mercantile, in which Mercantile is the
surviving corporation, provided, however, that no such change shall (A) alter or
change the amount or kind of consideration to be issued to holders of Firstbank
Common Stock as provided for in this Agreement (the "Merger Consideration"), (B)
adversely affect the tax treatment to Firstbank's stockholders as a result of
receiving the Merger Consideration or (C) materially delay receipt of any
approval referred to in Section 6.01(b) or the consummation of the transactions
contemplated by this Agreement.
ARTICLE II
REPRESENTATIONS, WARRANTIES AND COVENANTS OF FIRSTBANK
Firstbank represents and warrants to and covenants with Mercantile as
follows:
2.01. Organization and Authority. Firstbank is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and 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 as set forth on Schedule 2.01
and except where the failure to be so qualified would not have and could not
reasonably be expected to have a material adverse effect on the financial
condition, results of operations or business (collectively, the "Condition") of
Firstbank 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. Firstbank is registered as a bank holding company with the
Board of
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Governors of the Federal Reserve System (the "Board") under the BHCA. True and
complete copies of the Certificate of Incorporation and the Bylaws of Firstbank
and, to the extent requested in writing by Mercantile, of the articles of
incorporation and bylaws of the Firstbank 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, among other things, a
complete and correct list of all of Firstbank's Subsidiaries (each a "Firstbank
Subsidiary" and collectively the "Firstbank Subsidiaries"), all outstanding
Equity Securities of each of which, except as set forth on Schedule 2.02, are
owned directly or indirectly by Firstbank. "Equity Securities" of an issuer
means capital stock or other equity securities of such issuer, options,
warrants, scrip, rights to subscribe to, calls or commitments of any character
whatsoever relating to, or securities or rights convertible into, shares of any
capital stock or other Equity Securities of such issuer, or contracts,
commitments, understandings or arrangements by which such issuer is or may
become bound to issue additional shares of its capital stock or other Equity
Securities of such issuer, or options, warrants, scrip or rights to purchase,
acquire, subscribe to, calls on or commitments for any shares of its capital
stock or other Equity Securities. Except as set forth on Schedule 2.02, all of
the outstanding shares of capital stock of the Firstbank Subsidiaries are
validly issued, fully paid and nonassessable, and those shares owned by
Firstbank 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 Firstbank Subsidiaries is a
corporation, savings bank, bank or bank and trust company 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 Firstbank 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 so to be qualified, except
where the failure to so qualify would not have and could not reasonably be
expected to have a material adverse effect on the Condition of Firstbank and its
Subsidiaries, taken as a whole. Except as set forth on Schedule 2.02, Firstbank
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. The place and type of charter and the
applicable insurance fund for each of Firstbank's Subsidiaries which are
financial institutions (the "Banks") are set forth on Schedule 2.02. Except as
set forth on Schedule 2.02, neither Firstbank nor any Firstbank Subsidiary holds
any interest in a partnership or joint venture of any kind.
2.03. Capitalization. The authorized capital stock of Firstbank
consists of (i) 20,000,000 shares of Firstbank Common Stock, of which, as of
January 2, 1998, 15,753,053 shares were issued and outstanding and (ii)
1,000,000 shares of preferred stock, no par value per share, of which, as of
January 2, 1998, no shares were issued and outstanding ("Firstbank Preferred
Stock"). As of January 2, 1998, Firstbank had reserved 857,201 shares of
Firstbank Common Stock for issuance under Firstbank's stock option and incentive
plans, a list of which is set forth on Schedule 2.03 (the "Firstbank Stock
Plans"), pursuant to which options ("Firstbank Stock Options") covering 857,201
shares of Firstbank Common Stock were outstanding as of January 2, 1998. Except
as set forth on Schedule 2.03, since December 31, 1997, no Equity Securities of
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Firstbank have been issued other than shares of Firstbank Common Stock which may
have been issued upon the exercise of Firstbank Stock Options. Except as set
forth above, there are no other Equity Securities of Firstbank outstanding. All
of the issued and outstanding shares of Firstbank Common Stock are validly
issued, fully paid, and nonassessable, and have not been issued in violation of
any preemptive right of any stockholder of Firstbank. Since January 2, 1998,
Firstbank has not granted any options or similar rights pursuant to which shares
of Firstbank Common Stock may be issued and has not issued any shares of
Firstbank Common Stock. Neither Firstbank nor any Firstbank Subsidiary, to the
best of Firstbank's knowledge, has taken or agreed to take any action or has any
knowledge of any fact or circumstance and neither Firstbank nor any Firstbank
Subsidiary will take any action that would, or intentionally will fail to take
any action the failure of which to take would, prevent the Merger from
qualifying for pooling-of-interests accounting treatment.
2.04. Authorization. (a) Except as set forth on Schedule 2.04A,
Firstbank has the corporate power and authority to enter into this Agreement
and, subject to the approval of this Agreement by the stockholders of Firstbank,
to carry out its obligations hereunder. The only stockholder vote required for
Firstbank to approve this Agreement is the affirmative vote of the holders of at
least a majority of the shares of Firstbank Common Stock entitled to vote at a
meeting called for such purpose. The execution, delivery and performance of this
Agreement by Firstbank and the consummation by Firstbank of the transactions
contemplated hereby have been duly authorized by the Board of Directors of
Firstbank. Subject to approval by the stockholders of Firstbank, this Agreement
is a valid and binding obligation of Firstbank enforceable against Firstbank in
accordance with its terms, except as enforceability may be limited by applicable
laws relating to bankruptcy, insolvency or creditors rights generally and
general principles of equity.
(b) Except as set forth on Schedule 2.04B, neither the execution
nor delivery nor performance by Firstbank of this Agreement, nor the
consummation by Firstbank of the transactions contemplated hereby, nor
compliance by Firstbank 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 Firstbank or any Firstbank 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 Firstbank
or any Firstbank Subsidiary is a party or by which it may be bound, or to which
Firstbank or any Firstbank Subsidiary or any of the material properties or
assets of Firstbank or any Firstbank Subsidiary may be subject (in all cases
other than any of the foregoing which would not have and could not reasonably be
expected to have a material adverse effect on the Condition of Firstbank and the
Firstbank 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 Firstbank, violate any judgment, ruling, order, writ,
injunction, decree, statute, rule or regulation applicable to Firstbank or any
Firstbank Subsidiary or any of their respective material properties or assets.
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(c) Other than in connection or in compliance with the provisions of
the DGCL, the MGBCL, the Securities Act, the Securities Exchange Act of 1934, as
amended, and the rules and regulations thereunder (the "Exchange Act"), the
Investment Company Act of 1940, the securities or blue sky laws of the various
states or filings, consents, reviews, authorizations, approvals or exemptions
required under the BHCA or any required approvals or filings pursuant to any
state statutes or regulations applicable to Firstbank, Mercantile or their
respective Subsidiaries with respect to the transactions contemplated by this
Agreement, 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 Firstbank of the transactions contemplated by this Agreement.
2.05. Firstbank Financial Statements. The consolidated balance sheets
of Firstbank and its Subsidiaries as of December 31, 1996, 1995 and 1994 and
related consolidated statements of income, cash flows and changes in
stockholders' equity for each of the three years in the three-year period ended
December 31, 1996, together with the notes thereto, audited by KPMG Peat Marwick
LLP and included in an annual report on Form 10-K (including amendments thereto)
as filed with the Securities and Exchange Commission (the "SEC"), and the
unaudited consolidated balance sheets of Firstbank and its Subsidiaries as of
March 31, June 30, and September 30, 1997 and the related unaudited consolidated
statements of income and cash flows for the periods then ended, together with
the notes thereto, included in quarterly reports on Form 10-Q (including
amendments thereto) (each a "Firstbank Form 10-Q") as filed with the SEC
(collectively, the "Firstbank Financial Statements"), except as set forth on
Schedule 2.05, have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis ("GAAP"), present fairly the
consolidated financial position of Firstbank and its Subsidiaries at the dates
and the consolidated results of operations, cash flows and changes in
stockholders' equity of Firstbank and its Subsidiaries for the periods stated
therein and are derived from the books and records of Firstbank 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. Except as set forth on Schedule 2.05, neither Firstbank nor any of
its Subsidiaries has any contingent liabilities that are material to Firstbank
and the Firstbank Subsidiaries, taken as a whole, and which are not reflected in
the Firstbank Reports (defined below) or disclosed in the financial statements
described above.
2.06. Firstbank Reports. Except as set forth on Schedule 2.06, since
January 1, 1994, each of Firstbank and the Firstbank 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 FDIC, (iii) the Board and (iv) 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 (iv) being
referred to herein collectively as the "Regulatory Authorities" and individually
as a "Regulatory Authority"). All such reports and statements filed with any
such Regulatory Authority are collectively referred to herein as the "Firstbank
Reports." As of its respective date, each Firstbank 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
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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 set forth on Schedule 2.07 or as
may be reflected in the Firstbank Financial Statements, except for any Lien for
current taxes not yet delinquent and except with respect to assets classified as
real estate owned, Firstbank and its Subsidiaries have good title free and clear
of any material Lien to all the real and personal property reflected in
Firstbank's consolidated balance sheet as of September 30, 1997 included in the
most recent Firstbank 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. All leases material to
Firstbank or any Firstbank Subsidiary pursuant to which Firstbank or any
Firstbank 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 Firstbank or any Firstbank
Subsidiary or any event which, with notice or lapse of time or both, would
constitute such a material default. Substantially all of Firstbank's and
Firstbank Subsidiaries' buildings, structures and equipment in regular use have
been well maintained and are in good and serviceable condition, normal wear and
tear excepted.
2.08. Taxes. Except as set forth on Schedule 2.08, Firstbank and each
Firstbank Subsidiary have timely filed or will timely (including extensions)
file all material tax returns, reports and certifications required to be filed
on or prior to the Closing Date ("Firstbank Returns"), and such filed Firstbank
Returns are and will be complete and accurate in all material respects. Each of
Firstbank and its Subsidiaries has paid (taking into account all applicable
extensions), or set up adequate reserves on the Firstbank Financial Statements
for the payment of, all taxes required to be paid in respect of the periods
covered by the Firstbank Financial Statements and has set up adequate reserves
on the most recent financial statements Firstbank has filed under the Exchange
Act for the payment of all taxes anticipated to be payable in respect of all
periods up to and including the latest period covered by such financial
statements. Neither Firstbank nor any Firstbank Subsidiary will have any
liability material or reasonably expected to be material to the Condition of
Firstbank and the Firstbank Subsidiaries, taken as a whole, for any such taxes
in excess of the amounts so paid or reserves so established and, to the
knowledge of Firstbank, no material deficiencies for any tax, assessment or
governmental charge have been proposed, asserted or assessed (tentatively or
definitely) against any of Firstbank or any Firstbank Subsidiary which would not
be covered by existing reserves. Neither Firstbank nor any Firstbank Subsidiary
is delinquent in the payment of any material tax, assessment or governmental
charge, nor has it requested any extension of time within which to file any tax
returns in respect of any fiscal year which have not since been timely filed and
no requests for extensions or waivers of the time to assess any tax are pending.
The federal and state income tax returns of Firstbank and the Firstbank
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, 1994 (with respect to federal income tax returns) and December 31,
1993 (with respect to state income tax returns) or the period for assessment of
taxes in respect of such periods has expired. There is no deficiency or refund
litigation or matter in controversy with
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respect to Firstbank Returns. Neither Firstbank nor any Firstbank Subsidiary has
extended or waived any statute of limitations on the assessment of any tax due
that is currently in effect.
2.09. Material Adverse Change. Since September 30, 1997, there has been
no material adverse change in the Condition of Firstbank 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) costs, up to the amounts set forth on Schedule
2.23, incurred or to be incurred by Firstbank in connection with this Agreement,
which include costs incurred for investment banking, accounting and legal
services.
2.10. Commitments and Contracts. (a) Except as set forth on Schedule
2.10A, neither Firstbank nor any Firstbank 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 Firstbank or any of its Subsidiaries is or may become obligated
to invest in or contribute capital to any Firstbank Subsidiary;
(ii) any agreement, indenture or other instrument not
disclosed in the Firstbank Financial Statements relating to the
borrowing of money by Firstbank or any Firstbank Subsidiary or the
guarantee by Firstbank or any Firstbank Subsidiary of any such
obligation (other than trade payables or instruments related to
transactions entered into in the ordinary course of business by any
Firstbank Subsidiary, such as deposits and Fed Funds borrowings);
(iii) any contract, agreement or understanding with
any labor union or collective bargaining organization relating to
employees of Firstbank or any Firstbank Subsidiaries;
(iv) any contract containing covenants which limit
the ability of Firstbank or any Firstbank Subsidiary to compete in any
line of business or with any person or which involve any restriction of
the geographical area in which, or method by which, Firstbank or any
Firstbank Subsidiary may carry on its business other than as may be
required by law or any applicable Regulatory Authority) and which are
not material or reasonably expected to be material to the Condition of
Firstbank and the Firstbank 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 Firstbank nor any Firstbank Subsidiary is in violation of
its charter documents or bylaws or in default under any material agreement,
commitment, arrangement, lease,
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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 and could not reasonably be expected to have a material adverse effect
on the Condition of Firstbank and its Subsidiaries, taken as a whole.
2.11. Litigation and Other Proceedings. Except as set forth on Schedule
2.11, neither Firstbank nor any Firstbank Subsidiary is a party to any pending
or, to the best knowledge of Firstbank, 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 Firstbank
and its Subsidiaries, taken as a whole, or which purports or seeks to enjoin or
restrain the transactions contemplated by this Agreement. Without limiting the
generality of the foregoing, as of the date of this Agreement, there are no
actions, suits, or proceedings pending or, to the best knowledge of Firstbank,
threatened against Firstbank or any Firstbank Subsidiary or any of their
respective officers or directors by any stockholder of Firstbank or any
Firstbank Subsidiary (or any former stockholder of Firstbank or any Firstbank
Subsidiary) or involving claims under the Securities Act, the Exchange Act, the
Community Reinvestment Act of 1977, as amended, or the fair lending laws.
2.12. Insurance. Each of Firstbank 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 Firstbank, 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 Firstbank and its Subsidiaries, taken as a
whole. Set forth on Schedule 2.12 is a list of all insurance policies maintained
by or for the benefit of Firstbank or its Subsidiaries or their directors,
officers, employees or agents.
2.13. Compliance with Laws. (a) Except as set forth on Schedule 2.13A,
Firstbank 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 and that are material or reasonably expected to
be material to the Condition of Firstbank 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 Firstbank,
no suspension or cancellation of any of them is threatened; and all such
filings, applications and registrations are current.
(b) Except as set forth on Schedule 2.13B and except for failures to
comply or defaults which individually or in the aggregate would not have and
could not reasonably be expected to have a material adverse effect on the
Condition of Firstbank and its Subsidiaries, taken as a whole, (i) each of
Firstbank and its Subsidiaries has complied with all laws, regulations and
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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
Firstbank Subsidiary that is a bank, banking organization, banking corporation
or trust company, all statutes, rules, regulations and policy statements
pertaining to the conduct of a banking, deposit-taking, lending or related
business, or to the exercise of trust powers) and governing instruments
applicable to them and to the conduct of their business, and (ii) neither
Firstbank nor any Firstbank 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 as set forth on Schedule 2.13B
and except as would not have and could not reasonably be expected to have a
material adverse effect on the Condition of Firstbank and its Subsidiaries,
taken as a whole, as of the date of this Agreement, neither Firstbank nor any
Firstbank 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 Firstbank (whether directly or, to the best knowledge of Firstbank, as a
consequence of such Property being part of the investment portfolio of Firstbank
or any Firstbank 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. Except as
set forth on Schedule 2.13B, no claim, action, suit, or proceeding is pending
against Firstbank or any Firstbank Subsidiary relating to Property of Firstbank
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 Firstbank or any Firstbank 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 Firstbank or any
Firstbank Subsidiary which reasonably could be expected to have a material
adverse effect on the Condition of Firstbank and its Subsidiaries, taken as a
whole.
