<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 19, 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 of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</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)
------------------------
Copy to:
<TABLE>
<S> <C> <C>
JOHN Q. ARNOLD ROBERT M. LaROSE, ESQ. RICHARD G. CLEMENS, ESQ.
Vice Chairman and Chief Financial Officer Thompson Coburn Sidley & Austin
Mercantile Bancorporation Inc. One Mercantile Center One First National Plaza
P.O. Box 524 St. Louis, Missouri 63101 Chicago, Illinois 60603
St. Louis, Missouri 63166-0524 (314) 552-6000 (312) 853-7642
(314) 418-2525
</TABLE>
-------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after the effective date of this Registration
Statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
--------------------------
<TABLE>
CALCULATION OF REGISTRATION FEE
<CAPTION>
========================================================================================================================
Title of each class of Amount to be Proposed maximum Proposed maximum Amount of
securities to be registered registered offering price per unit aggregate offering price<F2> registration fee
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $0.01
par value<F1> 3,194,844 shares $19.17 $61,273,000 $18,075.54
========================================================================================================================
<FN>
<F1> Includes one attached Preferred Share Purchase Right per share.
<F2> Estimated solely for the purposes of computing the registration fee
pursuant to the provisions of Rule 457(f), and based upon the
$61,273,000 aggregate book value of the 3,553,717 shares of common
stock, $1.25 par value, of First Financial Bancorporation issued and
outstanding as of May 31, 1998.
</TABLE>
---------------------------
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration
Statement shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.
================================================================================
<PAGE> 2
[LETTERHEAD OF FIRST FINANCIAL BANCORPORATION]
----------------, 1998
Dear Shareholder:
The Board of Directors cordially invites you to attend a Special
Meeting of Shareholders of First Financial Bancorporation ("First Financial")
to be held at ----- -.m. Central Time, on -----------------,
- -------------------, 1998, at -------------------------------------- (the
"Special Meeting"). At the Special Meeting, you will be asked to consider
and vote upon a proposal to approve the Agreement and Plan of Merger, dated
as of May 7, 1998 (the "Merger Agreement"), and each of the transactions
contemplated thereby, pursuant to which First Financial will be merged (the
"Merger") with and into Ameribanc, Inc., a Missouri corporation and wholly
owned subsidiary of Mercantile Bancorporation Inc. ("MBI"). Upon
consummation of the Merger, each share of First Financial common stock will
be converted into the right to receive 0.88 (the "Exchange Ratio") of a share
of MBI common stock, all as more fully described in the accompanying Proxy
Statement/Prospectus.
Enclosed are the following items relating to the Special Meeting and
the Merger:
1. Proxy Statement/Prospectus;
2. Proxy card; and
3. A pre-addressed return envelope 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 First Financial and MBI and describe the terms and conditions of
the Merger. The Board of Directors requests that you carefully review these
materials before completing the enclosed proxy card or attending the Special
Meeting.
THE BOARD OF DIRECTORS OF FIRST FINANCIAL CAREFULLY CONSIDERED AND
UNANIMOUSLY APPROVED THE TERMS OF THE MERGER AGREEMENT AS BEING IN THE BEST
INTEREST OF FIRST FINANCIAL AND ITS SHAREHOLDERS. THE BOARD OF DIRECTORS OF
FIRST FINANCIAL UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE
PROPOSAL TO APPROVE THE MERGER AGREEMENT. ---
The investment banking firm of ABN AMRO Incorporated has issued its
written opinion, dated as of the date hereof, to your Board of Directors
regarding the fairness from a financial point of view of the Exchange Ratio
to be received by First Financial shareholders pursuant to the Merger
Agreement. A copy of the opinion is attached as Annex A to the Proxy
Statement/Prospectus. -------
APPROVAL OF THE MERGER AGREEMENT BY THE FIRST FINANCIAL SHAREHOLDERS IS
A CONDITION TO THE CONSUMMATION OF THE MERGER. Accordingly, it is important
that your shares be represented at the Special Meeting, whether or not you
plan to attend the Special Meeting in person. Please complete, date and sign
the enclosed proxy card and return it in the enclosed pre-addressed envelope,
which requires no postage if mailed within the United States. If you later
decide to attend the Special Meeting and vote in person, or if you wish to
revoke your proxy for any reason prior to the vote at the Special Meeting,
you may do so and your proxy will have no further effect. You may revoke
your proxy by delivering to the
<PAGE> 3
Secretary of First Financial a written notice of revocation or another proxy
relating to the same shares bearing a later date than the proxy being revoked or
by attending the Special Meeting and voting in person. Attendance at the
Special Meeting will not in itself constitute a revocation of an earlier dated
proxy.
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
A. Russell Schmeiser at (319) 356-9038 or me at (319) 356-9024.
Sincerely,
Robert M. Sierk
President and Chief Executive Officer
<PAGE> 4
FIRST FINANCIAL BANCORPORATION
204 EAST WASHINGTON STREET
P.O. BOX 1880
IOWA CITY, IOWA 52244-1880
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD
----------------------, 1998
TO THE SHAREHOLDERS OF FIRST FINANCIAL BANCORPORATION:
Notice is hereby given that a special meeting (the "Special Meeting")
of shareholders of FIRST FINANCIAL BANCORPORATION, an Iowa corporation
("First Financial"), will be held at ----------------------- on
- ---------------, 1998, at ----- -.m. Central Time, for the following
purposes:
(1) To consider and vote upon a proposal to approve the Agreement and
Plan of Merger, dated as of May 7, 1998 (the "Merger Agreement"), by and
among Mercantile Bancorporation Inc. ("MBI"), Ameribanc, Inc., a wholly owned
subsidiary of MBI ("Ameribanc"), and First Financial, pursuant to which First
Financial will be merged (the "Merger") with and into Ameribanc, in a
transaction that will result in the business and operations of First
Financial being continued through Ameribanc, and whereby, upon consummation
of the Merger, each outstanding share of First Financial common stock will be
converted into the right to receive 0.88 of a share of MBI common stock, as
set forth in detail in the attached Proxy Statement/Prospectus.
(2) To transact such other business as may properly come before the
Special Meeting or any adjournments or postponements thereof.
The record date for determining the shareholders entitled to receive
notice of, and to vote at, the Special Meeting or any adjournments or
postponements thereof has been fixed as of the close of business on
- -----------------, 1998. On the record date, First Financial had -------
shares of common stock issued, outstanding and entitled to vote. Such shares
were held by approximately ------ holders of record. Each share will be
entitled to one vote on each matter submitted to a vote at the Special
Meeting.
Pursuant to Division XIII of the Iowa Business Corporation Act, each
holder of First Financial common stock will have the right to dissent from
the Merger Agreement and to demand a determination of the fair value of such
shareholder's shares in the event the Merger Agreement is approved and the
Merger consummated. A copy of Division XIII of the Iowa Business Corporation
Act is attached as Annex B to the Proxy Statement/Prospectus.
-------
THE AFFIRMATIVE VOTE OF THE HOLDERS OF AT LEAST TWO-THIRDS OF THE
OUTSTANDING SHARES OF FIRST FINANCIAL COMMON STOCK IS REQUIRED FOR APPROVAL
OF THE MERGER AGREEMENT. YOUR VOTE IS IMPORTANT REGARDLESS OF THE NUMBER OF
SHARES YOU OWN.
<PAGE> 5
WHETHER OR NOT YOU EXPECT TO ATTEND THE SPECIAL MEETING, PLEASE
COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT IN THE
ACCOMPANYING ENVELOPE. THE PROXY MAY BE REVOKED AT ANY TIME PRIOR TO THE
VOTE AT THE SPECIAL MEETING BY FOLLOWING THE PROCEDURES SET FORTH IN THE
ACCOMPANYING PROXY STATEMENT/PROSPECTUS. FAILURE TO RETURN THE ENCLOSED
PROXY CARD OR TO VOTE AT THE MEETING WILL HAVE THE SAME EFFECT AS A VOTE
AGAINST THE MERGER.
PLEASE DO NOT SEND IN ANY STOCK CERTIFICATES AT THIS TIME. If the
Merger Agreement is approved, you will be sent instructions regarding the
mechanics of exchanging your existing First Financial common stock
certificates for new certificates representing shares of MBI common stock.
BY ORDER OF THE BOARD OF DIRECTORS
Iowa City, Iowa A. Russell Schmeiser
- --------------,1998 Executive Vice President, Chief Operating
Officer and Secretary
<PAGE> 6
MERCANTILE BANCORPORATION INC.
PROSPECTUS
----------------
FIRST FINANCIAL BANCORPORATION
PROXY STATEMENT
SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON --------------, 1998
This Prospectus of Mercantile Bancorporation Inc., a Missouri
corporation ("MBI"), relates to up to 3,194,844 shares of common stock, $0.01
par value (the "Common Stock"), and attached Preferred Share Purchase Rights
(the "Rights"), of MBI (the Common Stock and Rights are collectively referred
to herein as "MBI Common Stock"), to be issued to the shareholders of First
Financial Bancorporation, an Iowa corporation ("First Financial"), upon
consummation of the proposed merger (the "Merger") of First Financial with
and into Ameribanc, Inc., a Missouri corporation and wholly owned subsidiary
of MBI ("Ameribanc"). Upon receipt of the requisite shareholder and
regulatory approvals, and the satisfaction or waiver of certain conditions
precedent, the Merger will be consummated pursuant to the terms of the
Agreement and Plan of Merger, dated as of May 7, 1998 (the "Merger
Agreement"), by and among MBI, Ameribanc and First Financial. This
Prospectus also serves as the Proxy Statement of First Financial for use in
connection with the Special Meeting of Shareholders of First Financial (the
"Special Meeting"), which will be held on ----------------, 1998, at the time
and place and for the purposes stated in the Notice of Special Meeting of
Shareholders accompanying this Proxy Statement/Prospectus.
Pursuant to the Merger Agreement, MBI will issue up to an aggregate of
3,194,844 shares of MBI Common Stock. Upon consummation of the Merger, the
business and operations of First Financial will be continued through
Ameribanc and each share of common stock, $1.25 par value, of First Financial
("First Financial Common Stock") will be converted into the right to receive
0.88 of a share of MBI Common Stock (the "Exchange Ratio"). The fair market
value of MBI Common Stock to be received pursuant to the Merger may fluctuate
and at the consummation of the Merger may be more or less than the current
fair market value of such shares. See "TERMS OF THE PROPOSED MERGER -
General Description of the Merger." No fractional shares of MBI Common Stock
will be issued in the Merger, but cash will be paid in lieu of such
fractional shares. See "TERMS OF THE PROPOSED MERGER - Fractional Shares."
The Merger is intended to qualify as a reorganization under the
Internal Revenue Code of 1986, as amended (the "Code"). The Merger generally
is intended to achieve certain federal income tax deferral benefits for First
Financial shareholders with respect to shares of MBI Common Stock received in
the Merger. See "SUMMARY INFORMATION - Federal Income Tax Consequences in
General" and "CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER."
MBI Common Stock is traded on the New York Stock Exchange (the "NYSE")
under the symbol "MTL." On -------, 1998, the closing sale price for MBI
Common Stock as reported on the NYSE Composite Tape was $---- per share.
First Financial Common Stock is not actively traded.
This Proxy Statement/Prospectus, the Notice of Special Meeting and the
form of proxy are first being mailed to the shareholders of First Financial
on or about -------------------, 1998.
<PAGE> 7
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION (THE "COMMISSION") OR ANY STATE SECURITIES
COMMISSION NOR HAS THE COMMISSION OR ANY STATE COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE SHARES OF MBI COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS,
DEPOSITS OR OTHER OBLIGATIONS OF ANY BANK OR NON-BANK SUBSIDIARY OF MBI AND
ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE BANK
INSURANCE FUND, THE SAVINGS ASSOCIATION INSURANCE FUND OR ANY OTHER FEDERAL
OR STATE GOVERNMENTAL AGENCY.
All information contained in this Proxy Statement/Prospectus with
respect to MBI has been supplied by MBI and all information with respect to
First Financial has been supplied by First Financial.
The date of this Proxy Statement/Prospectus is -------------------, 1998.
-2-
<PAGE> 8
AVAILABLE INFORMATION
---------------------
MBI and First Financial are subject to the informational requirements
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and,
in accordance therewith, file with the Commission reports, proxy statements
and other information. Such reports, proxy statements and other information
filed with the Commission by MBI and First Financial can be inspected and
copied at the public reference facilities maintained by the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's regional
offices located at Suite 1300, Seven World Trade Center, New York, New York
10048, and Room 1400, Northwestern Atrium Center, 500 West Madison Street,
Chicago, Illinois 60661. The Commission maintains an Internet site on the
World Wide Web containing reports, proxy and information statements and other
information filed electronically by MBI and First Financial with the
Commission. The address of the World Wide Web site maintained by the
Commission is http://www.sec.gov. MBI Common Stock is listed on the NYSE,
and such reports, proxy statements and other information concerning MBI also
are available for inspection and copying at the offices of the NYSE, 20 Broad
Street, New York, New York 10005. First Financial Common Stock is not
actively traded. Reports, proxy statements and other information concerning
First Financial are available from First Financial, without charge, upon
written or oral request to A. Russell Schmeiser, Executive Vice President and
Chief Operating Officer, First Financial Bancorporation, 204 East Washington
Street, P.O. Box 1880, Iowa City, Iowa 52244-1880, telephone (319) 356-9038.
This Proxy Statement/Prospectus does not contain all of the information
set forth in the Registration Statement on Form S-4 and exhibits thereto (the
"Registration Statement") covering the securities offered hereby which has
been filed by MBI with the Commission. As permitted by the rules and
regulations of the Commission, this Proxy Statement/Prospectus omits certain
information contained or incorporated by reference in the Registration
Statement. Statements contained in this Proxy Statement/Prospectus provide a
summary of the contents of certain contracts or other documents referenced
herein but are not necessarily complete and in each instance reference is
made to the copy of each such contract or other document filed as an exhibit
to the Registration Statement. For such further information, reference is
made to the Registration Statement.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
-------------------------------------------------
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES BY REFERENCE DOCUMENTS
RELATING TO MBI AND FIRST FINANCIAL THAT ARE NOT PRESENTED HEREIN OR
DELIVERED HEREWITH. SUCH DOCUMENTS, EXCLUDING EXHIBITS UNLESS SPECIFICALLY
INCORPORATED THEREIN, ARE AVAILABLE, WITHOUT CHARGE TO ANY PERSON, INCLUDING
BENEFICIAL OWNERS OF FIRST FINANCIAL COMMON STOCK TO WHOM THIS PROXY
STATEMENT/PROSPECTUS IS DELIVERED, UPON WRITTEN OR ORAL REQUEST, IN THE CASE
OF DOCUMENTS RELATING TO MBI, TO JON W. BILSTROM, GENERAL COUNSEL AND
SECRETARY, MERCANTILE BANCORPORATION INC., P.O. BOX 524, ST. LOUIS, MISSOURI
63166-0524, TELEPHONE (314) 418-2525, OR IN THE CASE OF DOCUMENTS RELATING TO
FIRST FINANCIAL, TO A. RUSSELL SCHMEISER, EXECUTIVE VICE PRESIDENT AND CHIEF
OPERATING OFFICER, FIRST FINANCIAL BANCORPORATION, 204 EAST WASHINGTON
STREET, P.O. BOX 1880, IOWA CITY, IOWA 52244-1880, TELEPHONE (319) 356-9038.
IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS PRIOR TO THE SPECIAL
MEETING, ANY REQUEST SHOULD BE MADE BY ------------, 1998.
-3-
<PAGE> 9
The following documents filed with the Commission by MBI under the
Exchange Act are incorporated herein by reference:
(a) MBI's Annual Report on Form 10-K for the year ended
December 31, 1997.
(b) MBI's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1998.
(c) MBI's Current Reports on Form 8-K dated January 10, 1998 and
January 30, 1998.
(d) The description of MBI's Common Stock set forth in Item 1 of
MBI's Registration Statement on Form 8-A, dated March 5, 1993,
and any amendment or report filed for the purpose of updating
such description.
(e) The description of MBI's Preferred Share Purchase Rights set
forth in Item 1 of MBI's Registration Statement on Form 8-A dated
May 27, 1998.
The following documents filed with the Commission by First Financial
under the Exchange Act are incorporated herein by reference:
(a) First Financial's Annual Report on Form 10-K for the year ended
December 31, 1997.
(b) First Financial's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1998.
(c) First Financial's Current Report on Form 8-K dated May 18, 1998.
(d) The description of First Financial's Common Stock set forth in
Amendment No. 1 to First Financial's Registration Statement on
Form S-4, dated November 12, 1985, and any amendment or report
filed for the purpose of updating such description.
Such incorporation by reference shall not be deemed to incorporate by
reference the information referred to in Item 402(a)(8) of Regulation S-K.
All documents filed by MBI and First Financial pursuant to Sections
13(a), 13(c), 14 and 15(d) of the Exchange Act after the date hereof and
until the date of the Special Meeting shall be deemed to be incorporated by
reference herein and made a part hereof from the date any such document is
filed. The information relating to MBI and First Financial contained in this
Proxy Statement/Prospectus does not purport to be complete and should be read
together with the information in the documents incorporated by reference
herein. Any statement contained herein or in a document incorporated herein
by reference shall be deemed to be modified or superseded for purposes hereof
to the extent that a subsequent statement contained herein or in any other
subsequently filed document incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded
shall not be deemed, except as so modified or superseded, to constitute a
part hereof.
-4-
<PAGE> 10
Any statements contained in this Proxy Statement/Prospectus involving
matters of opinion, whether or not expressly so stated, are intended as such
and not as representations of fact.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROXY STATEMENT/ PROSPECTUS AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY MBI OR FIRST FINANCIAL. THIS PROXY
STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION
OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SHARES OF MBI COMMON STOCK
TO WHICH IT RELATES OR AN OFFER TO ANY PERSON IN ANY JURISDICTION WHERE SUCH
AN OFFER WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROXY
STATEMENT/PROSPECTUS NOR ANY DISTRIBUTION OF SECURITIES PURSUANT HERETO SHALL
IMPLY OR CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS
OF MBI OR FIRST FINANCIAL OR ANY OF THEIR SUBSIDIARIES OR IN THE INFORMATION
SET FORTH HEREIN SUBSEQUENT TO THE DATE HEREOF.
-5-
<PAGE> 11
<TABLE>
TABLE OF CONTENTS
-----------------
<CAPTION>
Page
----
<S> <C>
AVAILABLE INFORMATION 3
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE 3
SUMMARY INFORMATION 8
- -------------------
SUMMARY INFORMATION 8
Business of MBI 8
Business of Ameribanc 9
Business of First Financial 9
The Proposed Merger 9
Effect on First Financial Stock Plan and Employee Benefit Plans 10
Other Agreements 11
Interests of Certain Persons in the Merger 12
Special Meeting of First Financial Shareholders 12
Reasons for the Merger 13
Opinion of Financial Advisor to First Financial 13
Fractional Shares 13
Waiver and Amendment 13
Federal Income Tax Consequences in General 14
Regulatory Approval 14
Accounting Treatment 14
Dissenters' Rights 14
Markets and Market Prices 15
Comparative Unaudited Per Share Data 15
Summary Financial Data 17
INFORMATION REGARDING SPECIAL MEETING 20
General 20
Date, Time and Place 20
Record Date; Vote Required 20
Voting and Revocation of Proxies 21
Solicitation of Proxies 21
TERMS OF THE PROPOSED MERGER 23
General Description of the Merger 23
Effect on First Financial Stock Plan and Employee Benefit Plans 24
Other Agreements 25
Interests of Certain Persons in the Merger 27
Background of and Reasons for the Merger; Board Recommendations 27
Opinion of Financial Advisor to First Financial 32
Conditions of the Merger 37
Representations and Warranties 39
Termination, Waiver and Amendment of the Merger Agreement 40
Indemnification 41
-6-
<PAGE> 12
Closing Date 41
Surrender of First Financial Stock Certificates and Receipt of MBI Common Stock 41
Fractional Shares 42
Regulatory Approval 42
Business Pending the Merger 43
Accounting Treatment 46
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER 47
DISSENTERS' RIGHTS OF SHAREHOLDERS OF FIRST FINANCIAL 48
PRO FORMA FINANCIAL INFORMATION 51
Comparative Unaudited Per Share Data 51
Pro Forma Combined Consolidated Financial Statements (Unaudited) 53
INFORMATION REGARDING MBI STOCK 67
Description of MBI Common Stock and Attached Preferred Share Purchase Rights 67
Restrictions on Resale of MBI Stock by Affiliates 69
Comparison of the Rights of Shareholders of MBI and First Financial 69
SUPERVISION AND REGULATION 73
General 73
Certain Transactions with Affiliates 74
Payment of Dividends 74
Capital Adequacy 74
Support of Subsidiary Banks 75
FIRREA and FDICIA 75
Depositor Preference Statute 76
FDIC Insurance Assessments 76
Interstate Banking and Other Recent Legislation 76
RELATIONSHIP WITH INDEPENDENT ACCOUNTANTS 77
LEGAL MATTERS 77
EXPERTS 77
OTHER MATTERS 78
SHAREHOLDER PROPOSALS 78
ANNEXES
Annex A -- Opinion of ABN AMRO Incorporated A-1
Annex B -- Dissenters' Rights Provisions of the Iowa Business Corporation Act B-1
</TABLE>
-7-
<PAGE> 13
SUMMARY INFORMATION
-------------------
The following is a summary of the important terms of the proposed
Merger and related information discussed elsewhere in this Proxy
Statement/Prospectus but does not purport to be complete and is qualified in
its entirety by reference to the more detailed information that appears
elsewhere in this Proxy Statement/Prospectus and the documents incorporated
by reference herein. Shareholders of First Financial are urged to read this
Proxy Statement/Prospectus in its entirety. All MBI per share data reflect
three-for-two stock splits distributed in the form of dividends on each of
April 11, 1994 and October 1, 1997.
BUSINESS OF MBI
MBI, a Missouri corporation, was organized in 1970 and is a registered
bank holding company under the federal Bank Holding Company Act of 1956, as
amended (the "BHCA"). At March 31, 1998, MBI owned, directly or indirectly,
all of the capital stock of Mercantile Bank National Association ("Mercantile
Bank") and 19 other commercial banks, all of which operate from 557 banking
offices and 544 Fingertip Banking automated teller machines, located
throughout Missouri, Illinois, eastern Kansas, northern and central Arkansas
and Iowa. 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 March 31, 1998, MBI had 133,115,227 shares of its Common Stock
outstanding and reported, on a consolidated basis, total assets of $31.8
billion, total deposits of $22.5 billion, total loans of $19.6 billion and
shareholders' equity of $2.5 billion.
On February 2, 1998, MBI completed the acquisition of Horizon Bancorp,
Inc., an Arkansas corporation and a registered bank holding company under the
BHCA ("Horizon"), headquartered in Arkadelphia, Arkansas. This acquisition
was accounted for under the pooling-of-interests method of accounting, but
due to the immaterialitity of Horizon's financial information to MBI's
financial condition and results of operations, MBI's consolidated financial
statements have not been restated for any dates or any periods prior to the
acquisition date of Horizon. As of February 2, 1998, Horizon reported, on a
consolidated basis, total assets of $537 million, total deposits of $454
million and shareholders' equity of $47 million.
On March 2, 1998, MBI completed the acquisition of HomeCorp, Inc., a
Delaware corporation and savings and loan holding company ("HomeCorp"),
headquartered in Rockford, Illinois. This acquisition was accounted for
under the pooling-of-interests method of accounting, but due to the
immateriality of HomeCorp's financial information to MBI's financial
condition and results of operation, MBI's consolidated financial statements
have not been restated for any date or any period prior to the acquisition
date of HomeCorp. As of March 2, 1998, HomeCorp reported, on a consolidated
basis, total assets of $335 million, total deposits of $309 million and
stockholders' equity of $21 million.
On January 10, 1998, MBI entered into an agreement to acquire CBT
Corporation, a Kentucky corporation and registered bank holding company under
the BHCA ("CBT"), headquartered in Paducah, Kentucky. The acquisition is
intended to be accounted for under the pooling-of-interests method of
accounting. As of March 31, 1998, CBT reported, on a consolidated basis,
total assets of $1.03 billion, total deposits of $715 million and
shareholders' equity of $122 million.
On February 2, 1998, MBI entered into an agreement to acquire Firstbank
of Illinois Co., a Delaware corporation and registered bank holding company
under the BHCA ("Firstbank"),
-8-
<PAGE> 14
headquartered in Springfield, Illinois. The acquisition is intended to be
accounted for under the pooling-of-interests method of accounting. As of March
31, 1998, Firstbank reported, on a consolidated basis, total assets of $2.28
billion, total deposits of $2.00 billion and stockholders' equity of $238
million.
On April 13, 1998, MBI entered into an agreement to acquire Financial
Services Corporation of the Midwest, a Delaware corporation and registered
bank holding company under the BHCA ("FSCM"), headquartered in Rock Island,
Illinois. The acquisition is intended to be accounted for under the
pooling-of-interests method of accounting. As of March 31, 1998, FSCM
reported, on a consolidated basis, total assets of $518 million total
deposits of $409 million and stockholders' equity of $34 million.
MBI's principal executive offices are located at One Mercantile Center,
St. Louis, Missouri 63101 and its telephone number is (314) 418-2525.
Additional information concerning MBI is included in the documents
incorporated by reference. See "INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE."
BUSINESS OF AMERIBANC
Ameribanc, a Missouri corporation, is a wholly owned subsidiary of MBI
that was organized in 1991. Ameribanc is a registered bank holding company
under the BHCA. At March 31, 1998, Ameribanc owned all of the capital stock
of 20 banks which operate from 557 locations in Missouri, Illinois, eastern
Kansas, northern and central Arkansas and Iowa. Ameribanc, which will
continue to be a subsidiary of MBI following the Merger, will be the
surviving corporation upon consummation of the Merger.
BUSINESS OF FIRST FINANCIAL
First Financial, an Iowa corporation, was organized in 1985 and is a
one-bank holding company registered under the BHCA. First Financial is the
parent company of First National Bank Iowa ("FNBI"), a national banking
association. As of March 31, 1998, 3,553,717 shares of First Financial
Common Stock were issued and outstanding. As of March 31, 1998, First
Financial reported, on a consolidated basis, total assets of $568 million,
total deposits of $481 million and shareholders' equity of $60 million.
First Financial's principal executive offices are located at 204 East
Washington Street, P.O. Box 1880, Iowa City, Iowa 52244-1880 and its
telephone number is (319) 356-9000.
THE PROPOSED MERGER
Subject to the satisfaction of the terms and conditions set forth in
the Merger Agreement, First Financial will be merged with and into Ameribanc.
Upon consummation of the Merger, First Financial's corporate existence will
terminate and Ameribanc will continue as the surviving entity.
Simultaneously with the effectiveness of the Merger, each outstanding share
of First Financial Common Stock will be converted into the right to receive
0.88 of a share of MBI Common Stock. Such consideration is subject to
certain anti-dilution protections, but is not adjustable based upon the
operating results, financial condition or other factors affecting either MBI
or First Financial prior to the consummation of the Merger. The fair market
value of MBI Common Stock to be received pursuant to
-9-
<PAGE> 15
the Merger may fluctuate and at the consummation of the Merger may be more or
less than the current fair market value of such shares.
Harris Trust and Savings Bank, the transfer agent for MBI Common Stock,
has been selected as the Exchange Agent (the "Exchange Agent") for purposes
of effecting the conversion of First Financial Common Stock into MBI Common
Stock upon consummation of the Merger. As soon as practicable after
consummation of the Merger, a letter of transmittal (including instructions
setting forth the procedures for exchanging certificates representing shares
of First Financial Common Stock for the MBI Common Stock issuable to each
holder thereof pursuant to the Merger Agreement) will be sent to each record
holder of certificates formerly representing shares of First Financial Common
Stock as of the Effective Time (as hereinafter defined). Upon surrender to
the Exchange Agent of his or her certificate(s) representing shares of First
Financial Common Stock, together with a duly completed and executed letter of
transmittal, such holder will receive certificates representing that whole
number of shares of MBI Common Stock to which such holder is entitled under
the Merger Agreement. See "TERMS OF THE PROPOSED MERGER - Surrender of First
Financial Stock Certificates and Receipt of MBI Common Stock."
The Merger Agreement provides that the consummation of the Merger is
subject to certain terms and conditions, including the approval of the Merger
Agreement by the requisite vote of the holders of First Financial Common
Stock, the receipt of the requisite regulatory approvals, a letter of KPMG
Peat Marwick LLP to the effect that the Merger will qualify for
pooling-of-interests accounting treatment and an opinion of counsel for MBI
regarding certain federal income tax aspects of the transaction. For a
discussion of each of the conditions to the Merger, see "TERMS OF THE
PROPOSED MERGER - Conditions of the Merger." The Merger will be consummated
and become effective (the "Effective Time") upon the later of (i) the issuance
of a certificate of merger by the Office of the Secretary of State of the
State of Missouri and (ii) the filing of articles of merger with the Office of
the Secretary of State of the State of Iowa.
Unless the parties otherwise agree, the date of the closing of the
Merger (the "Closing Date") shall occur on such date as MBI shall notify
First Financial in writing (such notice to be at least five business days in
advance of the Effective Time) but (i) not earlier than the approval of the
Merger Agreement by the requisite vote of the holders of First Financial
Common Stock and the receipt of the 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 days after the Approval Date.
The Merger Agreement may be terminated at any time prior to the Closing Date
by the mutual consent of the parties or, unilaterally, by either party upon
the occurrence of certain events or if the Merger is not consummated by May
1, 1999. See "TERMS OF THE PROPOSED MERGER - Conditions of the Merger" and
"- Termination of the Merger Agreement."
EFFECT ON FIRST FINANCIAL STOCK PLAN AND EMPLOYEE BENEFIT PLANS
Upon consummation of the Merger, MBI will assume the First Financial
Bancorporation 1997 Stock Compensation Plan (the "First Financial Stock
Plan"), and all of the outstanding rights (whether or not then exercisable)
with respect to First Financial Common Stock pursuant to the First Financial
Stock Plan (collectively, the "First Financial Stock Options") will be
converted into rights to purchase MBI Common Stock. As a result of such
assumption: (i) each outstanding First Financial Stock Option will be
exercisable solely for shares of MBI Common Stock; (ii) the number of shares
of MBI Common Stock subject to the First Financial Stock Options will equal
the number of shares of First Financial Common Stock immediately prior to the
Effective Time multiplied by the Exchange Ratio; and
-10-
<PAGE> 16
(iii) the per share exercise price for each First Financial Stock Option will be
adjusted by dividing such exercise price by the Exchange Ratio.
In addition, upon consummation of the Merger, Ameribanc will honor all
severance and other compensation contracts and provisions for vested benefits
under the employee plans of First Financial and FNBI earned or accrued
through the Effective Time. MBI will take such steps as are necessary to
integrate the employees of First Financial and FNBI into MBI's employee benefit
plans as soon as practicable after the Effective Time. See "TERMS OF THE
PROPOSED MERGER - Effect on First Financial Stock Plan and Employee Benefit
Plans."
OTHER AGREEMENTS
In addition to and contemporaneously with the Merger Agreement, MBI and
First Financial executed a Stock Option Agreement (the "Option Agreement")
and MBI and all of the directors of First Financial executed separate Voting
Agreements (the "Voting Agreements"). The following is a summary of the
material terms of the Option Agreement and the Voting Agreements.
OPTION AGREEMENT. Pursuant to the Option Agreement, First Financial
issued to MBI an option (the "Option") to purchase up to 707,189 shares of
First Financial Common Stock at a price of $37.75 per share (the "Option
Price"). The Option is exercisable upon the occurrence of certain events
generally relating to the failure of First Financial to consummate the Merger
because of a material change or potential material change in the ownership of
First Financial, all as set forth in the Option Agreement. No such event has
occurred as of the date hereof. First Financial granted to MBI the Option as
a condition of and in consideration of MBI entering into the Merger
Agreement. The Option is intended to increase the likelihood that the Merger
will be consummated in accordance with the terms of the Merger Agreement.
Consequently, the Option may have the effect of discouraging a person who
might now or prior to the consummation of the Merger consider or propose the
acquisition of First Financial (or a significant interest in First
Financial), even if such person were prepared to pay a higher price per share
for First Financial Common Stock than the price per share implicit in the
Exchange Ratio. In the event MBI acquires shares of First Financial Common
Stock pursuant to the Option, MBI could vote those shares in the election of
First Financial directors and other matters requiring a shareholder vote,
thereby potentially having a material impact on the outcome of such matters.
See "TERMS OF THE PROPOSED MERGER - Other Agreements - Option Agreement."
VOTING AGREEMENTS. Concurrent with the execution of the Merger
Agreement, MBI and all of the eight directors of First Financial executed
separate Voting Agreements (the "Voting Agreements") pursuant to which each
such director agreed that he will vote all of the shares of First Financial
Common Stock then owned, controlled or subsequently acquired in favor of the
approval of the Merger Agreement at the Special Meeting. In addition, until
the earliest to occur of the Closing Date or the termination of the Merger
Agreement, each director further agreed he will not vote any such shares in
favor of the approval of any other competing acquisition proposal involving
First Financial and a third party. Each director also agreed that he will
not transfer shares of First Financial Common Stock unless, prior to such
transfer, the transferee executes an agreement in substantially the same form
as the Voting Agreement and satisfactory to MBI. As of the Record Date (as
defined below), the directors of First Financial who signed Voting Agreements
owned beneficially, directly and indirectly, an aggregate of -----------
shares (excluding 214,527 shares held in trust by Mary Lee Nagle Duda, the
spouse of Fritz Duda, a director of First Financial) of First Financial
Common Stock, or approximately -------%
-11-
<PAGE> 17
of the issued and outstanding shares. See "TERMS OF THE PROPOSED MERGER - Other
Agreements - Voting Agreements."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
MBI has agreed that the Merger will not diminish any indemnification
obligations of First Financial or FNBI in favor of the employees, agents,
directors or officers of First Financial or FNBI existing as of the Effective
Time. In addition, to the extent that First Financial's existing directors'
and officers' liability insurance policy provides coverage for the acts or
omissions of the directors and officers of First Financial and FNBI prior to
the Effective Time, First Financial has agreed to give to such insurance
carrier and to MBI notice of any potential claims thereunder. On and after
the Effective Time, MBI's directors' and officers' liability insurance policy
will provide coverage for the prior acts of the directors and officers of
First Financial and FNBI. See "TERMS OF THE PROPOSED MERGER - Interests of
Certain Persons in the Merger."
SPECIAL MEETING OF FIRST FINANCIAL SHAREHOLDERS
The Special Meeting will be held on -------------, 1998, at -------
- -.m. Central Time, at -----------------------------------------. Approval by
the First Financial shareholders of the Merger Agreement requires the
affirmative vote of the holders of at least two-thirds of the outstanding
shares of First Financial Common Stock. Only holders of record of First
Financial Common Stock at the close of business on --------------, 1998 (the
"Record Date") will be entitled to notice of, and to vote at, the Special
Meeting. At such date, there were ------ shares of First Financial Common
Stock outstanding. Each share of First Financial Common Stock is entitled to
one vote on each matter submitted to a vote at the Special Meeting.
As of the Record Date, directors and executive officers of First
Financial and their affiliates owned beneficially, or controlled the voting
of, an aggregate of -------- shares of First Financial Common Stock, or
approximately ------% of the shares entitled to vote at the Special Meeting.
Each of First Financial's directors and executive officers has indicated his
or her intention to vote his or her shares (excluding the 214,527 shares held
in trust by Mary Lee Nagle Duda, the spouse of Fritz Duda) for the approval
of the Merger Agreement, which includes the eight directors of First
Financial who, pursuant to the terms of their respective Voting Agreements,
have committed to vote their shares of First Financial Common Stock for
approval of the Merger Agreement. In addition, MBI and FSCM currently own
6,000 and 11,250 shares, respectively, of First Financial Common Stock, which
shares will be voted for the approval of the Merger Agreement.
THE BOARD OF DIRECTORS OF FIRST FINANCIAL CAREFULLY CONSIDERED AND
UNANIMOUSLY APPROVED THE TERMS OF THE MERGER AGREEMENT AS BEING IN THE BEST
INTEREST OF FIRST FINANCIAL AND ITS SHAREHOLDERS. THE BOARD OF DIRECTORS OF
FIRST FINANCIAL UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE
PROPOSAL TO APPROVE THE MERGER AGREEMENT. ---
REASONS FOR THE MERGER
FIRST FINANCIAL. First Financial's Board of Directors believes that
the Merger is in the best interests of First Financial and its shareholders.
In reaching the decision to recommend the approval of the Merger Agreement to
the shareholders, the Board of Directors, without assigning any relative or
-12-
<PAGE> 18
specific weights, considered a number of factors. For a discussion of such
factors, see "TERMS OF THE PROPOSED MERGER - Background of and Reasons for
the Merger; Board Recommendations."
MBI. MBI's Board of Directors believes that the Merger will enable MBI
to (i) expand MBI's presence in eastern Iowa through the acquisition of an
established banking organization and (ii) enhance MBI's ability to compete in
the increasingly competitive banking and financial services industry. See
"TERMS OF THE PROPOSED MERGER - Background of and Reasons for the Merger;
Board Recommendations."
OPINION OF FINANCIAL ADVISOR TO FIRST FINANCIAL
As of the date of hereof, ABN AMRO Incorporated ("ABN AMRO"), First
Financial's financial advisor, rendered to the Board of Directors of First
Financial a written opinion to the effect that, as of the date of such
opinion, the Exchange Ratio to be received by the holders of First Financial
Common Stock in the Merger is fair to them from a financial point of view.
Attached to this Proxy Statement/Prospectus as Annex A is a copy of the
-------
opinion of ABN AMRO, as of the date hereof, setting forth the procedures
followed, assumptions made, matters considered and qualifications and
limitations of the review undertaken by ABN AMRO in connection with rendering
its opinion. Holders of First Financial Common Stock are urged to read ABN
AMRO's opinion in its entirety. See "TERMS OF THE PROPOSED MERGER -
Background of and Reasons for the Merger; Board Recommendations" and "-
Opinion of Financial Advisor to First Financial."
FRACTIONAL SHARES
No fractional shares of MBI Common Stock will be issued to the
shareholders of First Financial in connection with the Merger. Each holder
of First Financial Common Stock who otherwise would have been entitled to
receive a fraction of a share of MBI Common Stock shall receive in lieu
thereof cash, without interest, in an amount equal to the holder's fractional
share interest multiplied by the closing stock price of MBI Common Stock on
the NYSE Composite Tape on the Closing Date as reported in The Wall Street
Journal. Cash received by First Financial shareholders in lieu of fractional
shares may give rise to taxable income. See "CERTAIN FEDERAL INCOME TAX
CONSEQUENCES OF THE MERGER."
WAIVER AND AMENDMENT
Any provision of the Merger Agreement, including, without limitation,
the conditions to the consummation of the Merger and the restrictions
described under the caption "TERMS OF THE PROPOSED MERGER - Business Pending
the Merger," may be (i) waived in writing at any time by the party that is, or
whose shareholders are, entitled to the benefits thereof or (ii) amended at any
time by written agreement of the parties approved by or on behalf of their
respective Boards of Directors, whether before or after the approval of the
Merger Agreement by the shareholders of First Financial; provided, however,
that after approval of the Merger Agreement by the shareholders of First
Financial at the Special Meeting no such modification may (i) alter or change
the amount or kind of the consideration to be received by the First Financial
shareholders pursuant to the Merger Agreement or (ii) adversely affect the tax
treatment to the First Financial shareholders as a result of receiving shares
of MBI Common Stock in the Merger.
-13-
<PAGE> 19
FEDERAL INCOME TAX CONSEQUENCES IN GENERAL
Thompson Coburn, MBI's legal counsel, has delivered its opinion to the
effect that, assuming the Merger occurs in accordance with the Merger
Agreement and conditioned on the accuracy of certain representations made by
MBI and First Financial, the Merger will constitute a "reorganization" for
federal income tax purposes and that, accordingly, assuming the First
Financial Common Stock is a capital asset in the hands of the holder at the
Effective Time, (i) no gain or loss will be recognized by First Financial
shareholders who exchange their shares of First Financial Common Stock solely
for shares of MBI Common Stock in the Merger, (ii) the basis of the MBI Common
Stock will equal the basis of the First Financial Common Stock for which it
is exchanged and (iii) the holding period of the MBI Common Stock will include
the holding period of the First Financial Common Stock for which it is
exchanged. However, cash received in lieu of fractional shares may give rise
to taxable income. EACH FIRST FINANCIAL SHAREHOLDER IS URGED TO CONSULT HIS
OR HER OWN TAX ADVISOR TO DETERMINE THE SPECIFIC TAX CONSEQUENCES OF THE
MERGER TO SUCH SHAREHOLDER, INCLUDING THE APPLICABILITY OF VARIOUS STATE,
LOCAL AND FOREIGN TAX LAWS. See "CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF
THE MERGER."
REGULATORY APPROVAL
The Merger is subject to prior approval of the Board of Governors of
the Federal Reserve System (the "Federal Reserve Board") and any other bank
regulatory authority that may be necessary or appropriate (the Federal Reserve
Board and any other bank regulatory authority that may be necessary or
appropriate are collectively referred to herein as the "Regulatory Authorities"
and, individually, as a "Regulatory Authority"). MBI will file the required
applications regarding the Merger with the Federal Reserve Board. In reviewing
the applications and the proposed Merger, the Federal Reserve Board will
consider various factors, including possible anti-competitive effects of the
Merger, and examine the financial and managerial resources and future prospects
of the combined organization. There can be no assurance that the requisite
regulatory approvals will be granted or as to the timing of such approvals.
See "TERMS OF THE PROPOSED MERGER - Regulatory Approval" and "SUPERVISION AND
REGULATION."
ACCOUNTING TREATMENT
It is intended that the Merger will be accounted for under the
pooling-of-interests method of accounting. See "TERMS OF THE PROPOSED MERGER
- - Accounting Treatment."
DISSENTERS' RIGHTS
Pursuant to the Iowa Business Corporation Act (the "IBCA"), each holder
of First Financial Common Stock will have the right to dissent from the
Merger Agreement and to demand a determination of the fair value of such
holder's shares and, if the Merger is consummated, receive payment of such
fair value in cash by following the procedures set forth in Division XIII of
the IBCA, the text of which is attached hereto as Annex B. Failure to
-------
follow such procedures may result in a loss of such shareholder's dissenters'
rights. Any First Financial shareholder returning a blank executed proxy
card will be deemed to have approved the Merger Agreement, thereby waiving
any such dissenters' rights. See "DISSENTERS' RIGHTS OF SHAREHOLDERS OF
FIRST FINANCIAL."
-14-
<PAGE> 20
MARKETS AND MARKET PRICES
MBI Common Stock is traded on the NYSE under the symbol "MTL." The
closing per share sale price reported for MBI Common Stock on May 7, 1998,
the last trading date preceding the public announcement of the Merger, was
$52.8125. First Financial Common Stock is not actively traded, but there are
regularly quoted bid and asked prices from eight brokerage firms which
maintained public trading markets for First Financial Common Stock in 1997.
The following table sets forth for the periods indicated the high and
low prices per share of MBI Common Stock as reported on the NYSE and of First
Financial Common Stock as known to management of First Financial, along with
the quarterly cash dividends per share declared. The per share prices do not
include adjustments for markups, markdowns or commissions.
<TABLE>
<CAPTION>
MBI FIRST FINANCIAL
------------------------------------- ------------------------------------
SALES PRICE<F1> CASH SALES PRICE CASH
------------------ DIVIDEND ------------------ DIVIDEND
HIGH LOW DECLARED HIGH LOW DECLARED
---- --- -------- ---- --- --------
<S> <C> <C> <C> <C> <C> <C>
1996
- ----
First Quarter $31.0006 $27.6875 $.273 $18.25 $16.33 $.13
Second Quarter 31.9375 29.0000 .273 19.00 17.68 .13
Third Quarter 35.2500 28.9375 .273 20.17 18.42 .1467
Fourth Quarter 36.0000 32.6875 .273 20.17 19.33 .1467
1997
- ----
First Quarter $39.688 $33.3125 $.287 $23.42 $20.08 $.1467
Second Quarter 41.688 35.0000 .287 23.00 21.33 .1467
Third Quarter 53.500 40.5000 .287 25.00 22.00 .17
Fourth Quarter 61.625 45.5000 .287 29.50 24.25 .19
1998
- ----
First Quarter $61.250 $49.5625 $ .31 $45.75 $29.13 $.19
Second Quarter 57.500 49.8125 .31 47.50 36.13 .2725
(through June 15, 1998)
<FN>
- --------------------
<F1> For recent sale prices of MBI Common Stock, see the cover of this Proxy
Statement/Prospectus. Shareholders are advised to obtain current market
quotations for MBI Common Stock and First Financial Common Stock.
</TABLE>
COMPARATIVE UNAUDITED PER SHARE DATA
The following table sets forth for the periods indicated selected
historical per share data of MBI and First Financial and the corresponding
pro forma and pro forma equivalent per share amounts giving effect to the
proposed Merger, as well as the pending acquisitions by MBI of FSCM, CBT
and Firstbank, each of which will be accounted for under the pooling-of-
interests method of accounting, and the acquisition by MBI of Roosevelt
Financial Group, Inc. ("Roosevelt"), which was consummated on July 1, 1997 and
accounted for under the purchase method of accounting. The data presented is
based upon the consolidated financial statements and related notes of each of
MBI and First Financial included in documents incorporated herein by
reference, and the pro forma combined consolidated balance sheet
and income statements, including the notes thereto, appearing elsewhere
herein. This information should be read in conjunction with such historical
and pro forma financial statements and related notes thereto. The
assumptions used in the preparation of this table appear in the notes to the
pro forma financial information appearing elsewhere in this Proxy
Statement/Prospectus. See "PRO FORMA FINANCIAL INFORMATION - Notes to Pro
Forma Combined Consolidated Financial Statements." This data is not
necessarily indicative of the results of the future operations of the
-15-
<PAGE> 21
combined organization or the actual results that would have occurred if the
proposed Merger, the pending acquisitions by MBI of FSCM, CBT and Firstbank
and the acquisition of Roosevelt had been consummated prior to the periods
indicated.
<TABLE>
<CAPTION>
MBI/ MBI/ MBI/
FIRST FIRST FINANCIAL FIRST FINANCIAL MBI/ALL ENTITIES ALL ENTITIES
MBI FINANCIAL PRO FORMA PRO FORMA PRO FORMA PRO FORMA
REPORTED REPORTED COMBINED<F1> EQUIVALENT<F2> COMBINED<F3> EQUIVALENT<F2>
-------- -------- ------------ -------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Book Value per Share:
March 31, 1998<F4> $ 18.65 $ 16.96 $ 18.54 $ 16.32 $ 18.58 $ 16.35
December 31, 1997 18.47 16.50 18.33 16.13 17.58 15.47
Cash Dividends Declared per Share:
Three Months ended March 31, 1998 $ .31 $ .19 $ .31 $ .27 $ .310 $ .27
Year ended December 31, 1997 1.148 .65 1.148 1.01 1.148 1.01
Year ended December 31, 1996 1.092 .55 1.092 .96 1.092 .96
Year ended December 31, 1995 .88 .51 .88 .77 .880 .77
Basic Earnings per Share:
Three Months ended March 31, 1998 $ .78 $ .49 $ .78 $ .69 $ .76 $ .67
Year ended December 31, 1997 1.68 1.91 1.69 1.49 1.49 1.31
Year ended December 31, 1996 2.11 1.68 2.11 1.86 2.13 1.87
Year ended December 31, 1995 2.41 1.28 2.39 2.10 2.37 2.09
Diluted Earnings per Share:
Three Months Ended March 31, 1998 $ .77 $ .49 $ .77 $ .68 $ .75 $ .66
Year ended December 31, 1997 1.65 1.67 1.66 1.46 1.45 1.28
Year ended December 31, 1996 2.08 1.27 2.08 1.83 2.09 1.84
Year ended December 31, 1995 2.37 .51 2.35 2.07 2.31 2.03
Market Price per Share:
At May 7, 1998<F5> $52.8125 $38.000 $52.8125 $46.475 $52.8125 $46.475
At June 15, 1998<F5> 50.0625 43.375 50.0625 44.055 50.0625 44.055
<FN>
- --------------------
<F1> Includes the effect of pro forma adjustments for First Financial, as
appropriate. See "PRO FORMA FINANCIAL INFORMATION--Notes to Pro Forma
Combined Consolidated Financial Statements."
<F2> Based on the pro forma combined per share amounts multiplied by 0.88,
the Exchange Ratio applicable to one share of First Financial Common
Stock in the Merger. Further explanation of the assumptions used in
the preparation of the pro forma combined consolidated financial
statements is included in the notes to pro forma combined consolidated
financial statements. See "PRO FORMA FINANCIAL INFORMATION--Notes to
Pro Forma Combined Consolidated Financial Statements."
<F3> Includes the effect of pro forma adjustments for First Financial, CBT,
Firstbank, FSCM and Roosevelt, as appropriate. Due to the
immateriality of the financial condition and results of operations of
Horizon and HomeCorp to that of MBI, this table does not include the
effect of pro forma adjustments for Horizon and HomeCorp. See "PRO
FORMA FINANCIAL INFORMATION--Notes to Pro Forma Combined Consolidated
Financial Statements."
<F4> Based upon the following number of shares outstanding as of
March 31, 1998:
<S> <C>
Shares of MBI Common Stock as reported 133,115,257
Number of Shares of MBI Common Stock, net of
treasury shares, to be issued in the mergers of:
FSCM 1,877,324
CBT 4,961,910
First Financial 2,875,360
Firstbank 12,511,135
-----------
MBI/All Entities Pro Forma
Combined 155,340,956
===========
<FN>
<F5> The market value of MBI Common Stock disclosed as of May 7, 1998, the
last trading day preceding the public announcement of the Merger, and
as of June 15, 1998, the last practicable date prior to the filing of
the Registration Statement, is based on the last sale price as reported
on the NYSE Composite Tape. The market value of First Financial Common
Stock disclosed as of May 7, 1998, the last trading day preceding the
public announcement of the Merger, and as of June 15, 1998, the last
practicable date prior to the filing of the Registration Statement, is
based on over-the-counter "bulletin board" closing prices.