(c) From and after January 1, 1994, neither Firstbank nor any Firstbank
Subsidiary has received any notification or communication which has not been
finally resolved from any Regulatory Authority (i) asserting that any Firstbank
or any Subsidiary of Firstbank, 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 (B)
reasonably could not be expected to have a material adverse effect on the
Condition of Firstbank and its Subsidiaries, taken as a whole, (ii) threatening
to revoke any license, franchise, permit or governmental authorization that is
material or reasonably expected to be material to the Condition of Firstbank 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
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(iii) requiring or threatening to require Firstbank or any of its Subsidiaries,
or indicating that Firstbank 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 manner the operations of Firstbank 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) Except as set forth on Schedule 2.13D, neither Firstbank nor any
Firstbank 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 Firstbank or any Firstbank
Subsidiary, is pending or, to the best knowledge of Firstbank, threatened which
reasonably could be expected to have a material adverse effect on the Condition
of Firstbank and its Subsidiaries, taken as a whole. Neither Firstbank nor any
Firstbank Subsidiary is involved in, or, to the best knowledge of Firstbank,
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 Firstbank and its Subsidiaries, taken as a
whole. Employees of neither Firstbank nor any Firstbank Subsidiary, are
represented by any labor union or any collective bargaining organization.
2.15. Material Interests of Certain Persons. (a) Except as set forth in
Firstbank's Proxy Statement for its 1997 Annual Meeting of Shareholders, to the
best knowledge of Firstbank, no officer or director of Firstbank or any
Subsidiary of Firstbank, or any "associate" (as such term is defined in Rule
l4a-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, Firstbank or any
Subsidiary of Firstbank, which in the case of Firstbank 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 Firstbank's Proxy Statement for its 1997
Annual Meeting of Shareholders or on Schedule 2.15B, there are no loans from
Firstbank or any Firstbank 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
Firstbank's or Firstbank Subsidiary's Board of Directors ("Insider Loans"). All
outstanding Insider Loans from Firstbank or any Firstbank Subsidiary were
approved by or reported to the appropriate board of directors to the extent
required in accordance with applicable law and regulations.
2.16. Allowance for Loan and Lease Losses; Nonperforming Assets. (a)
The allowances for loan and lease losses contained in the Firstbank Financial
Statements were established in accordance with the past practices and
experiences of Firstbank and its Subsidiaries, and the
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allowance for loan losses shown on the consolidated condensed balance sheet of
Firstbank and its Subsidiaries contained in the most recent Firstbank Form 10-Q
is adequate in all material respects under the requirements of GAAP to provide
for possible losses on loans (including without limitation accrued interest
receivable) and credit commitments (including without limitation stand-by
letters of credit) outstanding as of the date of such balance sheet.
(b) As of September 30, 1997, the aggregate amount of all Nonperforming
Assets (as defined below) on the books of Firstbank and its Subsidiaries does
not exceed $12,000,000. "Nonperforming Assets" shall mean (i) all loans and
leases (A) that are contractually past due 90 days or more in the payment of
principal and/or interest, (B) that are on nonaccrual status, (C) where a
reasonable doubt exists, in the reasonable judgment of Firstbank, as to the
timely future collectibility of principal and/or interest, whether or not
interest is still accruing or the loan is less than 90 days past due, (D) where
the interest rate terms have been reduced and/or the maturity dates have been
extended subsequent to the agreement under which the loan was originally created
due to concerns regarding the borrower's ability to pay in accordance with such
initial terms, (E) where a specific reserve allocation exists in connection
therewith, or (F) that have been classified "doubtful", "loss" or the equivalent
thereof by any Regulatory Authority, and (ii) all assets classified as real
estate acquired through foreclosure or repossession and other assets acquired
through foreclosure or repossession.
2.17. Employee Benefit Plans. (a) Except as set forth on Schedule
2.17A, neither Firstbank nor any Firstbank Subsidiary is a party to any existing
employment, management, consulting, deferred compensation, change-in-control or
other similar contract. Schedule 2.17A lists 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 Firstbank or any Firstbank Subsidiary in respect of any of the present or
former directors, officers, or other employees of and/or consultants to
Firstbank or any Firstbank Subsidiary (collectively, "Firstbank Employee
Plans"). Firstbank has furnished Mercantile with the following documents with
respect to each Firstbank Employee Plan: (i) a true and complete copy of all
material written documents comprising such Firstbank Employee Plan (including
amendments and individual agreements relating thereto) or, if there is no such
written document, an accurate and complete description of the Firstbank 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,
Firstbank 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 Firstbank or any Firstbank Subsidiary.
(b) Except as set forth on Schedule 2.17B, all Firstbank 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
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limitation ERISA and the Code. All contributions required to be made to
Firstbank Employee Plans have been made.
(c) With respect to each of the Firstbank Employee Plans which is a
pension plan (as defined in Section 3(2) of ERISA) (the "Pension Plans"), except
as set forth on Schedule 2.17C: (i) each Pension Plan which is intended to be
"qualified" within the meaning of Section 401(a) of the Code has been determined
to be so qualified by the IRS and, to the knowledge of Firstbank, 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 of 1986, as
amended, together with the Treasury regulations thereunder (the "IRC"); (ii) the
actuarial present value of all benefits under each Pension 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
(as indicated on Schedule 2.17A), exceed the value of the assets of the Pension
Plan allocable to such vested or accrued benefits; (iii) to the best knowledge
of Firstbank, there has been no "prohibited transaction," as such term is
defined in Section 4975 of the Code or Section 406 of ERISA, which could subject
any Pension Plan or associated trust, or Firstbank or any Firstbank 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" with respect to any
Pension Plan, as that term is defined in Section 4043 of ERISA for which the
30-day notice requirement has not been waived on or after January 1, 1993; and
(v) no Pension Plan or any trust created thereunder has incurred any
"accumulated funding deficiency", as such term is defined in Section 302 of
ERISA (whether or not waived). Except as set forth on Schedule 2.17C, no Pension
Plan is a "multiemployer plan" as that term is defined in Section 3(37) of
ERISA. With respect to each Pension Plan that is described in Section 4063(a) of
ERISA (a "Multiple Employer Pension Plan"): (i) neither Firstbank nor any
Firstbank Subsidiary would have any liability or obligation to post a bond under
Section 4063 of ERISA if Firstbank and all Firstbank Subsidiaries were to
withdraw from such Multiple Employer Pension Plan; and (ii) neither Firstbank
nor any Firstbank Subsidiary would have any liability under Section 4064 of
ERISA if such Multiple Employer Pension Plan were to terminate.
(d) Except as set forth on Schedule 2.17D, neither Firstbank nor any
Firstbank 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) Except as set forth on Schedule 2.17E, to the knowledge of
Firstbank, neither Firstbank nor any Firstbank Subsidiary has any material
liability under ERISA or the Code as a result of its being a member of a group
described in Sections 414(b), (c), (m) or (o) of the IRC.
(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 Firstbank or any Firstbank
Subsidiary from any of such entities, (ii) materially increase any benefit
otherwise payable under any of the Firstbank Employee Plans or (iii) result in
the acceleration of the time
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of payment of any such benefit. No holder of an option to acquire stock of
Firstbank 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
Firstbank) in exchange for or with respect to all or any portion of such option.
Except as described on Schedule 2.17F, Firstbank shall use its best efforts to
insure that no amounts paid or payable by Firstbank, Firstbank Subsidiaries or
Mercantile to or with respect to any employee or former employee of Firstbank or
any Firstbank Subsidiary will fail to be deductible for federal income tax
purposes by reason of Section 280G of the IRC. No Firstbank Stock Option has an
associated "Additional Option Right" (e.g., an SAR, etc.) or similar "re-load"
feature.
2.18. Conduct of Firstbank to Date. From and after January 1, 1997
through the date of this Agreement, except as set forth on Schedule 2.18 or in
Firstbank Financial Statements or Firstbank Reports: (i) Firstbank and the
Firstbank Subsidiaries have conducted their respective businesses in all
material respects in the ordinary and usual course consistent with past
practices; (ii) neither Firstbank nor any Firstbank 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 material assets or properties other
than in the ordinary course of business consistent with past practice; (iii)
neither Firstbank nor any Firstbank 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
Firstbank nor any Firstbank 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 Firstbank nor any Firstbank
Subsidiary has (A) increased the rate of compensation of, or paid any bonus to,
any of its directors, officers, or other employees, except merit, promotion or
annual increases and bonuses 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 Firstbank
Employee Plans or (D) agreed to do any of the foregoing; (vi) neither Firstbank
nor any Firstbank 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 Firstbank nor
any Firstbank Subsidiary has cancelled or compromised any material debt, except
for debts charged off or compromised in accordance with the past practice of
Firstbank and its Subsidiaries.
2.19. Proxy Statement, etc. None of the information regarding Firstbank
or any Firstbank Subsidiary supplied or to be supplied by Firstbank for
inclusion and 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 Firstbank Common Stock
pursuant to the provisions of this Agreement (the "Registration Statement"),
(ii) the proxy or information statement (the "Proxy Statement") to be mailed to
Firstbank's stockholders 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
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contemplated hereby will, at the respective times such documents are filed with
any Regulatory Authority and, in the case of the Registration Statement, when it
becomes effective and, with respect to the Proxy Statement, when mailed, be
false or misleading with respect to any material fact, or omit to state any
material fact necessary in order to make the statements therein not misleading
or, in the case of the Proxy Statement or any amendment thereof or supplement
thereto, at the time of the meeting of Firstbank's stockholders referred to in
Section 5.03 (the "Meeting") (or, if no Meeting is held, at the time the Proxy
Statement is first furnished to Firstbank's stockholders), 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 Firstbank or
any Firstbank 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 Firstbank nor any Firstbank Subsidiary is under any obligation,
contingent or otherwise to register any of its securities under the Securities
Act.
2.21. State Takeover Statutes; Firstbank's Certificate of
Incorporation. (a) Except as set forth on Schedule 2.21, the transactions
contemplated by this Agreement are not subject to any applicable state takeover
law assuming that neither Mercantile nor any of its affiliates or associates
beneficially own (other than pursuant to or as a result of the Stock Option
Agreement) more than 15 percent of the outstanding voting shares of Firstbank
prior to the Effective Time.
(b) Except as set forth on Schedule 2.21, the transactions contemplated
by this Agreement and the agreements contemplated hereby are not, and will not
be, prohibited by, or subject to any super majority provisions under Firstbank's
Certificate of Incorporation or Bylaws.
2.22. Accounting, Tax and Regulatory Matters. Neither Firstbank nor any
Firstbank Subsidiary has taken or agreed to take any action or has any knowledge
of any fact or circumstance that would, or intentionally will fail to take any
action the failure of which to take would, (i) prevent the transactions
contemplated hereby from qualifying as a reorganization within the meaning of
Section 368(a) of the Code or (ii) materially impede or delay receipt of any
approval referred to in Section 6.01(b) or the consummation of the transactions
contemplated by this Agreement.
2.23. Brokers and Finders. Except for Paine Webber, Inc., neither
Firstbank nor any Firstbank 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
Firstbank or any Firstbank 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
Firstbank to all third parties in connection with the Merger ("Merger Fees").
2.24. Other Activities. (a) Except as set forth on Schedule 2.24A,
neither Firstbank nor any of its Subsidiaries engages in any insurance
activities other than acting as a principal, agent
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or broker for insurance that is directly related to an extension of credit by
Firstbank 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
Firstbank's management: each Firstbank 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 (specifically including but not limited to Section
9 of Title 12 of the Code of Federal Regulations); there is no investigation or
inquiry by any governmental entity pending or, to the knowledge of Firstbank,
threatened against Firstbank or any of its Subsidiaries thereof relating to the
compliance by Firstbank or any of its Subsidiaries with sound fiduciary
principles and applicable law and regulations; and, except where such failures
would not have and could not reasonably be expected to have a material adverse
effect on the Condition of Firstbank and the Firstbank Subsidiaries, 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 Firstbank 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 Firstbank or any of
its Subsidiaries is a party or by which any of their properties or assets may be
bound were entered into in the ordinary course of business and, to the best
knowledge of Firstbank, 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, except as enforceability may be limited by
applicable laws relating to bankruptcy, insolvency or creditors rights generally
and general principles of equity, and are in full force and effect. Firstbank
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 Firstbank, 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 best knowledge of Firstbank, the
statements of Firstbank contained in this Agreement, the Schedules and any other
written document executed and delivered by or on behalf of Firstbank pursuant to
the terms of this Agreement are true and
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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.
2.27. Year 2000 Compliant. Except as set forth on Schedule 2.27, to the
best knowledge of Firstbank, all computer software and hardware utilized by
Firstbank or any Firstbank Subsidiary is, or is reasonably expected to be, Year
2000 compliant, which, for purposes of this Agreement, shall mean that the data
outside the range 1900-1999 will be correctly processed in any level of computer
hardware or software including, but not limited to, microcode, firmware,
applications programs, files and data bases. All computer software is, or
Firstbank is taking steps to ensure that all computer software will be, designed
to be used prior to, during and after the calendar year 2000 A.D., and such
software will operate during each such time period without material error
relating to date data, specifically including any error relating to, or the
product of, date data that represents or references different centuries or more
than one century.
ARTICLE III
REPRESENTATIONS, WARRANTIES AND COVENANTS OF
MERCANTILE AND MERGER SUB
Each of Mercantile and Merger Sub represents, and warrants to and
covenants with Firstbank as follows:
3.01. Organization and Authority. Mercantile and each of its
Subsidiaries 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, except where the
failure to be so qualified would not have and could not reasonably be expected
to have a material adverse effect on the Condition of Mercantile and its
Subsidiaries, taken as a whole, has corporate power and authority to own its
properties and assets and to carry on its business as it is now being conducted,
except, in the case of the Mercantile Subsidiaries, where the failure to be so
qualified would not have and could not reasonably be expected to 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 BHCA. True and complete copies of the Articles of Incorporation and Bylaws
of Mercantile and Merger Sub, each in effect on the date of this Agreement, have
been provided to Firstbank.
3.02. Capitalization of Mercantile. The authorized capital stock of
Mercantile consists of (i) 200,000,000 shares of Mercantile Common Stock, of
which, as of December 31, 1997, 130,508,090 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 December 31, 1997,
is issued or outstanding. Mercantile has designated 2,000,000 shares of
Mercantile Preferred Stock as "Series A Junior Participating Preferred Stock"
and has reserved such shares for issuance upon exercise of Preferred Stock
Purchase Rights ("Rights") under a Rights Agreement dated May 23, 1988 (the
"Mercantile Rights Agreement"), between Mercantile and
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Mercantile Bank of St. Louis National Association, as Rights Agent. As of
December 31, 1997 Mercantile had reserved (i) 14,840,856 shares of Mercantile
Common Stock for issuance under various employee stock option and incentive
plans and the Mercantile Shareholder Investment Plan ("Mercantile Stock
Options"), (ii) up to 951,380 shares of Mercantile Common Stock for issuance
upon the acquisition of HomeCorp, Inc. pursuant to an agreement dated October
29, 1997, (iii) up to 2,550,000 shares of Mercantile Common Stock for issuance
upon the acquisition of Horizon Bancorp, Inc. pursuant to an agreement dated
July 31, 1997, and (iv) up to 5,400,000 shares of Mercantile Common Stock for
issuance upon the acquisition of CBT Corporation pursuant to an agreement dated
January 10, 1998. From December 31, 1997 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,
neither Mercantile nor Merger Sub will take any action that would, or
intentionally will fail to take any action the failure of which to take would,
(i) prevent the transactions contemplated hereby from qualifying as a
reorganization within the meaning of Section 368 of the Code, (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 or (iii) unless
Mercantile shall have waived the condition set forth in Section 6.03(c), prevent
the Merger from qualifying for pooling-of-interests accounting treatment. Except
as set forth above 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. At the Effective Time, the Mercantile Common
Stock to be issued in the Merger will be 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. No stockholder vote is required for Mercantile to approve
this Agreement. 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, except as enforceability may be
limited by applicable laws relating to bankruptcy, insolvency or creditors
rights generally and general principles of equity.
(b) Neither the execution, delivery and performance by Mercantile or
Merger Sub of this Agreement, nor the consummation by Mercantile or Merger Sub
of the transactions contemplated
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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 of the material properties or assets of Mercantile is a party or by which
it may be bound, or to which Mercantile may be subject (in all cases other than
any of the foregoing which would not have and could not reasonably be expected
to 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, 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 the DGCL, the MGBCL, the Securities Act, the Exchange Act, the Investment
Company Act of 1940, the securities or blue sky laws of the various states or
filings, consents, reviews, authorizations, approvals or exemptions required
under the BHCA or any required approvals of, or notice to, any other Regulatory
Authority, no notice to, filing with, exemption or review by, or authorization,
consent or approval of, any public body or authority is necessary for the
consummation by Mercantile 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, 1996, 1995 and 1994 and related supplemental consolidated and
parent company only statements of income, cash flows and changes in
stockholders' equity for each of the three years in the three-year period ended
December 31, 1996, together with the notes thereto, audited by KPMG Peat Marwick
LLP ("Mercantile Auditors") and included in Mercantile's current report on Form
8-K dated May 13, 1997 as filed with the SEC, and the unaudited consolidated
balance sheets of Mercantile and its Subsidiaries as of March 31, June 30, and
September 30, 1997 and the related unaudited consolidated statements of income
and cash flows for the periods then ended included in quarterly reports on Form
10-Q (including amendments thereto) 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
material contingent liabilities that are not reflected in the Mercantile Reports
(defined below) or disclosed in the financial statements described above.
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3.05. Mercantile Reports. Since January 1, 1994, 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 any such Regulatory Authority are collectively referred to herein as
the "Mercantile Reports." As of its respective date, each Mercantile Report
complied in all material respects with all the rules and regulations promulgated
by the applicable Regulatory Authority and did not contain any untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading.
3.06. Material Adverse Change. Since September 30, 1997, there has been
no material adverse change in the Condition of Mercantile and its Subsidiaries,
taken as a whole, except as may have resulted or may result from changes to laws
and regulations or changes in economic conditions applicable to banking or
thrift institutions generally or in general levels of interest rates affecting
banking or thrift institutions generally.
3.07. 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 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
Firstbank), 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.
3.08. 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.
3.09. 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
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a default, except, in all cases, where such default would not have and could not
reasonably be expected to have a material adverse effect on the Condition of
Mercantile and its Subsidiaries, taken as a whole.
3.10. 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) 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.
3.11. 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 as a reorganization within the meaning of
Section 368(a) of the Code or (ii) materially impede or delay receipt of any
approval referred to in Section 6.01(b) or the consummation of the transactions
contemplated by this Agreement.
3.12. Accuracy of Information. The statements of Mercantile and Merger
Sub contained in this Agreement, the Schedules and in any other written document
executed and delivered by or on behalf of Mercantile or Merger Sub 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.
3.13. Taxes. Except as set forth on Schedule 3.13, Mercantile and each
Mercantile Subsidiary have timely filed or will timely (including extensions)
file all material tax returns, reports and certifications required to be filed
on or prior to the Closing Date ("Mercantile Returns"), and such filed
Mercantile Returns are and will be complete and accurate in all material
respects. Each of Mercantile and its Subsidiaries has paid (taking into account
all applicable extensions), 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
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 all periods up to and including the latest period covered
by such financial statements. Neither Mercantile nor any Mercantile Subsidiary
will have any liability material or reasonably expected to be material to the
Condition of Mercantile and the Mercantile Subsidiaries, taken as a whole, for
any such taxes in excess of the amounts so paid or reserves so established and,
to the knowledge of Mercantile, no material deficiencies for any tax, assessment
or governmental charge have been proposed, asserted or assessed (tentatively or
definitely) against any of
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Mercantile or any Mercantile Subsidiary which 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, nor has it
requested any extension of time within which to file any tax returns in respect
of any fiscal year which have not since been timely filed and no requests for
extensions or waivers of the time to assess any tax are pending. The federal and
state income tax returns of Mercantile and the Mercantile 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, 1994 or the
period for assessment of taxes in respect of such periods has expired. There is
no deficiency or refund litigation or matter in controversy with respect to
Mercantile Returns. Except as set forth on Schedule 3.13, neither Mercantile nor
any Mercantile Subsidiary has extended or waived any statute of limitations on
the assessment of any tax due that is currently in effect.
3.14. Compliance with Laws. (a) 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 and
that are material or reasonably expected to be material to 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.
(b) Except as set forth on Schedule 3.14B and except for failures to
comply or defaults which individually or in the aggregate would not have and
could not reasonably be expected to have a material adverse effect on the
Condition of Mercantile and its Subsidiaries, taken as a whole, (i) 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, banking corporation
or trust company, all statutes, rules, regulations and policy statements
pertaining to the conduct of a banking, deposit-taking, lending or related
business, or to the exercise of trust powers) and governing instruments
applicable to them and to the conduct of their business, 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 as set forth on Schedule 3.14B
and except as would not have and could not reasonably 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, 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
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the construction thereof. Except as set forth on Schedule 3.14B, 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. 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.
(c) From and after January 1, 1994, neither Mercantile nor any
Mercantile Subsidiary has received any notification or communication which has
not been finally 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 3.14C 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 or reasonably expected to be 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 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) Except as set forth on Schedule 3.14D, 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.
3.15. 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, lawsuit or
administrative proceeding which reasonably could be expected to have a material
adverse affect on the Condition of Mercantile and its Subsidiaries, taken as a
whole. Employees of neither Mercantile nor any Mercantile Subsidiary, are
represented by any labor union or any collective bargaining organization.
3.16. Interest Rate Risk Management Instruments. All interest rate
swaps, caps, floors and option agreements and other interest rate risk
management arrangements to which Mercantile
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or any of its Subsidiaries is a party or by which any of their properties or
assets may be bound were entered into in the ordinary course of business and, to
the best 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, except as enforceability may be limited by
applicable laws relating to bankruptcy, insolvency or creditors rights generally
and general principles of equity, 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, there are no material breaches,
violations or defaults or allegations or assertions of such by any party
thereunder.
3.17. Year 2000 Compliant. Except as set forth on Schedule 3.17, to the
best knowledge of Mercantile, all computer software and hardware utilized by
Mercantile or any Mercantile Subsidiary is, or is reasonably expected to be,
Year 2000 compliant, which, for purposes of this Agreement, shall mean that the
data outside the range 1900-1999 will be correctly processed in any level of
computer hardware or software including, but not limited to, microcode,
firmware, applications programs, files and data bases. All computer software is,
or Mercantile is taking steps to ensure that all computer software will be,
designed to be used prior to, during and after the calendar year 2000 A.D., and
such software will operate during each such time period without material error
relating to date data, specifically including any error relating to, or the
product of, date data that represents or references different centuries or more
than one century.
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 Firstbank 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 all
reasonable 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 of Firstbank. Except as set forth on Schedule 4.02,
to the extent required by applicable law or Regulatory Authority or as otherwise
contemplated by this Agreement, during the period from the date of this
Agreement to the Effective Time, Firstbank 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 Firstbank to Firstbank or
another Subsidiary of Firstbank), except that Firstbank may declare and
pay cash dividends on the Firstbank Common Stock equal to the product
of (i) the Exchange Ratio and (ii) the amount of the dividends per
share declared by the Board of Directors of Mercantile; provided,
further, however, that Firstbank shall not declare or pay a quarterly
dividend for any quarter in which Firstbank shareholders will
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be entitled to receive a 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 Firstbank Employee Plans or grant any
salary or wage increase or materially increase any employee benefit
(including incentive or bonus payments), except normal individual
increases in compensation to employees consistent with past practice,
or as required by law or contract; or
(c) authorize, recommend, propose or announce an intention to
authorize, so recommend or propose, or enter into an agreement in
principle with respect to, any merger, consolidation or business
combination (other than the Merger), any acquisition of a material
amount of assets or securities, any disposition of a material amount of
assets or securities or any release or relinquishment of any material
contract rights; 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 Firstbank may (i) issue shares of Firstbank
Common Stock upon exercise of Firstbank Stock Options outstanding on
the date of this Agreement or granted in compliance with this
subsection and (ii) issue shares of Firstbank Common Stock purchased by
Firstbank on the open market for such purpose, and only such shares,
pursuant to its dividend reinvestment plan) 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; or
(g) without first consulting with and obtaining the written
consent of 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 in an amount in excess of $3,000,000
or in any amount which, when aggregated with any and all loans or
credit commitments to such person or entity, would be equal to or in
excess of $3,000,000; provided that Firstbank or any Firstbank
Subsidiary may make any such loan or credit commitment in the event (A)
Firstbank or any Firstbank 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
or its designated representative of the notice of intention and
information as aforesaid; provided further, however, that nothing in
this paragraph shall
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prohibit Firstbank or any Firstbank Subsidiary from honoring any
contractual obligation in existence on the date of this Agreement.
Notwithstanding this Section 4.02(g), Firstbank shall be authorized
without first obtaining Mercantile's prior written consent, to increase
the aggregate amount of any credit facilities theretofore established
in favor of any person or entity (each a "Pre-Existing Facility")
beyond the $3,000,000 credit level, provided that the aggregate amount
of any and all such increases shall not be in excess of the lesser of
five percent (5%) of such Pre-Existing Facility or $100,000; or
(h) directly or indirectly (including through its officers,
directors, employees or other representatives) initiate, solicit,
encourage or facilitate any discussions, inquiries or proposals with
any third party relating to the disposition of any significant portion
of the business or assets of Firstbank or any Firstbank Subsidiary or
the acquisition of Equity Securities of Firstbank or any Firstbank
Subsidiary or the merger of Firstbank or any Firstbank 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 Firstbank 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 Firstbank 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, (B) prevent the transactions contemplated hereby from
qualifying as a reorganization within the meaning of Section 368(a) of
the Code or (C) prevent the Merger from qualifying for
pooling-of-interests accounting treatment; 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 pay without prior approval of Mercantile, which shall
not be unreasonably withheld, 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, without prior written consent of Mercantile which
consent shall not be unreasonably withheld or delayed, 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
$10,000,000 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
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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
Firstbank, 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 consistent with past practices;
(b) take any action that would (A) materially impede or delay
the consummation of the transactions contemplated by this Agreement or
the ability of Firstbank 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, (B) prevent the transactions contemplated hereby from
qualifying as a reorganization within the meaning of Section 368(a) of
the Code or (C) unless Mercantile shall have waived the condition set
forth in Section 6.03(c), prevent the Merger from qualifying for
pooling-of-interests accounting treatment; or
(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 Firstbank 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
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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 Firstbank with respect to
matters relating to Firstbank, file with the SEC as soon as is reasonably
practicable, but in any event within 90 days following 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 Mercantile Stock Options (that replace Firstbank
Stock Options) after the Effective Time. After the date of filing the
Registration Statement with the SEC, each party hereto shall promptly notify the
others of and correct any information which it furnished for inclusion in the
Registration Statement that may have become false or misleading in any material
respect. Mercantile shall prepare and file a notice with the Board as soon as
reasonably practicable, but in any event within 90 days following the date
hereof. Mercantile shall use all reasonable efforts to cause the Registration
Statement to become effective. Mercantile shall also take any action required to
be taken under any applicable state blue sky or securities laws in connection
with the issuance of such shares and the exercise of such options, and Firstbank
and its Subsidiaries shall furnish Mercantile all information concerning
Firstbank 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) Firstbank 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 and consistent with the
other provisions of this Agreement, to consummate such other mergers,
consolidations or asset transfers or other transactions by and among
Mercantile's Subsidiaries and Firstbank's 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 Firstbank's stockholders or Firstbank Stock Option holders 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. Firstbank 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 Proxy Statement and, with the
approval of each of Mercantile and Firstbank, the Proxy Statement shall be filed
with the SEC and, after such review and amendment as may be required, mailed to
the stockholders of Firstbank. The Board of Directors of Firstbank shall submit
for approval of Firstbank's stockholders the matters to be voted upon in order
to authorize the Merger. The Board of Directors of Firstbank hereby does and,
unless the Board of Directors of Firstbank
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reasonably determines not to so recommend based upon the written opinion of
counsel, which counsel either is one of those identified on Schedule 2.23 or is
otherwise reasonably acceptable to Mercantile, to the effect that to so
recommend would constitute a breach of the Board's fiduciary duties under
applicable law, will recommend this Agreement and the transactions contemplated
hereby to stockholders of Firstbank and will use its best efforts to obtain any
vote of Firstbank's stockholders that is necessary for the approval and adoption
of this Agreement and consummation of 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 statements 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 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. (a) As soon as practicable after the
date of this Agreement, Firstbank shall deliver to Mercantile a letter
identifying all persons whom Firstbank believes to be, at the time this
Agreement is submitted to a vote of the stockholders of Firstbank, "affiliates"
of Firstbank for purposes of Rule 145 under the Securities Act and for purposes
of pooling-of-interests accounting treatment. Firstbank shall use all reasonable
efforts to cause each person who is so identified as an "affiliate" to deliver
to Mercantile as soon as practicable thereafter, and in any event no later than
the publication of notice in the Federal Register of Mercantile's notice to the
Board referred to in Section 5.02, a written agreement providing that from the
date of such agreement each such person will agree not to sell, pledge, transfer
or otherwise dispose of any shares of stock of Firstbank held by such person or
any shares of Mercantile Common Stock to be received by such person in the
Merger except in compliance with the applicable provisions of the Securities
Act. Prior to the Effective Time, Firstbank shall amend and supplement such
letter and use all reasonable 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 all reasonable efforts to publish as promptly
as reasonably practicable, 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,
respectively, all reasonable efforts to take, or cause to be taken, all action,
and to do, or cause to be done, all things necessary, proper
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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, respectively, all reasonable
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 all reasonable efforts to obtain consents of all third
parties and Regulatory Authorities necessary or, 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, Firstbank, 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 5.15 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 Firstbank's existing
policies and procedures in respect of such matters to Mercantile's policies and
procedures or, in the absence of any existing Firstbank policy or procedure
regarding any such function, introduce Mercantile's policies or procedures in
respect thereof, unless to do so would cause Firstbank or any of the Firstbank
Subsidiaries to be in violation of any law, rule or regulation of any Regulatory
Authority having jurisdiction over Firstbank and/or the Firstbank 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 Firstbank 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 Firstbank shall not be required to
take any such action that is not consistent with GAAP and regulatory accounting
principles or would, in the reasonable judgment of Firstbank's Board of
Directors, have a material negative impact on Firstbank and/or its shareholders
if the transactions contemplated by this Agreement are not consummated.
5.08. Employee Benefits. The Firstbank 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 Firstbank and the
Firstbank 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 Firstbank and the Firstbank 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 Firstbank or any of the Firstbank Subsidiaries for
all purposes other than determining the amount of benefit accruals under any
Mercantile defined benefit plan (it being understood that benefits accrued as of
the Effective Time under any Firstbank defined benefit plan will not be
extinguished under any circumstances), (ii) without any waiting periods,
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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 Firstbank shall use all
reasonable efforts to insure that (other than amounts paid pursuant to the
agreement described on Schedule 2.17F under the heading "Parachute Payments") no
amounts paid or payable by Firstbank, Firstbank Subsidiaries or Mercantile to or
with respect to any employee or former employee of Firstbank or any Firstbank
Subsidiary will fail to be deductible for federal income tax purposes by reason
of Section 280G of the IRC. Firstbank shall ensure that following the Effective
Time no holder of Firstbank Stock Options or any participant in any Firstbank
Stock Plan shall have any right thereunder to acquire any securities of
Firstbank or any Firstbank Subsidiary.
5.09. Firstbank Stock Options. (a) At the Effective Time, all rights
with respect to Firstbank Common Stock pursuant to Firstbank 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 Firstbank 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
Firstbank 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 Firstbank Stock Option shall be equal to the number
of shares of Firstbank Common Stock subject to such Firstbank Stock Option
immediately prior to the Effective Time multiplied by the Exchange Ratio and
(iii) the per share exercise price under each Firstbank Stock Option shall be
adjusted by dividing the per share exercise price under such Firstbank Stock
Option by the Exchange Ratio and rounding down to the nearest cent; provided,
however, that the terms of each Firstbank 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 IRC, as to any Firstbank Stock Option that is an "incentive stock option."
The parties recognize that the Merger will not cause vesting to occur under the
Firstbank Stock Options, except as otherwise identified on Schedule 2.03.
(b) At or prior to the Effective Time, Mercantile shall take all
corporate action necessary to authorize and reserve for issuance a sufficient
number of shares of Mercantile Common Stock for delivery upon exercise of
Firstbank Stock Options to purchase Firstbank Common Stock assumed by it in
accordance with paragraph (a) above. As soon as practicable after the Effective
Time, Mercantile shall file a registration statement on Form S-3 or Form S-8, as
the case may be (or any successor or other appropriate forms), or another
appropriate form with respect to the shares of Mercantile Common Stock subject
to such options and shall use its best efforts to maintain the effectiveness of
such registration statements (and maintain the current status of the prospectus
contained therein) for so long as such options remain outstanding.
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5.10. Press Releases. Except as may be required by law, Firstbank 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; Firstbank's Certificate of
Incorporation. (a) Each of Mercantile and Firstbank will take all steps
reasonably 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.
(b) Firstbank will take all steps reasonably necessary to exempt the
transactions contemplated by this Agreement and any agreement contemplated
hereby from any super-majority voting provisions under Firstbank's Certificate
of Incorporation and Bylaws.