</TABLE>
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<PAGE> 22
SUMMARY FINANCIAL DATA
The following table sets forth for the periods indicated certain
summary historical consolidated financial information for MBI and First
Financial. The balance sheet data and income statement data of MBI and First
Financial included in the summary financial data as of and for the five years
ended December 31, 1997, are taken from the audited consolidated financial
statements of MBI and First Financial, respectively. The balance sheet data
and income statement data of MBI and First Financial included in the summary
financial data as of and for the three months ended March 31, 1998 and 1997
are taken from the unaudited consolidated financial statements of MBI and
First Financial, respectively. These data include all adjustments which are,
in the opinion of the respective managements of MBI and First Financial,
necessary to present a fair statement of these periods and are of a normal
recurring nature. Results for MBI and First Financial for the three months
ended March 31, 1998 are not necessarily indicative of results for the entire
year. The following information should be read in conjunction with the
audited consolidated financial statements of each of MBI and First Financial
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 the notes thereto, appearing
elsewhere in this Proxy Statement/Prospectus. See "INCORPORATION OF CERTAIN
INFORMATION BY REFERENCE" and "PRO FORMA FINANCIAL INFORMATION."
-17-
<PAGE> 23
<TABLE>
MERCANTILE BANCORPORATION INC.
SUMMARY FINANCIAL DATA
<CAPTION>
ALL ENTITIES
PRO FORMA
COMBINED
CONSOLIDATED AS OF OR FOR
AS OF OR FOR THREE MONTHS
THE THREE ENDED
MONTHS ENDED MARCH 31,
MARCH 31, --------------------------
1998<F1> 1998 1997
------------- -------- --------
<S> <C> <C> <C>
PER SHARE DATA
Basic earnings $ .76 $ .78 $ .65
Diluted earnings .75 .77 .64
Dividends declared .31 .31 .287
Book value at period end 18.54 18.65 16.50
EARNINGS (THOUSANDS)
Interest income $611,817 $530,331 $398,462
Interest expense 330,187 290,026 186,501
-------- -------- --------
Net interest income 281,630 240,305 211,961
Provision for possible loan losses 9,387 6,606 18,443
Other income 140,747 127,193 88,100
Other expense 228,455 196,864 165,595
Income taxes 67,321 60,136 41,028
-------- -------- --------
Net income $117,214 $103,892 $ 74,995
======== ======== ========
ENDING BALANCE SHEET (MILLIONS)
Total assets $ 35,830 $ 31,802 $ 22,078
Earning assets 32,286 28,530 20,373
Investment securities 9,444 8,378 4,847
Loans and leases, net of unearned income 22,224 19,625 15,213
Deposits 25,830 22,528 17,354
Long-term debt<F2> 2,410 2,343 452
Shareholders' equity 2,885 2,483 1,882
Reserve for possible loan losses 316 264 231
SELECTED RATIOS
Return on average assets 1.35% 1.35% 1.38%
Return on average equity 16.29 16.57 15.63
Net interest rate margin<F3> 3.62 3.54 4.36
Equity to assets 8.05 7.81 8.52
Reserve for possible loan losses to
Outstanding loans 1.42 1.34 1.52
Non-performing loans 232.41 231.39 273.18
Dividend payout ratio<F4> 41.33 40.26 44.84
<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 $ 1.68 $ 2.11 $ 2.41 $ 2.06 $ 1.81
Diluted earnings 1.65 2.08 2.37 2.02 1.77
Dividends declared 1.148 1.092 .88 .748 .66
Book value at period end 18.47 16.74 16.29 14.48 13.41
Earnings (Thousands)
Interest income $1,878,194 $1,552,863 $1,516,156 $1,311,928 $1,269,680
Interest expense 957,690 724,910 715,466 521,542 508,469
---------- ---------- ---------- ---------- ----------
Net interest income 920,504 827,953 800,690 790,386 761,211
Provision for possible loan losses 79,309 73,015 41,533 48,791 70,584
Other income 378,684 337,480 311,649 272,368 290,380
Other expense 894,780 718,668 640,519 645,011 666,067
Income taxes 120,506 128,535 149,898 135,896 114,768
---------- ---------- ---------- ---------- ----------
Net income $ 204,593 $ 245,215 $ 280,389 $ 233,056 $ 200,172
========== ========== ========== ========== ==========
Ending Balance Sheet (Millions)
Total assets $ 29,955 $ 22,030 $ 20,883 $ 19,397 $ 18,878
Earning assets 27,278 20,061 18,997 17,904 17,390
Investment securities 7,546 4,746 4,964 4,895 5,234
Loans and leases, net of unearned income 19,200 14,953 13,703 12,764 11,637
Deposits 22,080 17,336 16,172 15,137 15,435
Long-term debt<F2> 1,469 305 344 351 340
Shareholders' equity 2,410 1,946 1,915 1,643 1,510
Reserve for possible loan losses 255 230 232 245 233
Selected Ratios
Return on average assets 0.79% 1.16% 1.39% 1.22% 1.08%
Return on average equity 9.55 12.95 15.64 14.66 14.06
Net interest rate margin<F3> 3.93 4.34 4.38 4.61 4.58
Equity to assets 8.05 8.83 9.17 8.47 8.00
Reserve for possible loan losses to
Outstanding loans 1.33 1.54 1.70 1.92 2.00
Non-performing loans 249.51 318.99 241.79 552.34 289.13
Dividend payout ratio<F4> 69.58 52.50 37.13 37.03 37.29
<FN>
- --------------------
<F1> Includes the effect of pro forma adjustments for the pending
acquisitions of First Financial, CBT, Firstbank and FSCM and the
completed acquisition of Roosevelt, as appropriate. Due to the
immateriality of the financial condition and results of operations of
Horizon and HomeCorp to that of MBI, this table does not include the
effect of pro forma adjustments for Horizon and HomeCorp. See "PRO
FORMA FINANCIAL INFORMATION - Notes to Pro Forma Combined Consolidated
Financial Statements."
<F2> Includes company-obligated mandatorily redeemable preferred securities
of Mercantile Capital Trust I.
<F3> Taxable-equivalent basis. Includes tax-equivalent adjustments for MBI
of $3,401,000, $3,857,000, $15,086,000, $16,353,000, $17,758,000,
$17,962,000 and $18,598,000 for March 31, 1998 and 1997 and December
31, 1997, 1996, 1995, 1994 and 1993, respectively, and for all entities
pro forma combined consolidated for March 31, 1998 of $4,644,000.
These adjustments are based upon a federal tax rate of 35% for all
periods.
<F4> Based upon diluted earnings per share.
</TABLE>
-18-
<PAGE> 24
<TABLE>
FIRST FINANCIAL BANCORPORATION
SUMMARY FINANCIAL DATA
<CAPTION>
AS OF OR FOR THE
THREE MONTHS AS OF OR FOR THE
ENDED MARCH 31, YEAR ENDED DECEMBER 31,
---------------------- ----------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
Basic earnings $ .49 $ .44 $ 1.91 $ 1.68 $ 1.28 $ 1.28 $ 1.45
Diluted earnings .49 .44 1.90 1.67 1.27 1.27 1.43
Dividends declared .19 .15 .65 .55 .51 .49 .47
Book value at period end 16.96 16.43 16.50 15.03 14.04 12.71 12.60
Average common shares outstanding 3,532,038 3,502,600 3,496,634 3,528,792 3,573,713 3,554,595 3,488,990
EARNINGS (THOUSANDS)
Interest income $ 9,367 $ 8,363 $ 36,708 $ 33,268 $ 31,742 $ 29,205 $ 28,236
Interest expense 4,907 4,122 18,730 16,449 15,811 13,624 14,057
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net interest income 4,460 4,241 17,978 16,819 15,931 15,581 14,179
Provision for credit losses 100 177 588 591 366 425 155
Other income 2,601 1,849 8,385 7,024 6,236 5,699 5,924
Other expense 4,491 3,702 16,183 14,802 15,480 14,532 13,041
Income taxes 736 664 2,909 2,534 1,751 1,760 1,852
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income $ 1,734 $ 1,547 $ 6,683 $ 5,916 $ 4,570 $ 4,563 $ 5,055
========== ========== ========== ========== ========== ========== ==========
ENDING BALANCE SHEET (THOUSANDS)
Total assets $ 568,442 $ 492,372 $ 550,053 $ 467,725 $ 457,236 $ 434,461 $ 434,081
Earning assets 516,152 459,290 504,981 428,541 421,640 404,536 406,243
Investments 119,254 102,694 112,755 97,802 123,886 109,229 134,511
Loans and leases 357,598 325,096 364,301 330,739 294,529 294,707 254,207
Deposits 480,461 419,165 458,815 395,407 385,055 362,263 363,580
Long-term debt 12,908 13,938 18,188 12,355 17,469 20,268 18,283
Shareholders' equity 60,267 53,585 57,580 52,576 50,207 45,245 43,993
Allowance for credit losses 4,499 3,896 4,589 3,788 3,602 3,354 3,101
SELECTED RATIOS
Return on average assets 1.28% 1.33% 1.26% 1.26% 1.02% 1.03% 1.19%
Return on average equity 11.73 11.76 11.53 11.51 9.65 10.10 12.07
Net interest rate margin 3.74 4.06 3.96 4.12 4.07 4.05 3.88
Equity to assets 10.60 10.88 10.47 11.24 10.98 10.41 10.13
Allowance for credit losses to:
Outstanding loans 1.26 1.20 1.26 1.15 1.22 1.14 1.22
Non-performing loans 3.16 7.08 4.97 6.78 13.34 3.05 2.43
Dividend payout ratio 38.78 34.09 34.16 32.89 39.63 37.98 32.23
</TABLE>
-19-
<PAGE> 25
INFORMATION REGARDING SPECIAL MEETING
-------------------------------------
GENERAL
This Proxy Statement/Prospectus is being furnished to holders of First
Financial Common Stock in connection with the solicitation of proxies by the
Board of Directors of First Financial for use at the Special Meeting and any
adjournments or postponements thereof at which the shareholders of First
Financial will consider and vote upon a proposal to approve the Merger
Agreement and consider and vote upon any other business that may properly be
brought before the Special Meeting or any adjournments or postponements
thereof. Each copy of this Proxy Statement/Prospectus is accompanied by the
Notice of Special Meeting of Shareholders of First Financial, a proxy card
and a return envelope to First Financial for the proxy card.
This Proxy Statement/Prospectus also is furnished by MBI to each holder
of First Financial Common Stock as a prospectus in connection with the
issuance by MBI of shares of MBI Common Stock upon the consummation of the
Merger. This Proxy Statement/Prospectus, the Notice of Special Meeting and
proxy card are being first mailed to shareholders of First Financial on
- -----------------, 1998.
DATE, TIME AND PLACE
The Special Meeting will be held at -------------------------------------,
on ---------------, 1998, at ------ -.m. Central Time.
RECORD DATE; VOTE REQUIRED
On the Record Date, there were ------- shares of First Financial Common
Stock outstanding and entitled to vote at the Special Meeting. Each such
share is entitled to one vote on each matter properly brought before the
Special Meeting. The affirmative vote of the holders of at least two-thirds
of the outstanding shares of First Financial Common Stock is required to
approve the Merger Agreement.
As of the Record Date, directors and executive officers of First
Financial and their affiliates owned beneficially, or controlled the voting
of, an aggregate of --------- shares of First Financial Common Stock, or
approximately -------% of the outstanding shares of First Financial Common
Stock entitled to vote at the Special Meeting. Each of the directors and
executive officers of First Financial has indicated his or her intention to
vote his or her shares (excluding the 214,527 shares held in trust by Mary
Lee Nagle Duda, the spouse of Fritz Duda) for the approval of the Merger
Agreement at the Special Meeting, which includes the eight directors of First
Financial who, pursuant to the terms of their respective Voting Agreements,
have committed to vote their shares of First Financial Common Stock for
approval of the Merger Agreement. In addition, MBI and FSCM currently own
6,000 and 11,250 shares, respectively, of First Financial Common Stock, which
shares will be voted for the approval of the Merger Agreement. See "TERMS OF
THE PROPOSED MERGER - Other Agreements - Voting Agreements."
-20-
<PAGE> 26
VOTING AND REVOCATION OF PROXIES
Shares of First Financial Common Stock that are represented by a
properly executed proxy received prior to the vote at the Special Meeting
will be voted at such Special Meeting in the manner directed on the proxy
card, unless such proxy is revoked in the manner set forth herein in advance
of such vote. ANY FIRST FINANCIAL SHAREHOLDER RETURNING AN EXECUTED PROXY
CARD THAT DOES NOT PROVIDE INSTRUCTIONS TO VOTE AGAINST THE APPROVAL OF THE
MERGER AGREEMENT WILL BE DEEMED TO HAVE VOTED IN FAVOR OF THE APPROVAL OF THE
MERGER AGREEMENT. Failure to return a properly executed proxy card or to
vote in person at the Special Meeting will have the practical effect of a
vote against the approval of the Merger Agreement.
Shares subject to abstentions will be treated as shares that are
present and voting at the Special Meeting for purposes of determining the
presence of a quorum. Because the affirmative vote of at least two-thirds of
the outstanding shares of First Financial Common Stock is required for
approval of the Merger Agreement, abstentions will have the effect of votes
against the approval of the Merger Agreement. Broker "non-votes" (i.e.,
proxies from brokers or nominees indicating that such persons have not
received instructions from the beneficial owners or other persons entitled to
vote shares with respect to which the brokers or nominees do not have
discretionary power to vote without such instructions) will not be considered
as present for the purposes of determining the presence of a quorum. Because
the affirmative vote of a majority of the outstanding shares of First
Financial Common Stock is required for approval of the Merger Agreement,
broker non-votes will have the effect of a vote against the approval of the
Merger Agreement.
Any First Financial shareholder returning an executed proxy card that
does not provide instructions to abstain from, or to vote against the
approval of, the Merger Agreement will be deemed to have approved the Merger
Agreement.
Any shareholder of First Financial giving a proxy may revoke it at any
time prior to the vote at the Special Meeting. Shareholders of First
Financial wishing to revoke a proxy prior to the vote may do so by delivering
to the Secretary of First Financial, at 204 East Washington Street, P.O. Box
1880, Iowa City, Iowa 52244-1880, at or before the Special Meeting, a written
notice of revocation bearing a later date than the proxy or a later dated
proxy relating to the same shares, or by attending the Special Meeting and
voting such shares in person. Attendance at the Special Meeting will not in
itself constitute the revocation of a proxy.
The Board of Directors of First Financial currently is not aware of any
business to be brought before the Special Meeting other than that described
herein. If, however, other matters are properly brought before such Special
Meeting, or any adjournments or postponements thereof, the persons appointed
as proxies will have discretionary authority to vote the shares represented
by duly executed proxies in accordance with their discretion and judgment as
to the best interest of First Financial.
SOLICITATION OF PROXIES
First Financial will bear its own costs of soliciting proxies, except
that MBI will pay printing and mailing expenses and registration fees
incurred in connection with preparing this Proxy Statement/Prospectus.
Proxies will initially be solicited by mail, but directors, officers and
selected other employees of First Financial also may solicit proxies in
person or by telephone. Directors,
-21-
<PAGE> 27
executive officers and any other employees of First Financial who solicit
proxies will not be specially compensated for such services. Brokerage houses,
nominees, fiduciaries and other custodians will be requested to forward proxy
materials to beneficial owners and will be reimbursed for their reasonable
expenses incurred in sending proxy materials to beneficial owners.
HOLDERS OF FIRST FINANCIAL COMMON STOCK ARE REQUESTED TO COMPLETE, DATE
AND SIGN THE ACCOMPANYING PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED
POSTAGE-PREPAID ENVELOPE.
-22-
<PAGE> 28
TERMS OF THE PROPOSED MERGER
----------------------------
The following is a summary of the material terms and conditions of the
Merger Agreement, which document is incorporated by reference herein. This
summary is qualified in its entirety by the full text of the Merger
Agreement. MBI, upon written or oral request, will furnish a copy of the
Merger Agreement, without charge, to any person who receives a copy of this
Proxy Statement/Prospectus. Such requests should be directed to Jon W.
Bilstrom, General Counsel and Secretary, Mercantile Bancorporation Inc., P.O.
Box 524, St. Louis, Missouri 63166-0524, telephone (314) 418-2525.
GENERAL DESCRIPTION OF THE MERGER
Pursuant to the Merger Agreement, subject to satisfaction or waiver of
certain conditions precedent, including receipt of all applicable regulatory
approvals, First Financial will be merged on the Closing Date with and into
Ameribanc. Upon consummation of the Merger, First Financial's corporate
existence will terminate and Ameribanc will continue as the surviving entity.
At the Effective Time, each share of First Financial Common Stock will be
converted into the right to receive 0.88 of a share of MBI Common Stock.
Such consideration is subject to certain anti-dilution protections but is not
adjustable based upon the operating results, financial condition or other
factors affecting either MBI or First Financial prior to the consummation of
the Merger. The fair market value of MBI Common Stock received pursuant to
the Merger may fluctuate and at the consummation of the Merger may be more or
less than the current fair market value of such shares.
The amount and nature of the consideration was established through
arms'-length negotiations between MBI and First Financial and their
respective advisors and reflects the balancing of a number of countervailing
factors. The total amount of the consideration reflects a price both parties
concluded was appropriate. See "-Background of and Reasons for the Merger;
Board Recommendations." The fact that the consideration is payable in shares
of MBI Common Stock reflects the desire of the parties to the Merger to have
the favorable tax attributes of a "reorganization" for federal income tax
purposes. See "CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER."
NO ASSURANCE CAN BE GIVEN THAT THE CURRENT FAIR MARKET VALUE OF MBI
COMMON STOCK WILL BE EQUIVALENT TO THE FAIR MARKET VALUE OF MBI COMMON STOCK
ON THE DATE SUCH STOCK IS RECEIVED BY A FIRST FINANCIAL SHAREHOLDER OR AT ANY
OTHER TIME. THE FAIR MARKET VALUE OF MBI COMMON STOCK RECEIVED BY A FIRST
FINANCIAL SHAREHOLDER MAY BE GREATER OR LESS THAN THE CURRENT FAIR MARKET
VALUE OF MBI COMMON STOCK DUE TO NUMEROUS MARKET FACTORS.
Following the Closing Date, each shareholder of First Financial (other
than any shareholders exercising dissenters' rights pursuant to the IBCA)
will be required to submit to the Exchange Agent a properly executed letter
of transmittal and surrender to the Exchange Agent the stock certificate(s)
formerly representing the shares of First Financial Common Stock in order to
receive a new stock certificate(s) evidencing the shares of MBI Common Stock
to which such shareholder is entitled. As soon as practicable following the
Effective Time, the Exchange Agent will mail to each First Financial
shareholder (other than any shareholders exercising dissenters' rights
pursuant to the IBCA) a notice of consummation of the Merger and a form of
letter of transmittal, together with instructions and a
-23-
<PAGE> 29
return envelope to facilitate the exchange of such holder's certificate(s)
formerly representing First Financial Common Stock for certificate(s) evidencing
MBI Common Stock. No dividends or other distributions will be paid to a former
First Financial shareholder with respect to shares of MBI Common Stock until
such shareholder's letter of transmittal and stock certificate(s) formerly
representing First Financial Common Stock, or documentation reasonably
acceptable to the Exchange Agent in lieu of lost or destroyed certificate(s),
is delivered to the Exchange Agent. See "TERMS OF THE PROPOSED MERGER -
Surrender of First Financial Stock Certificates and Receipt of MBI Common
Stock." No fractional shares of MBI Common Stock will be issued in the
Merger, but cash will be paid in lieu of such fractional shares, such cash
being calculated by multiplying the holder's fractional share interest by the
closing stock price of MBI Common Stock on the NYSE Composite Tape on the
Closing Date of the Merger as reported in The Wall Street Journal. See "-
Fractional Shares." The shares of MBI Common Stock to be issued pursuant to
the Merger will be freely transferable except by certain shareholders of
First Financial who are deemed to be "affiliates" of First Financial. 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. See "INFORMATION REGARDING MBI STOCK -
Restrictions on Resale of MBI Stock by Affiliates."
EFFECT ON FIRST FINANCIAL STOCK PLAN AND EMPLOYEE BENEFIT PLANS
MBI has agreed to assume the First Financial Stock Options in
accordance with the terms of the First Financial Stock Plan and, upon
consummation of the Merger, all outstanding First Financial Stock Options
will be converted into rights with respect to MBI Common Stock. Beginning at
the Effective Time, (i) each First Financial 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 First Financial Stock Option will equal
the number of shares of First Financial Common Stock subject to the First
Financial Stock Options multiplied by the Exchange Ratio and (iii) the per share
exercise price for each First Financial Stock Option will be adjusted by
dividing such price by the Exchange Ratio, subject to adjustment as
appropriate to reflect any stock split, stock dividend, capitalization or
similar transaction subsequent to the Effective Time. MBI has agreed, at and
after the Effective Time, to reserve sufficient shares of MBI Common Stock
for issuance with respect to the First Financial Stock Options under the
First Financial Stock Plan to be assumed by MBI. MBI will also file with the
Commission, and obtain the effectiveness of, a registration statement with
respect to the shares of MBI Common Stock issuable upon exercise of such
options and list such shares on the NYSE.
The Merger Agreement provides that Ameribanc will honor severance and
other compensation contracts between First Financial or FNBI and any current
or former director, officer, employee or agent thereof, along with all
provisions for vested benefits or other vested amounts earned or accrued
through the Effective Time under First Financial employee plans. The First
Financial employee plans will continue as plans of Ameribanc until such time
as the employees of First Financial and FNBI are integrated into MBI's employee
benefit plans that are available to other employees of MBI and its subsidiaries.
MBI will take such steps as are necessary or required to integrate the
employees of First Financial and FNBI into MBI's employee benefit plans
available to other employees of MBI and its subsidiaries as soon as practicable
after the Effective Time, with (i) full credit for prior service with First
Financial or FNBI for purposes of vesting and eligibility for participation and
benefit allocation (but not benefit accruals under any defined benefit plan) and
co-payments and deductibles, (ii) waiver of all waiting periods, evidence of
insurability and pre-existing condition exclusions or penalties and (iii) full
credit for claims arising prior to the Effective Time for purposes of
-24-
<PAGE> 30
deductibles, out-of-pocket maximums, benefit maximums and all other similar
limitations for the applicable plan year in which the Merger is consummated.
OTHER AGREEMENTS
In addition to and contemporaneously with the Merger Agreement, MBI and
First Financial executed the Option Agreement and MBI and all of the eight
directors of First Financial executed separate Voting Agreements. The
following is a summary of the material terms of the Option Agreement and the
Voting Agreements.
OPTION AGREEMENT. Under the terms of the Option Agreement, First
Financial issued to MBI an option to purchase up to 707,189 shares of First
Financial Common Stock at a price per share equal to $37.75. The Option was
granted by First Financial to MBI as a condition to and in consideration of
MBI entering into the Merger Agreement. The following description does not
purport to be complete and is qualified in its entirety by reference to the
Option Agreement, which is attached as an exhibit to the Registration
Statement and is incorporated herein by reference.
The Option is intended to increase the likelihood that the Merger will
be consummated in accordance with the terms of the Merger Agreement. The
occurrence of certain events described below could cause the Option to become
exercisable and thereby significantly increase the cost of the acquisition of
First Financial. Consequently, the Option may (i) have the effect of
discouraging a person who might now or prior to the consummation of the
Merger consider or propose the acquisition of First Financial (or a
significant interest in First Financial), even if such a person were prepared
to pay a higher price per share for First Financial Common Stock than the
price per share implicit in the Exchange Ratio, (ii) result in the proposal
by a potential acquiror of a lower per share price than such acquiror might
otherwise have been willing to pay or (iii) prevent a potential acquiror from
accounting for the acquisition of First Financial through the
pooling-of-interests method of accounting for a period of two years and
thereby discourage or preclude the acquisition of First Financial during such
period.
As of the Record Date, the maximum number of shares issuable pursuant
to the Option (the "MBI Option Shares") represented approximately 19.9% of
the issued and outstanding shares of First Financial Common Stock. The
Option exercise price is $37.75 per share. In the event MBI acquires the MBI
Option Shares, MBI could vote such shares in the election of First Financial
directors and other matters requiring a shareholder vote, thereby potentially
having a material impact on the outcome of such matters. If not then in
material breach of the Merger Agreement, MBI may exercise the Option, in
whole or in part, at any time or from time to time if a Purchase Event (as
defined below) has occurred; provided, however, that: (i) to the extent the
Option has not been exercised, it will terminate and be of no further force
and effect upon the earlier to occur of (A) the Effective Time and (B) the
termination of the Merger Agreement in accordance with its terms, provided
that in the case of a termination of the Merger Agreement arising from the
volitional breach by First Financial of any of its representations,
warranties or covenants in the Merger Agreement, the Option will not
terminate until the date that is 12 months following such termination; (ii)
if the Option cannot be exercised on such day because of any injunction,
order or similar restraint issued by a court of competent jurisdiction, the
Option will expire on the thirtieth business day after such injunction, order
or restraint has been dissolved or when such injunction, order or restraint
has become permanent and is no longer subject to appeal, as the case may be;
and (iii) any such exercise will be subject to compliance with applicable
law, including the BHCA.
-25-
<PAGE> 31
A "Purchase Event" means any of the following events: (i) First
Financial or any of its subsidiaries, without having received prior written
consent from MBI, 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, consolidation or
similar transaction involving First Financial or any of its subsidiaries, (B)
purchase, lease or otherwise acquire 15% or more of the assets of First
Financial or any of its subsidiaries or (C) purchase or otherwise acquire
(including by way of merger, consolidation, share exchange or similar
transaction) beneficial ownership of securities representing 15% or more of
the voting power of First Financial or any of its subsidiaries; (ii) any
person (other than MBI or any subsidiary of MBI, or First Financial or any
subsidiary of First Financial in a fiduciary capacity) has acquired
beneficial ownership or the right to acquire beneficial ownership of 15% or
more of the voting power of First Financial; or (iii) the holders of First
Financial Common Stock have not approved the Merger Agreement at the Special
Meeting, the Special Meeting has not been held or is canceled prior to
termination of the Merger Agreement in accordance with its terms or First
Financial's Board of Directors has withdrawn or modified in a manner adverse
to MBI the recommendation of First Financial's Board of Directors with
respect to the Merger Agreement, in each case after an Extension Event (as
defined below).
An "Extension Event" means any of the following events: (i) a Purchase
Event described in (i) or (ii) of the preceding paragraph; (ii) any person
(other than MBI or any of its subsidiaries) has "commenced" (as such term is
defined in Rule 14d-2 under the Exchange Act) or has filed a registration
statement under the Securities Act with respect to a tender offer or exchange
offer to purchase shares of First Financial Common Stock such that, upon
consummation of such offer, such person would have beneficial ownership or
the right to acquire beneficial ownership of 15% or more of the voting power
of First Financial; or (iii) any person (other than MBI or any subsidiary of
MBI, or First Financial or any subsidiary of First Financial in a fiduciary
capacity) has publicly announced its willingness or a proposal or intention
to make a proposal, (x) to make an offer described in clause (ii) above or
(y) to engage in a transaction described in clause (i) above.
Subject to regulatory approval, upon the occurrence of a Purchase Event
and until 12 months thereafter (but not later than the termination of the
Option pursuant to the terms of the Option Agreement), First Financial shall
be required, upon MBI's request, to repurchase any shares of First Financial
Common Stock purchased by MBI, at a price equal to the greater of the market
price or the highest price per share at which a tender or exchange offer has
been made for shares of First Financial Common Stock (the "Market Price"), or
to purchase the Option for the amount by which the Market Price exceeds the
Option Price.
At the request of First Financial during the first six-month period
commencing 12 months following the first occurrence of a Purchase Event,
First Financial may repurchase from MBI, and MBI shall sell to First
Financial, all (but not less than all) of the First Financial Common Stock
acquired by MBI pursuant to the Option at a price per share equal to the
greater of (i) Market Price or (ii) the sum of (A) the aggregate purchase price
of such shares plus (B) interest on the aggregate purchase price paid for such
shares from the date of purchase to the date of repurchase, less any
dividends received on such shares. To the best of each of MBI's and First
Financial's knowledge, no Purchase Event or Extension Event has occurred as
of the date of this Proxy Statement/Prospectus.
VOTING AGREEMENTS. MBI and all of the eight directors of First
Financial executed a separate Voting Agreement pursuant to which each such
director agreed that he will vote all of the shares
-26-
<PAGE> 32
of First Financial Common Stock that he then owned, controlled or subsequently
acquires (excluding the 214,527 shares held in trust by Mary Lee Nagle Duda, the
spouse of Fritz Duda) in favor of the approval of the Merger Agreement at the
Special Meeting. In addition, until the earliest to occur of the Effective
Time, the termination of the Voting Agreements or the abandonment of the Merger,
each such director further agreed that he will not vote any such shares in favor
of the approval of any other competing acquisition proposal involving First
Financial and a third party. Each such director also agreed that he will not
transfer shares of First Financial Common Stock unless, prior to such
transfer, the transferee executes an agreement in substantially the same form
as the Voting Agreement. As of the Record Date, such directors owned
beneficially, directly or indirectly, an aggregate of ------- shares
(excluding the 214,527 shares held in trust by Mary Lee Nagle Duda, the
spouse of Fritz Duda) of First Financial Common Stock, or approximately ----%
of the issued and outstanding shares.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
MBI has agreed that the Merger will not diminish any indemnification
obligations of First Financial or FNBI in favor of the employees, agents,
directors or officers of First Financial or FNBI existing as of the Effective
Time by operation of law or by virtue of the Articles of Incorporation or
other charter documents, by-laws, contracts, resolutions or other agreements
or documents of First Financial or FNBI in effect as of the Effective Time.
To the extent that First Financial's existing directors' and officers'
liability insurance policy provides coverage for the acts or omissions of the
directors and officers of First Financial and FNBI prior to the Effective
Time, First Financial has agreed to give to such insurance carrier and to MBI
notice of any potential claims thereunder. On and after the Effective Time,
MBI's directors' and officers' liability insurance policy will provide
coverage for the prior acts of the directors and officers of First Financial
and FNBI.
BACKGROUND OF AND REASONS FOR THE MERGER; BOARD RECOMMENDATIONS
BACKGROUND OF THE MERGER. First Financial's Board of Directors has
periodically reviewed First Financial's strategy in light of general
conditions in the banking industry, local competitive and economic
conditions, the results of its operations and its future prospects,
legislative changes and other developments affecting the banking industry
generally and First Financial specifically. In September 1997, First
Financial's Board of Directors determined to undertake a detailed review of
First Financial's strategic alternatives and to retain an independent
financial advisor to assist it in exploring alternative means of maximizing
shareholder value. Accordingly, on November 6, 1997, First Financial engaged
ABN AMRO Incorporated ("ABN AMRO") as financial advisor for that purpose.
On November 20, 1997, ABN AMRO presented an analysis to First
Financial's Board of Directors encompassing, among other things, (i) First
Financial's financial condition relative to its peers, (ii) First Financial's
prospects as an independent financial institution under various growth
scenarios, (iii) the effect on First Financial of various alternatives for
enhancing shareholder value, including a stock split or stock dividend, an
increase in the cash dividend or a share repurchase program, (iv) First
Financial's prospects for growth through acquisitions of other financial
institutions, (v) the effect on First Financial of a merger of equals, (vi) an
analysis of prospective merger-of-equals and acquisition candidates, (vii) an
indication as to the reasonable range of values that could be expected in the
event First Financial were acquired and (viii) an analysis of prospective
acquirors. After consideration by First Financial's Board of Directors of
the various alternatives for enhancing shareholder value presented by
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ABN AMRO, First Financial's Board of Directors decided to explore further the
possibility of a strategic business combination.
On November 20, 1997, First Financial's Board of Directors established
a Special Committee comprised of three outside directors: Fritz L. Duda,
Robert J. Latham and Larry D. Ward (the "Special Committee"). The Special
Committee was established to review strategic options available to First
Financial, including possible affiliation with another financial institution,
and to negotiate and implement an agreement with an independent financial
advisor for the provision of investment banking and advisory services to the
Special Committee and First Financial's Board of Directors. By letter
agreement dated January 9, 1998, First Financial retained ABN AMRO to provide
such services.
On January 19, 1998, ABN AMRO presented to the Special Committee an
analysis of institutions identified by ABN AMRO as having the ability to
consummate a transaction, with particular emphasis being placed on
institutions that were the most likely to offer First Financial shareholders
the greatest value in an acquisition. The Special Committee discussed other
criteria that it would consider important in evaluating prospective acquiror
institutions. The Special Committee authorized ABN AMRO to explore the
interest of certain financial institutions in engaging in discussions
concerning a possible business combination and, in conjunction therewith, to
prepare and provide an information statement regarding First Financial (the
"Information Statement") to interested institutions.
Beginning on January 28, 1998, ABN AMRO began contacting the
prospective acquirors which had been approved by the Special Committee. The
Information Statement was sent to seven institutions that expressed an
interest in conducting discussions with First Financial and that entered into
a confidentiality agreement. Representatives from ABN AMRO also conducted
follow-up meetings with representatives of certain institutions that received
an Information Statement.
ABN AMRO first contacted MBI by telephone on January 28, 1998, after
which MBI executed a confidentiality agreement and received an Information
Statement. Representatives of ABN AMRO met with MBI representatives in St.
Louis on February 11, 1998 to discuss a potential combination of First
Financial and MBI.
On February 18, 1998, MBI submitted a written indication of interest in
a merger with First Financial. MBI's indication and the responses from the
other prospective acquirors were reviewed by the Special Committee at a
meeting held on February 20, 1998. Based on MBI's indication of interest,
the Special Committee invited MBI to conduct a due diligence review of First
Financial, which was conducted from February 24 through February 27, 1998, in
Chicago. The due diligence review included a review of certain documents of
First Financial, as well as interviews with four members of the senior
management of First Financial. Following its due diligence review, MBI
submitted a revised written indication of interest on March 5, 1998. With
the Special Committee's approval, ABN AMRO responded to MBI's revised
expression of interest by a letter dated March 10, 1998, which letter
affirmed First Financial's interest in pursuing a transaction with MBI
subject to the further negotiation of certain business terms.
On March 10, 1998, the Special Committee authorized ABN AMRO to contact
by telephone, and send an Information Statement to, two additional potential
acquirors that had previously not been approved by the Special Committee but
which had previously expressed interest in a potential transaction with First
Financial. Information Statements were sent to the two potential acquirors
and indications of interest were received from them, in each case at a lower
valuation than the valuation of
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First Financial contained in MBI's written expression of interest of March 5,
1998. Accordingly, the Special Committee determined not to pursue negotiations
with either party.
On March 12, 1998, the Special Committee and a representative of ABN
AMRO met with First Financial's Board of Directors at the Board's regular
meeting and provided a full report on discussions with MBI and the other
prospective acquirors. Board members were given an opportunity to ask
questions of the Special Committee and of the ABN AMRO representative.
Following a conversation between a member of the Special Committee and
an investment banker unaffiliated with ABN AMRO, ABN AMRO received a letter
on March 12, 1998 from an Iowa-based community bank holding company that
expressed an interest in pursuing a transaction with First Financial. On
March 18, 1998, the same bank holding company sent a letter to ABN AMRO and
each member of the Special Committee proposing a "merger-of-equals" with
First Financial. After evaluating the expression of interest and comparing
it with other proposed transactions, including the most recent expression of
interest from MBI, the Special Committee concluded that in light of the fact
that the proposed merger-of-equals transaction contained no premium and the
combined entity would have limited stock liquidity, pursuing further
discussions with such entity was not in the best interests of First Financial
or its shareholders.
On March 26, 1998, two members of the Special Committee and
representatives from ABN AMRO met in Chicago with three representatives of
senior management of MBI to learn more about MBI and its prospects for the
future, as well as to better understand how First Financial would be
integrated into MBI in the event a merger transaction were consummated. On
April 10, 1998, a representative from ABN AMRO and a senior executive from
First Financial met with representatives of MBI in St. Louis to update MBI on
year-to-date results at First Financial and to discuss additional business
terms of the proposed transaction. On April 20, 1998, a MBI representative
contacted representatives of ABN AMRO by telephone regarding such additional
business terms. Based upon such discussions with MBI, the Special Committee
agreed to begin negotiating a definitive merger agreement, stock option
agreement and related documentation for presentation to First Financial's
Board of Directors. On April 30, 1998, two senior executives from First
Financial and a representative from ABN AMRO met with senior management of
MBI in St. Louis and continued their examination of MBI's operations.
On May 4, 1998, the Special Committee held a meeting at which it
reviewed the Merger Agreement, Stock Option Agreement and related
documentation and voted to recommend approval of the Merger to the full Board
of Directors of First Financial. A special meeting of the Board was
conducted on the same day, at which meeting the Special Committee presented a
discussion of the specifics of the proposed transaction with MBI and the
negotiations which had transpired. Representatives of ABN AMRO and of Sidley
& Austin, First Financial's legal counsel, were also available for questions.
Following extensive discussion and questioning by First Financial's Board of
Directors, the Board unanimously approved the Merger Agreement, the Stock
Option Agreement and the related documents and authorized proper officers of
First Financial to execute them. The Merger Agreement and Stock Option
Agreement were executed and delivered by the parties after the close of
business on May 7, 1998.
FIRST FINANCIAL'S REASONS FOR THE MERGER AND BOARD RECOMMENDATION.
First Financial's Board of Directors has determined that the terms of the
proposed Merger are fair to, and in the best interests of, First Financial
and its shareholders. In reaching its determination, First Financial's
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Board of Directors consulted with legal counsel with respect to (i) the legal
duties of First Financial's Board of Directors, (ii) tax matters and (iii)
the Merger Agreement, Stock Option Agreement and issues related thereto.
First Financial's Board of Directors also consulted with ABN AMRO, its
financial advisors, with respect to the financial aspects and fairness of the
proposed Merger to the shareholders of First Financial. First Financial's
Board of Directors considered a number of factors, which included:
(i) Information concerning the business, earnings,
operations, financial condition, prospects, capital levels and asset
quality of MBI and First Financial, both individually and on a combined
basis, including but not limited to, information with respect to the
companies' respective recent and historic stock and earnings
performance. First Financial's Board of Directors considered the
detailed financial analyses and other information with respect to MBI
and First Financial presented to First Financial's Board of Directors
by ABN AMRO, as well as First Financial's Board of Directors' own
knowledge of MBI, First Financial and their respective businesses;
(ii) The current and prospective competitive and regulatory
environments in which First Financial operates, including significant
recent consolidations within the banking industry, both nationally and
in the Midwestern United States;
(iii) The challenges of remaining a smaller, community-based
institution, including the following: (1) competition on the margins
for loans and deposits from existing competitors and new competition
from larger financial institutions; (2) technology costs to remain
competitive as a smaller entity; (3) continued demands for growth; and
(4) other risks;
(iv) A review of the strategic options available to First
Financial and indications of interest from other prospective acquirors;
(v) The increase in service to customers and consolidation of
back-office functions which will result from the increased product mix
and technology created by the specific business synergies resulting
from the combination with MBI;
(vi) The financial advice provided by ABN AMRO and the opinion
of ABN AMRO that the Exchange Ratio pursuant to the Merger Agreement is
fair from a financial point of view to the holders of First Financial
Common Stock;
(vii) The terms, conditions and course of negotiations relating
to the Merger Agreement;
(viii) The availability of dissenters' rights;
(ix) The terms, conditions and course of negotiations relating
to, as well as the legal, accounting and other consequences of, the
stock option granted to MBI under the Stock Option Agreement, as well
as the fact that MBI required the stock option as a condition to
entering into the Merger Agreement;
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(x) The expectation that the Merger will generally be a
tax-free transaction to First Financial and its shareholders for
federal income tax purposes. See "CERTAIN FEDERAL INCOME TAX
CONSEQUENCES OF THE MERGER;"
(xi) The likelihood that the proposed Merger would be
consummated;
(xii) The recommendations of First Financial's management with
respect to the proposed Merger (which recommendations were considered
in light of certain interests of management in the proposed merger; see
"- Interests of Certain Persons in the Merger"); and
(xiii) The effect of the proposed Merger on the employees of
First Financial as well as its effect on First Financial's customers
and the communities in which First Financial operates.
First Financial's Board of Directors believes that the proposed Merger
will benefit shareholders of First Financial by affording them the
opportunity to participate in the future growth of a larger and more
diversified bank holding company having greater financial resources,
competitive strengths and business opportunities than would be possible for
First Financial as a stand alone entity.
In view of the wide variety of factors considered in connection with
its evaluation of the proposed Merger, First Financial's Board of Directors
did not find it practicable to, and did not, quantify or otherwise attempt to
assign relative weights to the specific factors considered in reaching its
determination. In addition, individual members of First Financial's Board of
Directors may have given different weights to different factors.
FOR THE REASONS DESCRIBED ABOVE, FIRST FINANCIAL'S BOARD OF DIRECTORS
UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND BELIEVES THE MERGER IS FAIR TO,
AND IS IN THE BEST INTERESTS OF, FIRST FINANCIAL'S SHAREHOLDERS.
ACCORDINGLY, FIRST FINANCIAL'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT
HOLDERS OF FIRST FINANCIAL COMMON STOCK VOTE FOR THE APPROVAL AND ADOPTION OF
THE MERGER AGREEMENT. ---
MBI'S REASONS AND BOARD RECOMMENDATIONS. The Executive Committee of
the Board of Directors of MBI considered a number of factors, including,
among other things, the financial condition of First Financial and projected
synergies that are anticipated to result from the Merger. The Executive
Committee concluded that the Merger presents a unique opportunity for MBI to
(i) increase its presence in eastern Iowa through the acquisition of an
established banking organization having operations in the targeted area and
(ii) enhance MBI's ability to compete in the increasingly competitive
banking and financial services industry. MBI's decision to pursue
discussions with First Financial was primarily a result of MBI's assessment
of the value of First Financial's banking franchise, its substantial asset
base within that area and the compatibility of the businesses of the two
banking organizations.
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OPINION OF FINANCIAL ADVISOR TO FIRST FINANCIAL
First Financial retained ABN AMRO to provide financial advisory and
investment banking services to First Financial and First Financial's Board of
Directors in connection with the possible sale of First Financial. In
connection with such engagement, ABN AMRO agreed, if requested by First
Financial's Board of Directors, to render an opinion as to the fairness to
First Financial's shareholders of the Exchange Ratio to be received in the
Merger. First Financial imposed no limitations upon the scope of
investigation or procedures followed by ABN AMRO in connection with its
opinion, nor did First Financial give ABN AMRO any specific instructions in
connection therewith. The Exchange Ratio, upon which the consideration to be
received by First Financial shareholders pursuant to the Merger Agreement
will be based, was determined through arms'-length negotiations between MBI
and First Financial, although First Financial was advised during such
negotiations by ABN AMRO.
On May 7, 1998, in connection with the evaluation by First Financial's
Board of Directors of the transaction proposed by MBI, ABN AMRO rendered an
opinion that, as of such date, and subject to certain assumptions, factors
and limitations set forth in such written opinion as described below, the
Exchange Ratio to be received by First Financial shareholders is fair to such
shareholders from a financial point of view. ABN AMRO has also delivered an
updated opinion to the Board of Directors of First Financial dated as of the
date of hereof (the "Opinion"). The Opinion is based upon a review of the
financial and other information set forth in this Proxy Statement/Prospectus
and the financial results for First Financial and MBI through May 7, 1998.
THE FULL TEXT OF ABN AMRO'S OPINION, WHICH SETS FORTH THE ASSUMPTIONS
MADE, MATTERS CONSIDERED AND LIMITATIONS ON THE REVIEW UNDERTAKEN IN
CONNECTION WITH THE OPINION, IS ATTACHED AS ANNEX A TO THIS PROXY
-------
STATEMENT/PROSPECTUS AND SHOULD BE READ IN ITS ENTIRETY FOR INFORMATION WITH
RESPECT TO PROCEDURES FOLLOWED, ASSUMPTIONS MADE AND MATTERS CONSIDERED BY
ABN AMRO IN RENDERING ITS OPINION. ABN AMRO'S OPINION WAS PREPARED FOR FIRST
FINANCIAL'S BOARD OF DIRECTORS AND ADDRESSES ONLY THE FAIRNESS OF THE
EXCHANGE RATIO TO THE HOLDERS OF FIRST FINANCIAL COMMON STOCK. THE ABN AMRO
OPINION DOES NOT CONSTITUTE A RECOMMENDATION TO ANY SHAREHOLDER AS TO HOW
SUCH SHAREHOLDER SHOULD VOTE WITH RESPECT TO THE PROPOSED MERGER AND DOES NOT
CONSTITUTE AN OPINION AS TO WHAT THE VALUE OF MBI COMMON STOCK ACTUALLY WILL
BE WHEN ISSUED TO FIRST FINANCIAL SHAREHOLDERS PURSUANT TO THE MERGER. THE
SUMMARY OF THE ABN AMRO OPINION SET FORTH IN THIS PROXY STATEMENT/PROSPECTUS
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE OPINION.
In connection with its Opinion, ABN AMRO reviewed the Merger Agreement
and certain related documents and held discussions with certain senior
officers and directors of First Financial and certain senior officers of MBI
concerning the businesses, operations and prospects of First Financial and
MBI. ABN AMRO examined certain publicly available business and financial
information relating to First Financial and MBI, as well as certain financial
information and other data for First Financial and certain financial
information and other data related to MBI which were provided to or otherwise
discussed with ABN AMRO by the respective managements of First Financial and
MBI. ABN AMRO reviewed the financial terms of the Merger as set forth in the
Merger Agreement in relation to: (i) current and historical market prices and
trading volumes of First Financial Common Stock and MBI Common Stock; (ii)
the respective companies' financial and other operating data; and (iii) the
capitalization and financial condition of First Financial and MBI. ABN AMRO
also considered, to the extent publicly available, the financial terms of
certain other banking-industry transactions recently effected, which ABN AMRO
considered relevant in evaluating the Merger, and analyzed certain
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financial, stock market and other publicly available information relating to the
businesses of other companies whose operations ABN AMRO considered relevant
in evaluating those of First Financial and MBI. ABN AMRO held discussions
with certain third parties to solicit indications of interest in a possible
transaction with First Financial.
In rendering its Opinion, ABN AMRO assumed and relied upon the accuracy
and completeness of the financial and other information reviewed by it and it
did not make or obtain or assume any responsibility for independent
verification of such information. In addition, ABN AMRO did not make an
independent evaluation or appraisal of the assets and liabilities of First
Financial and MBI or any of their respective subsidiaries.
The following is a summary of the financial analyses ABN AMRO employed
and reviewed with First Financial's Board of Directors in connection with its
Opinion:
(a) STOCK TRADING HISTORIES. ABN AMRO reviewed the stock
price history for First Financial Common Stock. This review showed
that during the period from April 28, 1995 to April 28, 1998, the
closing price of First Financial Common Stock ranged from $15.83 per
share to $45.75 per share. ABN AMRO calculated the prices per share of
First Financial Common Stock implied by multiplying each closing price
per share of MBI Common Stock by the Exchange Ratio. Over the same
time period, such implied prices per share of First Financial Common
Stock ranged from approximately $21.27 to $54.12. ABN AMRO also
examined the history of closing prices and trading volumes for shares
of MBI Common Stock from April 28, 1997 to April 28, 1998. This
examination showed that during this twelve-month period, the closing
price of MBI Common Stock ranged from $38.33 per share to $61.50 per
share and was $53.63 per share on April 28, 1998. This examination
also showed that the average trading volume of MBI Common Stock was
approximately 293,000 shares per day over the twelve-month period.
(b) COMPARABLE GROUP ANALYSES. ABN AMRO compared selected
historical financial and current trading-market data of First Financial
and MBI to those of separate groups of comparable companies which ABN
AMRO deemed to be reasonably similar to each of First Financial and MBI
in size, financial and operating character and/or geographic market.
Financial data were as of the most recently available financial
statement date and for the twelve-month period then ended. Market
price data were as of April 28, 1998. For each company in the
comparable groups for First Financial and MBI, ABN AMRO calculated the
multiples of each company's market price per share to: (i) latest
twelve-month earnings per share ("LTM P/E"); (ii) latest twelve-month
tangible core earnings per share ("LTM Core P/E"); (iii) the median
estimated earnings per share for the current fiscal year ("Current-Year
P/E"); and (iv) the median estimated earnings per share for the next
fiscal year ("Next-Year P/E"). "Tangible core earnings" excludes
intangible-asset amortization expense and non-recurring income and
expense items. "Estimated earnings per share" figures are those
prepared by securities analysts following each company. ABN AMRO also
calculated the ratio of each company's market price per share to: (i)
book value (shareholders' equity) per share ("P/BV"); and (ii) tangible
book value (shareholders' equity less intangible assets) per share
("P/TBV").
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The comparable companies for First Financial ("First Financial
Comparable Group") consisted of selected publicly traded Midwestern
commercial bank holding companies with total assets ranging from $350
million to $900 million. The First Financial Comparable Group included
the following 17 companies: ANB Corp., Muncie, IN; Belmont Bancorp.,
Bridgeport, OH; Cass Commercial Corp., Bridgeton, MO; Capitol Bancorp
Ltd., Lansing, MI; German American Bancorp, Jasper, IN; Lakeland
Financial Corp., Warsaw, IN; Merchants Bancorp Inc., Aurora, IL; Ohio
Valley Banc Corp., Gallipolis, OH; Peoples Bancorp Inc., Marietta, OH;
Premier Financial Bancorp Inc., Georgetown, KY; Princeton National
Bancorp, Princeton, IL; Peoples Bank of Indianapolis, Indianapolis, IN;
Southside Bancshares Corp., St. Louis, MO; State Financial Services
Corp., Hales Corner, WI; S.Y. Bancorp Inc., Louisville, KY;
UnionBancorp Inc., Ottawa, IL; and Wayne Bancorp Inc., Wooster, OH.