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 Firstbank and/or its Subsidiaries against all
losses, expenses, claims, damages or liabilities relating to acts or omissions
occurring at or prior to the Effective Time to the same extent such persons are
indemnified and held harmless (A) under their respective Articles or Certificate
of Incorporation or Bylaws of Firstbank and its Subsidiaries in the form in
effect at the date of this Agreement, (B) by operation of law, or (C) 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
Firstbank and its Subsidiaries immediately prior to the Effective Time coverage
no less favorable in the aggregate than that provided by Mercantile to its
officers and directors.
5.13. Best Efforts. Each of Mercantile and Firstbank undertakes and
agrees to use its reasonable best efforts to cause the Merger (i) to qualify as
a reorganization within the meaning of Section 368(a) of the Code (including, if
necessary, to take reasonable steps to restructure the transactions contemplated
by this Agreement to so qualify) and (ii) to occur as soon as practicable. Each
of Mercantile and Firstbank 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 Firstbank 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. Firstbank shall, and Firstbank shall cause each of its
Subsidiaries to, use its best efforts to maintain its existing insurance.
5.15. Conforming Entries. (a) Notwithstanding that Firstbank believes
that Firstbank and the Firstbank Subsidiaries have established all reserves and
taken all provisions for possible loan losses required by GAAP and applicable
laws, rules and regulations, Firstbank 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,
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regulations and the requirements of Regulatory Authorities, from and after the
date of this Agreement to the Effective Time, Firstbank and Mercantile shall
consult and cooperate with each other with respect to conforming the loan,
accrual and reserve policies of Firstbank and the Firstbank Subsidiaries to
those policies of Mercantile, as specified in each case in writing to Firstbank,
based upon such consultation and as hereinafter provided; provided that
Firstbank not be required to take any action that would, in the reasonable
judgment of Firstbank's Board of Directors, have a material negative impact on
Firstbank and/or its shareholders if the transactions contemplated by this
Agreement are not consummated.
(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, Firstbank and Mercantile shall consult and cooperate with
each other with respect to determining appropriate Firstbank 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, as specified in each case in writing to Firstbank, based upon such
consultation and as hereinafter provided; provided that Firstbank not be
required to take any action that would, in the reasonable judgment of
Firstbank's Board of Directors, have a material negative impact on Firstbank
and/or its shareholders if the transactions contemplated by this Agreement are
not consummated.
(c) Subject to applicable laws, regulations and the requirements of
Regulatory Authorities, Firstbank and Mercantile shall consult and cooperate
with each other with respect to determining, as specified in a written notice
from Mercantile to Firstbank, based upon such consultation and as hereinafter
provided, the amount and the timing for recognizing for financial accounting
purposes Firstbank's expenses of the Merger and the restructuring charges
relating to or to be incurred in connection with the Merger; provided that
Firstbank not be required to take any action that would, in the reasonable
judgment of Firstbank's Board of Directors, have a material negative impact on
Firstbank and/or its shareholders if the transactions contemplated by this
Agreement are not consummated.
(d) Subject to applicable laws, regulations and the requirements of
Regulatory Authorities, Firstbank shall (i) establish and take such reserves and
accruals at such time as Mercantile shall reasonably request to conform
Firstbank's 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 Firstbank 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 Firstbank shall not be required to take any such
action that is not consistent with
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GAAP and regulatory accounting principles or would, in the reasonable judgment
of Firstbank's Board of Directors, have a material negative impact on Firstbank
and/or its shareholders if the transactions contemplated by this Agreement are
not consummated.
(e) No reserves, accruals or charges taken in accordance with Section
5.15(d) above may be a basis to assert a violation of a breach of a
representation, warranty or covenant of Firstbank herein.
5.16. Environmental Reports. Mercantile, at its expense, may perform,
as soon as reasonably practicable, but not later than ninety (90) days after the
date hereof, a phase one environmental investigation and/or asbestos survey by
Environmental Operations, Inc. on all real property owned, leased or operated by
Firstbank or any of the Firstbank Subsidiaries as of the date hereof (but
excluding space in retail and similar establishments leased by Firstbank for
automatic teller machines or leased bank branch facilities where the space
leased comprises less than 20% of the total space leased to all tenants of such
property) and within fifteen (15) days after being notified by Firstbank of the
acquisition or lease of any real property acquired or leased by Firstbank or any
of the Firstbank Subsidiaries after the date hereof (but excluding space in
retail and similar establishments leased by Firstbank for automatic teller
machines or leased bank facilities where the space leased comprises less than
20% of the total space leased to all tenants of such property). If the results
of the phase one investigation indicate, in Mercantile's reasonable opinion,
that additional investigation is warranted, Mercantile may perform, at its
expense, a phase two subsurface investigation or investigations by Environmental
Operations, Inc. on properties deemed to warrant such additional study.
Mercantile shall perform any such phase two investigation as soon as reasonably
practicable after receipt of the phase one report(s) for such properties. Should
the cost of taking all remedial or other corrective actions and measures (i)
required by applicable law or (ii) recommended by Environmental Operations, Inc.
in such phase one or phase two report or reports in light of potentially serious
life, health or safety concerns, in the aggregate, exceed the sum of $7,000,000,
as reasonably estimated by Environmental Operations, Inc. or if the cost of such
actions or measures cannot be so reasonably estimated by Environmental
Operations, Inc. to be such amounts or less with any reasonable degree of
certainty, Mercantile shall have the right pursuant to Section 7.01(f) hereof,
for a period of fifteen (15) business days following receipt from Environmental
Operations, Inc. of such estimate or indication that the cost of such actions
and measures cannot be so reasonably estimated, to terminate this Agreement.
5.17. Best Efforts to Insure Pooling. Firstbank undertakes and agrees
and, unless Mercantile shall have waived the condition set forth in Section
6.03(c), Mercantile undertakes and agrees to use their reasonable best efforts
to cause the Merger to qualify for pooling-of-interests accounting treatment.
5.18. Community Support. Mercantile shall use all reasonable efforts
following the Effective Time to maintain a level of community support and
involvement in the communities served by Firstbank that is substantially
equivalent in the aggregate to Firstbank's general level of support and
involvement prior to the Merger.
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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 Firstbank.
(b) All requisite approvals of this Agreement and the transactions
contemplated hereby shall have been received from or waived by the
Board and any other Regulatory Authority and all applicable waiting
periods have expired.
(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 Firstbank nor Mercantile shall be subject to any
order, decree or injunction, and there shall be no pending or
threatened order, decree or injunction, of a court or agency of
competent jurisdiction which enjoins or prohibits the consummation of
any of the Transactions.
(e) There shall be no legislative, statutory or regulatory action
(whether federal or state) pending which prohibits or threatens in a
material way to prohibit consummation of the Transactions or which
otherwise materially adversely affects the Transactions.
(f) Each of Mercantile and Firstbank shall have received, from
counsel reasonably satisfactory to the recipient, an opinion, dated the
Closing Date, reasonably satisfactory in form and substance to the
recipient, substantially to the effect that, on the basis of facts,
representations and assumptions set forth in such opinion which are
consistent with the state of facts existing at the Effective Time, (i)
the Merger will constitute a reorganization within the meaning of
Section 368(a) of the Code and (ii) no gain or loss will be recognized
by the stockholders of Firstbank who receive solely Mercantile Common
Stock in exchange for shares of Firstbank Common Stock pursuant to the
Merger (except with respect to cash received in lieu of a fractional
share interest in Mercantile Common Stock). In rendering such opinions,
counsel shall receive, and may rely on, customary representations from
Mercantile, Firstbank and others, including but not limited to
representations contained in certificates of officers of Mercantile,
Firstbank and others.
6.02. Conditions to Obligations of Firstbank To Effect the Merger. The
obligations of Firstbank 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
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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 contemplated by this Agreement), except for such
failures to be so true and correct as would not have and could not
reasonably be expected to have in the aggregate a material adverse
effect on the Condition of Mercantile and its Subsidiaries, taken as a
whole, and Firstbank shall have received a certificate of the chairman
or vice chairman of Mercantile to that effect; provided, however, that
for purposes of determining the satisfaction of the condition contained
in this Section 6.02(a), no effect shall be given to any exception or
qualification in such representations and warranties relating to
materiality or material adverse 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
Firstbank shall have received a certificate of the chairman or vice
chairman of Mercantile to that effect.
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 Firstbank set forth in Article II of this Agreement shall
be true and correct in all 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 contemplated by this Agreement),
except for such failures to be so true and correct as would not have
and could not reasonably be expected to have in the aggregate a
material adverse effect on the Condition of Firstbank and its
Subsidiaries, taken as a whole, and Mercantile shall have received a
certificate of the chairman and president of Firstbank and a
certificate of the chief financial officer of Firstbank to that effect;
provided, however, that for purposes of determining the satisfaction of
the condition contained in this Section 6.03(a), no effect shall be
given to any exception or qualification in such representations and
warranties relating to materiality or material adverse effect.
(b) Performance of Obligations. Firstbank 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 and president of Firstbank
and a certificate of the chief financial officer of Firstbank to that
effect.
(c) Pooling Letter. Mercantile shall have received as soon as
practicable after the date of this Agreement an opinion of KPMG Peat
Marwick LLP, reasonably satisfactory in form and substance to
Mercantile, to the effect that the Merger will qualify for
pooling-of-interests accounting treatment, which opinion shall have not
been withdrawn.
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(d) Divestitures. Firstbank shall have divested or have entered
into binding agreements to divest, in each case on a basis reasonably
acceptable to Mercantile and as required under applicable law or by any
Regulatory Authority, the Missouri bank Subsidiaries of Firstbank.
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 Firstbank;
(b) by the Executive Committee of the Board of Directors of
Mercantile or the Board of Directors of Firstbank at any time after
January 27, 1999 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 Firstbank if (i) the Board has
denied approval of the Merger and such denial has become final and
nonappealable or (ii) stockholders of Firstbank shall not have approved
this Agreement at the Meeting following a favorable recommendation of
Firstbank's Board of Directors;
(d) by the Executive Committee of the Board of Directors of
Mercantile in the event of a material breach by Firstbank 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 Firstbank by Mercantile;
(e) by the Board of Directors of Firstbank 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 Firstbank; or
(f) by the Executive Committee of the Board of Directors of
Mercantile pursuant to and in accordance with the provisions of the
last sentence of Section 5.16.
7.02. Effect of Termination. In the event of termination of this
Agreement as provided in Sections 7.01(a) through 7.01(c) and Section 7.01(f)
above, this Agreement shall forthwith become void and there shall be no
liability or obligation on the part of Mercantile or Firstbank or their
respective officers or directors except as set forth in the second sentence of
Section 5.01 and in Section 5.06.
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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 Firstbank; provided, however, that after any such approval
by the stockholders of Firstbank no such modification shall alter or change the
amount or kind of consideration to be received by holders of Firstbank 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 Firstbank.
7.04. Severability. Any term, provision, covenant or restriction
contained in this Agreement held by a court or a Regulatory Authority of
competent jurisdiction or the Board 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. Except
as set forth below in this Section 8.01, all representations, warranties and
agreements in this Agreement of Mercantile and Firstbank or in any instrument
delivered by Mercantile or Firstbank 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. In the event of
consummation of the Merger, the agreements contained in or referred to in
Sections 1.12 (last sentence only), 5.02(b), 5.05(b), 5.07, 5.08, 5.09, 5.12,
5.18 and in any other provision contained herein which by its terms applies in
whole or in part after the Effective Time shall survive the Effective Time. In
the event of termination of this Agreement in accordance with its terms, the
agreements contained in or referred to in the second sentence of Section 5.01,
Section 5.06 and Section 7.02 shall survive such termination.
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 or (ii) upon confirmation of receipt, if by facsimile
transmission or (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):
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(i) if to Mercantile:
Mercantile Bancorporation Inc.
Mercantile Tower
P.O. Box 524
St. Louis, Missouri 63166-0524
Attention: John W. Rowe
Executive Vice President,
Mercantile Bank National Association
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
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(ii) if to Firstbank:
Firstbank of Illinois Co.
205 South Fifth
Springfield, Illinois 62701
Attention: Mark H. Ferguson
Copies to:
Suelthaus & Walsh, P.C.
7733 Forsyth Boulevard, 12th Floor
St. Louis, Missouri 63105
Attention: Kenneth H. Suelthaus, Esq.
Telecopy: (314) 727-7166
and
Mayer, Brown & Platt
190 South LaSalle Street
Chicago, Illinois 60603
Attention: James J. Junewicz, Esq.
Telecopy: (312) 701-7711
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 Sections 5.09 and 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, except
as otherwise specifically provided herein or required by the DGCL. 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, Merger Sub and Firstbank 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/ David W. Grant By: /s/ John W. Rowe
Name: David W. Grant Name: John W. Rowe
Title: Senior Vice President Title: Executive Vice President
Attest: AMERIBANC, INC.
/s/ David W. Grant By: /s/ John W. Rowe
Name: David W. Grant Name: John W. Rowe
Title: Senior Vice President Title: Vice President
Attest: FIRSTBANK OF ILLINOIS CO.
/s/ Chris R. Zettek By: /s/ Mark H. Ferguson
Name: Chris R. Zettek Name: Mark H. Ferguson
Title: Assistant Secretary Title: Chairman & CEO
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Annex B
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT ("Option Agreement") dated January 30,
1998, by and 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 "BHCA"), and as a savings and loan holding company
under the Home Owners' Loan Act, as amended ("HOLA"), and FIRSTBANK OF ILLINOIS
CO. ("Firstbank"), a Delaware corporation registered as a bank holding company
under the BHCA.
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 Firstbank have approved an Agreement
and Plan of Reorganization dated as of even date herewith (the "Merger
Agreement") providing for the merger of Firstbank 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 Firstbank agree, and Firstbank has
agreed, to grant to Mercantile the option set forth herein to purchase
authorized but unissued shares of Firstbank 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, Firstbank hereby
grants to Mercantile an option (the "Option") to purchase up to 3,134,858
authorized and unissued shares of Firstbank Common Stock at a price of $37.75
per share (the "Purchase Price") payable in cash as provided in Section 4
hereof.
3. Exercise of Option.
(a) If not then in material breach of the Merger Agreement, Mercantile
may exercise the Option, in whole or in part, at any time or from time to time
if a Purchase
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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 (A) the Effective Time of
the Merger, (B) the termination of the Merger Agreement in accordance with
Sections 7.01(e), 7.01(f) or 7.01(a) through 7.01(c) thereof, and (C) two years
following the termination of the Merger Agreement in accordance with Section
7.01(d) thereof, provided that, with respect to any of the foregoing, 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 day 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)
that any such exercise shall be subject to compliance with applicable law,
including the BHCA.
(b) As used herein, a "Purchase Event" shall mean any of the following
events:
(i) Firstbank or any of its Significant Subsidiaries, without
having received prior written consent from Mercantile, 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 Mercantile or any of its Subsidiaries)
to (A) effect a merger or consolidation or similar transaction involving
Firstbank or any of its Significant Subsidiaries (other than internal mergers,
reorganizing actions, consolidations or dissolutions involving only Firstbank
and/or existing Subsidiaries of Firstbank), (B) purchase, lease or otherwise
acquire 20% or more of the assets of Firstbank or any of its Significant
Subsidiaries or (C) purchase or otherwise acquire (including by way of merger,
consolidation, share exchange or similar transaction) Beneficial Ownership of
securities representing 20% or more of the voting power of Firstbank or any of
its Significant Subsidiaries; provided, that the making of any agreement to
divest or the actual divestiture by Firstbank of any of Firstbank's
Missouri-chartered banks shall not constitute a Purchase Events; and provided
that the term "Significant Subsidiary" shall have the meaning ascribed thereto
in Rule 1-02 of Regulation S-X of the Securities Exchange Commission;
(ii) any person (other than Mercantile or any Subsidiary of
Mercantile or any person acting in concert with Mercantile, or Firstbank or any
Subsidiary of Firstbank in a fiduciary capacity) shall have acquired Beneficial
Ownership or the right to acquire Beneficial Ownership of 20% or more of the
voting power of Firstbank; or
(iii) Firstbank's Board of Directors shall have withdrawn or
modified in a manner adverse to Mercantile the recommendation of Firstbank's
Board of Directors with respect to the Merger Agreement, unless the Board of
Directors of Firstbank reasonably determines not to so recommend based upon the
written opinion of counsel, which counsel either is one of those identified on
Schedule 2.23 to the Merger Agreement or is otherwise reasonably acceptable to
Mercantile, to the effect that to so recommend would
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constitute a breach of the Board's fiduciary duties under applicable law, in
each case after an Extension Event; or
(iv) the holders of Firstbank Common Stock shall not have approved
the Merger Agreement at the Meeting, 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 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 Firstbank
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 20% or more of the voting power of Firstbank; or
(iii) any person (other than Mercantile or any Subsidiary of
Mercantile, or Firstbank or any Subsidiary of Firstbank in a fiduciary capacity)
shall have publicly announced (x) an offer described in clause (ii) above or (y)
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 Firstbank 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 Firstbank the aggregate Purchase Price for the shares of Firstbank Common
Stock purchased pursuant to the exercise of the Option in immediately available
funds by wire transfer to a bank account designated by Firstbank.
(b) At such closing, simultaneously with the delivery of cash as
provided in Section 4(a), Firstbank shall deliver to Mercantile a certificate or
certificates representing the number of shares of Firstbank Common Stock
purchased by Mercantile, registered in
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the name of Mercantile or a nominee designated in writing by Mercantile, and
Mercantile shall deliver to Firstbank 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 Firstbank Common Stock pursuant
to any exercise of the Option, Firstbank shall have issued any share purchase
rights or similar securities to holders of Firstbank Common Stock, then each
such share of Firstbank 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 Firstbank Common Stock.
(d) Certificates for Firstbank 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
____________________, a copy of which is on file at the principal office of
____________________, 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
__________________ 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 Firstbank an opinion
of counsel, in form and substance reasonably satisfactory to Firstbank 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) Firstbank hereby represents and warrants to Mercantile that:
(i) Firstbank 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 Firstbank, 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 Firstbank,
enforceable against Firstbank in accordance with its terms; and
(iv) Firstbank 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
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Option, shall have reserved for issuance upon exercise of the Option, 3,134,858
shares of Firstbank 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 Firstbank 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;
(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 Firstbank 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 Firstbank 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
Firstbank 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 Firstbank 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 Firstbank Common Stock then issued and
outstanding (without considering 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 Purchase Event and ending 13 months
immediately thereafter (the "Repurchase Period"), Firstbank (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 Firstbank Common Stock
purchased by Mercantile pursuant thereto with
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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
Firstbank Common Stock acquired pursuant to the Option;
(ii) The difference between (A) the "Market/Tender Offer Price"
for shares of Firstbank 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
Firstbank Common Stock or (y) the highest closing mean of the "bid" and the
"ask" price per share of Firstbank Common Stock reported by NASDAQ, the
automated quotation system of the National Association of Securities Dealers,
Inc., 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 Purchase Price as determined pursuant to Section 2 hereof
(subject to adjustment as provided in Section 6), multiplied by the number of
shares of Firstbank Common Stock with respect to which the Option has not been
exercised, but only if the Market/Tender Offer Price is greater than such
exercise price;
(iii) The difference between the Market/Tender Offer Price and the
Purchase Price paid by Mercantile for any shares of Firstbank Common Stock
purchased pursuant to the exercise of the Option, multiplied by the number of
shares so purchased, but only if the Market/Tender Offer Price is greater than
such exercise price; and
(iv) Mercantile's reasonable out-of-pocket expenses incurred in
connection with the transactions contemplated by the Merger Agreement,
including, without limitation, legal, accounting and investment banking fees.
(b) In the event Mercantile exercises its rights under this Section 7,
Firstbank 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 Firstbank the Option
and the certificates evidencing the shares of Firstbank 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. Notwithstanding the
foregoing, in the event (i) Mercantile exercises its rights under this Section
7, (ii) no Purchase Event, other than one or more of those described under
Section 3(b)(iii) and Section 3(b)(iv) of this Option Agreement, shall have
occurred prior to the termination of the Merger Agreement, (iii) as of the
termination of the Merger Agreement, Firstbank shall not have knowingly violated
any covenant, agreement or obligation on its part to be observed, performed
and/or kept by it under any of Sections 4.02(c), 4.02(h), 4.02(i) and 4.02(l) of
the Merger Agreement and (iv) Firstbank shall have delivered, within 5 business
days of Mercantile's exercise of its rights under this Section 7, a written
notice certifying the satisfaction of clauses (i) through (iv) of this Section
7(b), then Firstbank shall not be obligated to pay to Mercantile an amount
greater
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than $21,000,000 pursuant to this Section 7; provided, however, that if any
transaction of the type described in Section 3(b)(i) of this Option Agreement
shall be consummated following the date of termination of the Merger Agreement
and on or before the second anniversary of such date of termination, then
Firstbank shall pay to Mercantile, immediately prior to consummation of the
first such transaction, an additional amount equal to the excess, if any, of (x)
the amount required to be paid by Firstbank to Mercantile pursuant to Section
7(a) hereof (without giving effect to this Section 7(b)) over (y) $21,000,000 by
wire transfer of immediately available funds to an account designated by
Mercantile.
(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 Firstbank.
8. Repurchase at Option of Firstbank and First Refusal. (a) Except to
the extent that Mercantile shall have previously exercised its rights under
Section 7, at the request of Firstbank during the six-month period commencing 13
months following the first occurrence of a Purchase Event, Firstbank may
repurchase from Mercantile, and Mercantile shall sell to Firstbank, all (but not
less than all, subject to Section 10) of the Firstbank 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 highest 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, legal, 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 Firstbank Common Stock acquired by it pursuant to the
Option, it shall give Firstbank 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 Firstbank, 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
Firstbank 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
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designated by Mercantile. In the event of the failure or refusal of Firstbank to
purchase the Option or all the shares covered by the Offeror's Notice or if the
Board or any other Regulatory Authority disapproves Firstbank's 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
(or the right to acquire not more than) 2% of the voting power of Firstbank or
(ii) any disposition of Firstbank Common Stock by a person to whom Mercantile
has sold shares of Firstbank Common Stock issued upon exercise of the Option.
9. Registration Rights.
At any time after a Purchase Event, Firstbank shall, if requested by
any holder or beneficial owner of shares of Firstbank 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 clause (i) thereof) (each a "Holder"), as expeditiously as practicable
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
Firstbank 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 Firstbank Common Stock then outstanding). Each such
Holder shall provide all information reasonably requested by Firstbank for
inclusion in any registration statement to be filed hereunder. Firstbank shall
use all reasonable efforts to cause such registration statement first to become
effective and then to remain effective for such period not in excess of 90 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 Firstbank's expense
except for underwriting discounts and commissions and the fees and disbursements
of such Holders' counsel attributable to the registration of such Firstbank
Common Stock. In no event shall Firstbank 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 Firstbank of Firstbank Common Stock or if a special
audit of Firstbank would otherwise be required in connection therewith. If
requested by any such Holder in connection with such registration, Firstbank
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,
Firstbank agrees to send a copy thereof to any other person known to Firstbank
to be entitled to registration rights under this Section 9,
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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 Firstbank to repurchase or
purchase, the full number of shares of Firstbank 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 Firstbank 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.
(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.
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(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 Firstbank 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 Firstbank under Section 7 or a repurchase
or purchase by Firstbank 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 Firstbank,
provided that each of Mercantile and Firstbank shall use all reasonable 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 BHCA 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 Firstbank to issue any shares of
Firstbank
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Common Stock in breach of, or otherwise breach any of, the provisions of the
Merger Agreement and no action taken pursuant to this Option Agreement by
Firstbank shall constitute a breach of 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.
IN WITNESS WHEREOF, each of the parties hereto has executed this Option
Agreement as of the date first written above.
MERCANTILE BANCORPORATION INC.
By: /s/ John W. Rowe
Name: John W. Rowe
Title: Executive Vice President
FIRSTBANK OF ILLINOIS CO.
By: /s/ Mark H. Ferguson
Name: Mark H. Ferguson
Title: Chairman & CEO
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Annex C
[LETTERHEAD OF PAINEWEBBER INCORPORATED]
_______ __, 1998
Board of Directors
Firstbank of Illinois Co.
205 South Fifth St.
Springfield, IL 62794-9264
Gentlemen:
Firstbank of Illinois Co. (the "Company") and Mercantile
Bancorporation Inc. (the "Acquiring Company"), propose to enter into a
transaction (the "Merger") in which the Company will merge with and into a
subsidiary of the Acquiring company and each share of the Company's common
stock, par value $1.00 per share (the "Shares"), will be converted into 0.8308
shares of the Acquiring Company's common stock (the "Exchange Ratio"), par value
$0.01 per share (the "Acquiring Company Shares"). In connection with the Merger,
the parties also propose to enter into an agreement (the "Stock Option
Agreement") pursuant to which the Company will grant the Acquiring Company an
option to acquire a number of Shares (subject to adjustment) which, if issued,
would represent 19.9% of the total number of currently issued Shares. The Merger
is expected to be considered by the shareholders of the Company at a special
meeting and consummated shortly thereafter.
You have asked us whether or not, in our opinion, the proposed
Exchange Ratio is fair to the shareholders of the Company from a financial point
of view.
In arriving at the opinion set forth below, we have, among
other things:
(1) Reviewed the Company's audited Annual Reports, Forms
10-K, Forms 10-Q and related financial information for
the five fiscal years ended December 31, 1996, and the
Company's Form 10-Q
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and related unaudited financial information for the
nine months ended September 30, 1997;
(2) Reviewed certain unaudited financial information for
the eleven months ended November 30, 1997, relating to
the Company;
(3) Reviewed the Acquiring Company's audited Annual
Reports, Forms 10-K and related financial information
for the five fiscal years ended December 31, 1996, and
the Acquiring Company's Form 10-Q and related unaudited
financial information for the nine months ended
September 30, 1997;
(4) Reviewed certain unaudited financial information for
the eleven months ended November 30, 1997, relating to
the Acquiring Company;
(5) Reviewed certain information, including financial
forecasts, relating to the business, earnings, cash
flow, assets and prospects of the Company and the
Acquiring Company furnished to us by the Company and
the Acquiring Company;
(6) Conducted discussions with members of senior management
of the Company concerning the business and prospects of
the Company;
(7) Conducted discussions with members of senior management
of the Acquiring Company concerning the business and
prospects of the Acquiring Company;
(8) Reviewed the historical market prices and trading
activity for the Shares and the Acquiring Company
Shares and compared them with those of certain publicly
traded companies which we deemed to be relevant;
(9) Compared the results of operations of the Company and
the Acquiring Company with those of certain companies
which we deemed to be relevant;
(10) Compared the proposed financial terms of the Merger
with the financial terms of certain other mergers and
acquisitions which we deemed to be relevant;
(11) Reviewed drafts of the Agreement and Plan of
Reorganization dated January 27, 1998 and the related
Stock Option Agreement dated January 28, 1998, relating
to the Merger; and
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(12) Reviewed such other financial studies and analyses
and performed such other investigations and taken
into account such other matters as we deemed
necessary, including our assessment of general
economic, market and monetary conditions.
In preparing our opinion, we have relied on the accuracy and
completeness of all information supplied or otherwise made available to us by
the Company and the Acquiring Company, and we have not assumed any
responsibility to independently verify such information. With respect to the
financial forecasts examined by us, we have assumed that they were reasonably
prepared and reflect good faith estimates and judgments of the management of the
Company and the Acquiring Company as to the future performance of the respective
companies. We have also relied upon assurances of the management of the Company
and the Acquiring Company, respectively, that they are unaware of any facts that
would make the information or financial forecasts provided to us incomplete or
misleading. We have not made any independent evaluation or appraisal of the
assets or liabilities (contingent or otherwise ) of the Company or the Acquiring
Company nor have we been furnished with any such evaluations or appraisals. We
have also assumed, with your consent, that (i) the Merger may be accounted for
under either the pooling-of-interests or the purchase method of accounting, (ii)
the Merger will be a tax free reorganization and (iii) any material liabilities
(contingent or otherwise, known or unknown) of the Company and the Acquiring
Company are set forth in the consolidated financial statements of the Company
and the Acquiring Company, respectively. We note that no information or
financial forecasts have been supplied or otherwise made available to us
relating to any pending acquisitions of the Acquiring Company (the "Pending
Acquisitions"), nor have we undertaken an independent appraisal of the assets of
the Pending Acquisitions. We have not reviewed the loan files of either the
Company, the Acquiring Company or the Pending Acquisitions. This opinion does
not address the relative merits of the Merger any other transactions or business
strategies discussed by the Board of Directors of the Company as alternatives to
the Merger or the decision of the Board of Directors to proceed with the Merger.
No opinion is expressed herein as to the price at which the securities to be
issued in the Merger to the shareholders of the Company may trade at any time.
Our opinion is based on economic, monetary and market conditions existing on the
date hereof.
Our opinion is directed to the Board of Directors of the
Company and does not constitute a recommendation to any shareholder of the
Company as to how any such shareholder should vote on the Merger.
In the ordinary course of business PaineWebber may trade in
the securities of the Company and the Acquiring Company for our own account and
for the accounts of our customers and, accordingly, may at any time hold long or
short positions in such securities.
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PaineWebber is currently acting as financial advisor to the
Company in connection with the Merger and will be receiving a fee in connection
with the rendering of this opinion and upon consummation of the Merger.
On the basis of, and subject to the foregoing, we are of the
opinion that, as of the date hereof, the proposed Exchange Ratio is fair to such
shareholders from a financial point of view.
This opinion has been prepared for the information of the
Board of Directors of the Company in connection with the Merger and shall not be
reproduced, summarized, described or referred to, provided to any person or
otherwise made public or used for any other purpose without the prior written
consent of PaineWebber Incorporated; provided, however, that this letter may be
reproduced in full in the Proxy Statement related to the Merger.
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PART II
INFORMATION NOT REQUIRED IN 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, judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in connection
with such action, suit or proceeding if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
corporation and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful, except that, in the case
of an action or suit by or in the right of the corporation, the corporation may
not indemnify such persons against judgments and fines and no person shall be
indemnified as to any claim, issue or matter as to which such person shall have
been adjudged to be liable for negligence or misconduct in the performance of
his duty to the corporation, unless and only to the extent that the court in
which the action or suit was brought determines upon application that such
person is fairly and reasonably entitled to indemnity for proper expenses.
Section 351.355(3) provides that, to the extent that a
director, officer, employee or agent of the corporation has been successful in
the defense of any such action, suit or proceeding or any claim, issue or matter
therein, he shall be indemnified against expenses, including attorneys' fees,
actually and reasonably incurred in connection with such action, suit or
proceeding. Section 351.355(7) provides that a corporation may provide
additional indemnification to any person indemnifiable under subsection (1) or
(2), provided such additional indemnification is authorized by the corporation's
articles of incorporation or an amendment thereto or by a shareholder-approved
bylaw or agreement, and provided further that no person shall thereby be
indemnified against conduct which was finally adjudged to have been knowingly
fraudulent, deliberately dishonest or willful misconduct or which involved an
accounting for profits pursuant to Section 16(b) of the Securities Exchange Act
of 1934.
Article 12 of the Restated Articles of Incorporation of MBI
provides that MBI shall extend to its directors and executive officers the
indemnification specified in subsections (1) and (2) and the additional
indemnification authorized in subsection (7) and that it may extend to other
officers, employees and agents such indemnification and additional
indemnification.
Pursuant to directors' and officers' liability insurance
policies, with total annual limits of $45,000,000, MBI'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 MBI, individually or collectively, or any
matter claimed against them solely by reason of their being directors or
officers of MBI.
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ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
The following exhibits are filed herewith or incorporated herein by
reference.
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
2.1 -- Agreement and Plan of Reorganization dated January 30, 1998,
by and among Mercantile Bancorporation Inc., Ameribanc, Inc.,
and Firstbank of Illinois Co., included as Annex A to the
accompanying Proxy Statement/Prospectus.
2.2 -- Stock Option Agreement dated January 30, 1998, by and between
Mercantile Bancorporation Inc. and Firstbank of Illinois Co.,
included as Annex B to the accompanying Proxy
Statement/Prospectus.
3.1 -- Mercantile Bancorporation Inc.'s Restated Articles of
Incorporation, as amended and currently in effect
(incorporated herein by reference to Exhibit 3 to Mercantile
Bancorporation Inc.'s Quarterly Report on Form 10-Q for the
quarter ended March 31, 1997).
3.2 -- MBI's By-laws, as amended and currently in effect
(incorporated herein by reference to Exhibit 3.2 to Amendment
No. 2 to MBI's Registration Statement on Form S-4 (No.
333-17757)).
4.1 -- Rights Agreement dated as of May 23, 1988, between MBI
and Mercantile Bank, as Rights Agent (including as exhibits
thereto the form of Certificate of Designation, Preferences
and Rights of Series A Junior Participating Preferred Stock
and the form of Right Certificate) (incorporated herein by
reference to Exhibits 1 and 2 to MBI's Registration Statement
No. 0-6045 on Form 8-A, dated May 24, 1988).