The analysis indicated that First Financial Common Stock traded
at: (i) a 19.9x LTM P/E multiple compared to a median of 21.7x for the
comparable companies; (ii) a 19.2x LTM Core P/E multiple compared to a
median of 18.7x for the comparable companies; (iii) a 19.2x Current-Year
P/E multiple compared to a median of 19.1x for the comparable
companies; and (iv) a 17.1x Next-Year P/E multiple compared to a median
of 17.2x for the comparable companies. The analysis also indicated that
First Financial Common Stock traded at: (i) a 228.8% P/BV ratio compared
to a median of 251.0% for the comparable companies; and (ii) a 240.5%
P/TBV ratio compared to a median of 264.5% for the comparable
companies.
The comparable companies for MBI ("MBI Comparable Group")
consisted of selected Midwestern and Southeast commercial bank holding
companies with total assets ranging from $10 billion to $100 billion.
The MBI Comparable Group included the following 14 companies: AmSouth
Bancorp., Birmingham, AL; BB&T Corp., Winston-Salem, NC; Commerce
Bancshares Inc., Kansas City, MO; Crestar Financial Corp., Richmond,
VA; Comerica Inc., Detroit, MI; Fifth Third Bancorp, Cincinnati, OH;
Firstar Corp., Milwaukee, WI; First Tennessee National Corp., Memphis,
TN; Huntington Bancshares Inc., Columbus, OH; Marshall & Ilsley Corp.,
Milwaukee, WI; Norwest Corp., Minneapolis, MN; Regions Financial Corp.,
Birmingham, AL; Union Planters Corp., Memphis, TN; and U.S. Bancorp,
Minneapolis, MN.
The analysis indicated that MBI Common Stock traded at: (i) a
31.1x LTM P/E multiple compared to a median of 21.7x for the comparable
companies; (ii) a 20.6x LTM Core P/E multiple compared to a median of
20.5x for the comparable companies; (iii) a 19.5x Current-Year P/E
multiple compared to a median of 19.6x for the comparable companies;
and (iv) a 17.4x Next-Year P/E multiple compared to a median of 17.2x for
the comparable companies. The analysis also indicated that MBI Common
Stock traded at: (i) a 298.6% P/BV ratio compared to a median of 339.8%
for the comparable companies; and (ii) a 438.5% P/TBV ratio compared to
a median of 401.8% for the comparable companies.
(c) DISCOUNTED CASH FLOW ANALYSES. ABN AMRO prepared a
discounted cash flow ("DCF") analysis of First Financial on a
"stand-alone" basis (i.e., without giving effect to the proposed
transaction). In preparing the DCF analysis, ABN AMRO studied the
historical earnings and growth patterns of First Financial and then
projected
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income statements and balance sheets for a five-year period using a series
of assumptions pertaining to growth, interest margins, loan losses,
non-interest income and expenses, income taxes and cash dividends. Prior
to its completion, ABN AMRO reviewed and discussed with First Financial's
management the financial projections. The DCF analysis yielded imputed
values ranging from $24.56 to $39.34 per share of First Financial Common
Stock under varied assumptions for growth and alternative financial
strategies.
(d) COMPARABLE TRANSACTIONS ANALYSIS. ABN AMRO reviewed
the financial terms of (i) recently announced banking-industry merger
and acquisition transactions in which the acquired company was
headquartered in the Midwest and had total assets ranging from $300
million to $800 million and (ii) recently announced banking-industry
merger and acquisition transactions in which MBI was the acquiring
company. Financial data for each acquired company and First Financial
were as of the most recent financial statement date available at the
date the transaction was announced and for the twelve-month period then
ended. Merger prices and related multiples and ratios were as of the
respective transaction-announcement dates. The 13 comparable
transactions included (the acquiror is the first name and is in italics
followed by the seller): MBI, St. Louis, MO-Financial Services
Corporation of the Midwest, Rock Island, IL; Union Planters
Corporation, Memphis, TN-AMBANC Corp, Vincennes, IN; St. Paul Bancorp,
Chicago, IL-Beverly Bancorp., Tinley Park, IL; MBI, St. Louis,
MO-Firstbank of Illinois Co., Springfield, IL; MBI, St. Louis, MO-CBT
Corporation, Paducah, KY; F&M Bancorporation, Kaukauna, WI-BancSecurity
Corp., Marshalltown, IA; FBOP Corporation, Oak Park, IL-P.N.B.
Financial, Chicago, IL; FirstMerit Corp., Akron, OH-CoBancorp, Inc.,
Elyria, OH; U.S. Bancorp, Minneapolis, MN-Zappco, Inc., St. Cloud, MN;
Commercial Federal, Omaha, NE-Liberty Financial, West Des Moines, IA;
First Midwest Bancorp, Naperville, IL-SparBank, Inc., McHenry, IL; Area
Bancshares Corp, Owensboro, KY-Cardinal Bancshares, Lexington, KY; and
Citizens Banking Corp, Flint, MI-CB Financial Corp, Jackson, MI.
ABN AMRO calculated several merger-pricing multiples and ratios
based upon the Exchange Ratio and price of MBI Common Stock, which
together implied a merger price of $46.48 per share of First Financial
Common Stock. With respect to the aggregate price for all of First
Financial's outstanding Common Stock and options to purchase First
Financial Common Stock, the proposed transaction with MBI represented:
(i) a 25.0x multiple of First Financial's earnings compared to a median
of 21.4x for the comparable transactions; (ii) a 24.6x multiple of First
Financial's tangible earnings compared to a median of 22.3x for the
comparable transactions; (iii) a 22.5x multiple of First Financial's
estimated earnings for the current fiscal year compared to a median of
20.2x for the comparable transactions; (iv) 290.3% of First Financial's
book value compared to a median of 238.9% for the comparable
transactions; (v) 305.0% of First Financial's tangible book value
compared to a median of 245.1% for the comparable transactions; (vi)
395.6% of First Financial's adjusted tangible book value compared to a
median of 327.6% for the comparable transactions; and (vii) premiums of
22.3% over First Financial's previous day's market price, 25.6% over
First Financial's one-month-earlier market price and 108.1% over First
Financial's one-year-earlier market price, compared to medians of
10.6%, 23.0% and 53.0%, respectively, for the comparable transactions.
The ratio of transaction value to "adjusted book value" adjusts both
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transaction value and book value for the "excess" capital of each
acquired company relative to a 7% tangible equity-to-assets ratio.
(e) PRO FORMA ANALYSIS. ABN AMRO prepared a pro forma
merger analysis illustrating the estimated effects on selected
historical and projected financial data of First Financial using
projected financial data for First Financial derived from the DCF
analyses described previously and projected financial data for MBI
based upon the consensus growth rate estimates of securities analysts
that follow MBI, giving effect to the Exchange Ratio and to certain
estimated after-tax merger benefits. This analysis indicated that, as
compared to First Financial's stand-alone historical and projected
financial data, the proposed transaction with MBI: (i) would have
increased First Financial's historical diluted earnings per share by
27.8% and could affect First Financial's projected diluted earnings per
share in a range of 26.3% to 35.5%; (ii) would have diluted First
Financial's historical book value per share by 1.5% and could increase
First Financial's projected book value per share in a range of 3.5% to
7.7%; and (iii) would have increased First Financial's historical cash
dividend per share by 32.9% and could increase First Financial's
projected cash dividend per share in a range of 42.5% to 53.3%.
(f) CONTRIBUTION ANALYSIS. ABN AMRO prepared a
contribution analysis displaying selected financial data of First
Financial and MBI along with the percentages these financial data for
each of First Financial and MBI would represent of the combined company
on a pro forma basis. Using recent historical financial data, ABN AMRO
calculated that, of the combined company on a pro forma basis, First
Financial would have contributed: (i) 1.80% of total assets; (ii) 1.86% of
net loans receivable; (iii) 2.04% of total deposits; (iv) 2.33% of common
equity; (v) 1.87% of net income to common; and (vi) 1.86% of market
capitalization. Based on the Exchange Ratio, First Financial
shareholders would have owned 2.39% of the pro forma number of shares
of MBI Common Stock outstanding.
(g) COMPARATIVE RETURN-TO-INVESTOR ANALYSIS. Using
projected financial data derived from the First Financial DCF analysis
and the MBI projection analysis Described previously and the certain
assumptions regarding future potential merger prices for each of First
Financial and MBI, ABN AMRO calculated the hypothetical investment
returns First Financial shareholders could achieve over a five-year
period under a number of scenarios. This analysis indicated
hypothetical compound annual rates of return to First Financial
shareholders of: (i) 9.4% assuming First Financial would remain
indefinitely an independent company; (ii) 14.9% assuming First Financial
would remain independent and then merge at the end of the five-year
analysis period; (iii) 17.5% assuming First Financial would consummate the
proposed transaction with MBI upon the Exchange Ratio and MBI would
remain indefinitely an independent company; and (iv) 23.6% assuming First
Financial would consummate the proposed transaction with MBI upon the
Exchange Ratio and MBI would merge at the end of the five-year analysis
period.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description.
Selecting portions of the analyses or of the summary set forth above, without
considering the analyses as a whole, could create an incomplete view
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of the process underlying ABN AMRO's Opinion. In arriving at its fairness
determination, ABN AMRO considered the results of all of such analyses. No
company or transaction used in the above analyses as a comparison is
identical to First Financial or MBI or the Merger. The analyses were
prepared solely for purposes of ABN AMRO's Opinion provided to First
Financial's Board of Directors as to the fairness of the Exchange Ratio to be
received by the shareholders of First Financial pursuant to the Merger and do
not purport to be appraisals or necessarily reflect the prices at which
businesses or securities actually may be sold. Analyses based upon
projections of future results are not necessarily indicative of actual future
results, which may be significantly more or less favorable than suggested by
such analyses. Because such analyses are inherently subject to uncertainty,
being based upon numerous factors or events beyond the control of the parties
or ABN AMRO, none of First Financial, ABN AMRO or any other person assumes
responsibility if future results are materially different from those
projected.
ABN AMRO, as part of its investment banking business, is continually
engaged in the valuation of businesses in connection with mergers and
acquisitions, as well as initial and secondary offerings of securities and
valuations for other purposes. First Financial selected ABN AMRO as its
financial advisor because ABN AMRO is a nationally recognized investment
banking firm that has substantial experience in transactions similar to the
Merger.
In the ordinary course of ABN AMRO's business, ABN AMRO and its
affiliates may actively trade securities of First Financial and MBI for their
own account and for the accounts of customers and, accordingly, may at any
time hold a long or short position in such securities.
First Financial retained ABN AMRO as its financial advisor by letter
agreement dated January 9, 1998 ("Engagement Letter"). Pursuant to the terms
of the Engagement Letter, upon delivery of ABN AMRO's Opinion, First
Financial paid ABN AMRO an Opinion Fee (as defined in the Engagement Letter)
of $100,000. Pursuant to the terms of the Engagement Letter, upon closing of
the Merger, First Financial will pay ABN AMRO a cash financial advisory fee
based on a percentage of transaction value, as defined in the Engagement
Letter, reduced by the Opinion Fee previously paid. Based upon the closing
price of MBI Common Stock of $50.0625 per share on June 15, 1998, the balance
of the financial advisory fee payable by First Financial to ABN AMRO upon
closing of the Merger would be approximately $1,119,593. Further, in the
Engagement Letter, First Financial agreed to reimburse ABN AMRO for its
reasonable out-of-pocket expenses incurred in connection with its engagement
and to indemnify ABN AMRO against certain liabilities, including liabilities
under securities laws.
CONDITIONS OF THE MERGER
The respective obligations of MBI, Ameribanc and First Financial to
consummate the Merger are subject to the satisfaction of certain mutual
conditions, including the following:
(1) The Merger Agreement shall be approved by the requisite
vote of holders of First Financial Common Stock at the Special Meeting.
(2) The Merger Agreement and the transactions contemplated
therein shall have been approved by the Federal Reserve Board and any
other federal and/or state regulatory agency whose approval is required
for the consummation of the transactions contemplated therein and all
waiting periods after such approvals required by law or regulation
shall have expired.
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(3) The Registration Statement, of which this Proxy
Statement/Prospectus is a part, registering shares of MBI Common Stock
to be issued in the Merger, shall have been declared effective and not
be subject to a stop order or any threatened stop order.
(4) None of First Financial, MBI or Ameribanc shall be subject
to any order, decree or injunction of a court or agency of competent
jurisdiction that enjoins or prohibits the consummation of the Merger.
(5) First Financial, MBI and Ameribanc each shall have received
from Thompson Coburn an opinion (which opinion shall not have been
withdrawn at or prior to the Effective Time) reasonably satisfactory in
form and substance to it to the effect that (i) the Merger will
constitute a reorganization within the meaning of Section 368 of the
Code and (ii) as a result of the Merger, except with respect to cash
received in lieu of fractional share interests, and assuming that the
MBI Common Stock is a capital asset in the hands of the holder thereof
at the effective time (A) holders of First Financial Common Stock who
receive MBI Common Stock in the Merger will not recognize gain or loss
for federal income tax purposes, (B) the basis of such MBI Common Stock
will equal the basis of the First Financial Common Stock for which it
is exchanged and (C) the holding period of such MBI Common Stock will
include the holding period of the First Financial Common Stock for
which it is exchanged.
The obligation of MBI and Ameribanc to consummate the Merger is subject
to the satisfaction, unless waived, of certain other conditions, including
the following:
(1) The representations and warranties of First Financial made
in the Merger Agreement shall be true and correct in all material
respects 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, (ii) where the facts that caused the
failure of any representation or warranty to be so true and correct
have not resulted, and are not likely to result, in a material adverse
effect on the condition (financial or otherwise), properties, business
or results of operations (a "Material Adverse Effect") on First
Financial and its subsidiary, taken as a whole and (iii) for the effect of
transactions contemplated by the Merger Agreement and all obligations
required to be performed by First Financial prior to the Effective Time
shall have been performed in all material respects, and MBI shall have
received a certificate of the Chief Executive Officer and Chief
Financial Officer of First Financial to that effect.
(2) First Financial shall have obtained any and all material
permits, authorizations, consents, waivers and approvals required of
First Financial for the lawful consummation by First Financial of the
Merger.
(3) MBI and Ameribanc shall have received a letter from KPMG
Peat Marwick LLP, reasonably satisfactory in form and substance to MBI
and Ameribanc, to the effect that the Merger will qualify for
pooling-of-interests accounting treatment, which letter shall not have
been withdrawn at or prior to the Effective Time.
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(4) Since May 7, 1998, there shall have been no Material
Adverse Effect on First Financial and its subsidiary, taken as a whole.
(5) Sidley & Austin, counsel to First Financial, shall have
delivered to MBI an opinion dated as of the Closing Date or a mutually
agreeable earlier date regarding certain legal matters.
First Financial's obligation to consummate the Merger is subject to the
satisfaction, unless waived, of certain other conditions, including the
following:
(1) The representations and warranties of MBI and Ameribanc
made in the Merger Agreement shall be true and correct, in all material
respects, 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, (ii) where the facts that caused the
failure of any representation or warranty to be so true and correct
have not resulted, and are not likely to result, in a Material Adverse
Effect on MBI and its subsidiaries, taken as a whole and (iii) for the
effect of transactions contemplated by the Merger Agreement and all
obligations required to be performed by MBI and Ameribanc prior to the
Effective Time shall have been performed in all material respects, and
First Financial shall have received a certificate from any Executive
Vice President of MBI to that effect.
(2) MBI and Ameribanc shall have obtained any and all material
permits, authorizations, consents, waivers and approvals required of
MBI or Ameribanc for the lawful consummation of the Merger.
(3) Since May 7, 1998, there shall have been no Material
Adverse Effect on MBI and its subsidiaries, taken as a whole.
(4) Thompson Coburn, counsel to MBI, shall have delivered to
First Financial an opinion dated as of the Closing Date or a mutually
agreeable earlier date regarding certain legal matters.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains extensive representations and warranties
by First Financial, MBI and Ameribanc. These include, among other things,
representations and warranties of First Financial as to (i) the organization
and good standing of First Financial and its subsidiary, (ii) First Financial's
capital structure, (iii) First Financial's authority relative to the execution
and delivery of, and performance of its obligations under, the Merger
Agreement, (iv) the documents, including financial statements and other
reports, filed by First Financial with the applicable regulatory authorities,
(v) title to and condition of assets, (vi) real property, (vii) taxes, (viii)
the absence of material adverse changes since December 31, 1997, (ix) loans,
commitments and contracts, (x) the absence of material conflicts between its
obligations under the Merger Agreement and its charter documents and material
contracts to which it is a party or by which it is bound, (xi) litigation, (xii)
directors' and officers' insurance, (xiii) compliance with laws, (xiv) labor,
(xv) the existence of certain material interests of certain persons, (xvi)
allowance for loan and lease losses and non-performing assets, (xvii) employee
benefit plans and related matters, (xviii) the conduct of First Financial and
its subsidiary from and after December 31, 1997, (xix) the absence of
undisclosed liabilities, (xx) the accuracy of the information supplied by First
Financial for
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inclusion in this Proxy Statement/Prospectus and related documents, (xxi) the
absence of registration obligations with respect to First Financial Common
Stock, (xxii) the absence of actions that would jeopardize the qualification of
the transactions contemplated by the Merger Agreement as a reorganization or for
pooling-of-interests accounting treatment or jeopardize the receipt of certain
regulatory approvals, (xxiii) obligations to brokers and finders, (xxiv)
interest rate management instruments, (xxv) the accuracy of the statements
contained in the Merger Agreement and related documents and (xxvi) Year 2000
compliance for all computer software and hardware.
MBI's and Ameribanc's representations and warranties include, among
other things, those as to (i) MBI's and Ameribanc's respective organization
and good standing, (ii) the capital structure of MBI, (iii) MBI's and
Ameribanc's authority relative to the execution and delivery of, and performance
of their respective obligations under, the Merger Agreement, (iv) the documents,
including financial statements and other reports, filed by MBI with applicable
regulatory authorities, (v) the absence of material adverse changes since
December 31, 1997, (vi) the accuracy of the information supplied by MBI or
Ameribanc for inclusion in this Proxy Statement/Prospectus and related
documents, (vii) the absence of obligations to brokers and finders and (viii)
the accuracy of the statements contained in the Merger Agreement and related
documents.
TERMINATION, WAIVER AND AMENDMENT OF THE MERGER AGREEMENT
The Merger Agreement may be terminated at any time prior to the Closing
Date, whether before or after approval by the shareholders of First
Financial, (i) by mutual consent of the Executive Committee of the Board of
Directors of MBI and the Board of Directors of First Financial or (ii)
unilaterally by the Executive Committee of the Board of Directors of MBI or
the Board of Directors of First Financial: (A) at any time after May 1, 1999,
if the Merger has not been consummated by such date (provided that the
terminating party is not then in material breach of any representation,
warranty, covenant or other agreement contained in the Merger Agreement); (B)
if the Federal Reserve Board or any other Regulatory Authority whose approval
is required for consummation of the Merger shall have issued a final
non-appealable denial of such approval; (C) if the shareholders of First
Financial shall not have approved the Merger Agreement at the Special
Meeting; or (D) in the event of a material volitional breach by the other
party of any representation, warranty or agreement contained in the Merger
Agreement, which breach is not cured within 30 days after written notice
thereof is given to the party committing such breach or is not waived by such
other party. In addition, the Executive Committee of the Board of Directors
of MBI may terminate the Merger Agreement in certain circumstances if
environmental investigations of all real property owned, leased or operated
by First Financial as of May 7, 1998 indicate that the estimated cost of
corrective or remedial action with regard to such properties would exceed
$500,000 in the aggregate. No assurance can be given that the Merger will be
consummated on or before May 1, 1999 or that MBI or First Financial will not
elect to terminate the Merger Agreement if the Merger has not been
consummated on or before such date.
In the event of the termination of the Merger Agreement, it shall
become void and there shall be no liability on the part of any party or their
respective officers and directors, except that (i) confidentiality and
indemnification obligations shall survive termination, (ii) MBI shall pay all
printing, mailing and filing expenses with respect to the Registration
Statement and this Proxy Statement/Prospectus and (iii) in the case of
termination due to continued material volitional breach after notice and
opportunity to cure, the breaching party shall not be relieved of liability
to the non-breaching party arising from the intentional, deliberate or
willful breach of any representation, warranty, covenant or agreement
contained in the Merger Agreement.
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Any provision of the Merger Agreement, including, without limitation,
the conditions to the consummation of the Merger and the restrictions
described under "- Business Pending the Merger," may be (i) waived in writing
at any time by the party that is or whose shareholders are entitled to the
benefits thereof or (ii) amended at any time by written agreement of the
parties approved by or on behalf of their respective Boards of Directors or
Executive Committees, whether before or after the Special Meeting; provided,
however, that after approval of the Merger Agreement by the shareholders of
First Financial at the Special Meeting, no such modification may (i) alter or
change the amount or kind of consideration to be received by the First
Financial shareholders pursuant to the Merger or (ii) adversely affect the tax
treatment to First Financial shareholders as a result of receiving the shares
of MBI Common Stock in the Merger.
INDEMNIFICATION
First Financial, MBI and Ameribanc have agreed to indemnify each other
and the officers, directors and controlling persons of each other against any
losses, claims, damages or liabilities to which any such party may become
subject under federal or state laws or regulations, to the extent that such
loss, claim, damage or liability is based primarily upon information
furnished to the party subject to such liability by the other party, or out
of an omission by such other party to state a necessary or material fact in
the Registration Statement of which this Proxy Statement/Prospectus is a
part.
CLOSING DATE
The Merger will be consummated and become effective upon the later of
(i) the issuance of a Certificate of Merger by the Office of the Secretary of
State of the State of Missouri and (ii) the filing of Articles of Merger with
the Office of the Secretary of State of the State of Iowa. Under the Merger
Agreement, unless otherwise agreed to by the parties, the Closing Date shall
occur on such date as MBI shall notify First Financial in writing (such
notice to be at least five business days in advance of the Effective Time)
but: (i) not earlier than the Approval Date, which shall occur upon (a) the
receipt of the requisite approval of the Merger Agreement by the shareholders
of First Financial and (b) the approval of the Merger by the Federal Reserve
Board and any other Regulatory Authority whose approval is required and the
satisfaction of all waiting periods for such approvals; and (ii) not later than
the first business day of the first full calendar month beginning at least five
business days after the Approval Date.
SURRENDER OF FIRST FINANCIAL STOCK CERTIFICATES AND RECEIPT OF MBI COMMON
STOCK
At the Effective Time, each outstanding share of First Financial Common
Stock (other than any shares held by shareholders exercising dissenters'
rights pursuant to the IBCA) will be converted into the right to receive 0.88
of a share of MBI Common Stock. See "- General Description of the Merger."
Each holder of First Financial Common Stock, upon submission to the Exchange
Agent of a properly executed letter of transmittal and surrender to the
Exchange Agent of the stock certificate(s) formerly representing shares of
First Financial Common Stock, will be entitled to receive a stock
certificate(s) evidencing the shares of MBI Common Stock to which such
shareholder is entitled.
As soon as practicable following the Effective Time, the Exchange Agent
will mail to each First Financial shareholder of record as of the Effective
Time notification of the effectiveness of the Merger. The Exchange Agent
also will provide a letter of transmittal and instructions as to the
procedure
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for the surrender of the stock certificates evidencing the First Financial
Common Stock and the receipt of shares of MBI Common Stock. It will be the
responsibility of each holder of First Financial shares to submit all
certificates formerly evidencing such holder's shares of First Financial Common
Stock to the Exchange Agent. No dividends or other distributions will be paid
to a former First Financial shareholder with respect to shares of MBI Common
Stock until such shareholder's properly completed letter of transmittal and
stock certificates formerly representing First Financial Common Stock, or, in
lieu thereof, such evidence of a lost, stolen or destroyed certificate and/or
such insurance bond as the Exchange Agent may reasonably require, are delivered
to the Exchange Agent. All dividends or other distributions on the MBI Common
Stock declared between the Closing Date and the date of the surrender of a First
Financial stock certificate will be held for the benefit of the shareholder and
will be paid to the shareholder, without interest thereon, upon the surrender of
such stock certificate(s) or documentation and/or insurance bond in lieu
thereof.
FRACTIONAL SHARES
No fractional shares of MBI Common Stock will be issued to the former
shareholders of First Financial in connection with the Merger. Each holder
of First Financial Common Stock who otherwise would have been entitled to
receive a fraction of a share of MBI Common Stock shall receive in lieu
thereof cash, without interest, in an amount equal to the holder's fractional
share interest multiplied by the closing stock price of MBI Common Stock on
the NYSE Composite Tape on the Closing Date as reported in The Wall Street
Journal. Cash received by First Financial shareholders in lieu of fractional
shares may give rise to taxable income. See "CERTAIN FEDERAL INCOME TAX
CONSEQUENCES OF THE MERGER."
REGULATORY APPROVAL
In addition to the approval of the Merger Agreement by the First
Financial shareholders, the obligations of the parties to effect the Merger
are subject to prior approval of the Federal Reserve Board. As a bank holding
company, MBI is subject to regulation under the BHCA. MBI will file all
required applications seeking approval of the Merger with the Regulatory
Authorities.
Under the BHCA, the Federal Reserve Board can withhold approval of the
Merger if, among other things, it determines that the effect of the Merger
would be to substantially lessen competition in the relevant market. In
addition, the Federal Reserve Board is required to consider whether the
combined organization meets the requirements of the Community Reinvestment
Act of 1977, as amended, by assessing the involved entities' respective
records of meeting the credit needs of the local communities in which they
are chartered, consistent with the safe and sound operation of such
institutions. In its review, the Federal Reserve Board also is required to
examine the financial and managerial resources and future prospects of the
combined organization and analyze the capital structure and soundness of the
resulting entity. The Federal Reserve Board has the authority to deny an
application if it concludes that the combined organization would have
inadequate capital.
The Merger cannot be consummated prior to receipt of all required
approvals. There can be no assurance that required regulatory approvals for
the Merger will be obtained and, if the Merger is approved, as to the date of
such approvals or whether the approvals will contain any unacceptable
conditions. There can likewise be no assurance that the United States
Department of Justice will not
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challenge the Merger during the waiting period set aside for such challenges
after receipt of approval from the Federal Reserve Board. See "SUPERVISION AND
REGULATION."
MBI and First Financial are not aware of any governmental approvals or
actions that may be required for consummation of the Merger other than as
described above. Should any other approval or action be required, it is
presently contemplated that such approval or action would be sought. There
can be no assurance that any necessary regulatory approvals or actions will
be timely received or taken, that no action will be brought challenging such
approval or action or, if such a challenge is brought, as to the result
thereof, or that any such approval or action will not be conditioned in a
manner that would cause the parties to abandon the Merger. See "SUPERVISION
AND REGULATION."
BUSINESS PENDING THE MERGER
The Merger Agreement provides that, during the period from May 7, 1998
to the Effective Time, First Financial and its subsidiary will conduct their
respective businesses according to the ordinary and usual course consistent
with past practices and use their best efforts to maintain and preserve their
respective business organizations, employees and advantageous business
relationships and retain the services of their officers and key employees.
Furthermore, from May 7, 1998 to the Effective Time, except as provided
in the Merger Agreement, First Financial will not, and will not permit its
subsidiary to, without the prior written consent of MBI and Ameribanc:
(1) declare, set aside or pay any dividends or other
distributions, directly or indirectly, in respect of its capital stock
(other than dividends from the First Financial subsidiary to First
Financial), except that First Financial may declare and pay regular
quarterly cash dividends of not more than $0.2725 per share; provided,
however, that First Financial may not declare or pay a quarterly
dividend for any quarter in which First Financial shareholders will be
entitled to receive a regular quarterly dividend on the shares of MBI
Common Stock to be issued in the Merger;
(2) enter into or amend any employment, severance or similar
agreement or arrangement with any director, officer or employee, or
materially modify any of the First Financial 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, and except for such increases of
which First Financial notifies MBI and Ameribanc in writing and which
MBI and Ameribanc do not disapprove within ten days of the receipt of
such notice;
(3) 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;
(4) propose or adopt any amendments to its Articles of
Incorporation or other charter document or by-laws;
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(5) issue, sell, grant, confer or award any capital stock,
options, warrants, conversion rights or other rights, except First
Financial may issue shares of First Financial Common Stock upon
exercise of First Financial Stock Options outstanding on May 7, 1998
and pursuant to the Option, or effect any stock split or adjust,
combine, reclassify or otherwise change its capitalization as it
existed on May 7, 1998;
(6) purchase, redeem, retire, repurchase or exchange, or
otherwise acquire or dispose of, directly or indirectly, any capital
stock, options, warrants, conversion rights or other rights, whether
pursuant to the terms of such capital stock, options, warrants,
conversion rights or other rights or otherwise;
(7) (i) without first consulting with and obtaining the written
consent of MBI, cause or permit FNBI to enter into, renew or increase
any loan or credit commitment (including stand-by letters of credit)
to, or invest or agree to invest in any person or entity or modify any
of the material provisions or renew or otherwise extend the maturity
date of any existing loan or credit commitment (collectively, "Lend
to") in an amount in excess of $1,000,000 or in any amount which, when
aggregated with any and all loans or credit commitments of First
Financial and its subsidiary to such person or entity, would be equal
to or in excess of $1,000,000; provided, however, that First Financial
or its subsidiary may make any such loan or credit commitment in the
event (A) First Financial or its subsidiary has delivered to MBI and
Ameribanc or their designated representative a notice of its intention
to make such loan and such information as MBI and Ameribanc or their
designated representative may reasonably require in respect thereof and
(B) MBI and Ameribanc or their designated representative shall not have
reasonably objected to such loan by giving written or facsimile notice
of such objection within two (2) business days following the delivery
to MBI and Ameribanc or their designated representative of the notice
of intention and information as aforesaid; provided further, however,
that nothing shall prohibit First Financial or its subsidiary from
honoring any contractual obligation in existence on the date of the
Merger Agreement. Notwithstanding the above, First Financial shall be
authorized, without first consulting with MBI and Ameribanc or
obtaining MBI's and Ameribanc's prior written consent, to increase the
aggregate amount of any credit facilities theretofore established in
favor of any person or entity (each a "Pre-Existing Facility"),
provided that the aggregate amount of any and all such increases shall
not be in excess of the lesser of ten percent (10%) of such
Pre-Existing Facilities or $50,000;
(8) directly or indirectly, including through its officers,
directors, employees or other representatives:
(i) initiate, solicit or encourage any discussions,
inquiries or proposals with any third party (other than MBI or
Ameribanc) relating to the disposition of any significant portion
of the business or assets of First Financial or its subsidiary or
the acquisition of the capital stock (or rights or options
exercisable for, or securities convertible or exchangeable into,
capital stock) of First Financial or its subsidiary or the merger
of First Financial or its subsidiary with any person (other than
MBI or Ameribanc) or any similar transaction (each such
transaction being referred to herein as an "Acquisition
Transaction"); or
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(ii) provide any third party with information or
assistance or negotiate with any third party with respect to an
Acquisition Transaction, and First Financial shall promptly
notify MBI and Ameribanc orally of all the relevant details
relating to all inquiries, indications of interest and proposals
which it or its subsidiary may receive with respect to any
Acquisition Transaction;
(9) take any action that would (i) prevent or impede the Merger
from qualifying as a reorganization within the meaning of Section 368
of the Code, (ii) materially impede or delay the consummation of the
transactions contemplated by the Merger Agreement or the ability of MBI
and Ameribanc or First Financial 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 (iii) prevent the Merger from qualifying for
pooling-of-interests accounting treatment;
(10) other than in the ordinary course of business consistent
with past practice, incur any indebtedness for borrowed money or
assume, guarantee, endorse or otherwise as an accommodation become
responsible or liable for the obligations of any other individual,
corporation or other entity;
(11) materially restructure or change its investment securities
portfolio, through purchases, sales or otherwise, or the manner in
which the portfolio is classified or reported, or execute individual
investment transactions for its own account of greater than $1,000,000
for U.S. Treasury or Federal Agency Securities and $250,000 for all
other investment instruments;
(12) agree in writing or otherwise to take any of the foregoing
actions or engage in any activity, enter into any transaction or
knowingly take or omit to take any other action which would make any of
First Financial's representations and warranties in the Merger
Agreement untrue or incorrect in any material respect if made anew
after engaging in such activity, entering into such transaction, or
taking or omitting such other act; or
(13) enter into, increase or renew any loan or credit commitment
(including standby letters of credit) to any executive officer or
director of First Financial or any subsidiary of First Financial, any
holder of 10% or more of the outstanding shares of First Financial
Common Stock, or any entity controlled, directly or indirectly, by any
of the foregoing or engage in any transaction with any of the foregoing
which is of the type or nature sought to be regulated in 12 U.S.C.
Section 371c and 12 U.S.C. Section 371c-1, without first obtaining the
prior written consent of MBI and Ameribanc, which consent shall not be
unreasonably withheld.
The Merger Agreement also provides that during the period from May 7,
1998 to the Effective Time, MBI and Ameribanc shall not, and shall not permit
any of their subsidiaries to, without the prior written consent of First
Financial, agree in writing or otherwise take any action that is prohibited
of First Financial by subsections (9) and (12) above.
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ACCOUNTING TREATMENT
The Merger is intended to be accounted for under the
pooling-of-interests method of accounting. It is a condition to MBI's and
Ameribanc's consummation of the Merger, unless otherwise waived, that KPMG
Peat Marwick LLP, MBI's independent accountants, deliver to MBI and Ameribanc
a letter stating that the Merger will qualify for pooling-of-interests
accounting treatment.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
-----------------------------------------------------
The following discussion is based upon an opinion of Thompson Coburn,
counsel to MBI ("Counsel"), and except as otherwise indicated, reflects
Counsel's opinion. The discussion is a general summary of the material
United States federal income tax ("federal income tax") consequences of the
Merger to certain First Financial shareholders and does not purport to be a
complete analysis or listing of all potential tax considerations or
consequences relevant to a decision whether to vote for the approval of the
Merger. The discussion does not address all aspects of federal income
taxation that may be applicable to First Financial shareholders in light of
their status or personal investment circumstances, nor does it address the
federal income tax consequences of the Merger that are applicable to First
Financial shareholders subject to special federal income tax treatment,
including (without limitation) foreign persons, insurance companies,
tax-exempt entities, retirement plans, dealers in securities, persons who
acquired their First Financial Common Stock pursuant to the exercise of
employee stock options or otherwise as compensation and persons who hold
their First Financial Common Stock as part of a "straddle," "hedge" or
"conversion transaction." Each shareholder's individual circumstances may
affect the tax consequences of the Merger to such shareholder. In addition,
the discussion does not address the effect of any applicable state, local or
foreign tax laws, or the effect of any federal tax laws other than those
pertaining to the federal income tax. AS A RESULT, EACH FIRST FINANCIAL
SHAREHOLDER IS URGED TO CONSULT HIS OR HER OWN TAX ADVISOR TO DETERMINE THE
SPECIFIC TAX CONSEQUENCES OF THE MERGER TO SUCH SHAREHOLDER. The discussion
assumes that shares of First Financial Common Stock are held as capital
assets (within the meaning of Section 1221 of the Code) at the Effective
Time.
First Financial has received an opinion from Counsel to the effect
that, assuming the Merger occurs in accordance with the Merger Agreement, the
Merger will constitute a "reorganization" for federal income tax purposes
with the following federal income tax consequences:
(1) First Financial shareholders will recognize no gain or loss
as a result of the exchange of their First Financial Common Stock
solely for shares of MBI Common Stock pursuant to the Merger, except
with respect to cash received in lieu of fractional shares, if any, as
discussed below.
(2) The aggregate adjusted tax basis of the shares of MBI
Common Stock received by each First Financial shareholder in the Merger
(including any fractional share of MBI Common Stock deemed to be
received, as described in paragraph 4 below) will be equal to the
aggregate adjusted tax basis of the shares of First Financial Common
Stock surrendered.
(3) The holding period of the shares of MBI Common Stock
received by each First Financial shareholder in the Merger (including
any fractional share of MBI Common Stock deemed to be received, as
described in paragraph 4 below) will include the holding period of the
shares of First Financial Common Stock exchanged therefor.
(4) A First Financial shareholder who receives cash in the
Merger in lieu of a fractional share of MBI Common Stock will be
treated as if the fractional share had been received by such
shareholder in the Merger and then redeemed by MBI in return for the
cash. The receipt of such cash will cause the recipient to recognize
capital gain or loss equal to the difference between the amount of cash
received and the portion of such holder's adjusted tax basis in the
shares of MBI Common Stock allocable to the fractional share.
-47-
<PAGE> 53
Counsel's opinion is subject to the conditions and assumptions stated
therein and relies upon various representations made by MBI and First
Financial. If any of these representations or assumptions is inaccurate, the
tax consequences of the Merger could differ from those described herein.
Counsel's opinion also is based upon the Code, regulations proposed or
promulgated thereunder, judicial precedent relating thereto and current
administrative rulings and practice, all of which are subject to change. Any
such change, which may or may not be retroactive, could alter the tax
consequences discussed herein. The opinion is available without charge upon
written request to Jon W. Bilstrom, General Counsel and Secretary, Mercantile
Bancorporation Inc., P.O. Box 524, St. Louis, Missouri 63166-0524. The
receipt of Counsel's opinion again as of the Closing Date is a condition to
the consummation of the Merger. An opinion of counsel, unlike a private
letter ruling from the Internal Revenue Service (the "Service"), has no
binding effect on the Service. The Service could take a position contrary to
Counsel's opinion and, if the matter were litigated, a court may reach a
decision contrary to the opinion. Neither MBI nor First Financial has
requested an advance ruling as to the federal income tax consequences of the
Merger, and the Service is not expected to issue such a ruling.
THE FOREGOING IS A GENERAL DISCUSSION OF THE MATERIAL FEDERAL INCOME
TAX CONSEQUENCES OF THE MERGER TO CERTAIN FIRST FINANCIAL SHAREHOLDERS AND IS
INCLUDED FOR GENERAL INFORMATION ONLY. THE FOREGOING DISCUSSION DOES NOT
TAKE INTO ACCOUNT THE PARTICULAR FACTS AND CIRCUMSTANCES OF EACH FIRST
FINANCIAL SHAREHOLDER'S TAX STATUS AND ATTRIBUTES. AS A RESULT, THE FEDERAL
INCOME TAX CONSEQUENCES ADDRESSED IN THE FOREGOING DISCUSSION MAY NOT APPLY
TO EACH FIRST FINANCIAL SHAREHOLDER. ACCORDINGLY, EACH FIRST FINANCIAL
SHAREHOLDER SHOULD CONSULT HIS OR HER OWN TAX ADVISOR REGARDING THE SPECIFIC
TAX CONSEQUENCES OF THE MERGER, INCLUDING THE APPLICATION AND EFFECT OF
FEDERAL, STATE, LOCAL AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES
IN FEDERAL AND OTHER TAX LAWS.
DISSENTERS' RIGHTS OF SHAREHOLDERS OF FIRST FINANCIAL
-----------------------------------------------------
Each shareholder of First Financial has the right to demand to be paid
the fair value of his or her shares of First Financial Common Stock in cash
upon consummation of the Merger if the shareholder follows the dissenters'
rights procedures set forth in Division XIII of the IBCA. "Fair value" is
defined in the IBCA as the value of the subject shares immediately prior to
the consummation of the Merger, excluding any appreciation or depreciation in
anticipation of the Merger unless such an exclusion would be inequitable.
Under the IBCA, a shareholder of First Financial may dissent from the
Merger and obtain the fair value of the shares owned by such shareholder with
such fair value to be paid in cash if the Merger is consummated. Any
shareholder of First Financial who wishes to assert his or her dissenters'
rights must do each of the following: (i) deliver to First Financial before
the vote on the Merger Agreement is taken a written notice of such
shareholder's intent to demand payment for his or her shares if the Merger is
effected and (ii) not vote such shares in favor of the approval of the Merger
Agreement at the Special Meeting. A VOTE AGAINST THE APPROVAL OF THE MERGER
AGREEMENT WILL NOT, BY ITSELF, BE REGARDED AS A WRITTEN NOTICE OF A
SHAREHOLDER'S INTENT TO ASSERT DISSENTERS' RIGHTS.
-48-
<PAGE> 54
If the Merger Agreement is approved at the Special Meeting, First
Financial shall deliver a written notice to each person who asserted
dissenters' rights as described above. The notice must be sent by First
Financial no later than 10 days after the Special Meeting and must contain
the following information: (i) a statement as to where a demand for payment
must be sent by the dissenting shareholder and where and when the
certificates evidencing shares of First Financial Common Stock owned by such
shareholders must be deposited, (ii) a form with which dissenting shareholders
may make their demands for payment, which form will include the date of the
first public announcement of the proposed Merger and a requirement that all
dissenting shareholders certify as to whether or not he or she had acquired
beneficial ownership of the shares subject to the dissenters' rights demand
prior to the date of the first public announcement of the proposed Merger, (iii)
a statement as to the date by which First Financial must receive the demand
for payment from the dissenting shareholder, such date to be not fewer than
30 nor more than 60 days after the date of First Financial's notice to
dissenting shareholders and (iv) a copy of Division XIII of the IBCA.
A dissenting shareholder must demand payment for his or her shares,
certify as to whether the acquisition date of such shares was prior to or
after the public announcement of the proposed Merger and deposit the
certificates evidencing such shares prior to the date set in the notice sent
by First Financial to the dissenting shareholders. A shareholder who does
not demand payment or deposit certificates for such shares by the date or in
the manner set forth in the notice to dissenting shareholders sent by First
Financial will be deemed to have waived his or her dissenters' rights and
will not be entitled to payment of the fair value of his or her shares under
Division XIII of the IBCA.
First Financial (or Ameribanc, as the surviving corporation in the
Merger) must make a cash payment to each dissenting shareholder who files a
demand for payment as described above equal to First Financial's (or
Ameribanc's) estimate of the fair value of the shares of First Financial
Common Stock owned by such shareholders, plus accrued interest on such
payment from the Closing Date. Such payment must be made upon the later of:
(i) the time the Merger is consummated or (ii) the receipt of the demand for
payment from the dissenting shareholder. If the Merger is not consummated
within 60 days of the date set by First Financial for receipt of the
dissenting shareholders' demands for payment and deposits of stock
certificates, First Financial must return the deposited certificates and send
a new notice to dissenting shareholders when the Merger is actually
consummated. The payment must be accompanied by the following: (i) First
Financial's balance sheet as of the end of its most recently completed fiscal
year, an income statement and a statement of changes in shareholders' equity
as of the most recently completed fiscal year and interim financial
statements of First Financial as of and for the most recent date or period
available, (ii) a statement of First Financial's (or Ameribanc's) estimate of
fair value of the First Financial shares, (iii) an explanation as to how the
interest payment was computed, (iv) a statement of the dissenting shareholder's
right to demand a greater payment than First Financial's estimate as
described below and (v) a copy of Division XIII of the IBCA.
First Financial may elect to withhold payment from those dissenting
shareholders who do not certify in their demand for payment that they owned
the shares subject to the dissenters' rights demand prior to the public
announcement of the proposed Merger. To the extent that First Financial
elects to withhold payment from such dissenting shareholders, First Financial
shall estimate the fair value of the shares owned by such holders and accrued
interest thereon and offer to pay the same to each such dissenting
shareholder who agrees to accept it in full satisfaction of his or her
demand. The offer to such shareholders must be accompanied by: (i) a
statement of First Financial's estimate of fair value, (ii) an explanation as
to how the interest payment was computed and (iii) a statement of the dissenting
shareholder's right to demand a greater payment than First Financial's
estimate as described below.
-49-
<PAGE> 55
After receipt of First Financial's (or Ameribanc's) estimate of fair
value in either of the above cases, the dissenting shareholder may deliver
notice to First Financial (or Ameribanc) of his or her own estimate of fair
value for the shares and the amount of interest due and demand payment of the
difference in amount, if any, previously paid by First Financial (or
Ameribanc) to such shareholder and the amount of the shareholder's estimate.
In order to make such a demand: (i) the dissenting shareholder must believe
that the amount paid or offered by First Financial (or Ameribanc) is less
than the fair value of the shares or the interest is incorrectly calculated;
or (ii) First Financial (or Ameribanc) has not made payment for the shares
within 60 days after the date set by First Financial (or Ameribanc) as the
last day that First Financial (or Ameribanc) set for accepting demands for
payment; or (iii) the Merger has not been consummated within the 60-day period
after the last date that First Financial (or Ameribanc) set for accepting
demands for payment and First Financial has not returned the stock
certificates deposited by the dissenting shareholder. A dissenting
shareholder will waive his or her right to seek a greater payment than First
Financial's estimate of fair value and accrued interest unless such
shareholder notifies First Financial (or Ameribanc) in writing of the same
within 30 days of the receipt of First Financial's (or Ameribanc's) payment
or offer of payment for the shares.
If, within 60 days of receiving the dissenting shareholder's notice of
a demand for increased payment, the demand remains unsettled, First Financial
(or Ameribanc) must commence proceedings in the district court of Johnson
County, Iowa petitioning the court to determine the fair value and accrued
interest of such shares. If First Financial (or Ameribanc) fail to start
such proceedings within the 60-day period, First Financial (or Ameribanc)
must pay each dissenting shareholder whose demand remains unsettled the
amount that such shareholder has demanded. All dissenting shareholders with
claims remaining unsettled will be made parties to the proceedings and the
court may appoint one or more appraisers to receive evidence and recommend
the fair value of the shares. The court will find either (i) that the fair
value and accrued interest already paid by First Financial (or Ameribanc)
equals or exceeds the amount determined by the court, in which case the
shareholder will be entitled to no additional payment from First Financial
(or Ameribanc) or (ii) First Financial (or Ameribanc) must pay an additional
amount equal to the difference between the court's determination of fair
value and accrued interest and the amount already paid by First Financial (or
Ameribanc) to the shareholder.
The court shall also determine all costs of the proceedings, including
the reasonable compensation and expenses of the appraisers and shall assess
such costs to First Financial (or Ameribanc) unless the court finds that such
an assessment would be inequitable because the dissenting shareholders had
acted arbitrarily, vexatiously or not in good faith. Fees of legal counsel
will generally be borne by each of the parties except that the attorneys'
fees of the dissenting shareholders will be assessed to First Financial (or
Ameribanc) to the extent that the court finds it did not substantially comply
with the procedures set forth in Division XIII of the IBCA or to either party
in favor of the other party to the extent that the court finds that the
assessed party acted arbitrarily, vexatiously or not in good faith. To the
extent that counsel for one dissenting shareholder is found by the court to
have provided a substantial benefit to other dissenting shareholders, the
court may order that the fees of such counsel be paid out of the amounts
awarded to the dissenting shareholders who have been benefited.
THE PRECEDING DISCUSSION IS A SUMMARY OF THE PROVISIONS REGARDING
DISSENTERS' RIGHTS UNDER THE IBCA AND IS QUALIFIED IN ITS ENTIRETY BY THE
TEXT OF DIVISION XIII OF THE IBCA WHICH IS ATTACHED TO THIS PROXY
STATEMENT/PROSPECTUS AS ANNEX B. FIRST FINANCIAL SHAREHOLDERS WHO ARE
-------
INTERESTED IN ASSERTING DISSENTERS' RIGHTS
-50-
<PAGE> 56
PURSUANT TO THE IBCA IN CONNECTION WITH THE MERGER MAY WISH TO CONSULT WITH
THEIR COUNSEL FOR ADVICE AS TO THE PROCEDURES REQUIRED TO BE FOLLOWED.
PRO FORMA FINANCIAL INFORMATION
-------------------------------
COMPARATIVE UNAUDITED PER SHARE DATA
The following table sets forth for the periods indicated selected
historical per share data of MBI and First Financial and the corresponding
pro forma and pro forma equivalent per share amounts giving effect to the
proposed Merger, as well as the pending acquisitions by MBI of FSCM, CBT and
Firstbank, each of which will be accounted for under the pooling-of-interests
method of accounting, and the acquisition of Roosevelt, which was consummated
on July 1, 1997 and accounted for under the purchase method of accounting.
The data presented is based upon the consolidated financial statements and
related notes of MBI and First Financial included in documents incorporated
herein by reference and the pro forma combined consolidated balance sheet and
income statements, including the notes thereto, appearing elsewhere herein.
This information should be read in conjunction with such historical and pro
forma financial statements and related notes thereto. The assumptions used in
the preparation of this table appear in the notes to the pro forma financial
information appearing elsewhere in this Proxy Statement/Prospectus. 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
proposed Merger or the pending acquisitions by MBI of FSCM, CBT,
Firstbank and Roosevelt had been consummated prior to the periods indicated.
-51-
<PAGE> 57
<TABLE>
<CAPTION>
MBI/ MBI/ MBI/ MBI/
FIRST FIRST FINANCIAL FIRST FINANCIAL ALL ENTITIES ALL ENTITIES
MBI FINANCIAL PRO FORMA PRO FORMA PRO FORMA PRO FORMA
REPORTED REPORTED COMBINED<F1> EQUIVALENT<F2> COMBINED<F3> EQUIVALENT<F2>
-------- -------- ------------ -------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Book Value per Share:
March 31, 1998<F4> $ 18.65 $ 16.96 $ 18.54 $ 16.32 $ 18.58 $ 16.35
December 31, 1997 18.47 16.50 18.33 16.13 17.58 15.47
Cash Dividends Declared per Share:
Three Months ended March 31, 1998 $ .31 $ .19 $ .31 $ .27 $ .310 $ .27
Year ended December 31, 1997 1.148 .65 1.148 1.01 1.148 1.01
Year ended December 31, 1996 1.092 .55 1.092 .96 1.092 .96
Year ended December 31, 1995 .88 .51 .88 .77 .880 .77
Basic Earnings per Share:
Three Months ended March 31, 1998 $ .78 $ .49 $ .78 $ .69 $ .76 $ .67
Year ended December 31, 1997 1.68 1.91 1.69 1.49 1.49 1.31
Year ended December 31, 1996 2.11 1.68 2.11 1.86 2.13 1.87
Year ended December 31, 1995 2.41 1.28 2.39 2.10 2.37 2.09
Diluted Earnings per Share:
Three Months Ended March 31, 1998 $ .77 $ .49 $ .77 $ .68 $ .75 $ .66
Year ended December 31, 1997 1.65 1.67 1.66 1.46 1.45 1.28
Year ended December 31, 1996 2.08 1.27 2.08 1.83 2.09 1.84
Year ended December 31, 1995 2.37 .51 2.35 2.07 2.31 2.03
Market Price per Share:
At May 7, 1998<F5> $52.8125 $38.000 $52.8125 $46.475 $52.8125 $46.475
At June 15, 1998<F5> 50.0625 43.375 50.0625 44.055 50.0625 44.055
<FN>
- ---------------
<F1> Includes the effect of pro forma adjustments for First Financial, as
appropriate. See "PRO FORMA FINANCIAL INFORMATION--Notes to Pro Forma
Combined Consolidated Financial Statements."
<F2> Based on the pro forma combined per share amounts multiplied by 0.88,
the Exchange Ratio applicable to one share of First Financial Common
Stock in the Merger. Further explanation of the assumptions used in
the preparation of the pro forma combined consolidated financial
statements is included in the notes to pro forma combined consolidated
financial statements. See "PRO FORMA FINANCIAL INFORMATION--Notes to
Pro Forma Combined Consolidated Financial Statements."
<F3> Includes the effect of pro forma adjustments for First Financial, CBT,
Firstbank, FSCM and Roosevelt, as appropriate. Due to the
immateriality of the financial condition and results of operations of
Horizon and HomeCorp to that of MBI, this table does not include the
effect of pro forma adjustments for Horizon and HomeCorp. See "PRO
FORMA FINANCIAL INFORMATION--Notes to Pro Forma Combined Consolidated
Financial Statements."
<F4> Based upon the following number of shares outstanding as of
March 31, 1998:
<S> <C>
Shares of MBI Common Stock as reported 133,115,257
Number of Shares of MBI Common Stock, net of
treasury shares, to be issued in the mergers of:
FSCM 1,877,324
CBT 4,961,910
First Financial 2,875,360
Firstbank 12,511,135
-----------
MBI/All Entities Pro Forma
Combined 155,340,956
===========
<F5> The market value of MBI Common Stock disclosed as of May 7, 1998, the
last trading day preceding the public announcement of the Merger, and
as of June 15, 1998, the last practicable date prior to the filing of
the Registration Statement, is based on the last sale price as reported
on the NYSE Composite Tape. The market value of First Financial Common
Stock disclosed as of May 7, 1998, the last trading day preceding the
public announcement of the Merger, and as of June 15, 1998, the last
practicable date prior to the filing of the Registration Statement, is
based on over-the-counter "bulletin board" closing prices.
</TABLE>
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<PAGE> 58
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
consideration paid in cash and/or shares of MBI Common Stock and the
accounting method utilized.
<TABLE>
ACQUISITIONS COMPLETED BY MBI (1995-PRESENT)
<CAPTION>
CONSIDERATION
----------------------
GROSS NUMBER ACCOUNTING
NAME DATE ASSETS DEPOSITS CASH OF 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<F1>
Horizon Bancorp, Inc.. Feb. 2, 1998 536,507 454,230 2 2,549,970 Pooling<F1>
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<F1>
Southwest Bancshares, Inc. Aug. 1, 1995 187,701 155,628 1 1,012,463 Pooling<F1>
AmeriFirst Bancorporation, Inc. Aug. 1, 1995 155,521 130,179 1 992,034 Pooling<F1>
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<F2> 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<F1>
<CAPTION>
PENDING ACQUISITIONS BY MBI
<S> <C> <C> <C> <C> <C> <C>
Financial Services Corporation
of the Midwest 3rd Qtr. 1998 $ 518,046 $ 408,995 - 2,077,000<F3> Pooling
CBT Corporation. 3rd Qtr. 1998 1,030,998 714,686 - 5,398,785<F3> Pooling
Firstbank of Illinois Co. 3rd Qtr. 1998 2,283,670 2,000,539 - 13,786,135<F3> Pooling
First Financial Bancorporation 3rd Qtr. 1998 568,442 480,461 - 3,194,844<F3> Pooling
<FN>
- ----------------------
<F1> 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.
<F2> 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.
<F3> Estimated number of shares to be issued in acquisition.
</TABLE>
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<PAGE> 59
PRO FORMA FINANCIAL STATEMENTS. The following unaudited pro forma
combined consolidated balance sheet gives effect to the Merger as if it were
consummated on March 31, 1998.
The pro forma combined consolidated income statements for the three
months ended March 31, 1998 and 1997 and for the years ended December 31,
1997, 1996 and 1995 set forth the results of operations of MBI combined with
the results of operations of First Financial, CBT, FSCM and Firstbank as if
the respective mergers had occurred as of the first day of the period
presented. Such income statements also give effect to the divestiture by
MBI of Duchesne Bank and Colonial Bank, each a wholly owned subsidiary of
Firstbank, which divestitures are required due to deposit limitations imposed
by Missouri statutes. Due to the immateriality of the results of operations
of Horizon and HomeCorp to that of MBI, individually and in the aggregate,
the unaudited pro forma combined consolidated financial statements contained
herein do not reflect the completed acquisitions of Horizon and HomeCorp for
any period prior to the acquisition date of such entities.
MBI acquired Roosevelt on July 1, 1997, which acquisition was accounted
for under the purchase method of accounting. Accordingly, the historical
results of operations of MBI include the results of operations of Roosevelt
from July 1, 1997 forward. Consistent with the Commission's rules regarding
the treatment of acquisitions accounted for as purchases in pro forma
presentations, the pro forma combined consolidated income statements for the
three months ended March 31, 1998 and March 31, 1997 and the year ended
December 31, 1997 include the results of operations of Roosevelt but the pro
forma combined consolidated income statements for the years ended December
31, 1996 and 1995 do not.
The unaudited pro forma combined consolidated financial statements
should be read in conjunction with the accompanying Notes to the Pro Forma
Combined Consolidated Financial Statements and with the historical financial
statements of MBI and First Financial. These pro forma combined consolidated
financial statements may not be indicative of the results of operations that
actually would have occurred if the completed and proposed acquisitions had
been consummated on the dates assumed above or of the results of operations
that may be achieved in the future.
-54-
<PAGE> 60
<TABLE>
MERCANTILE BANCORPORATION INC.
PRO FORMA COMBINED CONSOLIDATED BALANCE SHEET
MARCH 31, 1998
(THOUSANDS)
(UNAUDITED)
<CAPTION>
MBI/FIRST
FINANCIAL
FIRST PRO FORMA
FIRST FINANCIAL COMBINED CBT/
MBI<F1> FINANCIAL ADJUSTMENTS CONSOLIDATED FSCM
------- --------- ----------- ------------ ----
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and due from banks $ 1,193,064 $ 23,575 $(16,873)<F2> $ 1,192,366 $ 63,013
(7,400)<F5>
Due from banks - interest bearing 269,342 0 269,342 11,759
Federal funds sold and repurchase agreements 258,295 39,300 297,595 30,130
Investments in debt and equity securities
Trading 125,634 0 125,634 0
Available-for-sale 8,027,916 119,254 8,147,170 275,694
Held-to-maturity 224,125 0 224,125 92,803
----------- -------- -------- ----------- ----------
Total 8,377,675 119,254 8,496,929 368,497
Loans and leases 19,625,022 357,598 19,982,620 1,038,269
Reserve for possible loan losses (263,511) (4,499) (1,500)<F5> (269,510) (16,729)
----------- -------- -------- ----------- ----------
Net Loans and Leases 19,361,511 353,099 (1,500) 19,713,110 1,021,540
Intangible assets 792,626 2,695 795,321 5,677
Other assets 1,549,209 30,519 60,267 <F3> 1,579,728 48,428
(60,267)<F4>
----------- -------- -------- ----------- ----------
Total Assets $31,801,722 $568,442 $(25,773) $32,344,391 $1,549,044
=========== ======== ======== =========== ==========
LIABILITIES
Deposits
Non-interest bearing $ 3,487,875 $ 60,913 $ 3,548,788 $ 123,211
Interest bearing 18,576,440 419,548 18,995,988 1,000,470
Foreign 463,426 0 463,426 0
----------- -------- -------- ----------- ----------
Total Deposits 22,527,741 480,461 0 23,008,202 1,123,681
Short-term borrowings 3,596,915 14,417 3,611,332 192,499
Bank notes 25,000 0 25,000 0
Long-term debt 2,193,061 7,958 2,201,019 58,964
Company-obligated mandatorily redeemable preferred
securities of Mercantile Capital Trust I 150,000 0 150,000 0
Other liabilities 825,839 5,339 (3,204)<F5> 827,974 17,488
----------- -------- -------- ----------- ----------
Total Liabilities 29,318,556 508,175 (3,204) 29,823,527 1,392,632
<CAPTION>
COLONIAL
CBT/ BANK AND ALL ENTITIES
FSCM/ DUCHESNE PRO FORMA
FIRSTBANK BANK COMBINED
FIRSTBANK ADJUSTMENTS DIVESTITURES CONSOLIDATED
--------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
ASSETS
Cash and due from banks $ 96,021 $ (57,025)<F5> $ 45,916 $ 1,329,234
(11,057)<F8>
Due from banks - interest bearing 1,782 (197) 282,686
Federal funds sold and repurchase agreements 19,250 (11,875) 335,100
Investments in debt and equity securities
Trading 46 0 125,680
Available-for-sale 627,548 (69,551) 8,980,861
Held-to-maturity 24,404 (4,051) 337,281
---------- --------- --------- -----------
Total 651,998 0 (73,602) 9,443,822
Loans and leases 1,425,133 (221,552) 22,224,470
Reserve for possible loan losses (20,285) (12,100)<F5> 3,094 (315,530)
---------- --------- --------- -----------
Net Loans and Leases 1,404,848 (12,100) (218,458) 21,908,940
Intangible assets 24,270 0 825,268
Other assets 85,501 122,031 <F6> (8,883) 1,704,774
(122,031)<F7>
34,381 <F9>
(34,381)<F10>
238,489 <F11>
(238,489)<F12>
---------- --------- --------- -----------
Total Assets $2,283,670 $ (80,182) $(267,099) $35,829,824
========== ========= ========= ===========
LIABILITIES
Deposits
Non-interest bearing $ 288,895 $ (54,857) $ 3,906,037
Interest bearing 1,711,644 (247,581) 21,460,521
Foreign 0 0 463,426
---------- --------- --------- -----------
Total Deposits 2,000,539 0 (302,438) 25,829,984
Short-term borrowings 18,604 (1,119) 3,821,316
Bank notes 0 0 25,000
Long-term debt 0 0 2,259,983
Company-obligated mandatorily redeemable preferred
securities of Mercantile Capital Trust I 0 0 150,000
Other liabilities 26,038 (24,885)<F5> 11,458 858,073
---------- --------- --------- -----------
Total Liabilities 2,045,181 (24,885) (292,099) 32,944,356
</TABLE>
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<PAGE> 61
<TABLE>
MERCANTILE BANCORPORATION INC.
PRO FORMA COMBINED CONSOLIDATED BALANCE SHEET
MARCH 31, 1998 (CONTINUED)
(THOUSANDS)
(UNAUDITED)
<CAPTION>
MBI/FIRST
FINANCIAL
FIRST PRO FORMA
FIRST FINANCIAL COMBINED CBT/
MBI<F1> FINANCIAL ADJUSTMENTS CONSOLIDATED FSCM
------- --------- ----------- ------------ ----
<S> <C> <C> <C> <C> <C>
SHAREHOLDERS' EQUITY
Preferred stock 0 0 0 5,000
Common stock 1,351 4,442 29 <F3> 1,380 4,270
(4,442)<F4>
Capital surplus 986,393 3,635 (8,825)<F3> 977,568 18,668
(3,635)<F4>
Retained earnings 1,592,681 52,190 52,190 <F3> 1,639,175 131,125
(52,190)<F4>
(5,696)<F5>
Treasury stock (97,259) 0 16,873 <F2> (97,259) (2,651)
(16,873)<F3>
----------- -------- -------- ----------- ----------
Total Shareholders' Equity 2,483,166 60,267 (22,569) 2,520,864 156,412
----------- -------- -------- ----------- ----------
Total Liabilities and Shareholders' Equity $31,801,722 $568,442 $(25,773) $32,344,391 $1,549,044
=========== ======== ======== =========== ==========
<CAPTION>
COLONIAL
CBT/ BANK AND ALL ENTITIES
FSCM/ DUCHESNE PRO FORMA
FIRSTBANK BANK COMBINED
FIRSTBANK ADJUSTMENTS DIVESTITURES CONSOLIDATED
--------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
SHAREHOLDERS' EQUITY
Preferred stock (5,000)<F10>
Common stock 15,941 50 <F6> 1,574
(4,100)<F7>
19 <F9>
(170)<F10>
125 <F11>
(15,941)<F12>
Capital surplus 42,976 (2,925)<F6> 25,000 988,088
(16,070)<F7>
(5,959)<F9>
(2,598)<F10>
(5,596)<F11>
(42,976)<F12>
Retained earnings 179,572 (44,240)<F5> 1,905,632
101,861 <F6>
(101,861)<F7>
29,264 <F9>
(29,264)<F10>
179,572 <F11>
(179,572)<F12>
Treasury stock 0 (11,057)<F8> (9,826)
11,057 <F9>
2,651 <F10>
23,045 <F6>
64,388 <F11>
---------- --------- --------- -----------
Total Shareholders' Equity 238,489 (55,297) 25,000 2,885,468
---------- --------- --------- -----------
Total Liabilities and Shareholders' Equity $2,283,670 $ (80,182) $(267,099) $35,829,824
========== ========= ========= ===========
See Notes to Pro Forma Combined Consolidated Financial Statements.
</TABLE>
-56-
<PAGE> 62
<TABLE>
MERCANTILE BANCORPORATION INC.
PRO FORMA COMBINED CONSOLIDATED INCOME STATEMENT
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<CAPTION>
MBI/FIRST
FINANCIAL
FIRST PRO FORMA
FIRST FINANCIAL COMBINED
MBI<F1> FINANCIAL ADJUSTMENTS CONSOLIDATED
------- --------- ----------- ------------
<S> <C> <C> <C> <C>
Interest Income $530,331 $9,367 $(211)<F13> $539,487
Interest Expense 290,026 4,907 294,933
-------- ------ ----- --------
Net Interest Income 240,305 4,460 (211) 244,554
Provision for Possible Loan Losses 6,606 100 6,706
-------- ------ ----- --------
Net Interest Income after Provision
for Possible Loan Losses 233,699 4,360 (211) 237,848
Other Income
Trust 25,886 938 26,824
Service charges 25,576 511 26,087
Credit card fees 3,284 0 3,284
Securities gains 4,263 154 4,417
Other 68,184 998 69,182
-------- ------ ----- --------
Total Other Income 127,193 2,601 0 129,794
Other Expense
Salaries and employee benefits 111,575 2,164 113,739
Net occupancy and equipment 33,655 723 34,378
Other 51,634 1,604 53,238
-------- ------ ----- --------
Total Other Expense 196,864 4,491 0 201,355
-------- ------ ----- --------
Income Before Income Taxes 164,028 2,470 (211) 166,287
Income Taxes 60,136 736 (76)<F14> 60,796
-------- ------ ----- --------
Net Income $103,892 $1,734 $(135) $105,491
======== ====== ===== ========
Per Share Data <F27>:
Basic Earnings per Share $ 0.78 $ 0.78
Diluted Earnings per Share 0.77 0.77
<CAPTION>
MBI/ALL ENTITIES
FIRSTBANK/ PRO FORMA
CBT/ CBT/FSCM COMBINED
FSCM FIRSTBANK ADJUSTMENTS CONSOLIDATED
---- --------- ----------- ------------
<S> <C> <C> <C> <C>
Interest Income $31,962 $41,598 $ (288)<F15> $611,817
(138)<F17>
(804)<F19>
Interest Expense 15,727 19,527 330,187
------- ------- ------- --------
Net Interest Income 16,235 22,071 (1,230) 281,630
Provision for Possible Loan Losses 1,919 762 9,387
------- ------- ------- --------
Net Interest Income after Provision
for Possible Loan Losses 14,316 21,309 (1,230) 272,243
Other Income
Trust 459 1,513 28,796
Service charges 1,552 1,945 29,584
Credit card fees 0 0 3,284
Securities gains 166 71 4,654
Other 1,998 3,249 74,429
------- ------- ------- --------
Total Other Income 4,175 6,778 0 140,747
Other Expense
Salaries and employee benefits 5,915 9,133 128,787
Net occupancy and equipment 1,107 2,606 38,091
Other 4,152 4,187 61,577
------- ------- ------- --------
Total Other Expense 11,174 15,926 228,455
------- ------- ------- --------
Income Before Income Taxes 7,317 12,161 (1,230) 184,535
Income Taxes 2,574 4,395 (104)<F16> 67,321
(50)<F18>
(290)<F20>
------- ------- ------- --------
Net Income $ 4,743 $ 7,766 $ (786) $117,214
======= ======= ======= ========
Per Share Data <F27>:
Basic Earnings per Share $ 0.76
Diluted Earnings per Share 0.75
See Notes to Pro Forma Combined Consolidated Financial Statements.
</TABLE>
-57-
<PAGE> 63
<TABLE>
MERCANTILE BANCORPORATION INC.
PRO FORMA COMBINED CONSOLIDATED INCOME STATEMENT
FOR THE THREE MONTHS ENDED MARCH 31, 1997
(THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<CAPTION>
MBI/FIRST
FINANCIAL
FIRST PRO FORMA
FIRST FINANCIAL COMBINED CBT/
MBI<F1> FINANCIAL ADJUSTMENTS CONSOLIDATED FSCM
------- --------- ----------- ------------ ----
<S> <C> <C> <C> <C> <C>
Interest Income $398,462 $8,363 $(211)<F13> $406,614 $28,803
Interest Expense 186,501 4,122 0 190,623 14,148
-------- ------ ----- -------- -------
Net Interest Income 211,961 4,241 (211) 215,991 14,655
Provision for Possible Loan Losses 18,443 177 0 18,620 1,560
-------- ------ ----- -------- -------
Net Interest Income after Provision
for Possible Loan Losses 193,518 4,064 (211) 197,371 13,095
Other Income
Trust 22,801 832 23,633 398
Service charges 22,798 445 23,243 1,495
Credit card fees 5,399 0 5,399 0
Net gain from financial instruments 0 0 0 0
Securities gains (losses) 1,049 44 1,093 0
Other 36,053 528 36,581 1,520
-------- ------ ----- -------- -------
Total Other Income 88,100 1,849 0 89,949 3,413
Other Expense
Salaries and employee benefits 97,722 1,801 99,523 5,436
Net occupancy and equipment 26,528 655 27,183 1,366
Other 41,345 1,246 42,591 3,210
-------- ------ ----- -------- -------
Total Other Expense 165,595 3,702 0 169,297 10,012
-------- ------ ----- -------- -------
Income Before Income Taxes 116,023 2,211 (211) 118,023 6,496
Income Taxes 41,028 664 (76)<F14> 41,616 2,040
-------- ------ ----- -------- -------
Net Income $ 74,995 $1,547 $(135) $ 76,407 $ 4,456
======== ====== ===== ======== =======
Per Share Data <F27>:
Basic Earnings per Share $ .65 $ .65
Diluted Earnings per Share .64 .64
<CAPTION>
ROOSEVELT FOR ROOSEVELT/ MBI/ALL ENTITIES
THE THREE FIRSTBANK/ PRO FORMA
MONTHS ENDED CBT/FSCM COMBINED
FIRSTBANK MARCH 31, 1997 ADJUSTMENTS<F21> CONSOLIDATED
--------- -------------- ---------------- ------------
<S> <C> <C> <C> <C>
Interest Income $36,611 $140,012 $ (288)<F15> $610,810
(138)<F17>
(804)<F19>
Interest Expense 16,317 90,590 858 <F22> 321,380
8,844 <F23>
------- -------- -------- --------
Net Interest Income 20,294 49,422 (10,932) 289,430
Provision for Possible Loan Losses 717 640 21,537
------- -------- -------- --------
Net Interest Income after Provision
for Possible Loan Losses 19,577 48,782 (10,932) 267,893
Other Income
Trust 1,156 0 25,187
Service charges 1,611 5,979 32,328
Credit card fees 0 0 5,399
Net gain from financial instruments 0 392 392
Securities gains (losses) (4) 0 1,089
Other 2,676 5,981 46,758
------- -------- -------- --------
Total Other Income 5,439 12,352 0 111,153
Other Expense
Salaries and employee benefits 7,973 11,160 124,092
Net occupancy and equipment 2,439 4,811 35,799
Other 3,478 9,467 10,135 <F24> 68,881
------- -------- -------- --------
Total Other Expense 13,890 25,438 10,135 228,772
------- -------- -------- --------
Income Before Income Taxes 11,126 35,696 (21,067) 150,274
Income Taxes 3,941 13,605 (104)<F16> 57,266
(50)<F18>
(290)<F20>
(3,492)<F25>
------- -------- -------- --------
Net Income $ 7,185 $ 22,091 $(17,131) $ 93,008
======= ======== ======== ========
Per Share Data <F27>:
Basic Earnings per Share $ .60
Diluted Earnings per Share .59
See Notes to Pro Forma Combined Consolidated Financial Statements
</TABLE>
-58-
<PAGE> 64
<TABLE>
MERCANTILE BANCORPORATION INC.
PRO FORMA COMBINED CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1997
(THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<CAPTION>
MBI/FIRST
FINANCIAL
FIRST PRO FORMA
FIRST FINANCIAL COMBINED CBT/
MBI<F1> FINANCIAL ADJUSTMENTS CONSOLIDATED FSCM
------- --------- ----------- ------------ ----
<S> <C> <C> <C> <C> <C>
Interest Income $1,878,194 $36,708 $(844)<F13> $1,914,058 $121,890
Interest Expense 957,690 18,730 0 976,420 60,619
---------- ------- ----- ---------- --------
Net Interest Income 920,504 17,978 (844) 937,638 61,271
Provision for Possible Loan Losses 79,309 588 0 79,897 7,470
---------- ------- ----- ---------- --------
Net Interest Income after Provision
for Possible Loan Losses 841,195 17,390 (844) 857,741 53,801
Other Income
Trust 96,055 3,289 99,344 2,799
Service charges 98,733 2,058 100,791 6,281
Credit card fees 20,480 0 20,480 0
Net loss from financial instruments 0 0 0 0
Securities gains 6,985 395 7,380 157
Other 156,431 2,643 159,074 4,941
---------- ------- ----- ---------- --------
Total Other Income 378,684 8,385 0 387,069 14,178
Other Expense
Salaries and employee benefits 414,882 7,758 422,640 22,090
Net occupancy and equipment 118,758 2,755 121,513 5,864
Loss on the sale of credit card loans 50,000 0 50,000 0
Other 311,140 5,670 316,810 13,977
---------- ------- ----- ---------- --------
Total Other Expense 894,780 16,183 0 910,963 41,931
---------- ------- ----- ---------- --------
Income Before Income Taxes 325,099 9,592 (844) 333,847 26,048
Income Taxes 120,506 2,909 (304)<F14> 123,111 7,859
---------- ------- ----- ---------- --------
Net Income $ 204,593 $ 6,683 $(540) $ 210,736 $ 18,189
========== ======= ===== ========== ========
Per Share Data <F27>:
Basic Earnings per Share $ 1.68 $ 1.69
Diluted Earnings per Share 1.65 1.66
<CAPTION>
ROOSEVELT ROOSEVELT/ MBI/ALL ENTITIES
FOR THE SIX FIRSTBANK/ PRO FORMA
MONTHS ENDED CBT/FSCM COMBINED
FIRSTBANK JUNE 30, 1997 ADJUSTMENTS<F21> CONSOLIDATED
--------- ------------- ---------------- ------------
<S> <C> <C> <C> <C>
Interest Income $157,373 $272,169 $ (1,152)<F15> $2,460,566
(553)<F17>
(3,219)<F19>
Interest Expense 71,472 178,306 858 <F22> 1,303,397
15,722 <F23>
-------- -------- -------- ----------
Net Interest Income 85,901 93,863 (21,504) 1,157,169
Provision for Possible Loan Losses 2,958 3,474 93,799
-------- -------- -------- ----------
Net Interest Income after Provision
for Possible Loan Losses 82,943 90,389 (21,504) 1,063,370
Other Income
Trust 5,010 0 107,153
Service charges 7,441 13,018 127,531
Credit card fees 0 0 20,480
Net loss from financial instruments 0 (35,630) (35,630)
Securities gains 636 0 8,173
Other 11,531 10,038 185,584
-------- -------- -------- ----------
Total Other Income 24,618 (12,574) 413,291
Other Expense
Salaries and employee benefits 35,009 23,717 503,456
Net occupancy and equipment 10,082 9,291 146,750
Loss on the sale of credit card loans 0 0 50,000
Other 16,030 36,555 20,269 <F24> 403,641
-------- -------- -------- ----------
Total Other Expense 61,121 69,563 20,269 1,103,847
-------- -------- -------- ----------
Income Before Income Taxes 46,440 8,252 (41,773) 372,814
Income Taxes 16,796 7,630 (415)<F16> 147,654
(199)<F18>
(1,159)<F20>
(5,969)<F25>
-------- -------- -------- ----------
Net Income $ 29,644 $ 622 $(34,031) $ 225,160
======== ======== ======== ==========
Per Share Data <F27>:
Basic Earnings per Share $ 1.49
Diluted Earnings per Share 1.45
See Notes to Pro Forma Combined Consolidated Financial Statements
</TABLE>
-59-
<PAGE> 65
<TABLE>
MERCANTILE BANCORPORATION INC.
PRO FORMA COMBINED CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1996
(THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<CAPTION>
MBI/FIRST
FINANCIAL
FIRST PRO FORMA
FIRST FINANCIAL COMBINED
MBI<F1> FINANCIAL ADJUSTMENTS CONSOLIDATED
------- --------- ----------- ------------
<S> <C> <C> <C> <C>
Interest Income $1,552,863 $33,268 $(844)<F13> $1,585,287
Interest Expense 724,910 16,449 0 741,359
---------- ------- ----- ----------
Net Interest Income 827,953 16,819 (844) 843,928
Provision for Possible Loan Losses 73,015 591 0 73,606
---------- ------- ----- ----------
Net Interest Income after Provision
for Possible Loan Losses 754,938 16,228 (844) 770,322
Other Income
Trust 86,616 2,998 89,614
Service charges 88,916 1,825 90,741
Credit card fees 27,962 0 27,962
Securities gains (losses) (83) (160) (243)
Other 134,069 2,361 136,430
---------- ------- ----- ----------
Total Other Income 337,480 7,024 0 344,504
Other Expense
Salaries and employee benefits 365,729 6,696 372,425
Net occupancy and equipment 103,715 2,624 106,339
Other 249,224 5,482 254,706
---------- ------- ----- ----------
Total Other Expense 718,668 14,802 0 733,470
---------- ------- ----- ----------
Income Before Income Taxes 373,750 8,450 (844) 381,356
Income Taxes 128,535 2,534 (304)<F14> 130,765
---------- ------- ----- ----------
Net Income $ 245,215 $ 5,916 $(540) $ 250,591
========== ======= ===== ==========
Per Share Data <F27>:
Basic Earnings per Share $ 2.11 $ 2.11
Diluted Earnings per Share 2.08 2.08
<CAPTION>
MBI/ALL ENTITIES
FIRSTBANK/ PRO FORMA
CBT/ CBT/FSCM COMBINED
FSCM FIRSTBANK ADJUSTMENTS CONSOLIDATED
---- --------- ----------- ------------
<S> <C> <C> <C> <C>
Interest Income $111,242 $140,611 $(1,152)<F15> $1,832,216
(553)<F17>
(3,219)<F19>
Interest Expense 53,454 61,005 855,818
-------- -------- ------- ----------
Net Interest Income 57,788 79,606 (4,924) 976,398
Provision for Possible Loan Losses 5,408 2,868 81,882
-------- -------- ------- ----------
Net Interest Income after Provision
for Possible Loan Losses 52,380 76,738 (4,924) 894,516
Other Income
Trust 2,544 4,292 96,450
Service charges 5,870 6,651 103,262
Credit card fees 0 0 27,962
Securities gains (losses) 35 340 132
Other 3,896 10,515 150,841
-------- -------- ------- ----------
Total Other Income 12,345 21,798 0 378,647
Other Expense
Salaries and employee benefits 21,876 31,919 426,220
Net occupancy and equipment 5,443 9,259 121,041
Other 15,094 13,959 283,759
-------- -------- ------- ----------
Total Other Expense 42,413 55,137 0 831,020
-------- -------- ------- ----------
Income Before Income Taxes 22,312 43,399 (4,924) 442,143
Income Taxes 6,845 15,526 (415)<F16> 151,363
(199)<F18>
(1,159)<F20>
-------- -------- ------- ----------
Net Income $ 15,467 $ 27,873 $(3,151) $ 290,780
======== ======== ======= ==========
Per Share Data <F27>:
Basic Earnings per Share $ 2.13
Diluted Earnings per Share 2.09
See Notes to Pro Forma Combined Consolidated Financial Statements.
</TABLE>
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<PAGE> 66
<TABLE>
MERCANTILE BANCORPORATION INC.
PRO FORMA COMBINED CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1995
(THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<CAPTION>
MBI/FIRST
FINANCIAL
FIRST PRO FORMA
FIRST FINANCIAL COMBINED
MBI<F1> FINANCIAL ADJUSTMENTS CONSOLIDATED
------- --------- ----------- ------------
<S> <C> <C> <C> <C>
Interest Income $1,516,156 $31,742 $(844)<F15> $1,547,054
Interest Expense 715,466 15,811 0 731,277
---------- ------- ----- ----------
Net Interest Income 800,690 15,931 (844) 815,777
Provision for Possible Loan Losses 41,533 366 0 41,899
---------- ------- ----- ----------
Net Interest Income after Provision
for Possible Loan Losses 759,157 15,565 (844) 773,878
Other Income
Trust 77,115 2,763 79,878
Service charges 82,459 1,470 83,929
Credit card fees 20,366 0 20,366
Securities gains 4,338 0 4,338
Other 127,371 2,003 129,374
---------- ------- ----- ----------
Total Other Income 311,649 6,236 0 317,885
Other Expense
Salaries and employee benefits 346,156 7,677 353,833
Net occupancy and equipment 95,896 2,726 98,622
Other 198,467 5,077 203,544
---------- ------- ----- ----------
Total Other Expense 640,519 15,480 0 655,999
---------- ------- ----- ----------
Income Before Income Taxes 430,287 6,321 (844) 435,764
Income Taxes 149,898 1,751 (304)<F14> 151,345
---------- ------- ----- ----------
Net Income $ 280,389 $ 4,570 $(540) $ 284,419
========== ======= ===== ==========
Per Share Data <F27>:
Basic Earnings per Share $ 2.41 $ 2.39
Diluted Earnings per Share 2.37 2.35
<CAPTION>
MBI/ALL ENTITIES
FIRSTBANK/ PRO FORMA
CBT/ CBT/FSCM COMBINED
FSCM FIRSTBANK ADJUSTMENTS CONSOLIDATED
---- --------- ----------- ------------
<S> <C> <C> <C> <C>
Interest Income $104,420 $134,401 $(1,152)<F15> $1,780,951
(553)<F17>
(3,219)<F19>
Interest Expense 50,217 57,486 838,980
-------- -------- ------- ----------
Net Interest Income 54,203 76,915 (4,924) 941,971
Provision for Possible Loan Losses 2,736 2,313 46,948
-------- -------- ------- ----------
Net Interest Income after Provision
for Possible Loan Losses 51,467 74,602 (4,924) 895,023
Other Income
Trust 1,803 5,986 87,667
Service charges 5,971 5,836 95,736
Credit card fees 0 0 20,366
Securities gains 279 28 4,645
Other 3,361 8,318 141,053
-------- -------- ------- ----------
Total Other Income 11,414 20,168 0 349,467
Other Expense
Salaries and employee benefits 21,526 30,882 406,241
Net occupancy and equipment 4,712 9,215 112,549
Other 14,664 14,824 233,032
-------- -------- ------- ----------
Total Other Expense 40,902 54,921 0 751,822
-------- -------- ------- ----------
Income Before Income Taxes 21,979 39,849 (4,924) 492,668
Income Taxes 6,460 14,107 (415)<F16> 170,139
(199)<F18>
(1,159)<F20>
-------- -------- ------- ----------
Net Income $ 15,519 $ 25,742 $(3,151) $ 322,529
======== ======== ======= ==========
Per Share Data <F27>:
Basic Earnings per Share $ 2.37
Diluted Earnings per Share 2.31
See Notes to Pro Forma Combined Consolidated Financial Statements.
</TABLE>
-61-
<PAGE> 67
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 also were
accounted for as poolings-of-interests; however, due to the
immateriality of the financial condition and results of operations of
Horizon and HomeCorp to that of MBI, the historical financial
statements of MBI 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 and the three months ended March 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 First Financial, MBI
plans to repurchase up to 319,484 shares of MBI Common Stock in the
open market. The assumed repurchase price per share is $52.8125, the
closing price of MBI Common Stock on May 7, 1998, the last trading date
preceding the announcement of the Merger Agreement.
(3) Acquisition of First Financial with 3,194,844 shares of issued MBI
Common Stock, including up to 319,484 reissued treasury shares, based
on the exchange ratio of 0.88 of a share of MBI Common Stock per share
of First Financial 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 First Financial Common Stock outstanding 3,553,717
Maximum number of shares of First Financial Common Stock which could be
issued pursuant to First Financial's stock option plans 76,788
---------
Maximum number of shares of First Financial Common Stock to be
canceled in the Merger 3,630,505
Exchange Ratio x 0.88
---------
Aggregate number of shares of MBI Common Stock to be issued in the
Merger 3,194,844
=========
</TABLE>
(4) Elimination of MBI's investment in First Financial.
(5) Balance sheet impact of adjustments related to the mergers with FSCM,
CBT, First Financial and Firstbank (see footnote 27). These
adjustments will be initially recorded as a credit to accrued
-62-
<PAGE> 68
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) Acquisition of CBT with 5,398,785 shares of issued MBI Common Stock,
including up to 436,875 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 7,863,792
Maximum number of shares of CBT Common Stock which could be
issued pursuant to CBT's stock option plans 425,453
---------
Maximum number of shares of CBT Common Stock to be canceled in the
merger 8,289,245
Exchange Ratio x 0.6513
---------
Aggregate number of shares of MBI Common Stock to be issued in the
merger 5,398,785
=========
</TABLE>
(7) Elimination of MBI's investment in CBT.
(8) In conjunction with the proposed acquisition of FSCM, MBI plans to
repurchase up to 199,676 shares of MBI Common Stock in the open market.
The assumed repurchase price per share is $55.375, the closing price of
MBI Common Stock on April 9, 1998, the last trading date preceding the
announcement of the merger agreement between MBI and FSCM.
(9) Acquisition of FSCM with 2,077,000 shares of issued MBI Common Stock,
including up to 199,676 reissued treasury shares, based on the exchange
ratio of 6.8573 of a share of MBI Common Stock per share of FSCM 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 FSCM Common Stock outstanding 260,424
Maximum number of shares of FSCM Common Stock which could be
issued:
Pursuant to FSCM's stock option plans 800
Conversion of FSCM preferred stock 41,666
---------
Maximum number of shares of FSCM Common Stock to be canceled in the
Merger 302,890
Exchange Ratio x 6.8573
---------
Aggregate number of shares of MBI Common Stock to be issued in the
merger 2,077,000
=========
</TABLE>
(10) Elimination of MBI's investment in FSCM.
(11) Acquisition of Firstbank with 13,786,135 shares of issued MBI Common
Stock, including up to 1,275,000 reissued treasury shares, based on the
exchange ratio of 0.8308 of a share of MBI
-63-
<PAGE> 69
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 15,941,350
Maximum number of shares of Firstbank Common Stock which could be
issued pursuant to Firstbank's stock option plans 652,457
Maximum number of shares of Firstbank Common Stock to be canceled in
the merger 16,593,807
Exchange Ratio x 0.8308
----------
Aggregate number of shares of MBI Common Stock to be issued in the
merger 13,786,135
==========
</TABLE>
(12) Elimination of MBI's investment in Firstbank.
(13) Interest income foregone as a result of MBI repurchasing 319,484
treasury shares in conjunction with the acquisition of First Financial
by MBI. The assumed interest rate is 5%.
(14) Income tax benefit associated with interest income foregone as the
result of repurchasing shares in conjunction of First Financial by MBI.
The assumed effective tax rate is 36%.
(15) Interest income foregone as a result of MBI repurchasing 436,875
treasury shares in conjunction with the acquisition of CBT by MBI. The
assumed interest rate is 5%.
(16) Income tax benefit associated with interest income foregone as the
result of repurchasing shares in conjunction with the acquisition of
CBT by MBI. These shares were repurchased by MBI in March 1998. The
assumed effective tax is 36%.
(17) Interest income foregone as a result of MBI repurchasing 199,676
treasury shares in conjunction with the acquisition of FSCM by MBI.
The assumed interest rate is 5%.
(18) Income tax benefit associated with interest income foregone as the
result of repurchasing shares in conjunction with the acquisition of
FSCM by MBI. The assumed effective tax rate is 36%.
(19) Interest income foregone as a result of MBI repurchasing 1,275,000
treasury shares in conjunction with the acquisition of Firstbank by
MBI. These shares were repurchased by MBI in March 1998. The assumed
interest rate is 5%.
(20) 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%.
(21) 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 27 below) and interest expense related to
the issuance of subordinated debt securities and notes as described in
footnotes 25 and 26 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
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benefit associated with taxable income statement adjustments is computed
at an effective tax rate of 36%.
(22) 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%.
(23) 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.
(24) The pro forma excess of cost over fair value of net assets acquired was
$608,076,000 for Roosevelt as of December 31, 1997. Given a 15-year
amortization period, the pro forma income statement reflects
one-quarter and one-half the annual amount of goodwill amortization for
the three months ended March 31, 1997 and the year ended December 31,
1997, respectively.
(25) Income tax benefit associated with interest expense on debt issues (see
footnotes 25 and 26 above). The assumed effective tax rate is 36%.
(26) Upon consummation of the mergers with FSCM and First Financial, MBI
expects to record certain adjustments related to the mergers with an
approximate pre-tax total of between $18,000,000 and $22,000,000. 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 provision for possible loan losses in the following
table is to substantially conform the accounting and credit policies of
the acquirees to those of MBI. The pre-tax adjustments for FSCM, First
Financial, Firstbank and CBT are estimated as follows:
<TABLE>
<CAPTION>
First
Financial FSCM Firstbank CBT
--------- ---- --------- -------
(in thousands)
<S> <C> <C> <C> <C>
Contract penalties, equipment abandonment costs and
transition and duplicative costs related to system
standardization and signage $3,600 $3,500 $14,250 $ 9,700
Provision for possible loan losses 1,500 2,000 5,000 5,100
Accruals for severance and change of control payments 1,900 2,900 10,600 3,500
Investment banking, legal and accounting fees 1,900 725 8,600 3,250
------ ------ ------- -------
Total $8,900 $9,125 $38,450 $21,550
====== ====== ======= =======
</TABLE>
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(27) Earnings per share was based upon the average shares listed below:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31, FOR THE YEAR ENDED DECEMBER 31,
--------------------------- ----------------------------------------
1998 1997 1997 1996 1995
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
MBI average shares as reported 132,778,433 114,862,128 121,933,113 115,938,311 115,754,877
MBI equivalent shares for the
following acquisitions, net of
treasury share repurchases:
FSCM 1,586,129 1,012,304 1,032,759 1,008,923 1,001,113
CBT 4,684,324 4,661,176 4,684,198 4,690,928 4,726,732
First Financial 2,788,709 2,762,804 2,757,554 2,785,853 2,825,383
Firstbank 11,888,331 11,555,805 11,685,124 11,584,583 11,604,514
Shares of MBI Common Stock
issued in the Roosevelt acquisition 18,948,884 18,948,884
Less effect of MBI shares issued
in the Roosevelt acquisition during
the second half of 1997 (9,474,442)
----------- ----------- ----------- ----------- -----------
Average shares outstanding for
basic earnings per share 153,725,926 153,803,101 151,567,190 136,008,598 135,912,619
Effect of MBI dilutive stock
options and convertible notes 2,471,850 1,969,592 2,405,301 1,851,462 2,304,336
MBI equivalent average shares of
dilutive stock options for:
FSCM 286,457 1,011,513 911,952 1,044,600 1,109,141
CBT 95,365 170,558 40,918 33,418 34,236
First Financial 25,626 16,877 26,499 16,254 14,349
Firstbank 261,926 219,577 246,677 185,452 178,084
----------- ----------- ----------- ----------- -----------
Average shares outstanding
for dilutive earnings per share 156,867,150 157,191,218 155,198,537 139,139,784 139,552,765
=========== =========== =========== =========== ===========
</TABLE>
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INFORMATION REGARDING MBI STOCK
-------------------------------
DESCRIPTION OF MBI COMMON STOCK AND ATTACHED PREFERRED SHARE PURCHASE RIGHTS
GENERAL. MBI has authorized 5,000,000 shares of MBI Preferred Stock,
no par value, and 400,000,000 shares of MBI Common Stock, $0.01 par value.
At March 31, 1998, MBI had no shares of MBI Preferred Stock issued or
outstanding and 134,960,625 shares of MBI Common Stock issued and 133,115,227
outstanding. Under Missouri law, MBI's Board of Directors may generally
approve the issuance of authorized shares of Preferred Stock and Common Stock
without shareholder approval.
MBI's Board of Directors is also authorized to fix the number of shares
and determine the designation of any series of Preferred Stock and to
determine or alter the rights, preferences, privileges and restrictions
granted to or imposed upon any series of MBI Preferred Stock. Except for the
current designation and reservation of Series B Junior Participating
Preferred Stock pursuant to MBI's Preferred Share Purchase Rights Plan, MBI's
Board of Directors has not acted to designate or issue any shares of MBI
Preferred Stock. The existence of a substantial number of unissued and
unreserved shares of MBI Common Stock and undesignated shares of MBI
Preferred Stock may enable the Board of Directors to issue shares to such
persons and in such manner as may be deemed to have an anti-takeover effect.
The following summary of the terms of MBI's capital stock does not
purport to be complete and is qualified in its entirety by reference to the
applicable provisions of MBI's Restated Articles of Incorporation, as
amended, and by-laws and Missouri law.
DIVIDENDS. The holders of MBI Common Stock are entitled to share
ratably in dividends when, as and if declared by the Board of Directors from
funds legally available therefor, after full cumulative dividends have been
paid or declared, and funds sufficient for the payment thereof set apart, on
all series of MBI Preferred Stock ranking superior as to dividends to MBI
Common Stock.
The Board of Directors of MBI intends to maintain its present policy of
paying quarterly cash dividends on MBI Common Stock, when justified by the
financial condition of MBI and its subsidiaries. The declaration and amount
of future dividends will depend on circumstances existing at the time,
including MBI's earnings, financial condition and capital requirements as
well as regulatory limitations, note and indenture provisions and such other
factors as the Board of Directors may deem relevant. The payment of
dividends to MBI by subsidiary banks is subject to extensive regulation by
various state and federal regulatory agencies. See "SUPERVISION AND
REGULATION."
VOTING RIGHTS. Each holder of MBI Common Stock has one vote for each
share held on matters presented for consideration by the shareholders, except
that, in the election of directors, each shareholder has cumulative voting
rights that entitle each such shareholder to the number of votes that equals
the number of shares held by the shareholder multiplied by the number of
directors to be elected. All such votes may be cast for one candidate for
election as a director or may be distributed among two or more candidates.
PREEMPTIVE RIGHTS. The holders of MBI Common Stock have no
preemptive right to acquire any additional unissued shares or treasury shares
of MBI.
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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 are and will
be, when issued, fully paid and nonassessable. Such shares do not have any
redemption provisions.
PREFERRED SHARE PURCHASE RIGHTS PLAN. One preferred share
purchase right is attached to each share of MBI Common Stock. The MBI Rights
trade automatically with shares of MBI Common Stock and become exercisable
and will trade separately from the MBI Common Stock on the tenth day after
public announcement that a person or group has acquired, or has the right to
acquire, beneficial ownership of 20% or more of the outstanding shares of MBI
Common Stock, or upon commencement or announcement of intent to make a tender
offer for 20% or more of the outstanding shares of MBI Common Stock, in
either case without prior written consent of the Board. When exercisable,
each MBI Right will entitle the holder to buy 1/100 of a share of MBI Series
B Junior Participating Preferred Stock at an exercise price of $212 per MBI
Right. In the event a person or group acquires beneficial ownership of 20%
or more of MBI Common Stock, holders of MBI 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 MBI Right. If MBI is acquired by any
person or group after the Rights become exercisable, each MBI Right will
entitle its holder to purchase stock of the acquiring company having a market
value of twice the current exercise price of each MBI Right. The MBI Rights
are designed to protect the interests of MBI and its shareholders against
coercive takeover tactics. The purpose of the MBI Rights is to encourage
potential acquirors to negotiate with MBI's Board of Directors prior to
attempting a takeover and to give the Board leverage in negotiating on behalf
of all shareholders the terms of any proposed takeover. The MBI Rights may
deter certain takeover proposals. The MBI Rights, which can be redeemed by
MBI's Board of Directors in certain circumstances, expire by their terms on
June 3, 2008.
CLASSIFICATION OF BOARD OF DIRECTORS. The Board of Directors of
MBI is divided into three classes, and the directors are elected by classes
to three-year terms, so that one of the three classes of the directors of MBI
will be elected at each annual meeting of the shareholders. While this
provision promotes stability and continuity of the Board of Directors,
classification of the Board of Directors also may have the effect of
decreasing the number of directors that could otherwise be elected at each
annual meeting of shareholders by a person who obtains a controlling interest
in the MBI Common Stock and thereby could impede a change in control of MBI.
Because fewer directors will be elected at each annual meeting, such
classification also will reduce the effectiveness of cumulative voting as a
means of establishing or increasing minority representation on the Board of
Directors.
OTHER MATTERS. MBI's Restated Articles of Incorporation, as amended,
and by-laws also contain provisions that: (i) require the affirmative vote of
holders of at least 75% of the voting power of all of the shares of
outstanding capital stock of MBI entitled to vote in the election of
directors to remove a director or directors without cause; (ii) require the
affirmative vote of the holders of at least 75% of the voting power of all
shares of the outstanding capital stock of MBI to approve certain "business
combinations" with "interested parties" unless at least two-thirds of the
Board of Directors first approves such business combinations; and (iii) require
an affirmative vote of at least 75% of the voting power of all shares of the
outstanding capital stock of MBI for the amendment, alteration, change or
repeal of any
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of the above provisions unless at least two-thirds of the Board of Directors
first approves such an amendment, alteration, change or repeal. Such provisions
may be deemed to have an anti-takeover effect.
RESTRICTIONS ON RESALE OF MBI STOCK BY AFFILIATES
Under Rule 145 of the Securities Act of 1933, as amended (the
"Securities Act"), certain persons who receive MBI Common Stock pursuant to
the Merger and who are deemed to be "affiliates" of First Financial will be
limited in their right to resell the stock so received. The term "affiliate"
is defined to include any person who, directly or indirectly, controls, or is
controlled by, or is under common control with First Financial at the time
the Merger is submitted to a vote of the shareholders of First Financial.
Each affiliate of First Financial (generally any director or executive
officer of First Financial or any shareholder of First Financial who
beneficially owns a substantial number of outstanding shares of First
Financial Common Stock) who desires to resell the MBI Common Stock received
in the Merger must sell such stock either pursuant to an effective
registration statement or in accordance with an applicable exemption, such as
the applicable provisions of Rule 145(d) under the Securities Act.
Rule 145(d) provides that persons deemed to be affiliates may resell
their stock received in the Merger pursuant to certain of the requirements of
Rule 144 under the Securities Act if such stock is sold within the first year
after the receipt thereof. After one year if such person is not an affiliate
of MBI and if MBI is current with respect to its required public filings, a
former affiliate of First Financial may resell the stock received in the
Merger without limitation. After two years from the issuance of the stock,
if such person is not an affiliate of MBI at the time of sale and for at
least three months prior to such sale, such person may resell such stock,
without limitation, regardless of the status of MBI's required public
filings.
First Financial has agreed to provide MBI with a list of those persons
who may be deemed to be affiliates of First Financial at the time of the
Special Meeting. First Financial has agreed to use all reasonable efforts to
cause each such person to deliver to MBI prior to the Effective Time a
written agreement to the effect that no sale will be made of any shares of
MBI Common Stock received in the Merger by an affiliate of First Financial
except in accordance with the Securities Act and until such time as MBI shall
first publish the financial results of at least 30 days of post-Merger
combined operations of First Financial and MBI. The certificates of MBI
Common Stock issued to affiliates of First Financial in the Merger may
contain an appropriate restrictive legend, and appropriate stop transfer
orders may be given to the transfer agent for such certificates.
COMPARISON OF THE RIGHTS OF SHAREHOLDERS OF MBI AND FIRST FINANCIAL
MBI is incorporated under the laws of the State of Missouri, while
First Financial is incorporated under the laws of the State of Iowa. The
rights of the shareholders of MBI are governed by MBI's Restated Articles of
Incorporation, as amended, and by-laws and Chapter 351 of the Missouri
Revised Statutes (the "Missouri Act"). The rights of First Financial
shareholders are governed by First Financial's Articles of Incorporation and
by-laws, both as amended, and by the IBCA. The rights of First Financial
shareholders who receive shares of MBI Common Stock in the Merger will
thereafter be governed by MBI's Restated Articles of Incorporation, as
amended, and by-laws and by the Missouri
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Act. The material rights of such shareholders and, where applicable, the
differences between the rights of MBI shareholders and First Financial
shareholders, are summarized below.