5.1 -- Form of Opinion of Jon W. Bilstrom, Esq., General Counsel of
Mercantile Bancorporation Inc.
8.1 -- Form of Opinion of Wachtell, Lipton, Rosen & Katz.
8.2 -- Form of Opinion of Suelthaus & Walsh, P.C.
10.1 -- The Mercantile Bancorporation Inc. 1987 Stock Option Plan, as
amended (incorporated herein by reference to Exhibit 10-3 to
MBI's Report on Form 10-K for the year ended December 31,
1989).
10.2 -- The Mercantile Bancorporation Inc. Amended and Restated
Executive Incentive Compensation Plan (incorporated herein by
reference to Annex H to MBI's definitive Proxy Statement for
the 1997 Annual Meeting of Shareholders).
10.3 -- The Mercantile Bancorporation Inc. Employee Stock Purchase
Plan (incorporated herein by reference to Exhibit 10-7 to
MBI's Report on Form 10-K for the year ended December
31, 1989).
10.4 -- The Mercantile Bancorporation Inc. 1991 Employee Incentive
Plan (incorporated herein by reference to Exhibit 10-7 to
MBI's Report on Form 10-K for the year ended December
31, 1990).
10.5 -- Amendment Number One to the Mercantile Bancorporation Inc.
1991 Employee Incentive Plan (incorporated herein by
reference to Exhibit 10.6 to MBI's Report on Form 10-K for
the year ended December 31, 1994).
10.6 -- The Mercantile Bancorporation Inc. Amended and Restated
Stock Incentive Plan (incorporated herein by reference to
Annex G to MBI's definitive Proxy Statement for the 1997
Annual Meeting of Shareholders).
10.7 -- The Mercantile Bancorporation Inc. 1994 Stock Incentive Plan
for Non-Employee Directors (incorporated herein by reference
to Appendix E to MBI's definitive Proxy Statement for the
1994 Annual Meeting of Shareholders).
10.8 -- The Mercantile Bancorporation Inc. Voluntary Deferred
Compensation Plan (incorporated herein by reference to
Exhibit 10.1 to MBI's Registration Statement on Form S-8
(file No. 339-47713)).
10.9 -- Employment Agreement for Thomas H. Jacobsen, as amended and
restated (incorporated herein by reference to Exhibit 10-9 to
MBI's Report on Form 10-K for the year ended December
31, 1997).
10.10 -- Form of Change of Control Employment Agreement for John W.
McClure, W. Randolph Adams, John Q. Arnold and Certain Other
Executive Officers (incorporated herein by reference to
Exhibit 10-10 to MBI's Report on Form 10-K for the year
ended December 31, 1989).
10.11 -- The Mercantile Bancorporation Inc. Supplemental Retirement
Plan (incorporated herein by reference to Exhibit 10-12 to
MBI's Report on Form 10-K for the year ended December
31, 1992).
10.12 -- Mercantile Bancorporation Inc. Voluntary Deferred
Compensation Plan for Non-Employee Affiliate Directors and
Advisory Directors (incorporated herein by reference to
Exhibit 10.3 to MBI's Registration Statement on Form S-8
(File No. 333-47713)).
10.13 -- Mercantile Bancorporation Inc. Amended and Restated Stock
Incentive Plan for Non-Employee Directors (incorporated
herein by reference to Exhibit 10.2 to MBI's Registration
Statement on Form S-8 (File No. 333-47713)).
10.14 -- Employment Agreement for Alvin J. Siteman, dated November 18,
1996 (incorporated herein by reference to Exhibit 10.3 to
MBI's Report on Form 10-Q for the quarter ended March
31, 1997).
10.15 -- Employment Agreement for John P. Dubinsky, dated October 27,
1996 (incorporated herein by reference to Exhibit 10.4 to
MBI's Report on Form 10-Q for the quarter ended March
31, 1997).
10.16 -- Employment Agreement for Stanley J. Bradshaw, dated December
22, 1996 (incorporated herein by reference to Exhibit 10 to
MBI's Report on Form 10-Q for the quarter ended June
30, 1997).
23.1 -- Consent of PaineWebber Incorporated.
23.2 -- Consent of Jon W. Bilstrom, Esq., General Counsel of
Mercantile Bancorporation Inc., included in Exhibit 5.1 to
this Registration Statement.
23.3 -- Consent of Suelthaus & Walsh, P.C., included in Exhibit 8.2
to this Registration Statement.
23.4 -- Consent of Wachtell, Lipton, Rosen & Katz, included in
Exhibit 8.1 to this Registration Statement.
23.5 -- Consent of KPMG Peat Marwick LLP (with respect to
Mercantile Bancorporation Inc.).
23.6 -- Consent of KPMG Peat Marwick LLP (with respect to Firstbank
of Illinois Co.).
24.1 -- Power of Attorney (included on signature page hereto).
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<PAGE> 168
24.1 -- Power of Attorney (set forth on the signature pages hereto).
99.1 -- Stock Option Agreement dated as of January 30, 1998, by and
between Firstbank of Illinois, as issuer, and Mercantile
Bancorporation Inc., as grantee (incorporated by reference to
Exhibit 2.3 to Mercantile Bancorporation Inc.'s Current Report
on Form 8-K, dated January 30, 1998).
99.2 -- Form of Proxy for Annual Meeting of Stockholders of Firstbank
of Illinois Co.
ITEM 22. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this
registration statement:
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration statement
(or the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the registration
statement;
(iii) To include any material information with
respect to the plan of distribution not previously disclosed
in the registration statement or any material change in such
information in the registration statement;
(2) That, for the purpose of determining any liability under
the Securities Act, 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 the 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, each filing of
the registrant's annual report pursuant to Section 13(a) or
Section 15(d) of the Exchange Act (and, where applicable, each
filing of an employee benefit plan's annual report pursuant to
Section 15(d) of the Exchange Act) that is incorporated by
reference in the registration statement shall be
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<PAGE> 169
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 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 undersigned registrant hereby undertakes that every
prospectus (i) that is filed pursuant to paragraph (c) immediately
preceding, or (ii) that purports to meet the requirements of
Sections 10(a)(3) of the Securities 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,
each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(e) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing
provisions, or otherwise, the registrant has been advised that in
the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment
by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful
defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the
securities being registered, the registrant will, unless in the
opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(f) The undersigned registrant hereby undertakes to respond to
requests for information that is incorporated by reference into
the prospectus pursuant to Items 4, 10(b), 11 or 13 of this form,
within one business day of receipt of such request, and to send
the incorporated documents by first class mail or other equally
prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration
statement through the date of responding to the request.
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<PAGE> 170
(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.
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 April 29, 1998.
MERCANTILE BANCORPORATION INC.
By: /s/ Thomas H. Jacobsen
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 offering
by Mercantile Bancorporation Inc. of shares of its common stock, and the
preferred share purchase rights which trade therewith, with respect to the
acquisition of Firstbank of Illinois Co., 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 on the
dates indicated, in the capacities indicated.
<TABLE>
<S> <C> <C>
/s/ Thomas H. Jacobsen President and Chief Executive Officer April 29, 1998
Thomas H. Jacobsen (Principal Executive Officer)
</TABLE>
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<PAGE> 171
<TABLE>
<S> <C> <C>
/s/ John Q. Arnold Vice Chairman and Chief Financial Officer April 29, 1998
John Q. Arnold (Principal Financial Officer)
/s/ Michael T. Normile Senior Vice President - Finance and Control April 29, 1998
Michael T. Normile (Principal Accounting Officer)
/s/ Richard E. Beumer Director April 29, 1998
Richard E. Beumer
/s/ Harry M. Cornell, Jr. Director April 29, 1998
Harry M. Cornell, Jr.
/s/ Henry Givens, Jr. Director
Dr. Henry Givens, Jr.
/s/ William A. Hall Director April 29, 1998
William A. Hall
/s/ Thomas A. Hays Director February 20, 1998
Thomas A. Hays
/s/ Frank Lyon, Jr. Director April 29, 1998
Frank Lyon, Jr.
/s/ Robert W. Murray Director April 29, 1998
Robert W. Murray
/s/ Harvey Saligman Director April 29, 1998
Harvey Saligman
/s/ Craig D. Schnuck Director April 29, 1998
Craig D. Schnuck
/s/ Alvin J. Siteman Director April 29, 1998
Alvin J. Siteman
/s/ Robert L. Stark Director February 20, 1998
Robert L. Stark
</TABLE>
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<PAGE> 172
<TABLE>
<S> <C> <C>
/s/ Patrick T. Stokes Director April 29, 1998
Patrick T. Stokes
/s/ John A. Wright Director February 18, 1998
John A. Wright
</TABLE>
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<PAGE> 173
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
2.1 -- Agreement and Plan of Reorganization dated January 30, 1998,
by and among Mercantile Bancorporation Inc., Ameribanc, Inc.,
and Firstbank of Illinois Co., included as Annex A to the
accompanying Proxy Statement/Prospectus.
2.2 -- Stock Option Agreement dated January 30, 1998, by and between
Mercantile Bancorporation Inc. and Firstbank of Illinois Co.,
included as Annex B to the accompanying Proxy
Statement/Prospectus.
3.1 -- Mercantile Bancorporation Inc.'s Restated Articles of
Incorporation, as amended and currently in effect
(incorporated herein by reference to Exhibit 3 to Mercantile
Bancorporation Inc.'s Quarterly Report on Form 10-Q for the
quarter ended March 31, 1997).
3.2 -- MBI's By-laws, as amended and currently in effect
(incorporated herein by reference to Exhibit 3.2 to Amendment
No. 2 to MBI's Registration Statement on Form S-4 (No.
333-17757)).
4.1 -- Rights Agreement dated as of May 23, 1988, between MBI and
Mercantile Bank, as Rights Agent (including as exhibits
thereto the form of Certificate of Designation, Preferences
and Rights of Series A Junior Participating Preferred Stock
and the form of Right Certificate) (incorporated herein by
reference to Exhibits 1 and 2 to MBI's Registration Statement
No. 0-6045 on Form 8-A, dated May 24, 1988).
5.1 -- Opinion of Jon W. Bilstrom, Esq., General Counsel of
Mercantile Bancorporation Inc.
8.1 -- Form Opinion of Wachtell, Lipton, Rosen & Katz.
8.2 -- Form of Opinion of Suelthaus & Walsh, P.C.
10.1 -- The Mercantile Bancorporation Inc. 1987 Stock Option Plan, as
amended (incorporated herein by reference to Exhibit 10-3 to
MBI's Report on Form 10-K for the year ended December 31,
1989).
10.2 -- The Mercantile Bancorporation Inc. Amended and Restated
Executive Incentive Compensation Plan (incorporated herein by
reference to Annex H to MBI's definitive Proxy Statement for
the 1997 Annual Meeting of Shareholders).
10.3 -- The Mercantile Bancorporation Inc. Employee Stock Purchase
Plan (incorporated herein by reference to Exhibit 10-7 to
MBI's Report on Form 10-K for the year ended December 31,
1989).
10.4 -- The Mercantile Bancorporation Inc. 1991 Employee Incentive
Plan (incorporated herein by reference to Exhibit 10-7 to
MBI's Report on Form 10-K for the year ended December 31,
1990).
10.5 -- Amendment Number One to the Mercantile Bancorporation Inc.
1991 Employee Incentive Plan (incorporated herein by
reference to Exhibit 10.6 to MBI's Report on Form 10-K for
the year ended December 31, 1994).
10.6 -- The Mercantile Bancorporation Inc. Amended and Restated
Stock Incentive Plan (incorporated herein by reference to
Annex G to MBI's definitive Proxy Statement for the 1997
Annual Meeting of Shareholders).
10.7 -- The Mercantile Bancorporation Inc. 1994 Stock Incentive Plan
for Non-Employee Directors (incorporated herein by reference
to Appendix E to MBI's definitive Proxy Statement for the
1994 Annual Meeting of Shareholders).
10.8 -- The Mercantile Bancorporation Inc. Voluntary Deferred
Compensation Plan (incorporated herein by reference to
Exhibit 10.1 to MBI's Registration Statement on Form S-8
(File No. 339-47713)).
10.9 -- Employment Agreement for Thomas H. Jacobsen, as amended and
restated (incorporated herein by reference to Exhibit 10-9
to MBI's Report on Form 10-K for the year ended
December 31, 1997).
10.10 -- Form of Change of Control Employment Agreement for John W.
McClure, W. Randolph Adams, John Q. Arnold and Certain Other
Executive Officers (incorporated herein by reference to
Exhibit 10-10 to MBI's Report on Form 10-K for the year
ended December 31, 1989).
10.11 -- The Mercantile Bancorporation Inc. Supplemental Retirement
Plan (incorporated herein by reference to Exhibit 10-12 to
MBI's Report on Form 10-K for the year ended
December 31, 1992).
10.12 -- Mercantile Bancorporation Inc. Voluntary Deferred
Compensation Plan for Non-Employee Affiliate Directors and
Advisory Directors (incorporated herein by reference to
Exhibit 10.3 to MBI's Registration Statement on Form S-8
(File No. 333-47713)).
10.13 -- Mercantile Bancorporation Inc. Amended and Restated Stock
Incentive Plan for Non-Employee Directors (incorporated
herein by reference to Exhibit 10.2 to MBI's Registration
Statement on Form S-8 (File No. 333-47713)).
10.14 -- Employment Agreement for Alvin J. Siteman, dated November 18,
1996 (incorporated herein by reference to Exhibit 10.3 to
MBI's Report on Form 10-Q for the quarter ended
March 31, 1997).
10.15 -- Employment Agreement for John P. Dubinsky, dated October 27,
1996 (incorporated herein by reference to Exhibit 10.4 to
MBI's Report on Form 10-Q for the quarter ended
March 31, 1997).
10.16 -- Employment Agreement for Stanley J. Bradshaw, dated December
22, 1996 (incorporated herein by reference to Exhibit 10 to
MBI's Report on Form 10-Q for the quarter ended June 30,
1997).
23.1 -- Consent of PaineWebber Incorporated.
23.2 -- Consent of Jon W. Bilstrom, Esq., General Counsel of
Mercantile Bancorporation Inc., included in Exhibit 5.1 to
this Registration Statement.
23.3 -- Consent of Suelthaus & Walsh, P.C., included in Exhibit 8.2
to this Registration Statement.
23.4 -- Consent of Wachtell, Lipton, Rosen & Katz, included
in Exhibit 8.1 to this Registration Statement.
23.5 -- Consent of KPMG Peat Marwick LLP (with respect to Mercantile
Bancorporation Inc.).
23.6 -- Consent of KPMG Peat Marwick LLP (with respect to Firstbank
of Illinois Co.).
24.1 -- Power of Attorney (set forth on the signature pages hereto).
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<PAGE> 174
99.1 -- Stock Option Agreement dated as of January 30, 1998, by and
between Firstbank of Illinois, as issuer, and Mercantile
Bancorporation Inc., as grantee (incorporated by reference to
Exhibit 2.3 to Mercantile Bancorporation Inc.'s Current Report
on Form 8-K, dated January 30, 1998).
99.2 -- Form of Proxy for Annual Meeting of Stockholders of Firstbank
of Illinois Co.
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<PAGE> 1
Exhibit 5.1
[FORM OF OPINION]
April __, 1998
Mercantile Bancorporation Inc.
RE: Registration Statement on Form S-4 Related
to the Acquisition of Firstbank of Illinois Co.
Ladies and Gentlemen:
I and other members of my staff have acted as counsel to
Mercantile Bancorporation Inc., a Missouri corporation (the "Company"), in
connection with the preparation and filing of a Registration Statement on Form
S-4 (the "Registration Statement") relating to the up to 13,800,000 shares (the
"Shares") of the Company's common stock, par value $0.01 per share, to be issued
by the Company in connection with the merger of Firstbank of Illinois Co., a
Delaware corporation, with and into the Company.
In rendering this opinion, I have examined such corporate
records and other documents, and I have reviewed such matters of law, as I have
deemed necessary or appropriate. Based on the foregoing, I am of the opinion
that the Shares are legally authorized and, when the Registration Statement has
been declared effective by order of the Securities and Exchange Commission and
the Shares have been issued and paid for upon the terms and conditions set forth
in the Registration Statement, the Shares will be validly issued, fully paid and
nonassessable.
I hereby consent to be named in the Registration Statement and
in the related proxy statement/prospectus contained therein as the attorney who
passed upon the legality of the Shares and to the filing of a copy of this
opinion as Exhibit 5.1 to the Registration Statement. In giving such consent, I
do not thereby admit that I am in the category of persons whose consent is
required under Section 7 of the Securities Act of 1933, as amended.