PREFERRED SHARE PURCHASE RIGHTS PLAN. As described above under
"- Preferred Share Purchase Rights Plan," MBI Common Stock has attached
Rights, which may deter certain takeover proposals. First Financial does not
have a rights plan.
SUPERMAJORITY PROVISIONS. MBI's Restated Articles of
Incorporation, as amended, and MBI's by-laws contain provisions requiring a
supermajority vote of the shareholders of MBI to approve certain proposals.
Under both MBI's Restated Articles of Incorporation, as amended, and by-laws,
removal by the shareholders of the entire Board of Directors or any
individual director from office without cause requires the affirmative vote
of not less than 75% of the total votes entitled to be voted at a meeting of
shareholders called for the election of directors. Amendment by the
shareholders of MBI's Restated Articles of Incorporation, as amended, or
by-laws relating to (i) the number or qualification of directors; (ii) the
classification of the Board of Directors; (iii) the filling of vacancies on the
Board of Directors; or (iv) the removal of directors, requires the affirmative
vote of not less than 75% of the total votes of MBI's then outstanding shares
of capital stock entitled to vote, voting together as a single class, unless
such amendment has previously been expressly approved by at least two-thirds
of the Board of Directors. The Restated Articles of Incorporation, as
amended, of MBI additionally provide that, in addition to any shareholder
vote required under the Missouri Act, the affirmative vote of the holders of
not less than 75% of the total votes to which all of the then outstanding
shares of capital stock of MBI are entitled, voting together as a single
class (the "Voting Stock"), shall be required for the approval of any
Business Combination. A "Business Combination" is defined generally to
include sales, exchanges, leases, transfers or other dispositions of assets,
mergers or consolidations, issuances of securities, liquidations or
dissolutions of MBI, reclassifications of securities or recapitalizations of
MBI, involving MBI on the one hand, and an Interested Shareholder or an
affiliate of an Interested Shareholder on the other hand. An "Interested
Shareholder" is defined generally to include any person, firm, corporation or
other entity which is the beneficial owner of 5% or more of the voting power
of the outstanding Voting Stock. If, however, at least two-thirds of the
Board of Directors of MBI approve the Business Combination, such Business
Combination shall require only the vote of shareholders as provided by
Missouri law or otherwise. The amendment of the provisions of MBI's Restated
Articles relating to the approval of Business Combinations requires the
affirmative vote of the holders of at least 75% of the Voting Stock unless
such amendment has previously been approved by at least two-thirds of the
Board of Directors. To the extent that a potential acquiror's strategy
depends on the passage of proposals which require a supermajority vote of
MBI's shareholders, such provisions requiring a supermajority vote may have
the effect of discouraging takeover attempts that do not have Board approval
by making passage of such proposals more difficult.
First Financial's Articles of Incorporation and by-laws, both as
amended, contain provisions requiring a vote of at least two-thirds of the
shareholders to approve certain proposals. Under First Financial's Articles
of Incorporation, as amended, approval of a merger or consolidation with any
other corporation, the sale of substantially all of the assets of First
Financial or any amendment, alteration or repeal of such provisions of the
Articles of Incorporation requires the prior affirmative vote of at least
two-thirds of the then outstanding shares of stock of First Financial.
VOTING FOR DIRECTORS. MBI's by-laws provide for cumulative voting
in the election of directors. Cumulative voting entitles each shareholder to
cast an aggregate number of votes equal to the
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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.
First Financial's Articles of Incorporation do not provide for cumulative voting
in the election of directors.
CLASSIFIED BOARD. As described under "- Classification of Board of
Directors," the Board of Directors of MBI is divided into three classes of
directors, with each class being elected to a staggered three-year term. By
reducing the number of directors to be elected in any given year, the
existence of a classified Board diminishes the benefits of the cumulative
voting rights to minority shareholders. First Financial does not have a
classified Board of Directors. Each of its directors is elected annually.
ANTI-TAKEOVER STATUTES. The Missouri Act contains certain
provisions applicable to Missouri corporations such as MBI which may be
deemed to have an anti-takeover effect. Such provisions include Missouri's
business combination statute and the control share acquisition statute.
The Missouri business combination statute protects domestic
corporations after hostile takeovers by prohibiting certain transactions once
an acquiror has gained control. The statute restricts certain "Business
Combinations" between a corporation and an "Interested Shareholder" or
affiliates of the Interested Shareholder for a period of five years unless
certain conditions are met. A "Business Combination" includes a merger or
consolidation, certain sales, leases, exchanges, pledges and similar
dispositions of corporate assets or stock and certain reclassifications and
recapitalizations. An "Interested Shareholder" includes any person or entity
which beneficially owns or controls 20% or more of the outstanding voting
shares of the corporation.
During the initial five-year restricted period, no Business Combination
may occur unless such Business Combination or the transaction in which an
Interested Shareholder becomes "interested" (the "Acquisition Transaction")
was approved by the board of directors of the corporation on or before the
date of the Acquisition Transaction. Business Combinations may occur after
the five-year period following the Acquisition Transaction only if: (i) prior
to the stock acquisition by the Interested Shareholder, the board of
directors approves the transaction in which the Interested Shareholder became
an Interested Shareholder or approves the Business Combination in question;
(ii) the holders of a majority of the outstanding voting stock, other than
stock owned by the Interested Shareholder, approve the Business Combination;
or (iii) the Business Combination satisfies certain detailed fairness and
procedural requirements.
The Missouri Act exempts from the provisions of the business
combination statute: (i) corporations not having a class of voting stock
registered under Section 12 of the Exchange Act; (ii) corporations which adopt
provisions in their articles of incorporation or 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 do not contain an election to "opt out"
of the Missouri business combination statute.
The Missouri Act also contains a "Control Share Acquisition Statute"
which provides that an "Acquiring Person" who after any acquisition of shares
of a publicly traded corporation has the voting power, when added to all
shares of the same corporation previously owned or controlled by the
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Acquiring Person, to exercise or direct the exercise of: (i) 20% but less
than 33 1/3%, (ii) 33 1/3% or more but less than a majority or (iii) a majority,
of the voting power of outstanding stock of such corporation, must obtain
shareholder approval for the purchase of the "Control Shares." If approval
is not given, the Acquiring Person's shares lose the right to vote. The
statute prohibits an Acquiring Person from voting its shares unless certain
disclosure requirements are met and the retention or restoration of voting
rights is approved by both: (i) a majority of the outstanding voting stock;
and (ii) a majority of the outstanding voting stock after exclusion of
"Interested Shares." Interested Shares are defined as shares owned by the
Acquiring Person, by directors who are also employees and by officers of the
corporation. Shareholders are given dissenters' rights with respect to the
vote on Control Share Acquisitions and may demand payment of the fair value
of their shares.
A number of acquisitions of shares are deemed not to constitute Control
Share Acquisitions, including good faith gifts, transfers pursuant to wills,
purchases pursuant to an issuance by the corporation, mergers involving the
corporation which satisfy the other requirements of the Missouri Act,
transactions with a person who owned a majority of the voting power of the
corporation within the prior year, or purchases from a person who has
previously satisfied the provisions of the Control Share Acquisition Statute
so long as the transaction does not result in the purchasing party having
voting power after the purchase in a percentage range (such ranges are as set
forth in the immediately preceding paragraph) beyond the range for which the
selling party previously satisfied the provisions of the statute.
Additionally, a corporation may exempt itself from application of the statute
by inserting a provision in its articles of incorporation or by-laws
expressly electing not to be covered by the statute. MBI's Restated Articles
of Incorporation and by-laws do not contain an election to "opt out" of the
Control Share Acquisition Statute.
The IBCA applicable to First Financial contains a business combination
statute similar to that contained in the Missouri Act. Like the Missouri
business combination statute, the Iowa business combination statute generally
prohibits a domestic corporation from engaging in mergers or other business
combinations with Interested Shareholders (as defined in the IBCA) for a
statutory time period. The prohibition can be avoided if (i) the business
combination is approved by the board of directors prior to the date on which
the Interested Shareholder acquires the requisite percentage of stock or (ii)
the business combination is approved by the board of directors and authorized
at an annual or special meeting of shareholders by the affirmative vote or at
least sixty-six and two-thirds percent of the outstanding voting stock which
is not owned by the Interested Shareholder. The Missouri Act imposes a
longer prohibition period on transactions with Interested Shareholders (five
years) than the IBCA (three years), thereby potentially increasing the period
during which a hostile takeover may be frustrated. In addition, the IBCA,
unlike its Missouri counterpart, does not apply if the Interested Shareholder
obtains at least 85% of the corporation's voting stock upon consummation of
the transactions which resulted in the shareholder becoming an Interested
Shareholder. Thus, a person acquiring at least 85% of the corporation's
voting stock could circumvent the defensive provisions of the IBCA while
being unable to do so under the Missouri Act. The IBCA does not contain a
control share acquisition statute similar to that contained in the Missouri
Act.
DISSENTERS' RIGHTS. Under Section 351.455 of the Missouri Act, a
shareholder of any corporation which is a party to a merger or consolidation,
or which sells all or substantially all of its assets, has the right to
dissent from such corporate action and to demand payment of the value of such
shares. Under the IBCA, shareholders of First Financial are entitled to
dissenters' rights upon the consolidation or merger of First Financial which
are similar but not identical to those under the Missouri
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Act. Specifically, the procedures and the filing deadlines applicable to
dissenters' rights under the Missouri Act are somewhat different than those
applicable in dissenters' rights proceedings under the IBCA. For example, the
Missouri Act does not require payment to be made by the surviving company to the
merger until the end of the dissenters' rights proceedings. The IBCA requires a
payment of an amount equal to the surviving corporation's estimate of fair
value for the dissenting shareholder's shares prior to the final determination
of fair value.
SHAREHOLDERS' RIGHT TO INSPECT. Under the IBCA, any shareholder
may inspect the corporation's stock ledger, shareholder list and other books
and records if the shareholder's demand for inspection is made in good faith
and for a proper purpose. The IBCA specifically provides that a shareholder
may appoint an agent for the purpose of examining the books and records of
the corporation. The right of shareholders to inspect under the Missouri Act
is generally similar to that of shareholders under the IBCA. Neither the
Missouri Act nor Missouri case law, however, provides any specific guidance
as to whether a shareholder may appoint an agent for the purpose of examining
books and records or the extent to which a shareholder must have a "proper
purpose." Accordingly, in comparison with the IBCA, in a given situation a
Missouri shareholder may be provided with less guidance as to the scope of
his or her ability to inspect the books and records of the corporation.
SIZE OF BOARD OF DIRECTORS. As permitted under the Missouri Act,
the number of directors on the Board of Directors of MBI is set forth in
MBI's by-laws, which provide that the number of directors may be fixed from
time to time at not less than 12 nor more than 24 by an amendment of the
by-laws or by a resolution of the Board of Directors, in either case, adopted
by the vote or consent of at least two-thirds of the number of directors then
authorized under the by-laws. MBI's Board of Directors currently has 12
members. Similarly to the Missouri Act, the IBCA provides that a corporation
may fix the number of directors in its Articles of Incorporation or by-laws.
The number of directors on the Board of Directors of First Financial is set
forth in First Financial's by-laws, which provide that the number of
directors may be fixed from time to time at not less than 5 and not more than
15 directors by resolution adopted by a majority of the full Board of
Directors.
The supermajority vote required for the amendment of MBI's by-laws
regarding a change in the number of directors may have the effect of making
it more difficult to force an immediate change in the composition of a
majority of the Board of Directors and may be deemed to have an anti-takeover
effect.
SUPERVISION AND REGULATION
--------------------------
GENERAL
As a bank holding company, MBI is subject to regulation under the BHCA
and its examination and reporting requirements. Under the BHCA, a bank
holding company may not directly or indirectly acquire the ownership or
control of more than 5% of the voting shares or substantially all of the
assets of any company, including a bank or savings and loan association,
without the prior approval of the Federal Reserve Board. In addition, bank
holding companies are generally prohibited under the BHCA from engaging in
nonbanking activities, subject to certain exceptions.
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MBI and its subsidiaries are subject to supervision and examination by
applicable federal and state banking agencies. The earnings of MBI's
subsidiaries, and therefore, the earnings of MBI, are affected by general
economic conditions, management policies and the legislative and governmental
actions of various regulatory authorities, including the Federal Reserve
Board, the Federal Deposit Insurance Corporation ("FDIC"), the Office of 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 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 the holding company or any one of such
nonbank subsidiaries, to 10% of the lending institution'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 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 an 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 also may be affected by other factors, such as the maintenance of
adequate capital.
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. MBI and each of its subsidiary
financial institutions exceed all applicable capital adequacy standards.
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SUPPORT OF SUBSIDIARY BANKS
Under Federal Reserve Board policy, MBI is expected to act as a source
of financial strength to each subsidiary bank and to commit resources to
support each of the subsidiaries in circumstances where it might not choose
to do so absent such a policy. 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 also would be subordinate in right of
payment to deposits and certain other indebtedness of such subsidiary.
Consistent with this policy regarding bank holding companies serving as a
source of financial strength for their subsidiary banks, the Federal Reserve
Board has stated that, as a matter of prudent banking, a bank holding company
generally should not maintain a rate of cash dividends unless its net income
available to common shareholders has been sufficient to fully fund the
dividends, and the prospective rate of earnings retention appears consistent
with the bank holding company's capital needs, asset quality and overall
financial condition.
FIRREA AND FDICIA
The Financial Institutions Reform, Recovery and Enforcement Act of
1989, as amended ("FIRREA"), contains a cross-guarantee provision that 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, as
amended ("FDICIA"), made extensive changes to the federal banking laws.
FDICIA instituted certain changes to the supervisory process, including
provisions that mandate certain regulatory agency actions against
undercapitalized institutions within specified time limits. FDICIA contains
various other provisions that may affect the operations of banks and savings
institutions.
The prompt corrective action provision of FDICIA requires the federal
banking regulators to assign each insured institution to one of five capital
categories ("well capitalized," "adequately capitalized" or one of three
"undercapitalized" categories) and to take progressively more restrictive
actions based on the capital categorization, as specified below. Under
FDICIA, capital requirements 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 adjusted total assets of 5% or greater; and
(iv) was not subject to an order, written agreement, capital directive or
prompt corrective action directive to meet and maintain a specific capital
level for any capital measure. An association will be adequately capitalized
if it was not "well
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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 adjusted total assets of 4% or greater (except
that certain associations rated "Composite 1" under the federal banking
agencies' CAMEL rating system may be adequately capitalized if their ratios of
core capital to adjusted total assets were 3% or greater). All MBI subsidiary
financial institutions as of March 31, 1998 were categorized as "well
capitalized."
Banking agencies have recently adopted final regulations that mandate
that regulators take into consideration concentrations of credit risk and
risks from non-traditional activities, as well as an institution's ability to
manage those risks, when determining the adequacy of an institution's
capital. This evaluation will be made as part of the institution's regular
safety and soundness examination. Banking agencies also have recently
adopted final regulations requiring regulators to consider interest rate risk
(when the interest rate sensitivity of an institution's assets does not match
the sensitivity of its liabilities or its off-balance-sheet position) in the
evaluation of a bank's capital adequacy. Concurrently, banking agencies have
proposed a methodology for evaluating interest rate risk. After gaining
experience with the proposed measurement process, these banking agencies
intend to propose further regulations to establish an explicit risk-based
capital charge for interest rate risk.
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 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."
INTERSTATE BANKING AND OTHER RECENT LEGISLATION
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
("Riegle-Neal"), enacted in 1994, facilitates the interstate expansion and
consolidation of banking organizations by permitting (i) bank holding
companies that are adequately capitalized and managed 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, except for banks located in Montana and Texas,
which states enacted legislation to "opt out" of this authority, (iii) banks to
establish new branches on an interstate basis provided that such action is
specifically authorized by the law of the host state,
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(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 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.
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.
RELATIONSHIP WITH INDEPENDENT ACCOUNTANTS
-----------------------------------------
KPMG Peat Marwick LLP served as MBI's independent accountants for the
year ended December 31, 1997 and continues to serve in such capacity.
Services provided in connection with the audit function included examination
of the annual consolidated financial statements, review and consultation
regarding filings with the Commission and other regulatory authorities and
consultation on financial accounting and reporting matters.
McGladrey & Pullen, LLP served as First Financial's independent
accountants for the year ended December 31, 1997 and continues to serve in
such capacity. Services provided in connection with the audit function
included examination of the annual consolidated financial statements and
consultation on financial accounting and reporting matters. McGladrey &
Pullen, LLP intends to have a representative present at the Special Meeting
to answer relevant questions regarding the Merger.
LEGAL MATTERS
-------------
Certain legal matters will be passed upon for MBI by Thompson Coburn,
St. Louis, Missouri and for First Financial by Sidley & Austin, Chicago,
Illinois.
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 MBI's Annual Report on Form
10-K have been incorporated by reference herein in reliance upon the report
of KPMG Peat Marwick LLP, independent certified public accountants, whose
report is incorporated by reference herein, and upon the authority of said
firm as experts in accounting and auditing.
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The consolidated balance sheets of First Financial and its subsidiary
at December 31, 1997 and 1996 and the consolidated statements of income,
stockholders' equity and cash flows for each of the three years in the
three-year period ended December 31, 1997, included in First Financial's
Annual Report on Form 10-K, have been incorporated herein in reliance upon
the report of McGladrey & Pullen, LLP, independent auditors, whose report is
incorporated by reference herein, and upon the authority of such firm as
experts in accounting and auditing.
OTHER MATTERS
-------------
The Board of Directors of First Financial, at the date hereof, is not
aware of any business to be presented at the Special Meeting other than that
referred to in the Notice of Special Meeting and discussed herein. If any
other matter should properly come before the Special Meeting, the persons
named as proxies will have discretionary authority to vote the shares
represented by proxies in accordance with their discretion and judgment as to
the best interests of First Financial.
SHAREHOLDER PROPOSALS
---------------------
If the Merger is approved, the other conditions to the Merger are
satisfied and the Merger is consummated, shareholders of First Financial 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 inclusion in MBI's proxy statement and proxy for
such meeting. All such proposals for the 1999 Annual Meeting of MBI's
shareholders must be received in writing by the Corporate Secretary at
Mercantile Bancorporation Inc., P.O. Box 524, St. Louis, Missouri 63166-0524
by November 16, 1998.
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ANNEX A
-------
[Letterhead of ABN AMRO Incorporated]
-----, 1998
Board of Directors
First Financial Bancorporation
204 East Washington Street
Iowa City, Iowa 52244-1880
Members of the Board:
We understand that First Financial Bancorporation ("FIOW"), Mercantile
Bancorporation Inc. ("MTL") and Ameribanc, Inc. ("Ameribanc"), a wholly owned
subsidiary of MTL, have entered into an Agreement and Plan of Merger dated
May 7, 1998 (the "Agreement") pursuant to which FIOW will be merged with and
into Ameribanc in a transaction (the "Merger") in which each issued and
outstanding share of common stock of FIOW ("FIOW Common Stock"), will be
converted into the right to receive 0.88 (the "Exchange Ratio") of a share of
common stock of MTL and the associated "Rights" under the "Rights Agreement,"
as those terms are defined in Section 3.02 of the Agreement (collectively,
"MTL Common Stock").
You have asked us whether, in our opinion, the Exchange Ratio to be
received by the holders of FIOW Common Stock in the Merger is fair to such
shareholders from a financial point of view.
In connection with this opinion, we have reviewed the Agreement and
certain related documents and held discussions with certain senior officers
and directors of FIOW and certain senior officers of MTL concerning the
businesses, operations and prospects of FIOW and MTL. We examined certain
publicly available business and financial information relating to FIOW and
MTL as well as certain financial information and other data for FIOW and
certain financial information and other data related to MTL which were
provided to or otherwise discussed with us by the respective managements of
FIOW and MTL. We reviewed the financial terms of the Merger as set forth in
the Agreement in relation to: (i) current and historical market prices and
trading volumes of FIOW Common Stock and MTL Common Stock; (ii) the respective
companies' financial and other operating data; and (iii) the capitalization and
financial condition of FIOW and MTL. We also considered, to the extent
publicly available, the financial terms of certain other banking-industry
transactions recently effected which we considered relevant in evaluating the
Merger and analyzed certain financial, stock market and other publicly
available information relating to the businesses of other companies whose
operations we considered relevant in evaluating those of FIOW and MTL. In
connection with our engagement, we held discussions with certain third
parties to solicit indications of interest in a possible transaction with
FIOW.
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In rendering our opinion, we have assumed and relied upon the accuracy
and completeness of the financial and other information reviewed by us and we
have not made or obtained or assumed any responsibility for independent
verification of such information. In addition, we have not made an
independent evaluation or appraisal of the assets and liabilities of FIOW or
MTL or any of their respective subsidiaries. With respect to the financial
data of FIOW, we have assumed that it has been reasonably prepared on bases
reflecting the best currently available estimates and judgments of the
management of FIOW as to the future financial performance of FIOW. We have
assumed that the Merger will be consummated in accordance with the terms of
the Agreement including among other things, that the Merger will be accounted
for as a pooling of interests under generally accepted accounting principles
and as a tax-free reorganization for federal income tax purposes. We are not
expressing any opinion as to what the value of MTL Common Stock actually will
be when issued to FIOW shareholders pursuant to the Merger or the price at
which MTL Common Stock will trade subsequent to the Merger.
ABN AMRO Incorporated ("AAI"), as part of its investment banking
business, is continually engaged in the valuation of businesses in connection
with mergers and acquisitions, as well as initial and secondary offerings of
securities and valuations for other purposes. We have acted as financial
advisor to the Board of Directors of FIOW in connection with this transaction
and will receive a fee for our services, including rendering this opinion, a
significant portion of which is contingent upon the consummation of the
Merger. In the ordinary course of our business, AAI and its affiliates may
actively trade securities of both FIOW and MTL for their own account and for
the accounts of customers and, accordingly, may at any time hold a long or
short position in such securities.
It is understood that this letter is for the benefit and use of the
Board of Directors of FIOW in its consideration of the Merger and may not be
used for any other purpose or reproduced, disseminated, quoted or referred to
at any time, in any manner or for any purpose without our prior written
consent, except that this letter may be used as part of any proxy
statement/prospectus relating to the Merger. This letter does not address
FIOW's underlying business decision to enter into the Merger or constitute a
recommendation to any shareholder as to how such shareholder should vote with
respect to the proposed Merger. Finally, our opinion is necessarily based on
economic, monetary, market and other conditions as in effect on, and the
information made available to us, as of the date hereof, and we assume no
responsibility to update or revise our opinion based upon circumstances or
events occurring after the date hereof.
Based upon and subject to the foregoing, we are of the opinion that, as
of the date hereof, the Exchange Ratio is fair from a financial point of view
to the shareholders of FIOW.
Sincerely,
ABN AMRO Incorporated
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<PAGE> 86
ANNEX B
-------
Following is the text of the statutory appraisal right as set forth in
Division XIII of the IBCA.
DIVISION XIII
DISSENTERS' RIGHTS
PART A
490.1301 DEFINITIONS FOR DIVISION XIII. In this division:
1. "Beneficial shareholder" means the person who is a beneficial
owner of shares held by a nominee as the record shareholder.
2. "Corporation" means the issuer of the shares held by a dissenter
before the corporate action, or the surviving or acquiring corporation by
merger or share exchange of that issuer.
3. "Dissenter" means a shareholder who is entitled to dissent from
corporate action under section 490.1302 and who exercises that right when and
in the manner required by sections 490.1320 through 490.1328.
4. "Fair value," with respect to a dissenter's shares, means the
value of the shares immediately before the effectuation of the corporate
action to which the dissenter objects, excluding any appreciation or
depreciation in anticipation of the corporate action unless exclusion would
be inequitable.
5. "Interest" means interest from the effective date of the
corporate action until the date of payment, at the average rate currently
paid by the corporation on its principal bank loans or, if none, at a rate
that is fair and equitable under all the circumstances.
6. "Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner of shares
to the extent of the rights granted by a nominee certificate on file with a
corporation.
7. "Shareholder" means the record shareholder or the beneficial
shareholder.
490.1302 SHAREHOLDERS' RIGHT TO DISSENT.
1. A shareholder is entitled to dissent from, and obtain payment of
the fair value of the shareholder's shares in the event of, any of the
following corporate actions:
a. Consummation of a plan of merger to which the corporation
is a party if either of the following apply:
(1) Shareholder approval is required for the merger by
section 490.1103 or the articles of incorporation and the
shareholder is entitled to vote on the merger.
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(2) the corporation is a subsidiary that is merged with
its parent under section 490.1104.
b. Consummation of a plan of share exchange to which the
corporation is a party as the corporation whose shares will be
acquired, if the shareholder is entitled to vote on the plan.
c. Consummation of a sale or exchange of all, or substantially
all, of the property of the corporation other than in the usual and
regular course of business, if the shareholder is entitled to vote on
the sale or exchange, including a sale in dissolution, but not
including a sale pursuant to court order or a sale for cash pursuant to
a plan by which all or substantially all of the net proceeds of the
sale will be distributed to the shareholders within one year after the
date of sale.
d. An amendment of the articles of incorporation that
materially and adversely affects rights in respect of a dissenter's
shares because it does any or all of the following:
(1) Alters or abolishes a preferential right of the
shares.
(2) Creates, alters, or abolishes a right in respect of
redemption, including a provision respecting a sinking fund for
the redemption or repurchase, of the shares.
(3) Alters or abolishes a preemptive right of the holder
of the shares to acquire shares or other securities.
(4) Excludes or limits the right of the shares to vote on
any matter, or to cumulate votes, other than a limitation by
dilution through issuance of shares or other securities with
similar voting rights.
(5) Reduces the number of shares owned by the shareholder
to a fraction of a share if the fractional share so created is to
be acquired for cash under section 490.604.
(6) Extends, for the first time after being governed by
this chapter, the period of duration of a corporation organized
under chapter 491 or 496A and existing for a period of years on
the day preceding the date the corporation is first governed by
this chapter.
e. Any corporate action taken pursuant to a shareholder vote
to the extent the articles of incorporation, bylaws, or a resolution of
the board of directors provides that voting or nonvoting shareholders
are entitled to dissent and obtain payment for their shares.
2. A shareholder entitled to dissent and obtain payment for the
shareholder's shares under this chapter is not entitled to challenge the
corporate action creating the shareholder's entitlement unless the action is
unlawful or fraudulent with respect to the shareholder or the corporation.
490.1303 DISSENT BY NOMINEES AND BENEFICIAL OWNERS.
1. A record shareholder may assert dissenters' rights as to fewer
than all the shares registered in that shareholder's name only if the
shareholder dissents with respect to all shares beneficially owned by
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any one person and notifies the corporation in writing of the name and address
of each person on whose behalf the shareholder asserts dissenters' rights. The
rights of a partial dissenter under this subsection are determined as if the
shares as to which the shareholder dissents and the shareholder's other
shares were registered in the names of different shareholders.
2. A beneficial shareholder may assert dissenters' rights as to
shares held on the shareholder's behalf only if the shareholder does both of
the following:
a. Submits to the corporation the record shareholder's written
consent to the dissent not later than the time the beneficial
shareholder asserts dissenters' rights.
b. Does so with respect to all shares of which the shareholder
is the beneficial shareholder or over which that beneficial shareholder
has power to direct the vote.
PART B
490.1320 NOTICE OF DISSENTERS' RIGHTS.
1. If proposed corporate action creating dissenters' rights under
section 490.1302 is submitted to a vote at a shareholders' meeting, the
meeting notice must state that shareholders are or may be entitled to assert
dissenters' rights under this part and be accompanied by a copy of this part.
2. If corporate action creating dissenters' rights under section
490.1302 is taken without a vote of shareholders, the corporation shall
notify in writing all shareholders entitled to assert dissenters' rights that
the action was taken and send them the dissenters' notice described in
section 490.1322.
490.1321 NOTICE OF INTENT TO DEMAND PAYMENT.
1. If proposed corporate action creating dissenters' rights under
section 490.1302 is submitted to a vote at a shareholders' meeting, a
shareholder who wishes to assert dissenters' rights must do all of the
following:
a. Deliver to the corporation before the vote is taken written
notice of the shareholder's intent to demand payment for the
shareholder's shares if the proposed action is effectuated.
b. Not vote the dissenting shareholder's shares in favor of
the proposed action.
2. A shareholder who does not satisfy the requirements of subsection
1 is not entitled to payment for the shareholder's shares under this part.
490.1322 DISSENTERS' NOTICE.
1. If proposed corporate action creating dissenters' rights under
section 490.1302 is authorized at a shareholders' meeting, the corporation
shall deliver a written dissenters' notice to all shareholders who satisfied
the requirements of section 490.1321.
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2. The dissenters' notice must be sent no later than ten days after
the proposed corporate action is authorized at a shareholders' meeting, or,
if the corporate action is taken without a vote of the shareholders, no later
than ten days after the corporate action is taken, and must do all of the
following:
a. State where the payment demand must be sent and where and
when certificates for certificated shares must be deposited.
b. Inform holders of uncertificated shares to what extent
transfer of the shares will be restricted after the payment demand is
received.
c. Supply a form for demanding payment that includes the date
of the first announcement to news media or to shareholders of the terms
of the proposed corporate action and requires that the person asserting
dissenters' rights certify whether or not the person acquired
beneficial ownership of the shares before that date.
d. Set a date by which the corporation must receive the
payment demand, which date shall not be fewer than thirty nor more than
sixty days after the date the dissenters' notice is delivered.
e. Be accompanied by a copy of this division. (Last amended
by Ch. 211, L. `91, eff. 7-1-91.)
490.1323 DUTY TO DEMAND PAYMENT.
1. A shareholder sent a dissenter's notice described in section
490.1322 must demand payment, certify whether the shareholder acquired
beneficial ownership of the shares before the date required to be set forth
in the dissenter's notice pursuant to section 490.1322, subsection 2,
paragraph "c," and deposit the shareholder's certificates in accordance with
the terms of the notice.
2. The shareholder who demands payment and deposits the
shareholder's shares under subsection 1 retains all other rights of a
shareholder until these rights are canceled or modified by the taking of the
proposed corporate action.
3. A shareholder who does not demand payment or deposit the
shareholder's share certificates where required, each by the date set in the
dissenters' notice, is not entitled to payment for the shareholder's shares
under this division.
490.1324 SHARE RESTRICTIONS.
1. The corporation may restrict the transfer of uncertificated
shares from the date the demand for their payment is received until the
proposed corporate action is taken or the restrictions released under section
490.1326.
2. The person for whom dissenters' rights are asserted as to
uncertificated shares retains all other rights of a shareholder until these
rights are canceled or modified by the taking of the proposed corporate
action.
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490.1325 PAYMENT.
1. Except as provided in section 490.1327, at the time the proposed
corporate action is taken, or upon receipt of a payment demand, whichever
occurs later, the corporation shall pay each dissenter who complied with
section 490.1323 the amount the corporation estimates to be the fair value of
the dissenter's shares, plus accrued interest.
2. The payment must be accompanied by all of the following:
a. The corporation's balance sheet as of the end of a fiscal
year ending not more than sixteen months before the date of payment, an
income statement for that year, a statement of changes in shareholders'
equity for that year and the latest available interim financial
statements, if any.
b. A statement of the corporation's estimate of the fair value
of the shares.
c. An explanation of how the interest was calculated.
d. A statement of the dissenter's right to demand payment
under section 490.1328.
e. A copy of this division. (Last amended by Ch. 211, L. `91,
eff. 7-1-91.)
490.1326 FAILURE TO TAKE ACTION.
1. If the corporation does not take the proposed action within one
hundred eighty days after the date set for demanding payment and depositing
share certificates, the corporation shall return the deposited certificates
and release the transfer restrictions imposed on uncertificated shares.
2. If after returning deposited certificates and releasing transfer
restrictions, the corporation takes the proposed action, it must send a new
dissenters' notice under section 490.1322 as if the corporate action was
taken without a vote of the shareholders and repeat the payment demand
procedure. (Last amended by Ch. 171, L. `91, eff. 7-1-91.)
490.1327 AFTER-ACQUIRED SHARES.
1. A corporation may elect to withhold payment required by section
490.1325 from a dissenter unless the dissenter was the beneficial owner of
the shares before the date set forth in the dissenters' notice as the date of
the first announcement to news media or to shareholders of the terms of the
proposed corporate action.
2. To the extent the corporation elects to withhold payment under
subsection 1, after taking the proposed corporate action, it shall estimate
the fair value of the shares, plus accrued interest, and shall pay this
amount to each dissenter who agrees to accept it in full satisfaction of the
dissenter's demand. The corporation shall send with its offer a statement of
its estimate of the fair value of the shares, an explanation of how the
interest was calculated and a statement of the dissenter's right to demand
payment under section 490.1328.
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<PAGE> 91
490.1328 PROCEDURE IF SHAREHOLDER DISSATISFIED WITH PAYMENT
OR OFFER.
1. A dissenter may notify the corporation in writing of the
dissenter's own estimate of the fair value of the dissenter's shares and
amount of interest due and demand payment of the dissenter's estimate, less
any payment under section 490.1325, or reject the corporation's offer under
section 490.1327 and demand payment of the fair value of the dissenter's
shares and interest due, if any of the following apply:
a. The dissenter believes that the amount paid under section
490.1325 or offered under section 490.1327 is less than the fair value
of the dissenter's shares or that the interest due is incorrectly
calculated.
b. The corporation fails to make payment under section
490.1325 within sixty days after the date set for demanding payment.
c. The corporation, having failed to take the proposed action,
does not return the deposited certificates or release the transfer
restrictions imposed on uncertificated shares within sixty days after
the date set for demanding payment.
2. A dissenter waives the dissenter's right to demand payment under
this section unless the dissenter notifies the corporation of the dissenter's
demand in writing under subsection 1 within thirty days after the corporation
made or offered payment for the dissenter's shares.
PART C
490.1330 COURT ACTION.
1. If a demand for payment under section 490.1328 remains unsettled,
the corporation shall commence a proceeding within sixty days after receiving
the payment demand and petition the court to determine the fair value of the
shares and accrued interest. If the corporation does not commence the
proceeding within the sixty-day period, it shall pay each dissenter whose
demand remains unsettled the amount demanded.
2. The corporation shall commence the proceeding in the district
court of the county where a corporation's principal office or, if none in
this state, its registered office is located. If the corporation is a
foreign corporation without a registered office in this state, it shall
commence the proceeding in the county in this state where the registered
office of the domestic corporation merged with or whose shares were acquired
by the foreign corporation was located.
3. The corporation shall make all dissenters, whether or not
residents of this state, whose demands remain unsettled parties to the
proceeding as in an action against their shares and all parties must be
served with a copy of the petition. Nonresidents may be served by registered
or certified mail or by publication as provided by law.
4. The jurisdiction of the court in which the proceeding is
commenced under subsection 2 is plenary and exclusive. The court may appoint
one or more persons as appraisers to receive evidence and recommend decision
on the question of fair value. The appraisers have the powers described in
the order
B-6
<PAGE> 92
appointing them, or in any amendment to it. The dissenters are entitled to the
same discovery rights as parties in other civil proceedings.
5. Each dissenter made a party to the proceeding is entitled to
judgment for either of the following:
a. The amount, if any, by which the court finds the fair value
of the dissenter's shares, plus interest, exceeds the amount paid by
the corporation.
b. The fair value, plus accrued interest, of the dissenter's
after-acquired shares for which the corporation elected to withhold
payment under section 490.1327.
490.1331 COURT COSTS AND COUNSEL FEES.
1. The court in an appraisal proceeding commenced under section
490.1330 shall determine all costs of the proceeding, including the
reasonable compensation and expenses of appraisers appointed by the court.
The court shall assess the costs against the corporation, except that the
court may assess costs against all or some of the dissenters, in amounts the
court finds equitable, to the extent the court finds the dissenters acted
arbitrarily, vexatiously, or not in good faith in demanding payment under
section 490.1328.
2. The court may also assess the fees and expenses of counsel and
experts for the respective parties, in amounts the court finds equitable, for
either of the following:
a. Against the corporation and in favor of any or all
dissenters if the court finds the corporation did not substantially
comply with the requirements of sections 490.1320 through 490.1328.
b. Against either the corporation or a dissenter, in favor of
any other party, if the court finds that the party against whom the
fees and expenses are assessed acted arbitrarily, vexatiously, or not
in good faith with respect to the rights provided by this chapter.
3. If the court finds that the services of counsel for any dissenter
were of substantial benefit to other dissenters similarly situated, and that
the fees for those services should not be assessed against the corporation,
the court may award to these counsel reasonable fees to be paid out of the
amounts awarded the dissenters who were benefited.
B-7
<PAGE> 93
PROXY FIRST FINANCIAL BANCORPORATION
204 EAST WASHINGTON STREET,
P.O. BOX 1880
IOWA CITY, IOWA 52244-1880
For the Special Meeting of Shareholders to be held ------------, 1998
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
The undersigned shareholder(s) of FIRST FINANCIAL BANCORPORATION
("First Financial"), does hereby nominate, constitute and appoint Margaret N.
Keyes and Gerald W. Buxton, Jr. or each of them (with full power to act
alone), true and lawful proxies and attorneys-in-fact, with full power of
substitution, for the undersigned and in the name, place and stead of the
undersigned to vote all of the shares of common stock, $1.25 par value, of
First Financial standing in the name of the undersigned on its books at the
close of business on ---------, 1998 at the Special Meeting of Shareholders
to be held at --------------------------------------------, on -------,
- -----------, 1998, at ------ -.m. Central Time, and at any adjournments or
postponements thereof, with all the powers the undersigned would possess if
personally present, as follows:
1. To consider and vote upon the adoption and approval of the Agreement
and Plan of Merger, dated May 7, 1998 (the "Merger Agreement"), pursuant to
which First Financial will be merged with and into Ameribanc, Inc., a
Missouri corporation and wholly owned subsidiary of Mercantile Bancorporation
Inc. ("MBI"), in a transaction that would result in the business and
operations of First Financial being continued through such wholly owned
subsidiary, and whereby, upon consummation of the merger, each share of First
Financial common stock will be converted into the right to receive 0.88 of a
share of MBI common stock, as set forth in detail in the accompanying Proxy
Statement/Prospectus.
/ / FOR / / AGAINST / / ABSTAIN
2. To transact such other business as may properly come before the Special
Meeting or any adjournments or postponements thereof.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR APPROVAL
AND ADOPTION OF THE MERGER AGREEMENT.
The undersigned hereby revokes any other proxies to vote at such
meeting and hereby ratifies and confirms all that the proxies and
attorneys-in-fact, or each of them, appointed hereunder may lawfully do by
virtue hereof. Said proxies and attorneys-in-fact, without limiting their
general authority, are specifically authorized to vote in accordance with
their best judgment with respect to all matters incident to the conduct of
the Special Meeting.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE
MANNER DIRECTED HEREIN BY THE UNDERSIGNED SHAREHOLDER(S). IF NO
DIRECTION IS GIVEN HEREIN, THIS PROXY WILL BE VOTED "FOR" THE
PROPOSAL LISTED ABOVE.
PLEASE PROMPTLY COMPLETE, DATE, SIGN AND MAIL THIS PROXY.
RETURN USING THE ENVELOPE PROVIDED
FIRST FINANCIAL BANCORPORATION SPECIAL MEETING
Check appropriate box Date-------------------- NO. OF SHARES
Indicate changes below:
Address Change? / / Name Change? / /
--------------------------------------------------
--------------------------------------------------
Signature(s) In Box
When signing as attorney, executor, administrator,
trustee or guardian, please give your full title.
If more than one person holds the power to vote
the same shares, all must sign. All joint owners
must sign. The undersigned hereby acknowledges
receipt of the notice of Special Meeting and the
Proxy Statement/Prospectus (with all enclosures
and attachments), dated --------, 1998, relating
to the Special Meeting.
<PAGE> 94
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
------------------------------------------
Item 20. Indemnification of Officers and Directors
- ---------------------------------------------------
Sections 351.355(1) and (2) of The General and Business Corporation Law
of the State of Missouri provide that a corporation may indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding by reason of the fact that he
is or was a director, officer, employee or agent of the corporation, or is or
was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust
or other enterprise, against expenses, judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful, except that, in the
case of an action or suit by or in the right of the corporation, the
corporation may not indemnify such persons against judgments and fines and no
person shall be indemnified as to any claim, issue or matter as to which such
person shall have been adjudged to be liable for negligence or misconduct in
the performance of his duty to the corporation, unless and only to the extent
that the court in which the action or suit was brought determines upon
application that such person is fairly and reasonably entitled to indemnity
for proper expenses. Section 351.355(3) provides that, to the extent that a
director, officer, employee or agent of the corporation has been successful
in the defense of any such action, suit or proceeding or any claim, issue or
matter therein, he shall be indemnified against expenses, including
attorneys' fees, actually and reasonably incurred in connection with such
action, suit or proceeding. Section 351.355(7) provides that a corporation
may provide additional indemnification to any person indemnifiable under
subsection (1) or (2), provided such additional indemnification is authorized
by the corporation's articles of incorporation or an amendment thereto or by
a shareholder-approved bylaw or agreement, and provided further that no
person shall thereby be indemnified against conduct which was finally
adjudged to have been knowingly fraudulent, deliberately dishonest or willful
misconduct or which involved an accounting for profits pursuant to Section
16(b) of the Securities Exchange Act of 1934.
Article 12 of the Restated Articles of Incorporation of 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.
II-1
<PAGE> 95
Item 21. Exhibits and Financial Statement Schedules
- ----------------------------------------------------
A. Exhibits. See Exhibit Index.
--------
B. Financial Statement Schedules. Not Applicable.
-----------------------------
Item 22. Undertakings
- ----------------------
(1) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of MBI pursuant to the foregoing provisions, or
otherwise, MBI 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
MBI of expenses incurred or paid by a director, officer or controlling person
of MBI 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, MBI will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
(2) MBI hereby undertakes that, for purposes of determining any
liability under the Securities Act of 1933, each filing of MBI's annual
report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange
Act of 1934 (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the Registration Statement shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(3) MBI hereby undertakes as follows: that prior to any public
reoffering of the securities registered hereunder through use of a prospectus
which is a part of this Registration Statement, by any person or party who is
deemed to be an underwriter within the meaning of Rule 145(c), the issuer
undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other Items of the applicable form.
(4) MBI undertakes that every prospectus (i) that is filed pursuant
to paragraph (3) immediately preceding or (ii) that purports to meet the
requirements of section 10(a)(3) of the Act and is used in connection with an
offering of securities subject to Rule 415 (Section 230.415 of this chapter),
will be filed as a part of an amendment to the Registration Statement and
will not be used until such amendment is effective, and that, for purposes of
determining any liability under the Securities Act of 1933, each such
post-effective amendment shall be deemed to be a new registration statement
relating to the securities offering therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(5) MBI hereby undertakes to respond to requests for information that
is incorporated by reference into the prospectus pursuant to Item 4, 10(b),
11 or 13 of this Form, within one
II-2
<PAGE> 96
business day of receipt of such request and to send the incorporated documents
by first class mail or other equally prompt means. This includes information
contained in the documents filed subsequent to the effective date of the
Registration Statement through the date of responding to the request.
(6) MBI hereby undertakes to supply by means of a post-effective
amendment all information concerning a transaction, and the company being
acquired involved therein, that was not the subject of and included in the
Registration Statement when it became effective.
(7) MBI hereby undertakes:
(a) To file during any period in which offers and sales are
being made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3)
of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the Registration Statement
(or the most recent post-effective amendment thereof), which
individually or in the aggregate, represent a fundamental change
in the information set forth in the Registration Statement;
notwithstanding the foregoing, any increase or decrease in volume
of securities offered (if the total dollar value of securities
offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate,
the changes in volume and price represent no more than a 20%
change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective
Registration Statement.
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in the
Registration Statement or any material change to such information
in the Registration Statement.
(b) That for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
(c) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at
the termination of the offering.
II-3
<PAGE> 97
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 June 18, 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., as of June 18, 1998 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 First Financial Bancorporation, and all instruments
necessary or advisable in connection therewith and to file the same with the
Securities and Exchange Commission, each of said attorneys and agents to have
the power to act with or without the others and to have full power and
authority to do and perform in the name and on behalf of each of the
undersigned every act whatsoever necessary or advisable to be done in the
premises as fully and to all intents and purposes as any of the undersigned
might or could do in person, and we hereby ratify and confirm our signatures
as they may be signed by our said attorneys and agents or each of them to any
and all such amendments and instruments.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and as of June 18, 1998.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
/s/ Thomas H. Jacobsen Chairman of the Board,
- ----------------------------------- President and Chief Executive
Thomas H. Jacobsen Officer
Principal Executive Officer
/s/ John Q. Arnold Vice Chairman and
- ----------------------------------- Chief Financial Officer
John Q. Arnold
Principal Financial Officer
II-4
<PAGE> 98
Signature Title
--------- -----
/s/ Michael T. Normile Senior Vice President - Finance
- ----------------------------------- and Control
Michael T. Normile
Principal Accounting Officer
/s/ Richard E. Beumer Director
- -----------------------------------
Richard E. Beumer
Director
- -----------------------------------
Harry M. Cornell, Jr.
/s/ Henry Givens, Jr. Director
- -----------------------------------
Dr. Henry Givens, Jr.
/s/ William A. Hall Director
- -----------------------------------
William A. Hall
/s/ Frank Lyon, Jr. Director
- -----------------------------------
Frank Lyon, Jr.
/s/ Robert W. Murray Director
- -----------------------------------
Robert W. Murray
/s/ Harvey Saligman Director
- -----------------------------------
Harvey Saligman
/s/ Craig D. Schnuck Director
- -----------------------------------
Craig D. Schnuck
/s/ Alvin J. Siteman Director
- -----------------------------------
Alvin J. Siteman
II-5
<PAGE> 99
Signature Title
--------- -----
/s/ Patrick T. Stokes Director
- -----------------------------------
Patrick T. Stokes
/s/ John A. Wright Director
- -----------------------------------
John A. Wright
</TABLE>
II-6
<PAGE> 100
<TABLE>
EXHIBIT INDEX
<CAPTION>
Exhibit
Number Description Page
- ------ ----------- ----
<C> <S> <C>
2.1 Agreement and Plan of Merger, dated May 7, 1998, by and among MBI, Ameribanc and First
Financial.
2.2 Stock Option Agreement, dated May 7, 1998, and entered into by and between MBI and First
Financial.
2.3 Form of Voting Agreement, dated May 7, 1998, by and between MBI and certain of the
directors of First Financial.
3.1(a) MBI's Restated Articles of Incorporation, as amended and currently in effect, filed as
Exhibit 3.1(a) to MBI's Quarterly Report on Form 10-Q for the quarter ended March 31,
1998, are incorporated herein by reference.
3.1(b) Third Amended and Restated Certificate of Designation, Preferences and rights of Series
B Junior Participating Stock of MBI, filed as part of Exhibit 1 to MBI's Registration
Statement on Form 8-A dated May 27, 1998, is incorporated herein by reference.
3.2 MBI's by-laws, as amended and currently in effect, filed as Exhibit 3.2 to Amendment No.
2 to MBI's Registration Statement on Form S-4 (No. 333-17757), are incorporated herein
by reference.
4.1 Form of Indenture Regarding Subordinated Securities between MBI and The First National
Bank of Chicago, Trustee, filed on March 31, 1992 as Exhibit 4.1 to MBI's Current Report
on Form 8-K dated September 24, 1992, is incorporated herein by reference.
4.2 Rights Agreement, dated May 20, 1998, between MBI and Mercantile Bank, as Rights Agent
(including as exhibits thereto the form of Certificate of Designation, Preferences and
Rights of Series B Junior Participating Preferred Stock and the form of Right
Certificate), filed as Exhibit 1 to MBI's Registration Statement on Form 8-A dated May
27, 1998, is incorporated herein by reference.
4.3 Form of Indenture Regarding Senior Debt Securities, filed as Exhibit 4.1 to MBI's
Registration Statement on Form S-3 (No. 333-25775), is incorporated herein by reference.
4.4 Form of Indenture Regarding Subordinated Debt Securities, filed as Exhibit 4.2 to MBI's
Registration Statement on Form S-3 (No. 333-25775), is incorporated herein by reference.
II-7
<PAGE> 101
Exhibit
Number Description Page
- ------ ----------- ----
4.5 Indenture, dated February 4, 1997, First Supplemental Indenture, dated February 4, 1997,
and Supplemental Indenture of First Supplemental Indenture, dated May 22, 1997, between
MBI, as issuer, and The Chase Manhattan Bank, as Indenture Trustee, filed as Exhibits
4.5, 4.6 and 4.12, respectively, to MBI's Registration Statement on Form S-4 (No.
333-25131), are incorporated herein by reference.
5.1 Opinion of Thompson Coburn as to the legality of the securities being registered.
8.1 Opinion of Thompson Coburn regarding certain tax matters in the Merger.
10.1 The Mercantile Bancorporation Inc. 1987 Stock Option Plan, as amended, filed as Exhibit
10-3 to MBI's Annual Report on Form 10-K for the year ended December 31, 1989, is
incorporated herein by reference.
10.2 The Mercantile Bancorporation Inc. Amended and Restated Executive Incentive Compensation
Plan, filed as Annex H to MBI's definitive Proxy Statement for the 1997 Annual Meeting
of Shareholders, is incorporated herein by reference.
10.3 The Mercantile Bancorporation Inc. Employee Stock Purchase Plan, filed as Exhibit 10-7
to MBI's Annual Report on Form 10-K for the year ended December 31, 1989, is
incorporated herein by reference.
10.4 The Mercantile Bancorporation Inc. 1991 Employee Incentive Plan, filed as Exhibit 10-7
to MBI's Annual Report on Form 10-K for the year ended December 31, 1990, is
incorporated herein by reference.
10.5 Amendment Number One to the Mercantile Bancorporation Inc. 1991 Employee Incentive Plan,
filed as Exhibit 10-6 to MBI's Annual Report on Form 10-K for the year ended December
31, 1994, is incorporated herein by reference.
10.6 The Mercantile Bancorporation Inc. Amended and Restated Stock Incentive Plan, filed as
Annex G to MBI's definitive Proxy Statement for the 1997 Annual Meeting of Shareholders,
is incorporated herein by reference.
10.7 The Mercantile Bancorporation Inc. 1994 Stock Incentive Plan for Non-Employee Directors,
filed as Appendix E to MBI's definitive Proxy Statement for the 1994 Annual Meeting of
Shareholders, is incorporated herein by reference.
10.8 The Mercantile Bancorporation Inc. Amended and Restated Voluntary Deferred Compensation
Plan, filed as Exhibit 10.1 to MBI's Registration Statement on Form S-8 (file no.
333-47713), is incorporated herein by reference.
II-8
<PAGE> 102
Exhibit
Number Description Page
- ------ ----------- ----
10.9 Employment Agreement for Thomas H. Jacobsen, as amended and restated, filed as Exhibit
10-9 to MBI's Annual Report on Form 10-K for the year ended December 31, 1997, is
incorporated herein by reference.
10.10 Form of Change of Control Employment Agreement for John W. McClure, W. Randolph Adams,
John Q. Arnold and Certain Other Executive Officers, filed as Exhibit 10-10 to MBI's
Annual Report on Form 10-K for the year ended December 31, 1989, is incorporated herein
by reference.
10.11 The Mercantile Bancorporation Inc. Supplemental Retirement Plan, filed as Exhibit 10-12
to MBI's Annual Report on Form 10-K for the year ended December 31, 1992, is
incorporated herein by reference.
10.12 Mercantile Bancorporation Inc. Voluntary Deferred Compensation Plan for Non-Employee
Affiliate Directors and Advisory Directors, filed as Exhibit 10.3 to MBI's Registration
Statement on Form S-8 (File No. 333-47713), is incorporated herein by reference.
10.13 Mercantile Bancorporation Inc. Amended and Restated Stock Incentive Plan for
Non-Employee Directors, filed as Exhibit 10.2 to MBI's Registration Statement on Form
S-8 (File No. 333-47713), is incorporated herein by reference.
10.14 Agreement and Plan of Reorganization, dated October 27, 1996, by and among MBI,
Ameribanc, Inc. and Mark Twain Bancshares, Inc., filed as Exhibit 2.1 to MBI's Current
Report on Form 8-K filed November 6, 1996, is incorporated herein by reference.
10.15 Amendment to Agreement and Plan of Reorganization, dated January 24, 1997, by and among
MBI, Ameribanc, Inc. and Mark Twain Bancshares, Inc., filed as Exhibit 10-16 to
Amendment No. 2 to MBI's Registration Statement on Form S-4 (File No. 333-17757), is
incorporated herein by reference.
10.16 Stock Option Agreement, dated October 27, 1996, by and between MBI, as grantee, and Mark
Twain Bancshares, Inc., as issuer, filed as Exhibit 2.2 to MBI's Current Report on Form
8-K filed on November 6, 1996, is incorporated herein by reference.
10.17 Agreement and Plan of Reorganization, dated December 22, 1996, by and between MBI and
Roosevelt Financial Group, Inc., filed as Exhibit 2.1 to MBI's Current Report on Form
8-K filed on December 30, 1996, is incorporated herein by reference.
10.18 Stock Option Agreement, dated December 22, 1996, by and between MBI, as grantee, and
Roosevelt Financial Group, Inc., as issuer, filed as Exhibit 2.1 to MBI's Current Report
on Form 8-K filed on December 30, 1996, is incorporated herein by reference.
II-9
<PAGE> 103
Exhibit
Number Description Page
- ------ ----------- ----
10.19 Employment Agreement for Alvin J. Siteman, dated November 18, 1996, filed as Exhibit
10.3 to MBI's Quarterly Report on Form 10-Q for the quarter ended March 31, 1997, is
incorporated herein by reference.
10.20 Employment Agreement for John P. Dubinsky, dated October 27, 1996, filed as Exhibit 10.4
to MBI's Quarterly Report on Form 10-Q for the quarter ended March 31, 1997, is
incorporated herein by reference.
10.21 Employment Agreement for Stanley J. Bradshaw, dated December 22, 1996, filed as Exhibit
10 to MBI's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997, is
incorporated herein by reference.
10.22 Agreement and Plan of Reorganization, dated January 30, 1998, by and among MBI,
Ameribanc, Inc. and Firstbank of Illinois Co., filed as Exhibit 2.1 to MBI's Current
Report on Form 8-K filed on February 3, 1998, is incorporated herein by reference.
23.1 Consent of KPMG Peat Marwick LLP with regard to the use of its report on MBI's financial
statements.
23.2 Consent of McGladrey & Pullen, LLP with regard to the use of its report on First
Financial's financial statements.
23.3 Consent of ABN AMRO Incorporated
23.4 Consent of Thompson Coburn (included in Exhibit 5.1).
24.1 Power of Attorney (included on signature page hereto).
</TABLE>
II-10
<PAGE> 1
=============================================================================
AGREEMENT AND PLAN OF MERGER
among
MERCANTILE BANCORPORATION INC.,
a Missouri corporation
and
AMERIBANC, INC.,
a Missouri corporation
and
FIRST FINANCIAL BANCORPORATION,
an Iowa corporation
-----------------------------------------
May 7, 1998
=============================================================================
<PAGE> 2
<TABLE>
TABLE OF CONTENTS
<CAPTION>
Page
<S> <C>
Recitals 1
ARTICLE I
---------
THE MERGER
1.01 The Merger 1
----------
1.02 Closing 1
-------
1.03 Effective Time 1
--------------
1.04 Additional Actions 2
------------------
1.05 Articles of Incorporation and By-Laws 2
-------------------------------------
1.06 Board of Directors and Officers 2
-------------------------------
1.07 Conversion of Securities 2
------------------------
1.08 Exchange Procedures 3
-------------------
1.09 No Fractional Shares 4
--------------------
1.10 Dissenting Shares 4
-----------------
1.11 Closing of Stock Transfer Books 5
-------------------------------
1.12 Anti-Dilution 5
-------------
1.13 Reservation of Right to Revise Transaction 5
------------------------------------------
1.14 Material Adverse Effect 6
-----------------------
1.15 Knowledge 6
---------
ARTICLE II
----------
REPRESENTATIONS AND WARRANTIES OF SELLER
2.01 Organization and Authority 6
--------------------------
2.02 Subsidiaries 6
------------
2.03 Capitalization 7
--------------
2.04 Authorization 7
-------------
2.05 Seller Financial Statements 9
---------------------------
2.06 Seller Reports 9
--------------
2.07 Title to and Condition of Assets 9
--------------------------------
2.08 Real Property 10
-------------
2.09 Taxes 11
-----
2.10 Material Adverse Effect 11
-----------------------
2.11 Loans, Commitments and Contracts 12
--------------------------------
2.12 Absence of Defaults 14
-------------------
2.13 Litigation and Other Proceedings 14
--------------------------------
2.14 Directors' and Officers' Insurance 15
----------------------------------
2.15 Compliance with Laws 15
--------------------
2.16 Labor 16
-----
2.17 Material Interests of Certain Persons 17
-------------------------------------
2.18 Allowance for Loan and Lease Losses; Non-Performing Assets; Financial Assets 17
----------------------------------------------------------------------------
-i-
<PAGE> 3
2.19 Employee Benefit Plans 18
----------------------
2.20 Conduct of Seller to Date 20
-------------------------
2.21 Absence of Undisclosed Liabilities 20
----------------------------------
2.22 Proxy Statement, Etc. 21
---------------------
2.23 Registration Obligations 21
------------------------
2.24 Tax, Regulatory and Accounting Matters 21
--------------------------------------
2.25 Brokers and Finders 21
-------------------
2.26 Interest Rate Risk Management Instruments 22
-----------------------------------------
2.27 Accuracy of Information 22
-----------------------
2.28 Year 2000 Compliant 22
-------------------
ARTICLE III
-----------
REPRESENTATIONS AND WARRANTIES OF THE BUYERS
3.01 Organization and Authority 23
--------------------------
3.02 Capitalization of Mercantile 23
----------------------------
3.03 Authorization 24
-------------
3.04 Mercantile Financial Statements 24
-------------------------------
3.05 Mercantile Reports 25
------------------
3.06 Material Adverse Effect 25
-----------------------
3.07 Registration Statement, Etc. 25
----------------------------
3.08 Brokers and Finders 25
-------------------
3.09 Accuracy of Information 25
-----------------------
ARTICLE IV
----------
CONDUCT OF BUSINESSES PRIOR TO THE EFFECTIVE TIME
4.01 Conduct of Businesses Prior to the Effective Time 26
-------------------------------------------------
4.02 Forbearances of Seller 26
----------------------
4.03 Forbearances of the Buyers 28
--------------------------
ARTICLE V
---------
ADDITIONAL AGREEMENTS
5.01 Access and Information; Due Diligence 29
-------------------------------------
5.02 Registration Statement; Regulatory Matters 29
------------------------------------------
5.03 Shareholder Approval 30
--------------------
5.04 Current Information 30
-------------------
5.05 Conforming Entries 30
------------------
5.06 Environmental Reports 31
---------------------
5.07 Agreements of Affiliates 31
------------------------
5.08 Expenses 32
--------
5.09 Miscellaneous Agreements and Consents 32
-------------------------------------
-ii-
<PAGE> 4
5.10 Employee Agreements and Benefits 32
--------------------------------
5.11 Press Releases 33
--------------
5.12 State Takeover Statutes 33
-----------------------
5.13 Directors' and Officers' Indemnification 33
----------------------------------------
5.14 Tax Opinion Certificates 34
------------------------
5.15 Employee Stock Options 34
----------------------
5.16 Best Efforts to Insure Pooling 34
------------------------------
ARTICLE VI
----------
CONDITIONS
6.01 Conditions to Each Party's Obligation To Effect the Merger 35
----------------------------------------------------------
6.02 Conditions to Obligations of Seller 35
-----------------------------------
6.03 Conditions to Obligations of the Buyers 36
---------------------------------------
ARTICLE VII
-----------
TERMINATION, AMENDMENT AND WAIVER
7.01 Termination 37
-----------
7.02 Effect of Termination 38
---------------------
7.03 Amendment 38
---------
7.04 Waiver 38
------
ARTICLE VIII
------------
GENERAL PROVISIONS
8.01 Non-Survival of Representations, Warranties and Agreements 38
----------------------------------------------------------
8.02 Indemnification 38
---------------
8.03 No Assignment; Successors and Assigns 39
-------------------------------------
8.04 Severability 39
------------
8.05 No Implied Waiver 39
-----------------
8.06 Headings 39
--------
8.07 Entire Agreement 39
----------------
8.08 Counterparts 40
------------
8.09 Notices 40
-------
8.10 Governing Law 41
-------------
</TABLE>
-iii-
<PAGE> 5
LIST OF EXHIBITS
Exhibit A - Affiliate Letter
Exhibit B - Director/Officer Certificate
Exhibit C - Legal Opinion of Buyers' Counsel
Exhibit D - Legal Opinion of Seller's Counsel
LIST OF SCHEDULES
Schedule 2.01 Articles/Bylaws
Schedule 2.02 Subsidiaries/Equity Securities
Schedule 2.03 Seller Stock Plans
Schedule 2.04(b) Authorizations
Schedule 2.05(a) Seller Financial Statements
Schedule 2.08(a) Owned Real Property/Leased Real Property
Schedule 2.08(c) Interests in Real Property
Schedule 2.09 Taxes
Schedule 2.11(a) Deposits/Commitments
Schedule 2.11(b) Contracts
Schedule 2.11(c) Insurance
Schedule 2.11(f) Loans
Schedule 2.13 Litigation
Schedule 2.15(c) Compliance with Laws
Schedule 2.18(c) Real Estate Acquired through Foreclosure and Repossession
Schedule 2.18(f) Investment Securities
Schedule 2.19(a) Employee Benefit Plans
Schedule 2.19(d) Post-Retirement Health and Medical Benefits
Schedule 2.19(f) Change in Control Payments
Schedule 2.20 Conduct of Seller
Schedule 2.26(a) Derivative Securities
Schedule 2.28 Material Computer Software, Firmware and Hardware
Schedule 4.02 Forbearances of Seller
Schedule 5.07 Affiliates
-iv-
<PAGE> 6
AGREEMENT AND PLAN OF MERGER
----------------------------
This AGREEMENT AND PLAN OF MERGER (this "Agreement"), made and entered
into as of May 7, 1998 by and among Mercantile Bancorporation Inc., a
Missouri corporation ("Mercantile"), Ameribanc, Inc., a Missouri corporation
("Merger Sub" and, collectively, with Mercantile, the "Buyers"), and First
Financial Bancorporation ("First Financial"), an Iowa corporation ("Seller").
WHEREAS, Merger Sub is a wholly owned subsidiary of Mercantile, and
each of Mercantile and Merger Sub is a registered bank holding company under
the Bank Holding Company Act of 1956, as amended (the "BHCA"); and
WHEREAS, Seller is registered as a bank holding company under the BHCA;
and
WHEREAS, the respective Boards of Directors of Seller and Merger Sub
and the Executive Committee of the Board of Directors of Mercantile have
approved the merger (the "Merger") of Seller with and into Merger Sub
pursuant to the terms and subject to the conditions contained in this
Agreement; and
WHEREAS, the parties desire to provide certain undertakings,
conditions, representations, warranties and covenants in connection with the
transactions contemplated by this Agreement.
NOW THEREFORE, in consideration of the premises and the
representations, warranties and agreements herein contained, the parties
agree as follows:
ARTICLE I
---------
THE MERGER
1.01 The Merger. Subject to the terms and conditions of this
----------
Agreement, Seller shall be merged with and into Merger Sub in accordance with
Chapter 351 of the Missouri Revised Statutes (the "Missouri Statute") and
Section 490.1106 of the Iowa Business Corporation Act (the "IBCA"), and the
separate corporate existence of Seller shall cease. Merger Sub shall be the
surviving corporation in the Merger (sometimes hereinafter referred to 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, unless the
-------
parties hereto shall otherwise mutually agree, shall take place at the
offices of Mercantile in St. Louis, Missouri, at 10:00 am, local time, on the
date that the Effective Time (as defined in Section 1.03) occurs (the
"Closing Date").
1.03 Effective Time. The Merger shall become effective (the
--------------
"Effective Time") upon the later of (i) the issuance of a Certificate of
Merger by the Office of the Secretary of State of the State of Missouri and
(ii) the filing of Articles of Merger with the Office of the Secretary of
State of Iowa. Unless otherwise mutually agreed in writing by Buyers and
Seller, subject to the terms and conditions of
<PAGE> 7
this Agreement, the Effective Time shall occur on such date as Buyers shall
notify Seller in writing (such notice to be at least five business days in
advance of the Effective Time) but (A) not earlier than the satisfaction of all
conditions set forth in Section 6.01(a) and 6.01(b) (the "Approval Date") and
(B) not later than the first business day of the first full calendar month
commencing at least five business days after the Approval Date. On the Closing
Date, the parties hereto will cause the Merger to be consummated by delivering
to the Secretary of State of the State of Missouri and the Secretary of State of
the State of Iowa, for filing, Articles of Merger, in such form as required by,
and executed and acknowledged in accordance with, the relevant provisions of the
Missouri Statute and the IBCA.
1.04 Additional Actions. If, at any time after the Effective Time,
------------------
the Surviving Corporation shall consider or be advised that any further
deeds, assignments or assurances in law or any other acts are necessary or
desirable to (a) vest, perfect or confirm, of record or otherwise, in the
Surviving Corporation its right, title or interest in, to or under any of the
rights, properties or assets of Seller or Merger Sub, or (b) otherwise carry
out the purposes of this Agreement, Seller and its 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 in law and to do all acts necessary or proper to vest, perfect or
confirm title to and possession of such rights, properties or assets in the
Surviving Corporation and otherwise to carry out the purposes of this
Agreement, and the officers and directors of the Surviving Corporation are
authorized in the name of Seller or otherwise to take any and all such
action.
1.05 Articles of Incorporation and By-Laws. The Articles of
-------------------------------------
Incorporation and By-Laws of Merger Sub in effect immediately prior to the
Effective Time shall be the Articles of Incorporation and By-Laws of the
Surviving Corporation following the Merger, unless otherwise repealed or
amended.
1.06 Board of Directors and Officers. At the Effective Time, the
-------------------------------
directors and officers of Merger Sub immediately prior to the Effective Time
shall be the directors and officers, respectively, of the Surviving
Corporation following the Merger, and such directors and officers shall hold
office in accordance with the Surviving Corporation's By-Laws 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 the Buyers, Seller or the
holder of any of the following securities:
(a) Each share of the common stock, $1.00 par value, of Merger
Sub that is issued and outstanding immediately prior to the Effective
Time shall remain outstanding and shall be unchanged after the Merger
and shall thereafter constitute all of the issued and outstanding
capital stock of the Surviving Corporation; and
(b) Subject to Sections 1.09, 1.10 and 1.12 hereof, each share
of common stock, $1.25 par value, of Seller ("Seller Common Stock")
issued and outstanding immediately prior to the Effective Time, other
than Dissenting Shares (as defined in Section 1.10 hereof), shall cease
to be outstanding and shall be converted into and become the right to
receive 0.88 shares (the "Exchange Ratio") of common stock, $0.01 par
value, and the associated "Rights" under the "Rights Agreement," as
those terms are defined in Section 3.02 hereof, of Mercantile
(collectively, "Mercantile Common Stock"); provided, however, that any
Seller Common Stock held by Seller, Mercantile or any of their
respective Subsidiaries (as defined in Section 2.02 hereof), in each
case
-2-
<PAGE> 8
other than in a fiduciary capacity or as a result of debts previously
contracted, shall be canceled 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 Seller 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 Seller Common
Stock that are reserved for issuance pursuant to options or other rights
relating to Seller Common Stock and outstanding as of the date of this
Agreement (as set forth in Section 2.03 hereof) and dividing such number
of shares of Seller Common Stock (computed by aggregating (A) and (B)
hereof (the "Fully Diluted Shares")) into (ii) 3,194,844, the aggregate
number of shares of Mercantile Common Stock to be issued in the Merger.
1.08 Exchange Procedures.
-------------------
(a) As soon as practicable following the Effective Time,
Mercantile shall mail or cause to be mailed to holders of record of
certificates formerly representing Seller Common Stock (the
"Certificates"), as identified on the Seller Shareholder List (as
provided pursuant to Section 1.11(b) hereof), letters advising them of
the effectiveness of the Merger and instructing them to tender such
Certificates to Mercantile's duly appointed exchange agent (the
"Exchange Agent"), or in lieu thereof, such evidence of lost, stolen or
mutilated Certificates and such surety bond or other security as the
Exchange Agent may reasonably require (the "Required Documentation").
(b) Subject to Sections 1.09, 1.10 and 1.12 hereof, after the
Effective Time, each previous holder of a Certificate that surrenders
such Certificate or in lieu thereof, the Required Documentation, to the
Exchange Agent, with a properly completed and executed letter of
transmittal with respect to such Certificate, will be entitled to a
certificate or certificates representing the number of full shares of
Mercantile Common Stock into which the Certificate so surrendered shall
have been converted pursuant to this Agreement, and any distribution
theretofore declared and not yet paid with respect to such shares of
Mercantile Common Stock and any amount due with respect to fractional
shares, without interest (collectively, the "Merger Consideration").
Such shares of Mercantile Common Stock, any amount due with respect to
fractional shares and any distribution shall be delivered by the
Exchange Agent to each such holder as promptly as practicable after
such surrender.
(c) Each outstanding Certificate, until duly surrendered to the
Exchange Agent, shall be deemed to evidence ownership of the Merger
Consideration into which the stock previously represented by such
Certificate shall have been converted pursuant to this Agreement.
(d) 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 Merger Consideration to which the shareholder may
be entitled pursuant to the provisions of Section 1.07 hereof. After
the closing of the transfer books as described in Section 1.11 hereof,
there shall be no further transfer on the records of Seller of
Certificates, and if such Certificates are presented to
-3-
<PAGE> 9
Seller for transfer, they shall be canceled against delivery of the Merger
Consideration. Neither Buyers nor the Exchange Agent shall be obligated
to deliver the Merger Consideration until such holder surrenders the
Certificates or furnishes the Required Documentation as provided herein.
No dividends or distributions declared after the Effective Time (including
any redemption by Mercantile of the Rights associated therewith) on the
Mercantile Common Stock 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 or furnishes the Required Documentation, at which time such
dividends or distributions shall be remitted to such person, without
interest and less any taxes that may have been imposed thereon.
Certificates surrendered for exchange by an affiliate shall not be
exchanged until Buyers have received a written agreement from such
affiliate as required pursuant to Section 5.07 hereof. 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 Merger Consideration issuable or payable in the Merger that is paid to
a public official pursuant to applicable abandoned property, escheat or
similar laws.
1.09 No Fractional Shares. Notwithstanding any other provision of
--------------------
this Agreement, neither certificates nor scrip for fractional shares of
Mercantile Common Stock shall be issued in the Merger. Each holder of Seller
Common Stock who otherwise would have been entitled to a fraction of a share
of Mercantile Common Stock shall receive (by check from the Exchange Agent,
mailed to the shareholder with the certificate(s) for Mercantile Common Stock
which such holder is to receive pursuant to the Merger) 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 stock price of Mercantile Common Stock on the New York Stock Exchange
(the "NYSE") Composite Tape as reported in The Wall Street Journal on the
Closing Date. No such holder shall be entitled to dividends, voting rights
or any other rights in respect of any fractional share.
1.10 Dissenting Shares.
-----------------
(a) "Dissenting Shares" means any shares of Seller Common Stock
held by any holder who becomes entitled to payment of the fair value of
such shares under Division XIII of the IBCA. Any holders of Dissenting
Shares shall be entitled to payment for such shares only to the extent
permitted by and in accordance with the provisions of the IBCA;
provided, however, that if, in accordance with the IBCA, any holder of
Dissenting Shares shall forfeit such right to payment of the fair value
of such Dissenting Shares, such shares shall thereupon be deemed to
have been converted into and to have become exchangeable for, as of the
Effective Time, the right to receive the Merger Consideration.
(b) Seller shall give to Mercantile (i) prompt notice of any
written objections to the Merger and/or any written demands for the
payment of the fair value of any shares of Seller Common Stock,
withdrawals of such demands, and any other instruments served pursuant
to Division XIII of the IBCA received by Seller, and (ii) the
opportunity to participate in all negotiations and proceedings with
respect to such demands under the IBCA. Seller shall not voluntarily
make any payment with respect to
-4-
<PAGE> 10
demands for payment of fair value and shall not, except with the prior
consent of Mercantile, settle or offer to settle any such demands.
1.11 Closing of Stock Transfer Books.
-------------------------------
(a) The stock transfer books of Seller shall be closed at the
end of business on the business day immediately preceding the Closing
Date. In the event of a transfer of ownership of Seller Common Stock
that is not registered in the transfer records prior to the closing of
such record books, the Merger Consideration issuable or payable with
respect to such stock may be delivered to the transferee, if the
Certificate or Certificates representing such stock is presented to the
Exchange Agent accompanied by all documents required to evidence and
effect such transfer and all applicable stock transfer taxes are paid.
(b) At the Effective Time, Seller shall provide Buyers with a
complete and verified list of registered holders of Seller Common Stock
based upon its stock transfer books or corporate records as of the
closing of said transfer books, including the names, addresses,
certificate numbers and taxpayer identification numbers of such holders
(the "Seller Shareholder List"). Buyers shall be entitled to rely upon
the Seller Shareholder List to establish the identity of those persons
entitled to receive the Merger Consideration, which list shall be
conclusive with respect thereto. In the event of a dispute with
respect to ownership of stock represented by any Certificate, Buyers
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.
1.12 Anti-Dilution. If between the date of this Agreement and the
-------------
Effective Time a share of Mercantile Common Stock shall be changed into a
different number of shares of Mercantile Common Stock or a different class of
shares by reason of reclassification, recapitalization, split-up,
combination, exchange of shares or readjustment, or if a stock dividend
thereon shall be declared with a record date within such period, then
appropriate and proportionate adjustment or adjustments will be made to the
Exchange Ratio such that each holder of Seller Common Stock shall be entitled
to receive such number of shares of Mercantile Common Stock or other
securities as such shareholder would have received pursuant to such
reclassification, recapitalization, split-up, combination, exchange of shares
or readjustment or as a result of such stock dividend had the record date
therefor been immediately following the Effective Time.
1.13 Reservation of Right to Revise Transaction. Buyers may at any
------------------------------------------
time change the method of effecting the acquisition of Seller by Buyers
(including, without limitation, the provisions of this Article I) if and to
the extent Buyers deem such change to be desirable, including, without
limitation, to provide for (i) a merger of Merger Sub with and into Seller,
in which Seller is the surviving corporation, or (ii) a merger of Seller
directly into Mercantile, in which Mercantile is the surviving corporation;
provided, however, that no such change shall (A) alter or change the amount
or kind of the Merger Consideration to be received by the holders of Seller
Common Stock, (B) adversely affect the tax treatment to Seller shareholders,
as generally described in Section 6.01(e) hereof, (C) materially impede or
delay receipt of any approvals referred to in Section 6.01(b) or the
consummation of the transactions contemplated by this Agreement, or (D)
prevent or impede the transactions contemplated hereby from qualifying for
pooling-of-interests accounting treatment unless Buyers first waive Seller's
covenants set
-5-
<PAGE> 11
forth in Sections 5.02(b) and 5.16 hereof and the condition to Buyers'
obligation to consummate the Merger set forth in Section 6.03(f) hereof.
1.14 Material Adverse Effect. As used in this Agreement, the term
-----------------------
"Material Adverse Effect" with respect to an entity means any condition,
event, change or occurrence that has or may reasonably be expected to have a
material adverse effect on the condition (financial or otherwise),
properties, business or results of operations, of such entity and its
Subsidiaries (as defined in Section 2.02(a)), taken as a whole as reflected
in the Seller Financial Statements (as defined in Section 2.05(b)) or the
Mercantile Financial Statements (as defined in Section 3.04), as the case may
be; it being understood that a Material Adverse Effect shall not include: (i)
a change with respect to, or effect on, such entity and its Subsidiaries
resulting from a change in law, rule, regulation, generally accepted
accounting principles or regulatory accounting principles; (ii) a change with
respect to, or effect on, such entity and its Subsidiaries resulting from any
other matter affecting depository institutions generally including, without
limitation, changes in general economic conditions and changes in prevailing
interest and deposit rates; (iii) a change disclosed in the Seller Financial
Statements or the Mercantile Financial Statements, as the case may be; (iv)
any charges taken by Mercantile in connection with pending or completed
acquisitions or the disposition of certain businesses or lines of business;
or (v) in the case of Seller, any financial change resulting from adjustments
made pursuant to Section 5.05 or 5.09(b) hereof.
1.15 Knowledge. As used in this Agreement, the term "knowledge" or
---------
"best knowledge" shall mean those facts known by the executive officers of
Buyers or Seller, as the case may be.
ARTICLE II
----------
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller hereby represents and warrants to the Buyers as follows:
2.01 Organization and Authority. Seller is a corporation duly
--------------------------
organized, validly existing and in good standing under the laws of the State
of Iowa, is duly qualified to do business and is in good standing in all
jurisdictions where its ownership or leasing of property or the conduct of
its business requires it to be so qualified, except where the failure of
Seller to so qualify would not have a Material Adverse Effect on Seller and
the Seller Subsidiaries (as defined in Section 2.02(a)), taken as a whole,
and has the corporate power and authority to own its properties and assets
and to carry on its business as it is now being conducted. Seller is
registered as a bank holding company with the Board of Governors of the
Federal Reserve System (the "Federal Reserve Board") under the BHCA. True
and complete copies of the Articles of Incorporation and By-Laws of Seller
and the Articles of Association and By-Laws of First National Bank Iowa
("FNBI"), a national banking association and a wholly owned Subsidiary of
Seller, each as in effect on the date of this Agreement, are attached hereto
as Schedule 2.01.
-------------
2.02 Subsidiaries.
------------
(a) Schedule 2.02 sets forth a complete and correct list of all
-------------
of Seller's "Subsidiaries" (as defined in Rule 1-02 of Regulation S-X
promulgated by the Securities and Exchange Commission (the "SEC"); each
a "Seller Subsidiary" and, collectively, the "Seller Subsidiaries"),
and all outstanding Equity Securities (as defined in Section 2.03)
-6-
<PAGE> 12
of each Seller Subsidiary, all of which are owned directly or indirectly
by Seller. Except as disclosed in Schedule 2.02, all of the
-------------
outstanding shares of capital stock of the Seller Subsidiaries owned
directly or indirectly by Seller are validly issued, fully paid and
nonassessable and are owned free and clear of any lien, claim, charge,
option, encumbrance, agreement, mortgage, pledge, security interest or
restriction (a "Lien") with respect thereto. Each of the Seller
Subsidiaries is a corporation, bank or savings bank duly incorporated
or organized and validly existing under the laws of its jurisdiction of
incorporation or organization, and has corporate power and authority to
own or lease its properties and assets and to carry on its business as
it is now being conducted. Each of the Seller Subsidiaries is duly
qualified to do business in each jurisdiction where its ownership or
leasing of property or the conduct of its business requires it so to be
qualified, except where the failure to so qualify would not have a
Material Adverse Effect on Seller and the Seller Subsidiaries, taken as
a whole. Except as set forth in Schedule 2.02, neither Seller nor any
-------------
Seller Subsidiary owns beneficially, directly or indirectly, any shares
of any class of Equity Securities (as defined in Section 2.03) or
similar interests of any corporation, bank, business trust, association
or organization, or any interest in a partnership or joint venture of
any kind, other than those identified as Seller Subsidiaries in
Schedule 2.02 hereof.
-------------
(b) FNBI is a national banking association duly organized and
validly existing under the laws of the United States of America.
2.03 Capitalization. The authorized capital stock of Seller consists
--------------
of: (i) 15,000,000 shares of Seller Common Stock, of which, as of March 31,
1998, 3,553,717 shares were issued and outstanding. As of March 31, 1998,
Seller had reserved 297,738 shares of Seller Common Stock for issuance under
Seller's stock option and incentive plans (including grants reflected in the
Board minutes), a list of which is set forth on Schedule 2.03 (the "Seller
-------------
Stock Plans"), pursuant to which options ("Seller Employee Stock Options")
covering 76,788 shares of Seller Common Stock were outstanding as of March
31, 1998. Since March 31, 1998, no Equity Securities of Seller have been
issued, other than shares of Seller Common Stock which may have been issued
upon the exercise of Seller Stock Options. "Equity Securities" of an issuer
means capital stock or other equity securities of such issuer, options,
warrants, scrip, rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities or rights convertible into,
shares of any capital stock or other equity securities of such issuer, or
contracts, commitments, understandings or arrangements by which such issuer
is or may become bound to issue additional shares of its capital stock or
other equity securities of such issuer, or options, warrants, scrip or rights
to purchase, acquire, subscribe to, calls on or commitments for any shares of
its capital stock or other equity securities. Except as set forth above,
there are no other Equity Securities of Seller outstanding. All of the
issued and outstanding shares of Seller Common Stock are validly issued,
fully paid and nonassessable, and have not been issued in violation of any
preemptive right of any shareholder of Seller. Neither Seller nor any Seller
Subsidiary has taken or agreed to take any action or has any knowledge of any
fact or circumstance and neither Seller nor any Seller Subsidiary will take
any action that would prevent the Merger from qualifying for
pooling-of-interests accounting treatment.
2.04 Authorization.
-------------
(a) Seller has the corporate power and authority to enter into
this Agreement and, subject to the approval of this Agreement by the
shareholders of Seller and the
-7-
<PAGE> 13
Regulatory Authorities (as defined in Section 2.06), to carry out its
obligations hereunder. The only shareholder vote required for Seller to
approve this Agreement is the affirmative vote of the holders of at least
two thirds of the outstanding shares of Seller Common Stock entitled to
vote at a meeting called for such purpose. The execution, delivery and
performance of this Agreement by Seller and the consummation by Seller of
the transactions contemplated hereby in accordance with and subject to the
terms of this Agreement have been duly authorized by the Board of
Directors of Seller. Subject to the approval of Seller's shareholders
and subject to the receipt of such approvals of the Regulatory
Authorities as may be required by statute or regulation, this Agreement
is a valid and binding obligation of Seller enforceable against Seller
in accordance with its terms.
(b) Except as disclosed on Schedule 2.04(b), neither the
----------------
execution nor delivery nor performance by Seller of this Agreement, nor
the consummation by Seller of the transactions contemplated hereby, nor
compliance by Seller with any of the provisions hereof, will (i)
violate, conflict with, or result in a breach of any provisions of, or
constitute a default (or an event which, with notice or lapse of time
or both, would constitute a default) under, or result in the
termination of, or accelerate the performance required by, or result in
a right of termination or acceleration of, or result in the creation
of, any Lien upon any of the properties or assets of Seller or any of
the Seller Subsidiaries under any of the terms, conditions or
provisions of (x) its Certificate or Articles of Incorporation, charter
or By-Laws or (y) any note, bond, mortgage, indenture, deed of trust,
license, lease, agreement or other instrument or obligation to which
Seller or any of the Seller Subsidiaries is a party or by which it may
be bound, or to which Seller or any of the Seller Subsidiaries or any
of the properties or assets of Seller or any of the Seller Subsidiaries
may be subject, other than those as to which any such violation,
conflict, breach, event, termination, acceleration or creation would
not have a Material Adverse Effect on Seller and the Seller
Subsidiaries, taken as a whole, or (ii) subject to compliance with the
statutes and regulations referred to in subsection (c) of this Section
2.04, violate any judgment, ruling, order, writ, injunction, decree,
statute, rule or regulation applicable to Seller or any of the Seller
Subsidiaries or any of their respective properties or assets.
(c) Other than in connection or in compliance with the
provisions of the Missouri Statute, the IBCA, the Securities Act of
1933, as amended, and the rules and regulations thereunder
(collectively, the "Securities Act"), the Securities Exchange Act of
1934, as amended, and the rules and regulations thereunder (the
"Exchange Act"), the securities or blue sky laws of the various states
or filings, consents, reviews, authorizations, approvals or exemptions
required under the BHCA, or any required approvals of the Federal
Reserve Board, the FDIC or other governmental agencies or governing
boards having regulatory authority over Seller or any Seller
Subsidiary, no notice to, filing with, exemption or review by, or
authorization, consent or approval of, any public body or authority is
necessary for the consummation by Seller of the transactions
contemplated by this Agreement.
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<PAGE> 14
2.05 Seller Financial Statements.
---------------------------
(a) Attached hereto as Schedule 2.05(a) are copies of the
----------------
Seller's Annual Report to Shareholders for the year ended December 31,
1997.
(b) The financial statements contained in the documents
referenced in Schedule 2.05(a) are referred to collectively as the
----------------
"Seller Financial Statements." The Seller Financial Statements have
been prepared in accordance with generally accepted accounting
principles ("GAAP") during the periods involved, and present fairly the
consolidated financial position of Seller and the Seller Subsidiaries
at the dates thereof and the consolidated results of operations,
changes in shareholders' equity and cash flows, as applicable, of
Seller and the Seller Subsidiaries for the periods stated therein.
(c) Seller and the Seller Subsidiaries have each prepared, kept
and maintained through the date hereof true, correct and complete
financial books and records which fairly reflect in all material
respects their respective financial conditions, results of operations,
changes in shareholders' equity and cash flows.
2.06 Seller Reports. Since January 1, 1995, each of Seller and the
--------------
Seller Subsidiaries has timely filed any and all material reports,
registrations and statements, together with any required amendments thereto,
that it was required to file with (i) the SEC, including, but not limited to,
Forms 10-K, Forms 10-Q, Forms 8-K and proxy statements, (ii) the Federal
Reserve Board, (iii) the FDIC and (iv) any federal, state, municipal or local
government, securities, banking, savings and loan, environmental, 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"), having jurisdiction over the
affairs of it. All such material reports and statements filed with any such
Regulatory Authority are collectively referred to herein as the "Seller
Reports." As of each of their respective dates, the Seller Reports complied
in all material respects with all the rules and regulations promulgated by
the applicable Regulatory Authority. With respect to Seller Reports filed
with the Regulatory Authorities, there is no material unresolved violation,
criticism or exception by any Regulatory Authority with respect to any report
or statement filed by, or any examinations of, Seller or any of the Seller
Subsidiaries.
2.07 Title to and Condition of Assets.
--------------------------------
(a) Except as may be reflected in the Seller Financial
Statements and with the exception of all "Real Property" (which is the
subject of Section 2.08 hereof), Seller and the Seller Subsidiaries
have, and at the Closing Date will have, good and marketable title to
their owned properties and assets, including, without limitation, those
reflected in the Seller Financial Statements (except those disposed of
in the ordinary course of business since the date thereof), free and
clear of any Lien, except for Liens for (i) taxes, assessments or other
governmental charges not yet delinquent, (ii) as set forth or described
in the Seller Financial Statements or any subsequent Seller Financial
Statements delivered to Buyers prior to the Effective Time, and (iii)
pledges to secure deposits and other Liens incurred in the ordinary
course of business.
(b) No material properties or assets that are reflected as
owned by Seller or any of the Seller Subsidiaries in the Seller
Financial Statements as of December 31,
-9-
<PAGE> 15
1997, have been sold, leased, transferred, assigned or otherwise disposed
of since such date, except in the ordinary course of business.
(c) All furniture, fixtures, vehicles, machinery and equipment
and computer software owned or used by Seller or the Seller
Subsidiaries, including any such items leased as a lessee (taken as a
whole as to each of the foregoing with no single item deemed to be of
material importance) are in good working order and free of known
defects, subject only to normal wear and tear. The operation by Seller
or the Seller Subsidiaries of such properties and assets is in
compliance in all material respects with all applicable laws,
ordinances and rules and regulations of any governmental authority
having jurisdiction over such use.
2.08 Real Property.
-------------
(a) A list of each parcel of real property owned by Seller or
any of the Seller Subsidiaries (other than real property acquired in
foreclosure or in lieu of foreclosure in the course of the collection
of loans and being held by Seller or a Seller Subsidiary for
disposition as required by law) is set forth in Schedule 2.08(a) under
----------------
the heading "Owned Real Property" (such real property being herein
referred to as the "Owned Real Property"). A list of each parcel of
real property leased by Seller or any of the Seller Subsidiaries is
also set forth in Schedule 2.08(a) under the heading "Leased Real
----------------
Property" (such real property being herein referred to as the "Leased
Real Property"). Seller shall update Schedule 2.08(a) within ten (10)
----------------
days of acquiring any Owned Real Property or leasing any Leased Real
Property after the date hereof. Collectively, the Owned Real Property
and the Leased Real Property are herein referred to as the "Real
Property."
(b) There is no pending action involving Seller or any of the
Seller Subsidiaries as to the title of or the right to use any of the
Real Property.
(c) Except as disclosed on Schedule 2.08(c), neither Seller nor
----------------
any of the Seller Subsidiaries has any interest in any real property
other than as described above in Section 2.08(a) except interests as a
mortgagee, any real property acquired in foreclosure or in lieu of
foreclosure and being held for disposition as required by law and
property held by any Seller Subsidiary in its fiduciary capacity.
(d) To the best knowledge of Seller, none of the buildings,
structures or other improvements located on the Real Property
encroaches upon or over any adjoining parcel of real estate or any
easement or right-of-way or "setback" line and all such buildings,
structures and improvements are located and constructed in conformity
with all applicable zoning ordinances and building codes.
(e) None of the buildings, structures or improvements located
on the Owned Real Property are the subject of any official complaint or
notice by any governmental authority of violation of any applicable
zoning ordinance or building code, and there is no zoning ordinance,
building code, use or occupancy restriction or condemnation action or
proceeding pending, or, to the best knowledge of Seller, threatened,
with respect to any such building, structure or improvement. The Owned
Real Property is in generally
-10-
<PAGE> 16
good condition for its intended purpose, ordinary wear and tear excepted,
and has been maintained in accordance with reasonable and prudent business
practices applicable to like facilities.
(f) Except as may be reflected in the Seller Financial
Statements or with respect to such easements, Liens, defects or
encumbrances as do not individually or in the aggregate materially
adversely affect the use or value of the parcel of Owned Real Property,
Seller and the Seller Subsidiaries have, and at the Closing Date will
have, good and marketable title to their respective Owned Real
Properties.
(g) Neither Seller nor any of the Seller Subsidiaries has
caused or allowed the generation, treatment, storage, disposal or
release at any Real Property of any Toxic Substance, except in
accordance in all material respects with all applicable federal, state
and local laws and regulations. "Toxic Substance" means any hazardous,
toxic or dangerous substance, pollutant, waste, gas or material,
including, without limitation, petroleum and petroleum products, metals
liquids, semi-solids or solids, that are regulated under any federal,
state or local statute, ordinance, rule, regulation or other law
pertaining to environmental protection, contamination, quality, waste
management or cleanup. There are no underground storage tanks located
on, in or under any Owned Real Property or Leased Real Property.
2.09 Taxes. Seller and each Seller Subsidiary have timely filed or
-----
will timely file (including extensions) all material tax returns required to
be filed at or prior to the Closing Date ("Seller Returns"). Each of Seller
and the Seller Subsidiaries has paid, or set up adequate reserves on the
Seller Financial Statements for the payment of, all taxes required to be paid
in respect of the periods covered by such Seller Returns and has set up
adequate reserves on the most recent Seller Financial Statements for the
payment of all taxes anticipated to be payable in respect of all periods up
to and including the latest period covered by such Seller Financial
Statements. Neither Seller nor any Seller Subsidiary has any material
liability for any such taxes in excess of the amounts so paid or reserves so
established, and no material deficiencies for any tax, assessment or
governmental charge have been proposed, asserted or assessed in writing
(tentatively or definitely) against Seller or any of the Seller Subsidiaries
which have not been settled or would not be covered by existing reserves.
Neither Seller nor any of the Seller Subsidiaries 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 filed and no requests
for waivers of the time to assess any tax are pending. Except as set forth
on Schedule 2.09, no federal or state income tax return of Seller or any
-------------
Seller Subsidiaries has been audited by the Internal Revenue Service (the
"IRS") or any state tax authority for the seven most recent full calendar
years. Except as set forth on Schedule 2.09, there is no deficiency or
-------------
refund litigation or, to the best knowledge of Seller, matter in controversy
with respect to Seller Returns. Except as set forth on Schedule 2.09 hereof,
-------------
neither Seller nor any of the Seller Subsidiaries has extended or waived any
statute of limitations on the assessment of any tax due that is currently in
effect.
2.10 Material Adverse Effect. Since December 31, 1997, there has been
-----------------------
no Material Adverse Effect on Seller and the Seller Subsidiaries, taken as a
whole.
-11-
<PAGE> 17
2.11 Loans, Commitments and Contracts.
--------------------------------
(a) Schedule 2.11(a) contains a complete and accurate listing,
----------------
as of December 31, 1997, of all contracts entered into with respect to
deposits and repurchase agreements of $1,000,000 or more, by account,
and, as of December 31, 1997, all loan agreements, notes, security
agreements, bankers' acceptances, outstanding letters of credit,
participation agreements, and other documents relating to or involving
extensions of credit by Seller or any of the Seller Subsidiaries and,
as of December 31, 1997, all loan commitments and commitments to issue
letters of credit and other commitments to extend credit with respect
to any one entity or related group of entities in excess of $1,000,000
to which Seller or any of the Seller Subsidiaries is a party or by
which it is bound, by account.
(b) Except for the contracts and agreements required to be
listed on Schedule 2.11(a) and the loans required to be listed on
----------------
Schedule 2.11(f), and except as otherwise listed on Schedule 2.11(b),
---------------- ----------------
as of December 31, 1997, neither Seller nor any of the Seller
Subsidiaries is a party to or is bound by any:
(i) agreement, contract, arrangement, understanding or
commitment with any labor union;
(ii) material franchise or license agreement, excluding
software license agreements entered into in the ordinary course
of business;
(iii) written employment, severance, termination pay,
agency, consulting or similar agreement or commitment in respect
of personal services;
(iv) material agreement, arrangement or commitment (A)
not made in the ordinary course of business, and (B) pursuant to
which Seller or any of the Seller Subsidiaries is or may become
obligated to invest in or contribute to any Seller Subsidiary
other than pursuant to Seller Employee Plans (as that term is
defined in Section 2.19 hereof) or agreements relating to joint
ventures or partnerships set forth in Schedule 2.02, true and
-------------
complete copies of which have been furnished to Buyers;
(v) agreement, indenture or other instrument not
disclosed in the Seller Financial Statements relating to the
borrowing of money by Seller or any of the Seller Subsidiaries or
the guarantee by Seller or any of the Seller Subsidiaries of any
such obligation (other than trade payables or instruments related
to transactions entered into in the ordinary course of business
by Seller or any of the Seller Subsidiaries, such as deposits,
Federal Home Loan Bank ("FHLB") and Federal Funds borrowings and
repurchase and reverse repurchase agreements), other than such
agreements, indentures or instruments providing for annual
payments of less than $200,000;
(vi) contract containing covenants which limit the
ability of Seller or any of the Seller Subsidiaries to compete
in any line of business or with any person or which involves any
restrictions on the geographical area in which, or
-12-
<PAGE> 18
method by which, Seller or any of the Seller Subsidiaries may carry
on their respective businesses (other that as may be required by law
or any applicable Regulatory Authority);
(vii) contract or agreement which is a "material contract"
within the meaning of Item 601(b)(10) of Regulation S-K as
promulgated by the SEC to be performed after the date of this
Agreement that has not been filed or incorporated by reference in
the Seller Reports;
(viii) lease with annual rental payments aggregating
$100,000 or more;
(ix) loans or other obligations payable or owing to any
officer, director or employee except (A) salaries, wages and
directors' fees or other compensation incurred and accrued in the
ordinary course of business and (B) obligations due in respect of
any depository accounts maintained by any of the foregoing with
Seller or any of the Seller Subsidiaries in the ordinary course
of business; or
(x) other agreement, contract, arrangement,
understanding or commitment involving an obligation by Seller or
any of the Seller Subsidiaries of more than $250,000 and
extending beyond six months from the date hereof that cannot be
canceled without cost or penalty upon notice of 30 days or less,
other than contracts entered into in respect of deposits, loan
agreements and commitments, notes, security agreements,
repurchase and reverse repurchase agreements, bankers'
acceptances, outstanding letters of credit and commitments to
issue letters of credit, participation agreements and other
documents relating to transactions entered into by Seller or any
of the Seller Subsidiaries in the ordinary course of business and
not involving extensions of credit with respect to any one entity
or related group of entities in excess of $1,000,000.
(c) Seller and/or the Seller Subsidiaries carry property,
liability, director and officer errors and omissions, products
liability and other insurance coverage as set forth in Schedule 2.11(c)
----------------
under the heading "Insurance."
(d) True, correct and complete copies of the agreements,
contracts, leases and other documents referred to in Section 2.11(b)
have been included with Schedule 2.11(b) hereto. True, correct and
----------------
complete copies of the agreements, contracts, leases, insurance
policies and other documents referred to in Schedules 2.11(a) and (c)
-------------------------
have been or shall be furnished or made available to Buyers.
(e) To the best knowledge of Seller, each of the agreements,
contracts, leases, insurance policies and other documents referred to
in Schedules 2.11 (a), (b) and (c) is a valid, binding and enforceable
-------------------------------
obligation of the parties sought to be bound thereby, except as the
enforceability thereof against the parties thereto (other than Seller
or any of the Seller Subsidiaries) may be limited by bankruptcy,
insolvency, reorganization, moratorium and other laws now or hereafter
in effect relating to the
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<PAGE> 19
enforcement of creditors' rights generally, and except that equitable
principles may limit the right to obtain specific performance or other
equitable remedies.
(f) Schedule 2.11(f) under the heading "Loans" contains a true,
----------------
correct and complete listing, as of December 31, 1997, by account, of
(i) all loans in excess of $500,000 of Seller or any of the Seller
Subsidiaries that have been accelerated during the past twelve months;
(ii) all loan commitments or lines of credit of Seller or any of the
Seller Subsidiaries in excess of $500,000 which have been terminated by
Seller or any of the Seller Subsidiaries during the past twelve months
by reason of default or adverse developments in the condition of the
borrower or other events or circumstances affecting the credit of the
borrower; (iii) all loans, lines of credit and loan commitments in
excess of $500,000, as to which Seller or any of the Seller
Subsidiaries has given written notice of its intent to terminate during
the past twelve months; (iv) with respect to all loans in excess of
$500,000 all notification letters and other written communications from
Seller or any of the Seller Subsidiaries to any of their respective
borrowers, customers or other parties during the past twelve months
wherein Seller or any of the Seller Subsidiaries has requested or
demanded that actions be taken to correct existing defaults or facts or
circumstances which may become defaults; (v) each borrower, customer or
other party which has notified Seller or any of the Seller Subsidiaries
during the past twelve months of, or has asserted against Seller or any
of the Seller Subsidiaries, in each case in writing, any "lender
liability" or similar claim, and, to the best knowledge of Seller, each
borrower, customer or other party which has given Seller or any of the
Seller Subsidiaries any oral notification of, or orally asserted to or
against Seller or any of the Seller Subsidiaries, any such claim; or
(vi) all loans in excess of $250,000 (A) that are contractually past
due 90 days or more in the payment of principal and/or interest, (B)
that are on non-accrual status, (C) that have been classified
"doubtful," "loss" or the equivalent thereof by any Regulatory
Authority, (D) where a reasonable doubt exists as to the timely future
collectibility of principal and/or interest, whether or not interest is
still accruing or the loan is less than 90 days past due, (E) the
interest rate terms have been reduced and/or the maturity dates have
been extended subsequent to the agreement under which the loan was
originally created due to concerns regarding the borrower's ability to
pay in accordance with such initial terms, or (F) where a specific
reserve allocation exists in connection therewith.