Very truly yours,
JON W. BILSTROM
General Counsel and Secretary
Mercantile Bancorporation Inc.
<PAGE> 1
Exhibit 8.1
[LETTERHEAD OF WACHTELL LIPTON]
[FORM OF TAX OPINION]
_______ __, 1998
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 Inc., a
Missouri corporation ("MBI"), in connection with the proposed merger (the
"Merger") of Firstbank of Illinois Co., a Delaware corporation ("Firstbank")
with and into Ameribanc, Inc., a Missouri corporation and a direct
wholly-owned subsidiary of MBI ("Merger Sub"), upon the terms and conditions
set forth in the Agreement and Plan of Reorganization dated January 30, 1998,
by and among MBI, Merger Sub and Firstbank (the "Agreement"). At your request,
in connection with the filing of the Registration Statement on Form S-4 filed
with the Securities and Exchange Commission in connection with the Merger (the
"Registration Statement"), 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 Firstbank, upon the accuracy and
completeness of 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 Firstbank (copies
of which are attached hereto and which are incorporated herein by reference),
and have assumed that such statements and representations will be complete and
accurate as of the Effective Time. We have also relied upon the accuracy of the
Registration Statement and the Proxy Statement/Prospectus included therein (the
"Proxy Statement"). 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 (i) the transactions contemplated by the
Agreement will be consummated in accordance therewith and as described in the
Proxy Statement and (ii) the Merger will qualify as a statutory merger under
the applicable laws of the States of Missouri and Delaware.
Based upon and subject to the foregoing, it is our opinion 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 of 1986, as
amended, and (ii) no gain or loss will be recognized by the Firstbank
Stockholders who receive solely MBI Common Stock in exchange
<PAGE> 2
Mercantile Bancorporation Inc.
_________ ___, 1998
Page 2
for shares of Firstbank Common Stock (except with respect to cash received in
lieu of a fractional share interest in MBI Common Stock).
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
references to us 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 thereby admit that we are in the category of persons
whose consent is required under Section 7 of the Securities Act of 1933, as
amended.
<PAGE> 1
EXHIBIT 8.2
[SUELTHAUS & WALSH, P.C. LETTERHEAD]
May __, 1998
Board of Directors
Firstbank of Illinois Co.
205 South Fifth
Springfield, Illinois 62701
Re: CERTAIN TAX ASPECTS OF TRANSACTIONS PURSUANT TO AGREEMENT AND PLAN OF
REORGANIZATION BY AND AMONG MERCANTILE BANCORPORATION, INC., AMERIBANC,
INC., AND FIRSTBANK OF ILLINOIS CO. DATED JANUARY 30, 1998
Gentlemen:
You have requested our opinion with regard to certain federal income
tax consequences of the proposed plan of reorganization (the "MERGER") pursuant
to which Firstbank of Illinois Co. ("FIRSTBANK") will merge with and into
Ameribanc, Inc. ("AMERIBANC"), a wholly-owned subsidiary of Mercantile
Bancorporation, Inc. ("Mercantile"), and the Firstbank common stockholders will
exchange their shares for Mercantile common stock, but will receive cash in
lieu of any fractional share.
In connection with the preparation of our opinion, we have examined and
have relied upon the following:
(i) The Agreement and Plan of Reorganization by and among
Mercantile Bancorporation, Inc., Ameribanc, Inc. and Firstbank of
Illinois Co., dated January 30, 1998 (the "PLAN");
(ii) The draft Proxy Statement/Prospectus contained in the
Registration Statement on Form S-4 of Mercantile filed with the
Securities and Exchange Commission on or about April 28, 1998,
identified as SEC File No. 333-__________;
(iii) The representations on behalf of Mercantile and its Board of
Directors set forth in EXHIBIT A hereto (the "MERCANTILE CERTIFICATE");
(iv) The representations on behalf of Ameribanc and its Board of
Directors set forth in EXHIBIT B hereto (the "AMERIBANC CERTIFICATE");
(v) The representations on behalf of Firstbank and its Board of
Directors set forth in EXHIBIT C hereto (the "FIRSTBANK CERTIFICATE").
<PAGE> 2
May __, 1998
Page 2
Our opinion is based solely upon the factual information contained in
the above-referenced documents. In rendering our opinion, we have assumed the
accuracy of all information contained in each document (including information
in the Mercantile Certificate, the Ameribanc Certificate, and the Firstbank
Certificate represented to be accurate only to the "best knowledge" of the
person issuing the Certificate), and we have also assumed the authenticity of
all original documents, the conformity of all copies to the original documents,
and the genuineness of all signatures. We have not attempted to verify
independently the accuracy of any information in any such document. If the
actual facts relating to any aspect of the Merger differ in any material
respect from those facts set forth in any such document or those facts and
assumptions described below in the section captioned "Statement of Facts," any
or all of the opinions expressed herein may be inapplicable. All capitalized
terms appearing but not otherwise defined in this opinion letter shall have the
meaning ascribed to them in the Plan. No opinion should be considered to have
been given unless expressly stated herein.
OPINIONS
Based upon the foregoing and on the facts and representations described
in the Statement of Facts, and subject to the more detailed analyses of the
issues set forth in the section of this letter captioned "Legal Analysis" and
the conditions and limitations expressed elsewhere herein, we are of the
opinion that for federal income tax purposes:
1. The Merger will constitute a reorganization within the meaning
of Section 368(a)(1)(A) and Section 368(a)(2)(D) of the Internal
Revenue Code of 1986, as amended to the date hereof (the "CODE"), and
Mercantile, Ameribanc, and Firstbank each will constitute a "party to
a reorganization" within the meaning of Section 368(b) of the Code.
2. Neither Mercantile, Ameribanc, nor Firstbank will recognize
gain or loss as a result of the Merger.
3. Each stockholder of Firstbank who exchanges shares of
Firstbank Common Stock solely for shares of Mercantile Common Stock:
(a) will recognize no gain or loss;
(b) will have an aggregate tax basis in the shares of Mercantile
Common Stock the stockholder receives equal to the stockholder's
aggregate tax basis in the shares of Firstbank Common Stock the
stockholder surrenders in the Merger; and
(c) will have a holding period for the shares of Mercantile Common
Stock the stockholder receives which includes the stockholder's
holding period for the Firstbank Common Stock the stockholder
surrenders in the Merger.
4. A holder of Firstbank Common Stock who receives cash in the
Merger in lieu of a
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May __, 1998
Page 3
fractional share interest in Mercantile Common Stock will be treated as having
received the cash in redemption of such fractional share interest. The tax
treatment of this deemed redemption is governed by the rules of Code Section
302.
It is probable that the payment of cash to avoid the expense of issuing
fractional shares in connection with the Merger will be treated as a redemption
that is not essentially equivalent to a dividend for every holder of Firstbank
Common Stock who receives such a payment, and would therefore be treated as a
sale of the fractional share. Under sale treatment the recipient will recognize
gain or loss equal to the difference between the amount of cash received and
such stockholder's adjusted tax basis in the fractional share interest. The
stockholder's adjusted tax basis in the fractional share interest will be
determined as if Mercantile issued a fractional share of Mercantile Common
Stock in the Merger and then redeemed such fractional share. Thus, the
stockholder's adjusted tax basis in Firstbank Common Stock will be allocated to
the Mercantile Common Stock the stockholder receives, including the fractional
share so redeemed. If the stockholder's Firstbank Common Stock is a capital
asset in the stockholder's hands, the gain or loss will be capital, and
long-term or short-term depending upon the stockholder's holding period.
We express no opinion with regard to state or local taxes, or to any
federal tax consequences of the Merger not specifically referred to above and
discussed herein. Further, our opinions are based upon the Code, regulations
promulgated by the United States Department of the Treasury under the Code
("TREAS. REG."), and interpretations and judicial precedents as of the date
hereof, all of which are subject to change at any time, possibly with
retroactive effect; and we assume no obligation to advise you of any subsequent
change thereto. If there is any change in the applicable law or regulations, or
if there is any new administrative or judicial interpretation of the applicable
law or regulations, any or all of the opinions expressed herein may become
inapplicable.
While these opinions reflect our best professional judgment with
respect to the matters they address, they have no official status and,
therefore, are not binding on the Internal Revenue Service (the "SERVICE") or
the courts.
STATEMENT OF FACTS
PARTIES TO THE PROPOSED MERGER
Mercantile Bancorporation Inc. Mercantile, 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 February 27,
1998, Mercantile owned, directly or indirectly, all of the capital stock
(except for directors' qualifying shares) of Mercantile Bank National
Association and 18 other commercial banks located throughout Missouri,
Illinois, eastern Kansas, northern and central Arkansas, and Iowa. Mercantile
currently has acquisitions pending with CBT Corporation, headquartered in
Paducah, Kentucky, and Financial Services Corporation of the Midwest,
headquartered in Rock Island, Illinois. Mercantile services concentrate in
three major lines of business -
<PAGE> 4
May __, 1998
Page 4
consumer, corporate, and trust and investment advisory services. Mercantile also
operates non-banking subsidiaries that provide related financial services,
including investment management, brokerage services, and asset-based lending. As
of December 31, 1997, Mercantile reported, on a consolidated basis, total assets
of $30.0 billion, total deposits of $22.1 billion, total loans of $19.2 billion,
and shareholders' equity of $2.4 billion.
Mercantile has two classes of authorized capital stock, consisting of
(i) 200,000,000 shares of voting Common Stock, $0.01 par value ("MERCANTILE
COMMON STOCK"), of which 130,508,090 shares were issued and outstanding as of
December 31, 1997, and (ii) 5,000,000 shares of Preferred Stock, no par value,
the rights and preferences of which may be designated in one or more series by
resolution of the Board of Directors of Mercantile, and of which 2,000,000
shares have been designated as Series A Junior Participating Preferred Stock,
but none of which had been issued as of December 31, 1997. Mercantile Common
Stock will be the only class of stock tendered in the Merger. Mercantile Common
Stock is traded on the New York Stock Exchange under the symbol "MTL."
Ameribanc, Inc. Ameribanc, a Missouri corporation organized in 1991, is
a wholly owned subsidiary of Mercantile and a registered bank holding company
under the BHCA. At December 31, 1997, Ameribanc owned all of the capital stock
of Mercantile Bank National Association, and 18 other commercial banks which
operate from over 500 locations throughout Missouri, Illinois, eastern Kansas,
northern and central Arkansas, and Iowa. Ameribanc, the surviving corporation
in the Merger, will continue to be a wholly owned subsidiary of Mercantile.
Firstbank of Illinois Co. Firstbank, a Delaware corporation, is a
registered bank holding company under the BHCA. As of December 31, 1997,
Firstbank owned, directly or indirectly, all of the outstanding capital stock
of eight banks operating from 42 offices throughout downstate Illinois and from
five offices in Missouri. Additionally, Firstbank owns all of the outstanding
capital stock of three non-banking subsidiaries: FFG Trust, Inc., a trust
company organized under the laws of the State of Illinois; FFG Investments
Inc., an Illinois corporation and a registered broker-dealer; and Zemenick &
Walker, Inc., an Illinois corporation and a registered investment advisory
firm. At December 31, 1997, Firstbank had consolidated assets of $2.28 billion,
loans of $1.43 billion, deposits of $1.98 billion and shareholders' equity of
$233 million.
Firstbank has two classes of authorized capital stock, consisting of
(i) 20,000,000 shares of voting Common Stock, $1.00 par value ("FIRSTBANK
COMMON STOCK"), of which 15,753,053 shares were issued and outstanding as of
January 2, 1998, and (ii) 1,000,000 shares of Preferred Stock, no par value,
none of which was issued and outstanding as of January 2, 1998. As of January
2, 1998, 857,201 shares of Firstbank Common Stock were reserved for issuance
under certain Firstbank incentive and stock option plans. Firstbank Common
Stock is traded on the NASDAQ exchange under the symbol "FBIC."
THE PROPOSED MERGER
<PAGE> 5
May __, 1998
Page 5
Background; Business Purposes. Firstbank's Board of Directors has determined
that the Merger will result in a combined entity that is (i) capable of
competing more effectively with larger financial institutions that have exerted
increasing competitive pressures on Firstbank, (ii) well-capitalized and capable
of enjoying significant penetration in the banking market of central and
southern Illinois and the metropolitan St. Louis area, (iii) capable of
offering, directly or in cooperation with Mercantile and its current
subsidiaries, certain customer services in a more cost-effective manner, and
(iv) committed to serving the banking and other financial needs of Firstbank's
depositors, employees, customers, and communities.
Mercantile's Board of Directors has determined that the Merger will
enable Mercantile to (i) take advantage of a unique opportunity for Mercantile
to increase its share of the downstate Illinois banking market by the
acquisition of an established banking franchise, (ii) give Mercantile a strong
presence in Springfield, Illinois, that will provide a link between
Mercantile's banks in northern Illinois and those in the St. Louis metropolitan
area, and (iii) enhance Mercantile's ability to compete in the increasingly
concentrated and competitive banking and financial services industry.
The Plan of Reorganization. As a result of the foregoing determinations
and arm's-length negotiations, Mercantile and Firstbank entered into the Plan
on January 30, 1998. Firstbank's Board of Directors has approved the Plan and
recommended approval to its stockholders. Upon approval by holders of at least
a majority of the issued and outstanding shares of Firstbank Common Stock, and
upon satisfaction of certain conditions in the Plan, including approval by the
requisite state and federal regulatory agencies, Firstbank will be merged with
and into Ameribanc, a wholly-owned subsidiary of Mercantile. The Merger will be
a statutory merger under the Delaware General Corporation Law and the Missouri
General and Business Corporation Law, and Ameribanc will be the surviving
corporation.
On the date the Merger is consummated (the "EFFECTIVE DATE"), each
share of Firstbank Common Stock will be converted into 0.8308 (the "CONVERSION
RATIO") shares of Mercantile Common Stock. The Conversion Ratio was based upon
arm's-length negotiations. No fractional shares of Mercantile Common Stock will
be issued in the Merger. Cash will be paid by Mercantile in lieu of fractional
shares.
SALE OF MISSOURI BANKS
Firstbank owns two Missouri-chartered banks: Colonial Bank,
headquartered in Des Peres, Missouri, with two banking offices in Des Peres
and one in Wildwood; and Duchesne Bank, headquartered in St. Peters, Missouri,
with one office in each of St. Peters and St. Charles. Missouri limits the
percentage of deposits in Missouri any one banking organization may have.
Mercantile, due to prior acquisitions, exceeds this deposit cap. Consequently,
the Missouri Division of Finance is of the opinion that the two Missouri banks
owned by Firstbank must be sold. It is anticipated that either Firstbank will
complete such sale prior to consummation of the Merger, or will have
<PAGE> 6
May __, 1998
Page 6
entered into definitive agreement(s) for such sale(s) by that time.
LEGAL ANALYSIS
QUALIFICATION AS A REORGANIZATION
Overview. Section 368(a)(1)(A) of the Code provides that the term
"reorganization" includes "a statutory merger or consolidation." A merger can
also be structured as a three-party transaction (a triangular merger). In one
variant, the forward subsidiary merger, one corporation (the target
corporation) merges into a second corporation (the acquiring corporation) that
is a subsidiary of a third corporation (the parent corporation), and the
shareholders of the target corporation receive stock of the parent corporation
as consideration. Section 368(a)(2)(D) of the Code provides that such a forward
subsidiary merger qualifies as a "reorganization" if the following conditions
are satisfied: (i) the parent corporation must control the acquiring
corporation, (ii) substantially all of the properties of the target corporation
must be acquired in the transaction, (iii) consideration for the acquisition
must consist in part of the parent corporation's stock and cannot include any
stock of the acquiring corporation, and (iv) if the target corporation had
instead merged into the parent corporation that hypothetical two-party
statutory merger would have qualified as a reorganization under Section
368(a)(1)(A). Treas. Reg. Section 1.368-2(b)(2). The requirement that a
hypothetical merger of the target corporation into the parent corporation would
qualify as a reorganization under Section 368(a)(1)(A) means that a forward
subsidiary merger also must satisfy the nonstatutory requirements of "business
purpose," "continuity of business enterprise," and "continuity of proprietary
interest" set forth in Treas. Reg. Sections 1.368-1(b) and 1.368-2(b)(2).