2.12 Absence of Defaults. Neither Seller nor any of the Seller
-------------------
Subsidiaries is in violation of its charter documents or By-Laws or in
default under any material agreement, commitment, arrangement, lease,
insurance policy or other instrument, whether entered into in the ordinary
course of business or otherwise and whether written or oral, and there has
not occurred any event that, with the lapse of time or giving of notice or
both, would constitute such a default, except in all cases where such default
would not have a Material Adverse Effect on Seller and its Subsidiaries,
taken as a whole.
2.13 Litigation and Other Proceedings. Except as set forth on
--------------------------------
Schedule 2.13 or otherwise disclosed in the Seller Financial Statements,
- -------------
neither Seller nor any of the Seller Subsidiaries is a party to any pending
or, to the best knowledge of Seller, threatened claim, action, suit,
investigation or proceeding, or is subject to any order, judgment or decree,
except for matters which, in the aggregate, will not have, or reasonably
could not be expected to have, a Material Adverse Effect on Seller and the
Seller Subsidiaries, taken as a whole. Without limiting the generality of
the foregoing, there are no actions, suits or proceedings pending or, to the
best knowledge of Seller, threatened against Seller or any
-14-
<PAGE> 20
of the Seller Subsidiaries or any of their respective officers or directors by
any shareholder of Seller or any of the Seller Subsidiaries (or any former
shareholder of Seller or any of the Seller Subsidiaries) or involving claims
under the Community Reinvestment Act of 1977, as amended, the Bank Secrecy
Act, the fair lending laws or any other similar laws.
2.14 Directors' and Officers' Insurance. Each of Seller and the
----------------------------------
Seller Subsidiaries has taken or will take all requisite action (including,
without limitation, the making of claims and the giving of notices) pursuant
to its directors' and officers' liability insurance policy or policies in
order to preserve all rights thereunder with respect to all matters (other
than matters arising in connection with this Agreement and the transactions
contemplated hereby) occurring prior to the Effective Time that are known to
Seller.
2.15 Compliance with Laws
--------------------
(a) To the best knowledge of Seller, Seller and each of the
Seller Subsidiaries have all permits, licenses, authorizations, orders
and approvals of, and have made all filings, applications and
registrations with, all Regulatory Authorities that are required in
order to permit them to own or lease their respective properties and
assets and to carry on their respective businesses as presently
conducted; all such permits, licenses, certificates of authority,
orders and approvals are in full force and effect and, to the best
knowledge of Seller, no suspension or cancellation of any of them is
threatened; and all such filings, applications and registrations are
current; in each case except for permits, licenses, authorizations,
orders, approvals, filings, applications and registrations the failure
to have (or have made) would not have a Material Adverse Effect on
Seller and the Seller Subsidiaries, taken as a whole.
(b) (i) Each of Seller and the Seller Subsidiaries has complied
with all laws, regulations and orders (including, without limitation,
zoning ordinances, building codes, the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), and securities, tax,
environmental, civil rights, and occupational health and safety laws
and regulations including, without limitation, in the case of Seller or
any Seller Subsidiary that is a bank or savings association, banking
organization, banking corporation or trust company, all statutes,
rules, regulations and policy statements pertaining to the conduct of a
banking, deposit-taking, lending or related business, or to the
exercise of trust powers) and governing instruments applicable to it
and to the conduct of its business, and (ii) neither Seller nor any of
the Seller Subsidiaries is in default under, and no event has occurred
which, with the lapse of time or notice or both, could result in the
default under, the terms of any judgment, order, writ, decree, permit,
or license of any Regulatory Authority or court, whether federal,
state, municipal or local, and whether at law or in equity, except in
the case of subparts (i) and (ii) where such failure to comply or
default would not have a Material Adverse Effect on Seller and the
Seller Subsidiaries, taken as a whole.
(c) Except as set forth on Schedule 2.15(c), neither Seller nor
----------------
any of the Seller Subsidiaries is subject to or reasonably likely to
incur a liability as a result of its ownership, operation, or use of
any Property (as defined below) of Seller (whether directly or, to the
best knowledge of Seller, as a consequence of such Property being
acquired in foreclosure or in lieu of foreclosure or being part of the
investment portfolio
-15-
<PAGE> 21
of Seller or any of the Seller Subsidiaries) (A) that is contaminated by
or contains any Toxic Substance (as defined in Section 2.08), including,
without limitation, petroleum and petroleum products, asbestos, PCBs,
pesticides, herbicides and any other substance or waste that is hazardous
to human health or the environment and regulated by federal, state or
local law, or (B) on which any Toxic Substance has been stored, disposed
of, placed or used at the Property or in the construction of structures
thereon; and which, in each case, reasonably could be expected to have a
Material Adverse Effect on Seller and the Seller Subsidiaries, taken as a
whole. "Property" shall include all property (real or personal, tangible
or intangible) owned or controlled by Seller or any of the Seller
Subsidiaries, including, without limitation, property acquired under
foreclosure or in lieu of foreclosure, property in which any venture
capital or similar unit of Seller or any of the Seller Subsidiaries has an
interest and, to the best knowledge of Seller, property held by Seller or
any of the Seller Subsidiaries in its capacity as a trustee. No claim,
action, suit or proceeding is pending or, to the best knowledge of Seller,
threatened, and no material claim has been asserted against Seller or any
of the Seller Subsidiaries relating to Property of Seller or any of the
Seller Subsidiaries before any court or other Regulatory Authority or
arbitration tribunal relating to Toxic Substances, pollution or the
environment, and there is no outstanding judgment, order, writ,
injunction, decree or award against or affecting Seller or any of the
Seller Subsidiaries with respect to the same.
(d) Neither Seller nor any of the Seller Subsidiaries has
received any notification or communication that has not been finally
resolved from any Regulatory Authority (i) asserting that the Seller or
any of the Seller Subsidiaries or any Property is not in substantial
compliance with any of the statutes, regulations or ordinances that
such Regulatory Authority enforces, except with respect to matters
which reasonably could not be expected to have a Material Adverse
Effect on the Seller and the Seller Subsidiaries, taken as a whole,
(ii) threatening to revoke any license, franchise, permit or
governmental authorization that reasonably could be expected to have a
Material Adverse Effect on the Seller and the Seller Subsidiaries,
taken as a whole, including, without limitation, such company's status
as an insured depository institution under the FDI Act, or (iii)
requiring or threatening to require Seller or any of the Seller
Subsidiaries, or indicating that Seller or any of the Seller
Subsidiaries may be required, to enter into a cease and desist order,
agreement or memorandum of understanding or any other agreement
restricting or limiting or purporting to direct, restrict or limit in
any manner the operations of Seller or any of the Seller Subsidiaries,
including, without limitation, any restriction on the payment of
dividends. No such cease and desist order, agreement or memorandum of
understanding or other agreement is currently in effect.
(e) Neither Seller nor any of the Seller Subsidiaries is
required by Section 32 of the FDI Act to give prior notice to any
federal banking agency of the proposed addition of an individual to its
board of directors or the employment of an individual as a senior
executive officer.
2.16 Labor. No work stoppage involving Seller or any of the Seller
-----
Subsidiaries is pending or, to the best knowledge of Seller, threatened.
Except as set forth on Schedule 2.13, neither Seller nor any of the Seller
-------------
Subsidiaries is involved in, or, to the best knowledge of Seller, threatened
with or affected by, any labor dispute, arbitration, lawsuit or
administrative proceeding that reasonably
-16-
<PAGE> 22
could be expected to have a Material Adverse Effect on the Seller and the
Seller Subsidiaries, taken as a whole. None of the employees of Seller or the
Seller Subsidiaries are represented by any labor union or any collective
bargaining organization.
2.17 Material Interests of Certain Persons. Except as set forth in
-------------------------------------
Seller's proxy statement for its 1998 Annual Meeting of Shareholders, no
officer or director of Seller or any of the Seller Subsidiaries, or any
"associate" (as such term is defined in Rule 14a-1 under the Exchange Act) of
any such officer or director, has any interest in any contract or property
(real or personal, tangible or intangible), used in, or pertaining to the
business of, Seller or any of the Seller Subsidiaries, which in the case of
Seller and each of the Seller Subsidiaries would be required to be disclosed
by Item 404 of Regulation S-K promulgated by the SEC.
2.18 Allowance for Loan and Lease Losses; Non-Performing Assets;
-----------------------------------------------------------
Financial Assets.
- ----------------
(a) All of the accounts, notes and other receivables that are
reflected in the Seller Financial Statements as of December 31, 1997
were acquired in the ordinary course of business and were collectible
in full in the ordinary course of business, except for possible loan
and lease losses that are adequately provided for in the allowance for
loan and lease losses reflected in such Seller Financial Statements,
and the collection experience of Seller and the Seller Subsidiaries
since December 31, 1997 to the date hereof, has not deviated in any
material and adverse manner from the credit and collection experience
of Seller and the Seller Subsidiaries, taken as a whole, for the six
months ended December 31, 1997.
(b) The allowances for loan losses contained in the Seller
Financial Statements were established in accordance with the past
practices and experiences of Seller and the Seller Subsidiaries, and
the allowance for loan and lease losses shown on the consolidated
balance sheet of Seller and the Seller Subsidiaries as of December 31,
1997, were adequate in all material respects under the requirements of
GAAP, or regulatory accounting principles, as the case may be, to
provide for possible losses on loans and leases (including, without
limitation, accrued interest receivable) and credit commitments
(including, without limitation, stand-by letters of credit) as of the
date of such balance sheet.
(c) Schedule 2.18(c) sets forth as of the date of this
----------------
Agreement all assets classified by Seller as real estate acquired
through foreclosure or repossession, including foreclosed assets.
(d) As of December 31, 1997, the aggregate amount of all Non-
Performing Assets (as defined below) on the books of Seller and the
Seller Subsidiaries did not exceed $3,266,356. "Non-Performing Assets"
shall mean (i) all loans (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) that have been classified "doubtful," "loss" or
the equivalent thereof by any Regulatory Agency or (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, and (ii) all assets
classified by Seller
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<PAGE> 23
as real estate acquired through foreclosure or in lieu of foreclosure,
including in-substance foreclosures, and all other assets acquired through
foreclosure or in lieu of foreclosure.
(e) All loans receivable (including discounts) and accrued
interest entered on the books of Seller and the Seller Subsidiaries, to
the extent unpaid on the Closing Date, arose out of bona fide arm's-
length transactions, were made for good and valuable consideration in
the ordinary course of Seller's or the appropriate Seller Subsidiary's
respective business, and the notes or other evidences of indebtedness
with respect to such loans or discounts are true and genuine and are
what they purport to be. The loans, discounts and the accrued interest
reflected on the books of Seller and the Seller Subsidiaries are
subject to no defenses, set-offs or counterclaims (including, without
limitation, those afforded by usury or truth-in-lending laws), except
as may be provided by bankruptcy, insolvency or similar laws affecting
creditors' rights generally or by general principles of equity. All
such loans are owned by Seller or the appropriate Seller Subsidiary
free and clear of any liens, restrictions or encumbrances.
(f) The notes and other evidences of indebtedness evidencing
the loans described in Section 2.18(e) above, and all pledges,
mortgages, deeds of trust and other collateral documents or security
instruments relating thereto are and will be, in all material respects,
valid, true, genuine and enforceable, and what they purport to be.
Seller and each of the Seller Subsidiaries has good and valid title to
the investment securities shown on the Seller Financial Statements and
all securities entered on the books of Seller or the appropriate Seller
Subsidiary subsequent to December 31, 1997, except for those sold or
redeemed in the ordinary course of business. A complete and accurate
list of such investment securities as of December 31, 1997 is attached
as Schedule 2.18(f). Such list shall be updated each month in writing
----------------
until the Closing.
2.19 Employee Benefit Plans.
----------------------
(a) Schedule 2.19(a) lists all pension, retirement,
----------------
supplemental retirement, stock option, stock purchase, stock ownership,
savings, stock appreciation right, profit sharing, deferred
compensation, consulting, bonus, medical, disability, workers'
compensation, vacation, group insurance, severance and other employee
benefit, incentive and welfare policies, contracts, plans and
arrangements, and all trust agreements related thereto, maintained by
or contributed to by Seller or any of the Seller Subsidiaries in
respect of any of the present or former directors, officers, or other
employees of and/or consultants to Seller or any of the Seller
Subsidiaries (collectively, "Seller Employee Plans"). Seller has
furnished Buyers with the following documents with respect to each
Seller Employee Plan: (i) a true and complete copy of all written
documents comprising such Seller Employee Plan (including amendments
and individual agreements relating thereto) or, if there is no such
written document, an accurate and complete description of the Seller
Employee Plan; (ii) the most recently filed Form 5500 or Form 5500-C/R
(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.
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<PAGE> 24
(b) All Seller Employee Plans have been maintained and operated
in all material respects in accordance with their terms and the
material requirements of all applicable statutes, orders, rules and
final regulations, including, without limitation, to the extent
applicable, ERISA and the Internal Revenue Code of 1986, as amended
(the "Code"). All contributions required to be made to Seller Employee
Plans have been made or reserved.
(c) With respect to each of the Seller Employee Plans which is
a pension plan (as defined in Section 3(2) of ERISA) (the "Pension
Plans"): (i) each Pension Plan which is intended to be "qualified"
within the meaning of Section 401(a) of the Code has been determined to
be so qualified by the IRS and such determination letter may still be
relied upon, and each related trust is exempt from taxation under
Section 501(a) of the Code; (ii) the present value of all benefits
vested and all benefits accrued under each Pension Plan which is
subject to Title IV of ERISA did not, in each case, as of the last
applicable annual valuation date (as indicated on Schedule 2.19(a)),
----------------
exceed the value of the assets of the Pension Plan allocable to such
vested or accrued benefits; (iii) 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 Seller or any of the Seller Subsidiaries, to any
material tax or penalty; (iv) no defined benefit Pension Plan or any
trust created thereunder has been terminated, nor has there been any
"reportable events" with respect to any Pension Plan, as that term is
defined in Section 4043 of ERISA since January 1, 1990; and (v) no
Pension Plan or any trust created thereunder has incurred any
"accumulated funding deficiency," as such term is defined in Section
302 of ERISA (whether or not waived). No Pension Plan is a
"multiemployer plan," as that term is defined in Section 3(37) of
ERISA.
(d) Except as disclosed in Schedule 2.19(d) or as reflected on
----------------
the Seller Financial Statements or the notes thereto, neither Seller
nor any of the Seller Subsidiaries has any liability for any post-
retirement health, medical or similar benefit of any kind whatsoever,
except as required by statute or regulation.
(e) Neither Seller nor any of the Seller Subsidiaries has any
material liability under ERISA or the Code as a result of its being a
member of a group described in Sections 414(b), (c), (m) or (o) of the
Code.
(f) Except as disclosed in Schedule 2.19(f), neither the
----------------
execution nor delivery of this Agreement, nor the consummation of any
of the transactions contemplated hereby, will (i) result in any payment
(including, without limitation, severance, unemployment compensation or
golden parachute payment) becoming due to any director or employee of
Seller or any of the Seller Subsidiaries from any of such entities,
(ii) increase any benefit otherwise payable under any of the Seller
Employee Plans or (iii) result in the acceleration of the time of
payment of any such benefit. Seller shall use its best efforts to
insure that no amounts paid or payable by Seller, the Seller
Subsidiaries or Buyers to or with respect to any employee or former
employee of Seller or any of the Seller Subsidiaries will fail to be
deductible for federal income tax purposes by reason of Section 280G of
the Code.
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<PAGE> 25
2.20 Conduct of Seller to Date. From and after December 31, 1997
-------------------------
through the date of this Agreement, except as set forth in the Seller
Financial Statements and the Seller Reports: (i) Seller and the Seller
Subsidiaries have conducted their respective businesses in the ordinary and
usual course consistent with past practices; (ii) except upon the exercise of
Seller Stock Options, neither Seller nor any of the Seller Subsidiaries has
issued, sold, granted, conferred or awarded any of its Equity Securities, or
any corporate debt securities which would be classified under GAAP as
long-term debt on the balance sheets of Seller or the Seller Subsidiaries;
(iii) Seller has not effected any stock split or adjusted, combined,
reclassified or otherwise changed its capitalization; (iv) Seller has not
declared, set aside or paid any dividend (other than its regular quarterly
dividends) or other distribution in respect of its capital stock, or purchased,
redeemed, retired, repurchased or exchanged, or otherwise acquired or disposed
of, directly or indirectly, any of its Equity Securities, whether pursuant to
the terms of such Equity Securities or otherwise; (v) neither Seller nor any of
the Seller Subsidiaries has incurred any obligation or liability (absolute or
contingent), except liabilities incurred in the ordinary course of business
or in connection with the transactions contemplated by this Agreement, or
subjected to Lien any of its assets or properties other than in the ordinary
course of business consistent with past practice; (vi) neither Seller nor any
of the Seller Subsidiaries has discharged or satisfied any Lien or paid any
obligation or liability (absolute or contingent), other than in the ordinary
course of business; (vii) neither Seller nor any of the Seller Subsidiaries
has sold, assigned, transferred, leased, exchanged, or otherwise disposed of
any of its properties or assets other than for a fair consideration in the
ordinary course of business; (viii) except as required by contract or law,
neither Seller nor any of the Seller Subsidiaries has (A) increased the rate
of compensation of, or paid any bonus to, any of its directors, officers, or
other employees, except in accordance with existing policy, (B) entered into
any new, or amended or supplemented any existing, employment, management,
consulting, deferred compensation, severance, or other similar contract, (C)
entered into, terminated, or substantially modified any of the Seller
Employee Plans or (D) agreed to do any of the foregoing; (ix) neither Seller
nor any Seller Subsidiary has suffered any material damage, destruction, or
loss, whether as the result of fire, explosion, earthquake, accident,
casualty, labor trouble, requisition, or taking of property by any Regulatory
Authority, flood, windstorm, embargo, riot, act of God or the enemy, or other
casualty or event, and whether or not covered by insurance; (x) neither
Seller nor any of the Seller Subsidiaries has canceled or compromised any
debt, except for debts charged off or compromised in accordance with the past
practice of Seller and the Seller Subsidiaries; and (xi) neither Seller nor
any of the Seller Subsidiaries has entered into any material transaction,
contract or commitment outside the ordinary course of its business, except in
connection with the transactions contemplated by this Agreement.
2.21 Absence of Undisclosed Liabilities.
----------------------------------
(a) As of December 31, 1997, neither Seller nor any of the
Seller Subsidiaries has any debts, liabilities or obligations equal to
or exceeding $50,000, individually or $100,000 in the aggregate,
whether accrued, absolute, contingent or otherwise and whether due or
to become due, which would be required to be reflected in the Seller
Financial Statements or the notes thereto in accordance with GAAP
except:
(i) debts, liabilities or obligations reflected on the
Seller Financial Statements and the notes thereto;
(ii) operating leases reflected on Schedule 2.11(b); and
----------------
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<PAGE> 26
(iii) debts, liabilities or obligations incurred since
December 31, 1997 in the ordinary and usual course of their
respective businesses, none of which are for breach of contract,
breach of warranty, torts, infringements or lawsuits and none of
which have a Material Adverse Effect on Seller and the Seller
Subsidiaries, taken as a whole.
(b) Neither Seller nor any of the Seller Subsidiaries was as of
December 31, 1997, or since such date to the date hereof, a party to
any contract or agreement, excluding deposits, loan agreements, and
commitments, notes, security agreements, repurchase and reverse
repurchase agreements, bankers' acceptances, outstanding letters of
credit and commitments to issue letters of credit, participation
agreements and other documents relating to transactions entered into by
Seller or any of the Seller Subsidiaries in the ordinary course of
business, that had, has or may be reasonably expected to have a
Material Adverse Effect on Seller and the Seller Subsidiaries, taken as
a whole.
2.22 Proxy Statement, Etc. None of the information regarding Seller
---------------------
or any of the Seller Subsidiaries to be supplied by Seller for inclusion or
included in (i) the Registration Statement on Form S-4 to be filed with the
SEC by Mercantile for the purpose of registering the shares of Mercantile
Common Stock to be exchanged for Seller Common Stock pursuant to the
provisions of this Agreement (the "Registration Statement"), (ii) the Proxy
Statement to be mailed to Seller's shareholders in connection with the
meeting to be called to consider this Agreement and the Merger (the "Proxy
Statement") or (iii) any other documents to be filed with any Regulatory
Authority in connection with the transactions contemplated hereby will, at
the respective times such documents are filed with any Regulatory Authority
and, in the case of the Registration Statement, when it becomes effective
and, with respect to the Proxy Statement, when mailed, be false or misleading
with respect to any material fact, or omit to state any material fact
necessary in order to make the statements therein not misleading or, in the
case of the Proxy Statement or any amendment thereof or supplement thereto,
at the time of the meeting of Seller's shareholders referred to in Section
5.03, be false or misleading with respect to any material fact, or omit to
state any material fact necessary to correct any statement in any earlier
communication with respect to the solicitation of any proxy for such meeting.
All documents which Seller or any of the Seller Subsidiaries is responsible
for filing with any Regulatory Authority in connection with the Merger will
comply as to form in all material respects with the provisions of applicable
law.
2.23 Registration Obligations. Neither Seller nor any of the Seller
------------------------
Subsidiaries is under any obligation, contingent or otherwise, which will
survive the Effective Time by reason of any agreement to register any
transaction involving any of its securities under the Securities Act.
2.24 Tax, Regulatory and Accounting Matters. Neither Seller nor any
--------------------------------------
of the Seller Subsidiaries has taken or agreed to take any action or has any
knowledge of any fact or circumstance that would (i) prevent the transactions
contemplated hereby from qualifying as a reorganization within the meaning of
Section 368 of the Code, (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) prevent or impede the
transactions contemplated hereby from qualifying for pooling-of-interests
accounting treatment.
2.25 Brokers and Finders. Except for ABN AMRO Incorporated, neither
-------------------
Seller nor any of the Seller Subsidiaries nor any of their respective
officers, directors or employees has employed any broker or finder or
incurred any liability for any financial advisory fees, brokerage fees,
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<PAGE> 27
commissions or finder's fees, and no broker or finder has acted directly or
indirectly for Seller or any of the Seller Subsidiaries in connection with
this Agreement or the transactions contemplated hereby.
2.26 Interest Rate Risk Management Instruments
-----------------------------------------
(a) Set forth on Schedule 2.26(a) is a list as of the date
----------------
hereof of all interest rate swaps, caps, floors and option agreements
and other interest rate risk management arrangements to which Seller or
any of the Seller Subsidiaries is a party or by which any of their
properties or assets may be bound.
(b) All such interest rate swaps, caps, floors and option
agreements and other interest rate risk management arrangements to
which Seller or any of the Seller Subsidiaries is a party or by which
any of their properties or assets may be bound were entered into in the
ordinary course of business and, to the best knowledge of Seller, in
accordance with prudent banking practice and applicable rules,
regulations and policies of Regulatory Authorities and with
counterparties believed to be financially responsible at the time and
are legal, valid and binding obligations of Seller or a Seller
Subsidiary and are in full force and effect. Seller and each of the
Seller Subsidiaries has duly performed in all material respects all of
its obligations thereunder to the extent that such obligations to
perform have accrued, and to the best knowledge of Seller, there are no
material breaches, violations or defaults or allegations or assertions
of such by any party thereunder.
2.27 Accuracy of Information. The statements contained in this
-----------------------
Agreement, the Schedules and any other written document executed and
delivered by or on behalf of Seller pursuant to the terms of this Agreement
are true and correct as of the date hereof or as of the date delivered in all
material respects, and such statements and documents do not omit any material
fact necessary to make the statements contained therein not misleading.
2.28 Year 2000 Compliant. To the best knowledge of Seller, both
-------------------
Seller and the Seller Subsidiaries have complied with regulatory bulletins
issued through February 28, 1998 by the Federal Financial Institutions
Examination Council on the subject of Year 2000 Compliance. Seller and the
Seller Subsidiaries have exercised ordinary care in assessing Year 2000
Compliance status of all material computer software, firmware and hardware
used in the ordinary course of business as set forth on Schedule 2.28, which
-------------
is a Y2K Inventory & Risk Assessment Matrix. Seller and the Seller
Subsidiaries shall continue to work through Closing with its vendors to
renovate or replace non-compliant computer software, firmware and hardware in
order to ensure that the testing of renovated or replaced items is
substantially underway by December 31, 1998.
ARTICLE III
-----------
REPRESENTATIONS AND WARRANTIES OF THE BUYERS
As an inducement to Seller to enter into and perform its obligations
under this Agreement, and notwithstanding any examinations, inspections,
audits or other investigations made by Seller, the Buyers hereby represent
and warrant to Seller as follows:
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<PAGE> 28
3.01 Organization and Authority. Mercantile and Merger Sub are each
--------------------------
corporations duly organized, validly existing and in good standing under the
laws of the State of Missouri, are each qualified to do business and are each
in good standing in all jurisdictions where its ownership or leasing of
property or the conduct of its business requires it to be so qualified,
except where the failure to be so qualified would not have a Material Adverse
Effect on Mercantile 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. Each of Mercantile and Merger
Sub is registered as a bank holding company with the Federal Reserve Board
under the BHCA.
3.02 Capitalization of Mercantile. The authorized capital stock of
----------------------------
Mercantile consists of (i) 400,000,000 shares of Mercantile Common Stock, of
which, as of April 23, 1998, 134,960,625 shares were issued and [133,115,227]
were outstanding and (ii) 5,000,000 shares of preferred stock, no par value
("Mercantile Preferred Stock"), issuable in series, of which as of the date
hereof, no shares were issued and outstanding. Mercantile has designated
2,000,000 shares of Mercantile Preferred Stock as "Series A Junior
Participating Preferred Stock" and has reserved such shares under a Rights
Agreement dated May 23, 1988 between Mercantile and Mercantile Bank National
Association, as Rights Agent (the "Rights Agreement" and, the rights to be
issued pursuant thereto, the "Rights"). As of March 31, 1998, Mercantile had
reserved: (i) 13,836,802 shares of Mercantile Common Stock for issuance under
Mercantile's Shareholder Investment Plan (the "Investment Plan") and various
employee and/or director stock option, incentive and/or benefit plans
(collectively, "Mercantile Employee/Director Stock Grants"); (ii) 2,077,000
shares of Mercantile Common Stock for issuance upon the acquisition of
Financial Services Corporation of the Midwest ("FSCM") pursuant to the
Agreement and Plan of Merger, dated as of April 13, 1998, by and among
Mercantile, Merger Sub and FSCM; (iii) 5,400,000 shares of Mercantile Common
Stock for issuance upon the acquisition of CBT Corporation ("CBT") pursuant
to the Agreement and Plan of Merger, dated as of January 10, 1998, by and
among Mercantile, Merger Sub and CBT; and (iv) 13,800,000 shares of
Mercantile Common Stock for issuance upon the acquisition of Firstbank of
Illinois ("Firstbank") pursuant to the Agreement and Plan of Merger, dated as
of January 30, 1998, by and among Mercantile, Merger Sub and Firstbank. From
March 31, 1998 through the date of this Agreement, no shares of Mercantile
Common Stock have been issued, excluding any such shares which may have been
issued in connection with the Investment Plan or Mercantile Employee/Director
Stock Grants.
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 or repurchase its outstanding Equity
Securities. Notwithstanding the foregoing, neither Mercantile nor any
Mercantile Subsidiary has taken or agreed to take any action or has any
knowledge of any fact or circumstance and neither Mercantile nor Merger Sub
will take any action that would (i) prevent the transactions contemplated
hereby from qualifying as a reorganization within the meaning of Section 368
of the Code, (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) prevent or impede the Merger from qualifying for
pooling-of-interests accounting treatment. Except as set forth above, there
are no other Equity Securities of Mercantile outstanding. All of the issued
and outstanding shares of Mercantile Common Stock are validly issued, fully
paid, and nonassessable, and have not been issued in violation of any
preemptive right of any shareholder of Mercantile. At the Effective Time,
the Mercantile Common Stock to be
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<PAGE> 29
issued in the Merger will be duly authorized, validly issued, fully paid and
nonassessable, will not be issued in violation of any preemptive right of any
shareholder of Mercantile.
3.03 Authorization.
-------------
(a) Mercantile and Merger Sub each has the corporate power and
authority to enter into this Agreement and to carry out their
respective obligations hereunder. The execution, delivery and
performance of this Agreement by Mercantile and Merger Sub and the
consummation by Mercantile and Merger Sub of the transactions
contemplated hereby have been duly authorized by all requisite
corporate action of Mercantile and Merger Sub. Subject to the receipt
of such approvals of the Regulatory Authorities as may be required by
statute or regulation, this Agreement is a valid and binding obligation
of Mercantile and Merger Sub enforceable against each in accordance
with its terms.
(b) Neither the execution, delivery and performance by
Mercantile and Merger Sub of this Agreement, nor the consummation by
Mercantile and Merger Sub of the transactions contemplated hereby, nor
compliance by Mercantile and Merger Sub with any of the provisions
hereof, will (i) violate, conflict with or result in a breach of any
provisions of, or constitute a default (or an event which, with notice
or lapse of time or both, would constitute a default) or result in the
termination of, or accelerate the performance required by, or result in
a right of termination or acceleration of, or result in the creation
of, any Lien upon any of the properties or assets of Mercantile or
Merger Sub under any of the terms, conditions or provisions of (x)
their respective Articles of Incorporation or By-Laws, or (y) any note,
bond, mortgage, indenture, deed of trust, license, lease, agreement or
other instrument or obligation to which Mercantile or Merger Sub is a
party or by which they may be bound, or to which Mercantile or Merger
Sub or any of their respective properties or assets may be subject, or
(ii) subject to compliance with the statutes and regulations referred
to in subsection (c) of this Section 3.03, violate any judgment,
ruling, order, writ, injunction, decree, statute, rule or regulation
applicable to Mercantile or Merger Sub or any of their respective
properties or assets; other than violations, conflicts, breaches,
defaults, terminations, accelerations or Liens which would not have a
Material Adverse Effect on Mercantile and its Subsidiaries, taken as a
whole.
(c) Other than in connection with or in compliance with the
provisions of the Missouri Statute, the IBCA, the Securities Act, the
Exchange Act, the securities or blue sky laws of the various states or
filings, consents, reviews, authorizations, approvals or exemptions
required under the BHCA, the FDI Act or any required approvals of any
other Regulatory Authority, no notice to, filing with, exemption or
review by, or authorization, consent or approval of, any public body or
authority is necessary for the consummation by Mercantile and Merger
Sub of the transactions contemplated by this Agreement.
3.04 Mercantile Financial Statements. The consolidated balance sheets
-------------------------------
of Mercantile and its Subsidiaries as of December 31, 1997, 1996 and 1995 and
related consolidated statements of income, changes in shareholders' equity
and cash flows for each of the three years in the period ended December 31,
1997, together with the notes thereto, audited by KPMG Peat Marwick LLP, as
filed with
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<PAGE> 30
the SEC on Form 10-K for the year ended December 31, 1997 (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 thereof and the consolidated results of operations,
changes in shareholders' 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 accordance with good business
practices. Neither Mercantile nor any of its Subsidiaries has any material
contingent liabilities that are not described in the Mercantile Financial
Statements.
3.05 Mercantile Reports. Since January 1, 1995, each of Mercantile
------------------
and its Subsidiaries has filed any and all reports, registrations and
statements, together with any required amendments thereto, that it was
required to file with any Regulatory Authority. All such reports and
statements filed with any such Regulatory Authority are collectively referred
to herein as the "Mercantile Reports." As of its respective date, each
Mercantile Report complied in all material respects with all the rules and
regulations promulgated by the applicable Regulatory Authority and did not
contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
3.06 Material Adverse Effect. Since December 31, 1997, there has been
-----------------------
no Material Adverse Effect on Mercantile and its Subsidiaries, taken as a
whole.
3.07 Registration Statement, Etc. None of the information regarding
---------------------------
Mercantile or any of its Subsidiaries to be supplied by Buyers for inclusion
or included in (i) the Registration Statement, (ii) the Proxy Statement, or
(iii) any other documents to be filed with any Regulatory Authority in
connection with the transactions contemplated hereby will, at the respective
times such documents are filed with any Regulatory Authority and, in the case
of the Registration Statement, when it becomes effective and, with respect to
the Proxy Statement, when mailed, be false or misleading with respect to any
material fact, or omit to state any material fact necessary in order to make
the statements therein not misleading or, in the case of the Proxy Statement
or any amendment thereof or supplement thereto, at the time of the meeting of
Seller's shareholders referred to in Section 5.03, be false or misleading
with respect to any material fact, or omit to state any material fact
necessary to correct any statement in any earlier communication with respect
to the solicitation of any proxy for such meeting. All documents which
Mercantile or Merger Sub are responsible for filing with any Regulatory
Authority in connection with the Merger will comply as to form in all
material respects with the provisions of applicable law.
3.08 Brokers and Finders. Neither Mercantile, Merger Sub nor any of
-------------------
their respective officers, directors or employees has employed any broker or
finder or incurred any liability for any financial advisory fees, brokerage
fees, commissions or finder's fees, and no broker or finder has acted
directly or indirectly for Mercantile or Merger Sub in connection with this
Agreement or the transactions contemplated hereby.
3.09 Accuracy of Information. The statements contained in this
-----------------------
Agreement and any other written document executed and delivered by or on
behalf of Buyers pursuant to the terms of this Agreement are true and correct
as of the date hereof in all material respects, and such statements and
documents do not omit any material fact necessary to make the statements
contained therein not misleading.
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<PAGE> 31
ARTICLE IV
----------
CONDUCT OF BUSINESSES PRIOR TO THE EFFECTIVE TIME
4.01 Conduct of Businesses Prior to the Effective Time. During the
-------------------------------------------------
period from the date of this Agreement to the Effective Time, Seller and each
of the Seller Subsidiaries shall conduct their businesses according to the
ordinary and usual course consistent with past and current practices and
shall use their best efforts to maintain and preserve their business
organization, employees and advantageous business relationships and retain
the services of their officers and key employees.
4.02 Forbearances of Seller Except as set forth in Schedule 4.02, and
--------------------- -------------
except to the extent required by law, regulation or Regulatory Authority, or
with the prior written consent of Buyers (unless otherwise specifically noted
in this Section 4.02), during the period from the date of this Agreement to
the Effective Time, Seller shall not and shall not permit any of the Seller
Subsidiaries to:
(a) declare, set aside or pay any dividends or other
distributions, directly or indirectly, in respect of its capital stock
(other than dividends from any of the Seller Subsidiaries to Seller or
to another of the Seller Subsidiaries), except that Seller may declare
and pay regular quarterly cash dividends of not more than $0.2725 per
share on the Seller Common Stock; provided, however, that Seller shall
not declare or pay a quarterly dividend for any quarter in which Seller
shareholders will be entitled to receive a regular quarterly dividend
on the shares of Mercantile Common Stock to be issued in the Merger;
(b) enter into or amend any employment, severance or similar
agreement or arrangement with any director, officer or employee, or
materially modify any of the Seller Employee Plans or grant any salary
or wage increase or materially increase any employee benefit (including
incentive or bonus payments), except (i) normal individual increases in
compensation to employees consistent with past practice, (ii) as
required by law or contract, (iii) such increases of which Seller
notifies Buyers in writing and which Buyers do not disapprove within 10
days of the receipt of such notice and (iv) pursuant to the provisions
of Section 5.10 hereof;
(c) 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;
(d) propose or adopt any amendments to its Articles of
Incorporation or other charter document or By-Laws;
(e) issue, sell, grant, confer or award any of its Equity
Securities, except that the Seller may issue shares of Seller Common
Stock upon exercise of the Seller Stock Options outstanding on the date
of this Agreement and pursuant to the option granted to Mercantile in
connection with the transaction contemplated by this Agreement, or
effect any stock split or adjust, combine, reclassify or otherwise
change its capitalization as it existed on the date of this Agreement;
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<PAGE> 32
(f) purchase, redeem, retire, repurchase or exchange, or
otherwise acquire or dispose of, directly or indirectly, any of its
Equity Securities, whether pursuant to the terms of such Equity
Securities or otherwise;
(g) without first consulting with and obtaining the written
consent of Mercantile, cause or permit FNBI to enter into, renew or
increase any loan or credit commitment (including stand-by letters of
credit) to, or invest or agree to invest in any person or entity or
modify any of the material provisions or renew or otherwise extend the
maturity date of any existing loan or credit commitment (collectively,
"Lend to") in an amount equal to or in excess of $1,000,000 or in any
amount which, when aggregated with any and all loans or credit
commitments of Seller and the Seller Subsidiaries to such person or
entity, would be equal to or in excess of $1,000,000; provided,
however, that Seller or any of the Seller Subsidiaries may make any
such loan or credit commitment in the event (A) Seller or any Seller
Subsidiary has delivered to Buyers or their designated representative a
notice of its intention to make such loan and such information as
Buyers or their designated representative may reasonably require in
respect thereof and (B) Buyers or their designated representative shall
not have reasonably objected to such loan by giving written or
facsimile notice of such objection within two (2) business days
following the delivery to Buyers or their designated representative of
the notice of intention and information as aforesaid; provided further,
however, that nothing in this paragraph shall prohibit Seller or any
Seller Subsidiary from honoring any contractual obligation in existence
on the date of this Agreement. Notwithstanding this Section 4.02(g),
Seller shall be authorized without first consulting with Buyers or
obtaining Buyers' prior written consent, to cause or permit FNBI to
increase the aggregate amount of any credit facilities theretofore
established in favor of any person or entity (each a "Pre-Existing
Facility"), provided that the aggregate amount of any and all such
increases shall not be in excess of the lesser of 10% of such Pre-
Existing Facilities or $50,000;
(h) directly or indirectly (including through its officers,
directors, employees or other representatives) (i) initiate, solicit or
encourage any discussions, inquiries or proposals with any third party
(other than Buyers) relating to the disposition of any significant
portion of the business or assets of Seller or any of the Seller
Subsidiaries or the acquisition of Equity Securities of Seller or any
of the Seller Subsidiaries or the merger of Seller or any of the Seller
Subsidiaries with any person (other than Buyers) or any similar
transaction (each such transaction being referred to herein as an
"Acquisition Transaction"), (ii) provide any such person with
information or assistance or negotiate with any such person with
respect to an Acquisition Transaction, and Seller shall promptly notify
Buyers orally of all the relevant details relating to all inquiries,
indications of interest and proposals which it may receive with respect
to any Acquisition Transaction;
(i) take any action that would (i) prevent or impede the
transactions contemplated hereby from qualifying as a reorganization
within the meaning of Section 368 of the Code, (ii) materially impede
or delay the consummation of the transactions contemplated by this
Agreement or the ability of Buyers or Seller to obtain any approval of
any Regulatory Authority required for the transactions contemplated by
this Agreement or to perform its covenants and agreements under this
Agreement, or
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<PAGE> 33
(iii) prevent or impede the Merger from qualifying for
pooling-of-interests accounting treatment;
(j) other than in the ordinary course of business consistent
with past practice, incur any indebtedness for borrowed money or
assume, guarantee, endorse or otherwise as an accommodation become
responsible or liable for the obligations of any other individual,
corporation or other entity;
(k) materially restructure or change its investment securities
portfolio, through purchases, sales or otherwise, or the manner in
which the portfolio is classified or reported, or execute individual
investment transactions for its own account of greater than $1,000,000
for U.S. Treasury or Federal Agency Securities and $250,000 for all
other investment instruments;
(l) agree in writing or otherwise to take any of the foregoing
actions or engage in any activity, enter into any transaction or
intentionally take or omit to take any other act which would make any
of the representations and warranties in Article II of this Agreement
untrue or incorrect in any material respect if made anew after engaging
in such activity, entering into such transaction, or taking or omitting
such other act; or
(m) enter into, increase or renew any loan or credit commitment
(including standby letters of credit) to any executive officer or
director of Seller or any of the Seller Subsidiaries, any holder of 10%
or more of the outstanding shares of Seller Common Stock, or any entity
controlled, directly or indirectly, by any of the foregoing or engage
in any transaction with any of the foregoing which is of the type or
nature sought to be regulated in 12 U.S.C. Sec. 371c and 12 U.S.C. Sec.
371c-1, without first obtaining the prior written consent of Buyers,
which consent shall not be unreasonably withheld. For purposes of this
subsection (m), "control" shall have the meaning associated with that
term under 12 U.S.C. Sec. 371c.
4.03 Forbearances of the Buyers. During the period from the date of
--------------------------
this Agreement to the Closing Date, the Buyers shall not, without the prior
consent of Seller, agree in writing or otherwise to engage in any activity,
enter into any transaction or take or omit to take any other action:
(a) that would (i) prevent or impede the transactions
contemplated hereby from qualifying as a reorganization within the
meaning of Section 368 of the Code, (ii) materially impede or delay the
consummation of the transactions contemplated by this Agreement or the
ability of Mercantile or Seller to obtain any necessary approvals of
any Regulatory Authority required for the transactions contemplated by
this Agreement or to perform its covenants and agreements under this
Agreement, or (iii) prevent or impede the Merger from qualifying for
pooling-of-interests accounting treatment; or
(b) which would make any of the representations and warranties
of Article III of this Agreement untrue or incorrect in any material
respect if made anew after engaging in such activity, entering into
such transaction, or taking or omitting such other action.
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<PAGE> 34
ARTICLE V
---------
ADDITIONAL AGREEMENTS
5.01 Access and Information; Due Diligence. Buyers and Seller shall
-------------------------------------
each afford to the other, and to the other's accountants, counsel and other
representatives, full access during normal business hours, during the period
prior to the Effective Time, to all their respective properties, books,
contracts, commitments and records and, during such period, each shall
furnish promptly to the other (i) a copy of each report, schedule and other
document filed or received by it during such period pursuant to the
requirements of federal and state securities laws and (ii) all other
information concerning its business, properties and personnel as the other
may reasonably request. Each party shall, and shall cause its advisors and
representatives to, (A) hold confidential all information obtained in
connection with any transaction contemplated hereby with respect to the other
party and its Subsidiaries which is not otherwise public knowledge, (B) in
the event of a termination of this Agreement, return all documents (including
copies thereof) obtained hereunder from the other party or any of its
Subsidiaries to such other party or its Subsidiaries and (C) use its best
efforts to cause all information obtained pursuant to this Agreement or in
connection with the negotiation of this Agreement to be treated as
confidential and not use, or knowingly permit others to use, any such
information unless such information becomes generally available to the
public.
5.02 Registration Statement; Regulatory Matters.
------------------------------------------
(a) Mercantile shall prepare and, subject to the review and
consent of Seller with respect to matters relating to Seller, file with
the SEC the Registration Statement (or the equivalent in the form of
preliminary proxy materials) with respect to the shares of Mercantile
Common Stock to be issued in the Merger and the exercise of the Seller
Stock Options after the Effective Time. Mercantile shall promptly
prepare and, subject to the review and consent of Seller with respect
to matters relating to Seller, use its best efforts to file as soon as
is reasonably practicable an application for approval of the Merger
with the Federal Reserve Board, and such additional regulatory
authorities as may require an application, and shall use its best
efforts to cause the Registration Statement to become effective.
Mercantile shall also take any action required to be taken under any
applicable state blue sky or securities laws in connection with the
issuance of such shares and the exercise of such options, and Seller
and the Seller Subsidiaries shall furnish Mercantile all information
concerning Seller and the Seller Subsidiaries and the shareholders
thereof as Mercantile may reasonably request in connection with any
such action.
(b) Seller and Buyers shall cooperate and use their respective
best efforts to prepare all documentation, to effect all filings and to
obtain all permits, consents, approvals and authorizations of all third
parties and Regulatory Authorities necessary to consummate the
transactions contemplated by this Agreement and, as and if directed by
Mercantile, to consummate such other transactions by and among
Mercantile's Subsidiaries and the Seller Subsidiaries concurrently with
or following the Effective Time, provided, however, that such actions
do not: (i) prevent or impede the transactions contemplated
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<PAGE> 35
hereby from qualifying as a reorganization within the meaning of Section
368 of the Code; (ii) materially impede or delay the receipt of any
approval referred to in Section 6.01(b); (iii) prevent or impede the
transactions contemplated hereby from qualifying for pooling-of-
interests accounting treatment unless Buyers first waive Seller's
covenants in Sections 5.02(b) and 5.16 hereof and the condition to
Buyers' obligation to consummate the Merger set forth in Section
6.03(f) hereof; or (iv) materially impede or delay the consummation of
the transactions contemplated by this Agreement.
5.03 Shareholder Approval. Seller shall call a special meeting of its
--------------------
shareholders to be held as soon as is reasonably possible for the purpose of
voting upon this Agreement and the Merger and related matters. In connection
with such meeting, Mercantile shall prepare, subject to the review and
consent of Seller, the Proxy Statement (which shall be part of the
Registration Statement to be filed with the SEC by Mercantile) and mail the
same to the shareholders of Seller. The Board of Directors of Seller shall
submit for approval of Seller's shareholders the matters to be voted upon at
such meeting. The Board of Directors of Seller hereby does and, subject to
the fiduciary duties of the Seller's Board of Directors, as advised by
outside legal counsel, will recommend this Agreement and the transactions
contemplated hereby to the shareholders of Seller and use its reasonable best
efforts to obtain any vote of Seller's shareholders necessary for the
approval of this Agreement.
5.04 Current Information. During the period from the date of this
-------------------
Agreement to the Closing Date, (i) each party will 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 and (ii) Mercantile shall promptly furnish
to the Seller copies of all filings by Mercantile with each of the Federal
Reserve Board and the SEC. Each party shall promptly notify the other party
of the following events immediately upon learning of the occurrence thereof,
describing the same and, if applicable, the steps being taken by the affected
party with respect thereto: (a) the occurrence of any event which could cause
any representation or warranty of such party or any schedule, statement,
report, notice, certificate or other writing furnished by such party to be
untrue or misleading in any material respect; (b) any Material Adverse
Effect; (c) the issuance or commencement of any governmental and/or
regulatory agency complaint, investigation or hearing or any communications
indicating that the same may be contemplated and, as to any such matter which
shall now or hereafter be in effect, any communications pertaining thereto;
or (d) the institution or the threat of any material litigation involving
such party.
5.05 Conforming Entries.
------------------
(a) Notwithstanding that Seller believes that Seller and Seller
Subsidiaries have established all reserves and taken all provisions for
possible loan losses required by GAAP and applicable laws, rules and
regulations, Seller recognizes that Buyers may have adopted different
loan, accrual and reserve policies (including loan classifications and
levels of reserves for possible loan losses). From and after the date
of this Agreement, Seller and Buyers shall consult and cooperate with
each other with respect to conforming the loan, accrual and reserve
policies of Seller and the Seller Subsidiaries to those policies of
Buyers, as specified in each case in writing to Seller, based upon such
consultation and as hereinafter provided.
(b) In addition, from and after the date of this Agreement,
Seller and Buyers shall consult and cooperate with each other with
respect to determining appropriate Seller 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
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<PAGE> 36
adjustments taking into account the parties' business plans following the
Merger, as specified in each case in writing to Seller, based upon such
consultation and as hereinafter provided.
(c) Seller and Buyers shall consult and cooperate with each
other with respect to determining the amount and the timing for
recognizing for financial accounting purposes Seller's expenses of the
Merger and the restructuring charges, if any, related to or to be
incurred in connection with the Merger.
(d) With respect to clauses (a) through (c) of this Section
5.05, it is the objective of Mercantile and Seller that such reserves,
accruals, charges and divestitures, if any, to be taken shall be
consistent with GAAP.
5.06 Environmental Reports. Buyers 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. or any other firm designated by Buyers, or any of them, on
all real property owned, leased or operated by Seller or any of the Seller
Subsidiaries as of the date hereof (but excluding space in retail and similar
establishments leased by Seller 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 Sellers of the acquisition or lease of any real
property acquired or leased by Seller or any of the Seller Subsidiaries after
the date hereof (but excluding space in retail and similar establishments
leased by Seller 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 Buyers' reasonable opinion, that additional investigation is
warranted, Buyers may perform, at Buyers' expense, a phase two subsurface
investigation or investigations by Environmental Operations, Inc. on
properties deemed to warrant such additional study. Buyers shall perform any
such phase two investigation as soon as reasonably practicable after receipt
of the phase one report(s) for such properties and, in any event, shall
notify Seller and Environmental Operations, Inc. within fifteen (15) days
after receipt of the phase one report that Environmental Operations, Inc.
should promptly commence any such phase two investigation. 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 two report or reports, in the aggregate, exceed the sum of
$500,000, 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, Buyers shall have the right pursuant to Section 7.01(e)
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.
5.07 Agreements of Affiliates. Set forth as Schedule 5.07 is a list
------------------------ -------------
(which includes all individual and beneficial ownership and also identifies
how all such beneficially owned shares are registered on the stock record
book of Seller) of all persons whom Seller believes to be "affiliates" of
Seller for purposes of Rule 145 under the Securities Act and for
pooling-of-interests accounting treatment. Seller shall use its best efforts
to cause each person who is identified as an "affiliate" to deliver to
Mercantile, as of the date hereof, or as soon as practicable hereafter, a
written agreement in substantially the form set forth as Exhibit A to this
---------
Agreement providing that each such person will agree not to sell, pledge,
transfer or otherwise dispose of the shares of Mercantile Common Stock to be
received by such person in the Merger during the period designated in such
letter and thereafter in
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<PAGE> 37
compliance with the applicable provisions of the Securities Act. Prior to the
Closing Date, and via letter, Seller shall amend and supplement Schedule 5.07
-------------
and use its best efforts to cause each additional person who is identified as an
"affiliate" to execute a written agreement as provided in this Section 5.07.
5.08 Expenses. Each party hereto shall bear its own expenses incident
--------
to preparing, entering into and carrying out this Agreement and to
consummating the Merger; provided, however, that any and all fees (excluding
reasonable out-of-pocket expenses) paid by Seller to its legal counsel,
Sidley & Austin, related to the preparation of this Agreement and all other
agreements and documentation in connection with the consummation of the
transactions contemplated herein, shall not exceed $100,000; provided
further, however, that Buyers shall pay all printing expenses and filing fees
incurred in connection with this Agreement, the Registration Statement and
the Proxy Statement.