Control Requirement. Mercantile owns all of the outstanding common
stock of Ameribanc, and Ameribanc has only common stock outstanding. The
ownership of Ameribanc will be unaffected by the Merger. Consequently
Mercantile, the parent of the acquiring corporation (Ameribanc), will own stock
possessing at least 80 percent of the total combined voting power of all
classes of Ameribanc stock entitled to vote, and at least 80 percent of the
total number of shares of all other classes of stock of Ameribanc. This
satisfies the definition of control (Code Section 368(c)) that applies in
testing the qualification of a forward subsidiary merger as a reorganization
under Code Section 368(a)(2)(D).
Substantially All Properties. For a forward subsidiary merger to
qualify as a reorganization, substantially all of the properties of the target
corporation must be acquired in the transaction. Code section 368(a)(2)(D);
Treas. Reg. Section 1.368-2(b)(2). In issuing advance rulings the Service
considers the "substantially all" requirement satisfied if the transferred
assets represent at least 90 percent of the fair market value of the net assets
and at least 70 percent of the fair market value of the gross assets held by
the target corporation before the transaction. Rev. Proc. 77-37, Section 3.01,
1977-2 C.B. 568, 569. For purposes of this test, assets removed from the target
corporation by payments to dissenting shareholders, or by redemptions or
extraordinary distributions preceding the acquisition and integral to it, are
counted as assets not transferred to the acquiring
<PAGE> 7
May __, 1998
Page 7
corporation. The Plan does not call for payments to dissenting
shareholders, and Firstbank has expressly undertaken not to make any unusual
distributions or to purchase or redeem any of its equity securities prior to
the effective date of the Merger. Plan Section 4.02(a), (f). Accordingly, the
Merger will result in the transfer of substantially all of Firstbank's assets
to Ameribanc.
The requirement that substantially all properties be transferred will
be satisfied even though certain Firstbank banks will be sold to obtain
approval of the Merger by bank regulatory authorities. Where, in connection
with a reorganization, assets of a target corporation are sold to persons who
are unrelated to the target corporation and its shareholders and the sale
proceeds are transferred to the acquiring corporation along with the target's
other assets, the "substantially all" requirement is satisfied. Rev. Rul.
88-48, 1988-1 C.B. 117; Treas. Reg. Section 1.368-2(b)(2).
Consideration Requirements. For a forward subsidiary merger to qualify
as a reorganization, consideration for the acquisition must consist in part of
the parent corporation's stock and cannot include any stock of the acquiring
corporation. Code Section 368(a)(2)(D). All of the outstanding stock of
Ameribanc, the acquiring corporation, is owned by Mercantile, and no Ameribanc
stock will be issued or transferred to Firstbank shareholders in connection
with the Merger. As consideration for the Merger Firstbank shareholders will
receive only Mercantile Common Stock (i.e., stock of the parent corporation)
plus a cash payment in lieu of any fractional shares. Cash or other property of
either the acquiring corporation or the parent corporation (except for stock of
the acquiring corporation) is permissible consideration under Section
368(a)(2)(D), subject only to the limit imposed by the continuity of
proprietary interest requirement (discussed below). Moreover, the regulations
expressly permit the parent corporation to assume liabilities of the target
corporation, including substituting stock of the parent corporation for stock
of the target corporation under an outstanding employee stock option agreement.
Treas. Reg. Section 1.368-2(b)(2). The Plan (Section 5.09) calls for
Mercantile, the parent corporation, to assume certain Firstbank employee stock
options, substituting rights with respect to Mercantile Common Stock under the
terms of the stock option agreements.
Business Purpose Requirement. The business purpose requirement is
satisfied if the reorganization is undertaken for reasons germane to the
continuance of the business of a corporation in modified corporate form. Treas.
Reg. Section 1.368-1(b), -2(g). Based on the business reasons for the Merger
identified in the section hereof entitled "The Proposed Merger," the accuracy
of which we assume, this requirement is satisfied.
Continuity of Business Enterprise Requirement. Continuity of business
enterprise exists if the parent corporation (Mercantile) or one of its
controlled subsidiaries (such as Ameribanc) continues a historic business of
the target corporation (Firstbank) or uses a significant portion of the target
corporation's historic business assets in a business. Treas. Reg. Section
1.368-1(d). Based on the representations contained in the Ameribanc
Certificate, following the Merger Mercantile or Ameribanc (or another
subsidiary controlled by Mercantile) will continue to conduct the historic
banking business currently
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May __, 1998
Page 8
conducted by Firstbank. As a result, the continuity of business enterprise test
will be satisfied. Rev. Rul. 85-198,1985-2 C.B. 120.
Continuity of Proprietary Interest Requirement. The "continuity of
proprietary interest" requirement means that a substantial part of the value of
the proprietary interests in the target corporation must be preserved in the
reorganization. In the context of a forward subsidiary merger, the stockholders
of the target corporation (Firstbank) must receive proprietary interests in the
parent corporation (Mercantile) which represent a substantial part of the value
of the transferred assets. Treas. Reg. Section 1.368-1(e)(1). See Helvering v.
Minnesota Tea Co., 296 U.S. 378, 386 (1935); LeTulle v. Scofield, 308 U.S. 415
(1940); Cortland Speciality Co. v. Commissioner, 60 F.2d 937 (2d Cir. 1932).
Mercantile Common Stock is the type of consideration that qualifies as
a proprietary interest. The Service has generally concluded that a "substantial
part" of the proprietary interests in the target corporation is preserved if
the former stockholders of the target corporation receive stock in the parent
corporation having a value on the effective date of the merger equal to at
least 50 percent of the value of the formerly outstanding stock of the target
corporation. Treas. Reg. Section 1.368-1(e)(6), Example (1). See Rev. Proc.
77-37, 1977-2 C.B. 568; Rev. Proc. 86-42, 1986-2 C.B. 722 (50 percent
continuity test applied as a condition to issuing a favorable advance ruling
under Section 368(a)(1)(A)). Cash payments made to Firstbank shareholders in
lieu of fractional shares will amount to much less than 50 percent of the
pre-Merger value of Firstbank shares, and the proprietary interests in
Firstbank will not be reduced by pre-Merger redemptions or extraordinary
distributions. See Treas. Reg. Section 1.368-1T(e)(1)(ii).
Because Firstbank stock is actively traded, long-term shareholders may
dispose of their interests in advance of the Merger. In addition, the
registration of the Mercantile Common Stock to be issued to Firstbank
shareholders will facilitate the disposition of the substitute proprietary
interest received in the Merger. The regulations provide that such sales do not
weigh against continuity of proprietary interest except to the extent that (i)
pre-Merger sales are made to the target corporation (Firstbank) or the parent
corporation (Mercantile) or a corporation related to either, or (ii)
post-Merger sales are made to the parent corporation (Mercantile) or a related
corporation. Treas. Reg. Section 1.368-1(e)(1)(i), -1(e)(2)(i). See Treas. Reg.
Section 1.368-1(e)(6), Example (1) (pre-merger sale), Example (3) (post-merger
sale facilitated by registration of stock). The Plan prohibits Firstbank and
its subsidiaries from purchasing Firstbank stock prior to the Merger (Section
4.02(f)). Reorganization status could be jeopardized if Mercantile or any of
its subsidiaries were to acquire (i) Firstbank stock before the Merger, or (ii)
Mercantile stock held by former Firstbank shareholders after the Merger, and
the amount of such acquisitions was large enough that the former Firstbank
shareholders would be left holding Mercantile Common Stock representing less
than 50 percent of the pre-Merger value of Firstbank. Based on the
representations contained in the Mercantile Certificate that such acquisitions
will not be undertaken in connection with the Merger, the continuity of
proprietary interest requirement will be satisfied.
PARTIES TO THE REORGANIZATION
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May __, 1998
Page 9
Because the Merger will (as explained above) satisfy the definition of a
reorganization, Firstbank and Ameribanc, the corporations to be merged, will be
parties to the reorganization. Mercantile, the parent corporation, will also
have the status of a "party to the reorganization" because the special
requirements imposed by Code Section 368(a)(2)(D) on forward subsidiary mergers
will be satisfied. Code Section 368(b).
FEDERAL INCOME TAX CONSEQUENCES TO THE PARTIES
A forward subsidiary merger qualifying as a reorganization under
Section 368(a)(1)(A) and Section 368(a)(2)(D) of the Code will result in the
following federal income tax consequences:
No Corporate Level Gain. Because the assumption of Firstbank's
liabilities (to which the Firstbank assets transferred by operation of law will
be subject) will occur for a bona fide business purpose and not for a tax
avoidance purpose, Firstbank will recognize no gain or loss as a result of the
transfer of its assets in the course of the Merger. Code Sections 357(a), (b),
and 361(a). Ameribanc will hold the assets it receives from Firstbank with
their historical adjusted tax bases and other tax attributes, including their
holding periods, as if Firstbank had continued to own the assets. Code Section
362(b). Mercantile and Ameribanc also will not recognize gain or loss. Code
Section 1032(a); Treas. Reg. Section 1.1032-2(b).
Stock Received. Except for cash received in lieu of fractional share
interests, Firstbank stockholders will receive only Mercantile Common Stock.
Because cash is to be paid for the exclusive purpose of saving Mercantile the
expense and inconvenience of issuing fractional shares and is not separately
bargained-for consideration, Firstbank shareholders will be treated for tax
purposes as if they first received solely Mercantile Common Stock in the Merger
(including fractional shares), and subsequently received cash in redemption of
any fractional share interest. Rev. Rul. 66-365, 1966-2 C.B. 116. From this
analysis it follows that each Firstbank stockholder will recognize no gain or
loss on the receipt of Mercantile Common Stock under Code Section 354(a)(1).
Stock Basis. Firstbank stockholders will have a tax basis in the
Mercantile Common Stock they receive (including any fractional share deemed
received) equal to the adjusted tax basis of the Firstbank Common Stock they
surrender in exchange therefor. Code Section 358(a)(1).
Cash in Lieu of Fractional Shares. Each former stockholder of Firstbank
who receives cash in lieu of a fractional share of Mercantile Common Stock will
be treated as if the fractional share were received as part of the Merger and
were then redeemed by Mercantile. The tax consequences of that hypothetical
redemption are governed by Code Section 302. Rev. Rul. 66-365, 1966-2 C.B. 116.
Redemption proceeds are generally treated as an ordinary distribution (taxable
as a dividend to the extent of corporate earnings and profits) unless the
redemption satisfies one of the tests set forth in Section 302(b). If one of
those tests is satisfied a redemption is instead taxable as a sale of the
<PAGE> 10
May __, 1998
Page 10
redeemed shares, triggering gain or loss recognition (capital gain or loss if
the stock was held as a capital asset) and allowing recovery of the stock's
basis. The test that is most relevant to the elimination of fractional shares in
the Merger is the general standard, which provides that a redemption is treated
as a sale if it "is not essentially equivalent to a dividend." Code Section
302(b)(1). As construed by the Supreme Court, that standard requires that the
redemption work "a meaningful reduction of the shareholder's proportionate
interest in the corporation." United States v. Davis, 397 U.S. 301, 313 (1970).
The payment of cash to save the expense and inconvenience of issuing
fractional shares is common practice in corporate reorganizations and is
justified by valid business purposes. It is generally assumed that if the
payment is not separately bargained-for consideration the transaction will be
treated as a sale of the fractional shares. See Rev. Rul. 74-36, 1974-1 C.B.
86. In 1977 the Service announced that it would generally issue an advance
ruling that the elimination of fractional shares is eligible for sale treatment
(Rev. Proc. 77-41, 1977-2 C.B. 574), and in fact dozens of private letter
rulings approving sale treatment have been issued. It appears likely that in
the circumstances of the Merger the Service would not challenge sale treatment,
regardless of the individual circumstances of the former Firstbank
shareholders.
If sale treatment applies, the amount of gain or loss recognized as a
result of the receipt of cash in lieu of a fractional share will be equal to
the difference between the cash payment and the proportionate part of the
recipient's total adjusted basis in Firstbank stock that is assigned to the
fractional share. (See the prior discussion of stock basis.) Such gain or loss
will constitute a capital gain or loss if the recipient held the Firstbank
stock as capital asset. Code Section 1221. Any such capital gain or loss will
constitute a long-term gain or loss if the former Firstbank stockholder has
held the Firstbank shares for more than one year before the Merger. Code
Section 1222(3) and (4).
CONSENT
We hereby consent to the filing of this letter as an exhibit to
Registration Statement 333-____________ in connection with the proposed Merger
and to all references made to this letter in such Registration Statement.
Very truly yours,
<PAGE> 1
EXHIBIT 23.1
CONSENT OF PAINEWEBBER, INCORPORATED
April 27, 1998
Firstbank of Illinois Co.
Dear Sirs:
We hereby consent to the inclusion in the prospectus accompanying the
Registration Statement of Mercantile Bancorporation Inc. ("Mercantile"),
relating to the proposed merger of Mercantile and Firstbank of Illinois Co.
("Firstbank"), of our opinion letter in the 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,
PAINEWEBBER INCORPORATED
By: Halle J. Benett
Vice President
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<PAGE> 1
Exhibit 23.5
INDEPENDENT AUDITORS' CONSENT
The Board of Directors and Shareholders
Mercantile Bancorporation Inc.:
We consent to the use of our report incorporated herein by reference and
to the reference to our firm under the heading "Experts" in the
Prospectus forming a portion of this Registration Statement.
St. Louis, Missouri /s/ KPMG Peat Marwick LLP
April 27, 1998
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<PAGE> 1
Exhibit 23.6
INDEPENDENT AUDITORS CONSENT
The Board of Directors and Stockholders
Firstbank of Illinois Co.:
We consent to the use of our report incorporated herein by reference and
to the reference to our firm under the heading "Experts" in the Proxy
Statement/Prospectus.
St. Louis, Missouri /s/ KPMG Peat Marwick LLP
April 27, 1998
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<PAGE> 1
Exhibit 99.2
FIRSTBANK OF ILLINOIS CO.
205 South Fifth Street
Springfield, Illinois 62701
PROXY FOR 1998 ANNUAL MEETING
SOLICITED BY THE BOARD OF DIRECTORS
The undersigned Stockholder of FIRSTBANK OF ILLINOIS CO.,
Springfield, Illinois, hereby appoint(s) Jeffrey B. Coultas, William J. Meyer,
Jr. and William W. Patton, (with full power to act alone) my true and lawful
attorney with full power of substitution, to represent and to vote as designated
below all of the shares of the common stock of said corporation standing in my
name on its books on May 15, 1998, at the Annual Meeting of its Stockholders to
be held in the main ballroom of the Renaissance Springfield Hotel, 701 East
Adams Street, Springfield, Illinois 62701, at 3:00 p.m., Central Daylight
Savings Time, on Monday, June 29, 1998, or at any adjournments thereof:
1. AGREEMENT AND PLAN OF REORGANIZATION
Approval and adoption of the Agreement and Plan of
Reorganization dated January 30, 1998, by and among Mercantile Bancorporation,
Inc., a Missouri corporation ("Mercantile"), Ameribanc, Inc., a Missouri
corporation and wholly owned subsidiary of Mercantile ("Merger Sub"), and
Firstbank of Illinois Co., a Delaware corporation ("Firstbank"), and the merger
provided for therein.
[ ] For [ ] Against [ ] Abstain
2. ELECTION OF DIRECTORS
[ ] For all of the following nominees for directors:
William B. Hopper, Robert W. Jackson and P. Richard Ware
[ ] Against the following nominees (print names):
[ ] Against all nominees.
[ ] Withhold authority (abstain) to vote for the following
nominees (print names):
[ ] Withhold authority (abstain) to vote for all nominees.
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<PAGE> 2
3. OTHER MATTERS
[ ] Authority granted for the proxies to vote in their
discretion on such other business as may properly come before said meeting or
any adjournment thereof.
[ ] Authority withheld for the proxies to vote in their
discretion on such other business as may properly come before said meeting or
any adjournment thereof.
This proxy when properly executed shall be voted in the manner directed
herein by the undersigned shareholder(s). If no direction is made, this proxy
shall be voted FOR approval and adoption of the Agreement and Plan of Merger and
FOR all the nominees listed in Proposal 2, and by the proxies in their
discretion on any other matters that may properly come before said meeting or
any adjournment thereof.
The Board of Directors recommends a vote FOR each of the listed
propositions. THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS AND
MAY BE REVOKED PRIOR TO ITS EXERCISE.
---------------------------
(Signature of Stockholder)
Dated: , 1998
Signature(s) should be exactly as appears on printed label affixed to
this proxy. All joint owners must sign. Proxy must be dated at time of
signature. When signing as corporate representative, attorney,
executor, administrator, trustee or guardian, please give full title.
If more than one trustee, all should sign.
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