5.09 Miscellaneous Agreements and Consents.
-------------------------------------
(a) Subject to the terms and conditions herein provided, each
of the parties hereto agrees to use its respective best efforts to
take, or cause to be taken, all actions, and to do, or cause to be
done, all things necessary, proper or advisable under applicable laws
and regulations to consummate and make effective the transactions
contemplated by this Agreement as expeditiously as possible, including,
without limitation, using its respective best efforts to lift or
rescind any injunction or restraining order or other order adversely
affecting the ability of the parties to consummate the transactions
contemplated hereby. Each party shall, and shall cause each of its
respective Subsidiaries to, use its best efforts to obtain consents of
all third parties and Regulatory Authorities necessary or, in the
opinion of Buyers, desirable for the consummation of the transactions
contemplated by this Agreement.
(b) Seller, prior to the Effective Time, shall (i) consult and
cooperate with Buyers regarding the implementation of those policies
and procedures established by Buyers for its governance and that of its
Subsidiaries and not otherwise referenced in Section 5.05 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 reasonable
request of Buyers, conform Seller's existing policies and procedures in
respect of such matters to Buyers' policies and procedures or, in the
absence of any existing Seller policy or procedure regarding any such
function, introduce Buyers' policies or procedures in respect thereof,
unless to do so would cause Seller or any of the Seller Subsidiaries to
be in violation of any law, rule or regulation or requirement of any
Regulatory Authority having jurisdiction over Seller and/or the Seller
Subsidiary affected thereby.
5.10 Employee Agreements and Benefits.
--------------------------------
(a) Following the Effective Time, Buyers shall cause the
Surviving Corporation to honor in accordance with their terms all
employment, severance and other compensation contracts set forth on
Schedule 2.11(b) between Seller, any of the Seller Subsidiaries, and
----------------
any current or former director, officer, employee or agent thereof, and
all provisions for vested benefits or other vested amounts earned or
accrued through the Effective Time under the Seller Employee Plans.
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(b) Subject to Section 5.15, the provisions of the Seller Stock
Plans and any other plan, program or arrangement providing for the
issuance or grant of any other interest in respect of the Equity
Securities of Seller or any of the Seller Subsidiaries shall be deleted
and terminated as of the Effective Time.
(c) Except as set forth in Section 5.10(b) hereof, the Seller
Employee Plans shall not be terminated by reason of the Merger but
shall continue thereafter as plans of the Surviving Corporation until
such time as the employees of Seller and the Seller Subsidiaries are
integrated into Mercantile's employee benefit plans that are available
to other employees of Mercantile and its Subsidiaries, subject to the
terms and conditions specified in such plans and to such changes
therein as may be necessary to reflect the consummation of the Merger.
Mercantile shall take such steps as are necessary or required to
integrate the employees of Seller and the Seller Subsidiaries into
Mercantile's employee benefit plans available to other employees of
Mercantile and its Subsidiaries as soon as practicable after the
Effective Time, with (i) full credit for prior service with Seller or
any of the Seller Subsidiaries for purposes of vesting and eligibility
for participation and benefit allocation (but not benefit accruals
under any defined benefit plan), and co-payments and deductibles, (ii)
waiver of all waiting periods, evidence of insurability and pre-
existing condition exclusions or penalties, and (iii) 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 in which the Merger is
consummated.
5.11 Press Releases. Except to the extent disclosure may be required
--------------
by applicable law, Seller and the Buyers shall consult with each other as to
the form and substance of any proposed press release or other proposed public
disclosure of matters related to this Agreement or any of the transactions
contemplated hereby.
5.12 State Takeover Statutes. Seller will take all steps necessary to
-----------------------
exempt the transactions contemplated by this Agreement and any agreement
contemplated hereby from, and if necessary challenge the validity of, any
applicable state takeover law.
5.13 Directors' and Officers' Indemnification. Mercantile agrees that
----------------------------------------
the Merger shall not affect or diminish any of the duties and obligations of
indemnification of Seller or any of the Seller Subsidiaries existing as of
the Effective Time in favor of employees, agents, directors or officers of
Seller or any of the Seller Subsidiaries arising by virtue of its Articles of
Incorporation, Charter or By-Laws in the form in effect at the date of this
Agreement or arising by operation of law or arising by virtue of any
contract, resolution or other agreement or document existing at the date of
this Agreement, and Mercantile shall continue such duties and obligations in
full force and effect for so long as they would (but for the Merger)
otherwise survive and continue in full force and effect. To the extent that
Seller's existing directors' and officers' liability insurance policy would
provide coverage for any action or omission occurring prior to the Effective
Time, Seller agrees to give proper notice to the insurance carrier and to
Mercantile of any potential claim thereunder so as to preserve Seller's
rights to such insurance coverage. Mercantile represents that the directors'
and officers' liability insurance policy maintained by it provides for
coverage of "prior acts" for directors and officers of entities acquired by
Mercantile including Seller and the Seller Subsidiaries on and after the
Effective Time. After the Effective Time, Mercantile will provide, or cause
to be provided, such coverage to the officers and
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<PAGE> 39
directors of Seller to the same extent as provided to officer and directors of
Mercantile's other Subsidiaries.
5.14 Tax Opinion Certificates. Seller shall cause such of its
------------------------
executive officers and directors as may be reasonably requested by Thompson
Coburn to timely execute and deliver to Thompson Coburn a certificate
substantially in the form of Exhibit B hereto.
---------
5.15 Employee Stock Options.
----------------------
(a) At the Effective Time, all rights with respect to Seller
Common Stock pursuant to Seller Stock Options that are outstanding at
the Effective Time, whether or not then exercisable, shall be converted
into and become rights with respect to Mercantile Common Stock, and
Mercantile shall assume all Seller Stock Options in accordance with the
terms of the Seller Stock Plan under which it was issued and the Seller
Stock Option Agreement by which it is evidenced. From and after the
Effective Time, (i) each Seller Stock Option assumed by Mercantile
shall be exercised solely for shares of Mercantile Common Stock, (ii)
the number of shares of Mercantile Common Stock subject to each Seller
Stock Option shall be equal to the number of shares of Seller Common
Stock subject to such Seller Stock Option immediately prior to the
Effective Time multiplied by the Exchange Ratio and (iii) the per share
exercise price under each Seller Stock Option shall be adjusted by
dividing the per share exercise price under such Seller Stock Option by
the Exchange Ratio and rounding down to the nearest cent; provided,
however, that the terms of each Seller 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 Code, as to any Seller Stock Option that is an
"incentive stock option" as defined under the Code.
(b) The shares of Mercantile Common Stock covered by the Seller
Stock Options shall be covered by an effective registration statement
filed on Form S-8 with the SEC and shall be duly authorized, validly
issued and in compliance with all applicable federal and state
securities laws, fully paid and nonassessable and not subject to or in
violation of any preemptive rights. Mercantile shall maintain the
effectiveness of such registration statement (and maintain current
status of the prospectus contained therein) for as long as such options
remain outstanding. Mercantile shall at and after the Effective Time
have reserved sufficient shares of Mercantile Common Stock for issuance
with respect to such options. Mercantile shall also take any action
required to be taken under any applicable state blue sky or securities
laws in connection with the issuance of such shares.
5.16 Best Efforts to Insure Pooling. Each of Mercantile and Seller
------------------------------
undertakes and agrees to use its best efforts to cause the Merger to qualify
for pooling-of-interests accounting treatment.
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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) Shareholder Approval. The approval of this Agreement and
--------------------
the Merger shall have received the requisite vote of shareholders of
Seller at the special meeting of shareholders called pursuant to
Section 5.03 hereof.
(b) Regulatory Approval. This Agreement and the transactions
-------------------
contemplated hereby shall have been approved by the Federal Reserve
Board and any other federal and/or state regulatory agencies whose
approval is required for consummation of the transactions contemplated
hereby and all requisite waiting periods imposed by the foregoing shall
have expired.
(c) Effectiveness of Registration Statement. The Registration
---------------------------------------
Statement shall have been declared effective and shall not be subject
to a stop order or any threatened stop order.
(d) No Judicial Prohibition. Neither Seller, Mercantile nor
-----------------------
Merger Sub shall be subject to any order, decree or injunction of a
court or agency of competent jurisdiction which enjoins or prohibits
the consummation of the Merger.
(e) Tax Opinion. Each of Buyers and Seller shall have received
-----------
from Thompson Coburn an opinion (which opinion shall not have been
withdrawn at or prior to the Effective Time) reasonably satisfactory in
form and substance to it to the effect that the Merger will constitute
a reorganization within the meaning of Section 368 of the Code, and to
the effect that, as a result of the Merger, except with respect to
fractional share interests and assuming that such Seller Common Stock
is a capital asset in the hands of the holder thereof at the Effective
Time, (i) holders of Seller Common Stock who receive Mercantile Common
Stock in the Merger will not recognize gain or loss for federal income
tax purposes on the receipt of such stock, (ii) the basis of such
Mercantile Common Stock will equal the basis of the Seller Common Stock
for which it is exchanged, and (iii) and the holding period of such
Mercantile Common Stock will include the holding period of the Seller
Common Stock for which it is exchanged.
6.02 Conditions to Obligations of Seller. The obligations of Seller
-----------------------------------
to effect the Merger shall be subject to the fulfillment or waiver at or
prior to the Effective Time of the following additional conditions:
(a) Representations and Warranties. The representations and
-----------------------------
warranties of Buyers set forth in Article III of this Agreement shall
be true and correct in all material respects as of the date of this
Agreement and as of the Effective Time (as though made on and as of the
Effective Time, except (i) to the extent such representations and
warranties are by their express provisions made as of a specified date
or period,
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<PAGE> 41
(ii) where the facts which caused the failure of any representation or
warranty to be so true and correct have not resulted, and are not likely
to result, in a Material Adverse Effect on Mercantile and its
Subsidiaries, taken as a whole, and (iii) for the effect of transactions
contemplated by this Agreement), and Seller shall have received a
certificate of any Executive Vice President of Mercantile, signing solely
in his capacity as an officer of Mercantile, to such effect.
(b) Performance of Obligations. Buyers shall have performed in
--------------------------
all material respects all obligations required to be performed by it
under this Agreement prior to the Effective Time, and Seller shall have
received a certificate of any Executive Vice President of Mercantile,
signing solely in his capacity as an officer of Mercantile, to that
effect.
(c) Permits, Authorizations, etc. Buyers shall have obtained
-----------------------------
any and all material permits, authorizations, consents, waivers and
approvals required for the lawful consummation of the Merger.
(d) No Material Adverse Effect. Since the date of this
--------------------------
Agreement, there shall have been no Material Adverse Effect on
Mercantile and its Subsidiaries, taken as a whole.
(e) Opinion of Counsel. Mercantile shall have delivered to
------------------
Seller an opinion of Mercantile's counsel dated as of the Closing Date
or a mutually agreeable earlier date in substantially the form set
forth as Exhibit C to this Agreement.
---------
6.03 Conditions to Obligations of the Buyers. The obligations of the
---------------------------------------
Buyers to effect the Merger shall be subject to the fulfillment at or prior
to the Effective Time of the following additional conditions:
(a) Representations and Warranties. The representations and
------------------------------
warranties of Seller set forth in Article II of this Agreement shall be
true and correct in all material respects as of the date of this
Agreement and as of the Effective Time (as though made on and as of the
Effective Time, except (i) to the extent such representations and
warranties are by their express provisions made as of a specific date
or period, (ii) where the facts which caused the failure of any
representation or warranty to be so true and correct have not resulted,
and are not likely to result, in a Material Adverse Effect on Seller
and its Subsidiaries, taken as a whole, and (iii) for the effect of
transactions contemplated by this Agreement) and Buyers shall have
received a certificate of the Chief Executive Officer and Chief
Financial Officer of Seller, signing solely in their capacities as
officers of Seller, to such effect.
(b) Performance of Obligations. Seller shall have performed in
--------------------------
all material respects all obligations required to be performed by it
under this Agreement prior to the Effective Time, and Buyers shall have
received a certificate of the Chief Executive Officer and Chief
Financial Officer, signing solely in their capacities as officers of
Seller, to that effect.
-36-
<PAGE> 42
(c) Permits, Authorizations, etc. Seller shall have obtained
-----------------------------
any and all material permits, authorizations, consents, waivers and
approvals required for the lawful consummation by it of the Merger.
(d) No Material Adverse Effect. Since the date of this
--------------------------
Agreement, there shall have been no Material Adverse Effect on Seller
and the Seller Subsidiaries, taken as a whole.
(e) Opinion of Counsel. Seller shall have delivered to Buyers
------------------
an opinion of Seller's counsel dated as of the Closing Date or a
mutually agreeable earlier date in substantially the form set forth as
Exhibit D to this Agreement.
---------
(f) Pooling Letter. The Buyers shall have received as soon as
--------------
practicable after the date of this Agreement a letter of KPMG Peat
Marwick LLP, reasonably satisfactory in form and substance to the
Buyers, to the effect that the Merger will qualify for pooling-of-
interests accounting treatment, which letter shall have not been
withdrawn.
ARTICLE VII
-----------
TERMINATION, AMENDMENT AND WAIVER
7.01 Termination. This Agreement may be terminated at any time prior
-----------
to the Closing Date, whether before or after approval by the shareholders of
Seller:
(a) by mutual consent by the Executive Committee of the Board
of Directors of Mercantile and by the Board of Directors of Seller;
(b) by the Executive Committee of the Board of Directors of
Mercantile or the Board of Directors of Seller at any time after May 1,
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 Seller if (i) the Federal
Reserve Board or any other federal and/or state regulatory agency whose
approval is required for the consummation of the transactions
contemplated hereby has denied approval of the Merger and such denial
has become final and nonappealable or (ii) the shareholders of Seller
shall not have approved this Agreement at the meeting referred to in
Section 5.03;
(d) by the Executive Committee of the Board of Directors of
Mercantile, on the one hand, or by the Board of Directors of Seller, on
the other hand, in the event of a material volitional breach by the
other party to this Agreement of any representation, warranty, covenant
or agreement contained herein, which breach is not cured within 30 days
after written notice thereof is given to the breaching party by the
non-breaching party or is not waived by the non-breaching party during
such period; or
-37-
<PAGE> 43
(e) by the Executive Committee of the Board of Directors of
Mercantile pursuant to and in accordance with the provisions of Section
5.06 hereof.
7.02 Effect of Termination. In the event of termination of this
---------------------
Agreement as provided in Section 7.01 above, this Agreement shall forthwith
become void and there shall be no liability on the part of Buyers or Seller
or their respective officers or directors except as set forth in the second
sentence of Section 5.01 and in Sections 5.08 and 8.02, and except that no
termination of this Agreement pursuant to Section 7.01(d) shall relieve the
breaching party of any liability to the non-breaching party hereto arising
from the intentional, deliberate or willful breach of any representation,
warranty, covenant or agreement contained herein, after giving notice to such
breaching party and an opportunity to cure as set forth in Section 7.01(d).
7.03 Amendment. This Agreement, the Exhibits and the Schedules hereto
---------
may be amended by the parties hereto, by action taken by or on behalf of the
Executive Committee of the Board of Directors of Mercantile and the
respective Boards of Directors of Merger Sub or Seller, at any time before or
after approval of this Agreement by the shareholders of Seller; provided,
however, that after any such approval by the shareholders of Seller no such
modification shall (A) alter or change the amount or kind of Merger
Consideration to be received by holders of Seller Common Stock as provided in
this Agreement or (B) adversely affect the tax treatment to holders of Seller
Common Stock as a result of the receipt of the Merger Consideration. This
Agreement, the Exhibits and the Schedules hereto may not be amended except by
an instrument in writing signed on behalf of each of Buyers and Seller.
7.04 Waiver. Any term, condition or provision of this Agreement may
------
be waived in writing at any time by the party which is, or whose shareholders
or stockholders, as the case may be, are, entitled to the benefits thereof.
ARTICLE VIII
------------
GENERAL PROVISIONS
8.01 Non-Survival of Representations, Warranties and Agreements. No
----------------------------------------------------------
investigation by the parties hereto made heretofore or hereafter shall affect
the representations and warranties of the parties which are contained herein
and each such representation and warranty shall survive such investigation.
Except as set forth below in this Section 8.01, all representations,
warranties and agreements in this Agreement of Buyers and Seller or in any
instrument delivered by Buyers or Seller pursuant to or in connection with
this Agreement shall expire at the Effective Time or upon termination of this
Agreement in accordance with its terms. In the event of consummation of the
Merger, the agreements contained in or referred to in Sections 1.05-1.11,
5.02(b), 5.08, 5.10, 5.13 and 5.15 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
and Sections 5.08, 7.02 and 8.02 shall survive such termination.
8.02 Indemnification. Buyers and Seller (hereinafter, in such
---------------
capacity being referred to as the "Indemnifying Party") agree to indemnify
and hold harmless each other and their officers, directors and controlling
persons (each such other party being hereinafter referred to, individually
and/or collectively, as the "Indemnified Party") against any and all losses,
claims, damages or liabilities, joint or several, to which the Indemnified
Party may become subject under the Securities Act, the Exchange Act
-38-
<PAGE> 44
or other federal or state law or regulation, at common law or otherwise, insofar
as such losses, claims, damages or liabilities (or actions in respect thereof):
(a) arise primarily out of any information furnished to the Indemnified Party
by the Indemnifying Party and included in the Registration Statement as
originally filed or in any amendment therefor and supplement thereof, or in
the Proxy Statement, or in any amendment therefor or supplement thereof, or
are based primarily upon any untrue statement or alleged untrue statement of
a material fact contained in the Registration Statement as originally filed
or in any amendment therefor and supplement thereof, or in the Proxy
Statement, or in any amendment therefor or supplement thereof, and provided
for inclusion thereof by the Indemnifying Party or (b) arise primarily out of
or are based primarily upon the omission or alleged omission by the
Indemnifying Party to state in the Registration Statement as originally filed
or in any amendment therefor and supplement thereof, or in the Proxy
Statement, or in any amendment therefor and supplement thereof, a material
fact required to be stated therein or necessary to make the statements made
therein not misleading, and agrees to reimburse each such Indemnified Party,
as incurred, for any legal or other expenses reasonably incurred by them in
connection with investigating or defending any such loss, claim, damage,
liability or action.
8.03 No Assignment; Successors and Assigns. This Agreement shall be
-------------------------------------
binding upon and inure to the benefit of the parties hereto and their
respective successors (including any corporation deemed to be a successor
corporation of any of the parties by operation of law) and assigns, but
neither this Agreement nor any right or obligation set forth in any provision
hereof may be transferred or assigned (except by operation of law) by any
party hereto without the prior written consent of all other parties, and any
purported transfer or assignment in violation of this Section 8.03 shall be
void and of no effect. There shall not be any third party beneficiaries of
any provisions hereof except for Sections 1.09, 1.10, 1.11, 5.10, 5.13, 5.15
and 8.02 which may be enforced against Mercantile or Seller, as the case may
be, by the parties therein identified or described.
8.04 Severability. Nothing in this Agreement shall be construed to
------------
require any party (or any subsidiary of a party) to take any action or fail
to take any action in violation of any applicable law, rule or regulation.
Whenever possible, each provision of this Agreement shall be interpreted in
such manner as to be effective and valid under applicable law, but if any
provision of this Agreement shall be held to be prohibited by or invalid
under applicable law, such provision shall be ineffective only to the extent
of such prohibition or invalidity, without invalidating the remaining
provisions of this Agreement.
8.05 No Implied Waiver. No failure or delay on the part of any party
-----------------
hereto to exercise any right, power or privilege hereunder or under any
instrument executed pursuant hereto shall operate as a waiver nor shall any
single or partial exercise of any right, power or privilege preclude any
other or further exercise thereof or the exercise of any other right, power
or privilege.
8.06 Headings. Article, section, subsection and paragraph titles,
--------
captions and headings herein are inserted only as a matter of convenience and
for reference, and in no way define, limit, extend or describe the scope of
this Agreement or the intent of any provision hereof.
8.07 Entire Agreement. This Agreement and the Schedules and Exhibits
----------------
hereto constitute the entire agreement between the parties with respect to
the subject matter hereof and supersede all prior negotiations,
representations, warranties, commitments, offers, letters of interest or
intent, proposal letters, contracts, writings or other agreements or
understandings with respect thereto. No waiver, and no modification or
amendment, of any provision of this Agreement, shall be effective unless
specifically made in writing and duly signed by all parties thereto.
-39-
<PAGE> 45
8.08 Counterparts. This Agreement may be executed in one or more
------------
counterparts, and any party to this Agreement may execute and deliver this
Agreement by executing and delivering any of such counterparts, each of which
when executed and delivered shall be deemed to be an original and all of
which taken together shall constitute one and the same instrument.
8.09 Notices. All notices and other communications hereunder shall be
-------
in writing and shall be deemed to be duly received (a) on the date given if
delivered personally or by cable, telegram, telex or facsimile or (b) on the
date received if mailed by registered or certified mail (return receipt
requested), to the parties at the following addresses (or at such other
address for a party as shall be specified by like notice):
(i) if to the Buyers:
Mercantile Bancorporation Inc.
Mercantile Tower
P.O. Box 524
St. Louis, MO 63166-0524
Attention: John W. Rowe
Executive Vice President
Facsimile: (314) 425-2752
Copy to:
Jon W. Bilstrom, Esq.
General Counsel
Mercantile Bancorporation Inc.
Mercantile Tower
P.O. Box 524
St. Louis, MO 63166-0524
Facsimile: (314) 425-1386
and
Robert M. LaRose, Esq.
Thompson Coburn
One Mercantile Center
St. Louis, Missouri 63101
Facsimile: (314) 552-7000
-40-
<PAGE> 46
(ii) if to Seller:
First Financial Bancorporation
204 East Washington Street
Iowa City, IA 52240
Attention: Robert M. Sierk
President and Chief Executive Officer
Facsimile: (319) 337-7299
Copy to:
Richard G. Clemens, Esq.
Sidley & Austin
One First National Plaza
Chicago, IL 60603
Facsimile: (312) 853-7036
8.10 Governing Law. This Agreement shall be governed by and
-------------
controlled as to validity, enforcement, interpretation, effect and in all
other respects by the internal laws of the State of Missouri applicable to
contracts made in that state.
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<PAGE> 47
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their respective officers thereunto duly authorized and their
respective corporate seals to be affixed hereto, all as of the date first
written above.
Attest: MERCANTILE BANCORPORATION INC.
/s/ David W. Grant By: /s/ John W. Rowe
- --------------------------- -------------------------------------------
David W. Grant John W. Rowe
Executive Vice President, Mercantile Bank
National Association, Authorized Officer
Attest: AMERIBANC, INC.
/s/ David W. Grant By: /s/ John W. Rowe
- --------------------------- -------------------------------------------
David W. Grant John W. Rowe
Vice President
Attest: FIRST FINANCIAL BANCORPORATION
/s/ Larry D. Ward By: /s/ Robert M. Sierk
- --------------------------- -------------------------------------------
Larry D. Ward Robert M Sierk
President and Chief Executive Officer
-42-
<PAGE> 1
STOCK OPTION AGREEMENT
----------------------
STOCK OPTION AGREEMENT ("Option Agreement") dated as of May 7, 1998, by
and between MERCANTILE BANCORPORATION INC. ("Buyer"), a Missouri corporation
registered as a bank holding company under the Bank Holding Company Act of
1956, as amended (the "Holding Company Act"), and FIRST FINANCIAL
BANCORPORATION ("Seller"), an Iowa corporation registered as a bank holding
company under the Holding Company Act.
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Buyer and Seller are prepared to execute and deliver an
Agreement and Plan of Merger dated as of even date herewith (the "Merger
Agreement") providing for the merger of Seller with and into a wholly owned
subsidiary of Buyer; and
WHEREAS, as a condition to Buyer's entering into the Merger Agreement,
Buyer has required that Seller agree, and Seller has agreed, to grant to
Buyer the option set forth herein to purchase authorized but unissued shares
of the common stock, $1.25 par value, of Seller ("Seller 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, Seller hereby grants to Buyer an option (the "Option") to purchase up
to 707,189 shares of Seller Common Stock (representing approximately 19.9% of
the issued and outstanding shares of Seller Common Stock) at a price per
share equal to $37.75 (the "Purchase Price") payable in cash as
<PAGE> 2
provided in Section 4 hereof. In no event shall shares of Seller Common
Stock for which the Option is exercisable exceed 19.9% of the issued and
outstanding shares of Seller Common Stock, without giving effect to any
shares subject to or issued pursuant to the Option.
3. Exercise of Option.
------------------
(a) If not then in material breach of the Merger Agreement,
Buyer may exercise the Option, in whole or in part, at any time or from time
to time if a Purchase Event (as defined below) shall have occurred; provided,
--------
however, that: (i) to the extent the Option shall not have been exercised,
- -------
it shall terminate and be of no further force and effect upon the earlier to
occur of (A) the Effective Time of the Merger and (B) the termination of the
Merger Agreement in accordance with Article VII thereof, provided that in the
--------
case of a termination by Buyer pursuant to Section 7.01(d) arising from the
volitional breach by Seller of any of its representations, warranties or
covenants in the Merger Agreement, 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 Holding Company Act.
(b) As used herein, a "Purchase Event" shall mean any of the
following events:
(i) Seller or any of its Subsidiaries, without having
received prior written consent from Buyer, 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 Buyer or any
of its
-2-
<PAGE> 3
Subsidiaries) to (A) effect a merger or consolidation or similar
transaction involving the acquisition of Seller or any of its
Subsidiaries, (B) purchase, lease or otherwise acquire 15% or more of
the assets of Seller or any of its Subsidiaries or (C) purchase or
otherwise acquire (including by way of merger, consolidation, share
exchange or similar transaction) Beneficial Ownership of securities
representing 15% or more of the voting power of Seller or any of its
Subsidiaries (in each case, other than any such merger, consolidation,
purchase, lease, share exchange or similar transaction between or among
any two or more Seller Subsidiaries);
(ii) any person (other than Buyer or any Subsidiary of
Buyer, or Seller or any Subsidiary of Seller in a fiduciary capacity)
shall have acquired Beneficial Ownership or the right to acquire
Beneficial Ownership of 15% or more of the voting power of Seller; or
(iii) (1) the holders of Seller Common Stock shall not
have approved the Merger Agreement at the meeting of such shareholders
held for the purpose of voting on the Merger Agreement, (2) such
meeting shall not have been held, (3) such meeting shall have been
canceled prior to termination of the Merger Agreement in accordance
with its terms or (4) Seller's Board of Directors shall have withdrawn
or modified in a manner adverse to Buyer the recommendation of Seller's
Board of Directors with respect to the Merger Agreement; in the case
of each of (1), (2), (3) and (4) above, after an Extension Event.
(c) As used herein, the term "Extension Event" shall mean any
of the following events:
(i) a Purchase Event described in Section 3(b)(i) or (ii)
hereof;
-3-
<PAGE> 4
(ii) any person (other than Buyer 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 Seller 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 15% or more of the voting power of Seller; or
(iii) any person (other than Buyer or any Subsidiary of
Buyer, or Seller or any Subsidiary of Seller in a fiduciary capacity)
shall have publicly announced its willingness, or shall have publicly
announced a proposal, or publicly disclosed an intention to make a
proposal, (x) to make an offer described in clause (ii) above, or (y)
to engage in a transaction described in clause (i) above.
(d) As used herein, the terms "Beneficial Ownership" and
"Beneficially Own" shall have the meanings ascribed to them in Rule 13d-3
under the Exchange Act.
(e) In the event Buyer wishes to exercise the Option, it shall
deliver to Seller 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 ten business days nor later than 30 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, Buyer shall
pay to Seller the aggregate Purchase Price for the shares of Seller Common
Stock purchased pursuant to the exercise of the Option in immediately
available funds by wire transfer to a bank account designated by Seller.
-4-
<PAGE> 5
(b) At such closing, simultaneously with the delivery of cash
as provided in Section 4(a), Seller shall deliver to Buyer a certificate or
certificates representing the number of shares of Seller Common Stock purchased
by Buyer, registered in the name of Buyer or a nominee designated in writing by
Buyer, and Buyer shall deliver to Seller a letter agreeing that Buyer 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 Seller Common Stock
pursuant to any exercise of the Option, Seller shall have issued any share
purchase rights or similar securities to holders of Seller Common Stock, then
each such share of Seller Common Stock shall also represent rights with terms
substantially the same as and at least as favorable to Buyer as those issued
to other holders of Seller Common Stock.
(d) Certificates for Seller 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 FIRST FINANCIAL
BANCORPORATION, a copy of which is on file at the
principal office of FIRST FINANCIAL BANCORPORATION, and to
resale restrictions arising under the Securities Act of
1933, as amended, and any applicable state securities
laws. A copy of such agreement will be provided to the
holder hereof without charge upon receipt by FIRST
FINANCIAL BANCORPORATION of a written request therefor.
It is understood and agreed that the above legend shall be removed by
delivery of substitute certificates without such legend if Buyer shall have
delivered to Seller an opinion of counsel, in form and substance
-5-
<PAGE> 6
reasonably satisfactory to Seller and its counsel, to the effect that such
legend is not required for purposes of the Securities Act and any applicable
state securities laws and this Option Agreement.
5. Authorization, etc.
------------------
(a) Seller hereby represents and warrants to Buyer that:
(i) Seller 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 Seller, 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 Seller, enforceable against Seller in accordance with its
terms; and
(iv) Seller has taken all necessary corporate action to
authorize and reserve and, subject to Section 11(i), permit it to issue
and, at all times from the date hereof through the date of the exercise
in full or the expiration or termination of the Option, shall have
reserved for issuance upon exercise of the Option, 707,189 shares of
Seller 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.
-6-
<PAGE> 7
(b) Buyer hereby represents and warrants to Seller that:
(i) Buyer 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 Buyer, 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 Buyer, enforceable against Buyer in accordance with its
terms; and
(iv) any Seller Common Stock or other securities acquired
by Buyer 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 and
applicable state law.
6. Adjustment Upon Changes in Capitalization. In the event of
-----------------------------------------
any change in Seller 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 Seller
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 Seller 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 Seller Common Stock then issued and
outstanding, without giving effect to any shares of Seller Common Stock
subject to or issued pursuant to the Option.
-7-
<PAGE> 8
7. Repurchase.
----------
(a) Subject to the giving of any notices and the receipt of any
approvals as contemplated by Section 11(i), at the request of Buyer at any
time commencing upon the first occurrence of a Purchase Event described in
Section 3(b) hereof and ending 12 months immediately thereafter but not later
than the termination of the Option pursuant to Section 3(a) hereof (the
"Repurchase Period"), Seller (or any successor entity thereof) shall
repurchase the Option from Buyer together with all (but not less than all,
subject to Section 10) shares of Seller Common Stock purchased by Buyer
pursuant hereto with respect to which Buyer then has Beneficial Ownership, at
an aggregate price (per share, the "Per Share Repurchase Price") equal to the
sum of:
(i) The exercise price paid by Buyer for any shares of
Seller Common Stock acquired pursuant to the Option;
(ii) The difference between (A) the "Market/Tender Offer
Price" for shares of Seller Common Stock (defined as the higher (x) of
the highest price per share at which a tender or exchange offer has
been made for shares of Seller Common Stock or (y) the highest closing
sales price per share of Seller Common Stock reported by the Nasdaq
National Market, in each case for any day within that portion of the
Repurchase Period that precedes the date Buyer gives notice of the
required repurchase under this Section 7) and (B) the exercise price as
determined pursuant to Section 2 hereof (subject to adjustment as
provided in Section 6), multiplied by the number of shares of Seller
Common Stock with respect to which the Option has not been exercised,
but only if the Market/Tender Offer Price is greater than such exercise
price; and
(iii) The difference between the Market/Tender Offer Price
and the exercise price paid by Buyer for any shares of Seller Common
Stock purchased pursuant
-8-
<PAGE> 9
to the exercise of the Option, multiplied by the number of shares so
purchased, but only if the Market/Tender Offer Price is greater than such
exercise price.
(b) In the event Buyer exercises its rights under this Section
7, Seller shall, within 10 business days thereafter, pay the required amount
to Buyer by wire transfer of immediately available funds to an account
designated by Buyer and Buyer shall surrender to Seller the Option and the
certificates evidencing the shares of Seller Common Stock purchased
thereunder with respect to which Buyer then has Beneficial Ownership, and
Buyer 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.
(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 Buyer and
reasonably acceptable to Seller.
8. Repurchase at Option of Seller and First Refusal.
------------------------------------------------
(a) Except to the extent that Buyer shall have previously
exercised its rights under Section 7, at the request of Seller during the
six-month period commencing 12 months following the first occurrence of a
Purchase Event, Seller may repurchase from Buyer, and Buyer shall sell the
Option to Seller together with all (but not less than all, subject to Section
10) of the Seller Common Stock acquired by Buyer pursuant hereto and with
respect to which Buyer has Beneficial Ownership at the time of such
repurchase at a price per share equal to the greater of (i) the Per Share
Repurchase Price or (ii) 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 Buyer as its prime or
base lending or reference
-9-
<PAGE> 10
rate during such period, less any dividends received on the shares so
repurchased. 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, Buyer shall desire to sell, assign, transfer or otherwise dispose of
the Option or all or any of the shares of Seller Common Stock acquired by it
pursuant to the Option, it shall give Seller 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 Buyer to Seller, 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 Buyer is proposing to transfer the
Option or such shares to a third party. In the event the proposed
transaction involves the sale of the Option or the shares of Seller Common
Stock purchased pursuant to the exercise of the Option for consideration
other than cash, the value of such consideration shall be determined by an
independent nationally recognized investment banking firm selected by Buyer
and reasonably acceptable to Seller. The purchase of the Option or any such
shares by Seller shall be closed within 10 business days of the date of the
acceptance of the offer and the purchase price shall be paid to Buyer by wire
transfer of immediately available funds to an account designated by Buyer.
In the event of the failure or refusal of Seller to purchase the Option or
all the shares covered by the Offeror's Notice or if the Federal Reserve
Board or any other Regulatory Authority disapproves Seller's proposed
purchase of the Option or such shares, Buyer 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
-10-
<PAGE> 11
would Beneficially Own not more than 2% of the voting power of Seller or (ii)
any disposition of Seller Common Stock by a person to whom Buyer has sold
shares of Seller Common Stock issued upon exercise of the Option.
9. Registration Rights. At any time after the exercise of the
-------------------
Option by Buyer for an aggregate of at least 50% of the shares subject
thereto, Seller shall, subject to the conditions set forth herein, if
requested by Buyer, 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 Seller Common
Stock that have been acquired upon exercise of the Option in accordance with
the intended method of sale or other disposition requested by Buyer (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
Seller Common Stock then outstanding). Buyer shall provide all information
reasonably requested by Seller for inclusion in any registration statement to
be filed hereunder. Seller shall use its reasonable best 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 Seller's expense except for underwriting discounts
and commissions and the fees and disbursements of Buyer's counsel
attributable to the registration of such Seller Common Stock. In no event
shall Seller 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 Seller of Seller Common Stock or if a special audit of Seller would
otherwise be required in connection therewith. If requested by Buyer in
connection with such registration, Seller shall become a party to any
underwriting agreement relating to the sale of such
-11-
<PAGE> 12
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.
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 Buyer or any other
person to acquire, or Seller to repurchase or purchase, the full number of
shares of Seller 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 Buyer or such other person to acquire, or Seller 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.
-12-
<PAGE> 13
(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 Section 8 hereof,
----------
neither of the parties hereto may sell, transfer, assign or otherwise dispose
of any of its rights or obligations under this Option Agreement or the Option
created hereunder to any other person (whether by operation of law or
otherwise), without the express written consent of the other party.
(e) Notices. All notices or other communications that are
-------
required or permitted hereunder shall be in writing and sufficient if
delivered in accordance with Section 8.08 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 Buyer or Seller 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.
-13-
<PAGE> 14
(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.
(i) Regulatory Approvals; Section 16(b). If, in connection
-----------------------------------
with (A) the exercise of the Option under Section 3 or a sale by Buyer to a
third party under Section 8, (B) a repurchase by Seller under Section 7 or a
repurchase or purchase by Seller under Section 8, prior notification to or
approval of the Federal Reserve 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 Buyer, and in the case of clause (B) of this
subsection (i), such filing shall be made by Seller, provided that each of
Buyer and Seller shall use its best efforts to make all filings with, and to
obtain consents of, all third parties and Regulatory Authorities necessary to
the consummation of the transactions contemplated hereby, including, without
limitation, applying to the Federal Reserve Board under the Holding Company
Act for approval to acquire the shares issuable hereunder. Periods of time
that otherwise would run pursuant to Sections 3, 7 or 8 shall also be
extended to the extent necessary to avoid liability under Section 16(b) of
the Exchange Act.
(j) No Breach of Merger Agreement Authorized. Nothing
----------------------------------------
contained in this Option Agreement shall be deemed to authorize Seller to
issue any shares of Seller Common Stock in breach of, or otherwise breach any
of, the provisions of the Merger Agreement nor shall any action taken
hereunder by Seller constitute a breach of any of the provisions of the
Merger Agreement.
(k) Waiver and Amendment. Any provision of this Option
--------------------
Agreement may be waived at any time by the party that is entitled to the
benefits of such provision. This Option
-14-
<PAGE> 15
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
---------------------------------------------
John W. Rowe
Executive Vice President, Mercantile Bank
National Association, Authorized Officer
FIRST FINANCIAL BANCORPORATION
By: /s/ Robert M. Sierk
---------------------------------------------
Robert M. Sierk
President and Chief Executive Officer
-15-
<PAGE> 1
VOTING AGREEMENT
This Voting Agreement dated as of May 7, 1998, is entered into by and
between Mercantile Bancorporation Inc. ("Mercantile"), and the undersigned
shareholder ("Shareholder") of First Financial Bancorporation, an Iowa
corporation ("First Financial").
WHEREAS, First Financial, Mercantile and Ameribanc, Inc., a wholly
owned subsidiary of Mercantile ("Ameribanc"), have proposed to enter into an
Agreement and Plan of Merger (the "Agreement"), dated as of today, which
contemplates the acquisition by Mercantile of 100% of the capital stock of
First Financial (collectively, the "First Financial Stock") by means of a
merger between First Financial and Ameribanc; and
WHEREAS, Mercantile is willing to expend the substantial time, effort
and expense necessary to implement the Merger only if Shareholder enters into
this Voting Agreement; and
WHEREAS, the undersigned shareholder of First Financial believes that
the Merger is in her best interest and the best interest of First Financial.
NOW, THEREFORE, in consideration of the premises, Shareholder hereby
agrees as follows:
1. Voting Agreement. Shareholder shall vote all of the shares
----------------
of First Financial Stock she now owns of record or has voting control with
respect to or hereafter acquires, in favor of the Merger at the meeting of
shareholders of First Financial to be called for the purpose of approving the
Merger (the "Meeting").
2. No Competing Transaction. Shareholder shall not vote any
------------------------
of her shares of First Financial Stock in favor of any other merger or sale
of all or substantially all the assets of First Financial to any person other
than Mercantile or its affiliates until the effective time of the Merger,
termination of the Agreement or abandonment of the Merger by the mutual
agreement of First Financial and Mercantile, whichever comes first.
3. Transfers Subject to Agreement. Shareholder shall not
------------------------------
transfer her shares of First Financial Stock unless the transferee, prior to
such transfer, executes a voting agreement with respect to the transferred
shares substantially to the effect of this Voting Agreement and satisfactory
to Mercantile.
4. No Ownership Interest. Nothing contained in this Voting
---------------------
Agreement shall be deemed to vest in Mercantile any direct or indirect
ownership or incidence of ownership of or with respect to any shares of First
Financial Stock. All rights, ownership and economic benefits of and relating
to the shares of First Financial Stock shall remain and belong to
Shareholder, and Mercantile shall have no authority to manage, direct,
superintend, restrict, regulate, govern or administer any of the policies or
operations of First Financial or exercise any power or authority to direct
Shareholder in the voting of any of her shares of First Financial Stock,
except as otherwise expressly provided herein.
<PAGE> 2
5. Evaluation of Investment. Shareholder, by reason of her
------------------------
knowledge and experience in financial and business matters, believes herself
capable of evaluating the merits and risks of the potential investment in
common stock of Mercantile, $0.01 par value ("Mercantile Common Stock"),
contemplated by the Agreement.
6. Documents Delivered. Shareholder acknowledges having
-------------------
reviewed the Agreement and its attachments and that reports, proxy statements
and other information with respect to Mercantile filed with the Securities
and Exchange Commission (the "Commission") were, prior to her execution of
this Voting Agreement, available for inspection and copying at the Offices of
the Commission and that Mercantile delivered the following such documents to
First Financial:
(a) Mercantile's Annual Report on Form 10-K for the year
ended December 31, 1997; and
(b) Mercantile's Current Reports on Form 8-K dated
January 10, 1998 and January 30, 1998.
7. Amendment and Modification. This Voting Agreement may be
--------------------------
amended, modified or supplemented at any time by the written approval of such
amendment, modification or supplement by Shareholder and Mercantile.
8. Entire Agreement. This Voting Agreement evidences the
----------------
entire agreement among the parties hereto with respect to the matters
provided for herein, and there are no agreements, representations or
warranties with respect to the matters provided for herein other than those
set forth herein and in the Agreement.
9. Severability. Nothing in this Agreement shall be construed
------------
to require any party to take any action or fail to take any action in
violation of any applicable law, rule or regulation. The parties agree that
if any provision of this Voting Agreement shall under any circumstances be
deemed invalid or inoperative, this Voting Agreement shall be construed with
the invalid or inoperative provisions deleted and the rights and obligations
of the parties shall be construed and enforced accordingly.
10. Counterparts. This Voting Agreement may be executed in two
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
11. Governing Law. The validity, construction, enforcement and
-------------
effect of this Voting Agreement shall be governed by the internal laws of the
State of Missouri, without regard to its conflict of laws principles.
12. Headings. The headings for the paragraphs of this Voting
--------
Agreement are inserted for convenience only and shall not constitute a part
hereof or affect the meaning or interpretation of this Voting Agreement.
13. Termination. This Voting Agreement shall terminate upon
-----------
the consummation of the Merger or upon termination of the Agreement,
whichever comes first.
14. Successors. This Voting Agreement shall be binding upon
----------
and inure to the benefit of Mercantile and its successors, and Shareholder
and Shareholder's spouse and their
-2-
<PAGE> 3
respective executors, personal representatives, administrators, heirs, legatees,
guardians and other legal representatives. This Voting Agreement shall survive
the death or incapacity of Shareholder. This Agreement may be assigned by
Mercantile only to an affiliate of Mercantile.
MERCANTILE BANCORPORATION INC.
By:
---------------------------------------------
John W. Rowe, Executive Vice President
Mercantile Bank National Association
Authorized Officer
SHAREHOLDER
-------------------------------------------------
-3-
<PAGE> 1
[letterhead of Thompson Coburn]
June 19, 1998
Mercantile Bancorporation Inc.
P.O. Box 524
St. Louis, Missouri 63166-0524
Re: Registration Statement on Form S-4
----------------------------------
Ladies and Gentlemen:
We refer you to the Registration Statement on Form S-4 filed by
Mercantile Bancorporation Inc. (the "Company") on June 19, 1998 (the
"Registration Statement") with the Securities and Exchange Commission (the
"SEC") under the Securities Act of 1933, as amended, pertaining to the
proposed issuance by the Company of up to 3,194,844 shares of the Company's
common stock, $0.01 par value (the "Shares"), in connection with the
acquisition by merger of First Financial Bancorporation ("First Financial"),
pursuant to the Agreement and Plan of Merger, dated May 7, 1998 (the "Merger
Agreement"), by and among the Company, First Financial and Ameribanc, Inc.,
all as provided in the Registration Statement. In rendering the opinions set
forth herein, we have examined such corporate records of the Company, such
laws and such other information as we have deemed relevant, including the
Company's Restated Articles of Incorporation and Bylaws, as amended and
currently in effect, the resolutions adopted by the Company's Board of
Directors relating to the merger transaction, certificates received from
state officials and statements we have received from officers and
representatives of the Company. In delivering this opinion, the undersigned
assumed the genuineness of all signatures; the authenticity of all documents
submitted to us as originals; the conformity to the originals of all
documents submitted to us as certified, photostatic or conformed copies; the
authenticity of the originals of all such latter documents; and the
correctness of statements submitted to us by officers and representatives of
the Company.
Based only on the foregoing, the undersigned is of the opinion that:
1. The Company has been duly incorporated and is validly existing
under the laws of the State of Missouri; and
2. The Shares to be sold by the Company, when issued as provided in
the Merger Agreement, will be validly issued, fully paid and non-assessable.
We consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to this firm in the section of
the Proxy Statement/Prospectus entitled "Legal Matters."
Very truly yours,
/s/ Thompson Coburn
<PAGE> 1
[letterhead of Thompson Coburn]
June 19, 1998
Board of Directors
First Financial Bancorporation
204 East Washington Street
Iowa City, Iowa 52240
Ladies and Gentlemen:
You have requested our opinion with regard to certain federal income
tax consequences of the proposed merger (the "Merger") of First Financial
Bancorporation ("FFB") with and into Ameribanc, Inc. ("Ameribanc"), a wholly
owned subsidiary of Mercantile Bancorporation Inc. ("MBI").
In connection with the preparation of our opinion, we have examined and
have relied upon the following:
(i) The Agreement and Plan of Merger by and among MBI, Ameribanc, and
FFB dated as of May 7, 1998, including the schedules and exhibits
thereto (the "Agreement");
(ii) MBI's Registration Statement on Form S-4, including the Proxy
Statement/Prospectus contained therein, filed with the Securities and
Exchange Commission on June 19, 1998, (the "Registration Statement");
(iii) The representations and undertaking of MBI substantially in the
form of Exhibit A hereto;
(iv) The representations and undertakings of FFB substantially in the
form of Exhibit B hereto; and
(v) The Rights Agreement between MBI and Harris Trust and Savings
Bank, as rights agent, dated May 20, 1998.
Our opinion is based solely upon applicable law and the factual
information and undertakings contained in the above-mentioned documents. In
rendering our opinion, we have assumed the accuracy of all information and
the performance of all undertakings contained in each of such documents. We
also have 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, and we have assumed that such documents accurately and
completely set forth all material facts relevant to this opinion. All of our
assumptions were made with your consent. If any fact or assumption described
herein or below is incorrect, any or all of the federal income tax consequences
described herein may be inapplicable.
<PAGE> 2
First Financial Bancorporation
June 19, 1998
Page 2
OPINION
Subject to the foregoing, to the conditions and limitations expressed
elsewhere herein, and assuming that the Merger is consummated in accordance
with the Agreement, we are of the opinion that for federal income tax
purposes:
1. The Merger will constitute a reorganization within the meaning of
sections 368(a)(1)(A) and 368(a)(2)(D) of the Internal Revenue Code of 1986,
as amended to the date hereof (the "Code").
2. Each stockholder of FFB who exchanges, in the Merger, shares of
FFB common stock, par value $1.25 per share ("FFB Common Stock") solely for
shares of MBI common stock, par value $.01 per share ("MBI Common Stock"):
a) will recognize no gain or loss as a result of the exchange,
except with regard to cash received in lieu of a fractional share, as
discussed below (Code section 354(a)(1));
b) will have an aggregate basis for the shares of MBI Common
Stock received (including any fractional share of MBI Common Stock
deemed to be received, as described in paragraph 3, below) equal to the
aggregate adjusted tax basis of the shares of FFB Common Stock
surrendered (Code section 358(a)(1)); and
c) will have a holding period for the shares of MBI Common
Stock received (including any fractional share of MBI Common Stock
deemed to be received, as described in paragraph 3, below) which
includes the holding period of the shares of FFB Common Stock
surrendered, provided that the shares of FFB Common Stock surrendered
are held as capital assets at the time of the Merger (Code section
1223(1)).
3. Each stockholder of FFB who receives, in the Merger, cash in lieu
of a fractional share of MBI Common Stock will be treated as if the
fractional share had been received in the Merger and then redeemed by MBI.
Provided that the shares of FFB Common Stock surrendered are held as capital
assets at the time of the Merger, the receipt of such cash will cause the
recipient to recognize capital gain or loss, equal to the difference between
the amount of cash received and the portion of such holder's basis in the
shares of MBI Common Stock allocable to the fractional share (Code sections
1001 and 1222; Rev. Rul. 66-365, 1966-2 C.B. 116; Rev. Proc. 77-41, 1977-2
C.B. 574).
<PAGE> 3
First Financial Bancorporation
June 19, 1998
Page 3
* * * * * * * * * * * *
We express no opinion with regard to (1) the federal income tax
consequences of the Merger not addressed expressly by this opinion, including
without limitation, (i) the tax consequences, if any, to those stockholders
of FFB who acquired shares of FFB Common Stock pursuant to the exercise of
employee stock options or otherwise as compensation, and (ii) the tax
consequences to special classes of stockholders, if any, including without
limitation, foreign persons, insurance companies, tax-exempt entities,
retirement plans, and dealers in securities; and (2) federal, state, local,
or foreign taxes (or any other federal, state, local, or foreign laws) not
specifically referred to and discussed herein. Further, our opinion is based
upon the Code, Treasury Regulations proposed or promulgated thereunder, and
administrative interpretations and judicial precedents relating thereto, 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 federal income tax consequences described
herein may become inapplicable.
The foregoing opinion reflects our legal judgment solely on the issues
presented and discussed herein. This opinion has no official status or
binding effect of any kind. Accordingly, we cannot assure you that the
Internal Revenue Service or any court of competent jurisdiction will agree
with this opinion.
We hereby consent to the filing of this letter as an exhibit to the
Registration Statement and to all references made to this letter and to this
firm in the Registration Statement.
Very truly yours,
/s/ Thompson Coburn
<PAGE> 1
Exhibit 23.1
------------
Independent Auditors' Consent
To the Board of Directors and Stockholders of
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.
/s/ KPMG Peat Marwick LLP
St. Louis, Missouri
June 18, 1998
<PAGE> 1
Exhibit 23.2
------------
CONSENT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
First Financial Bancorporation
Iowa City, Iowa
We hereby consent to the use in this Registration Statement on Form S-4 of
our report, dated February 17, 1998, relating to the consolidated financial
statements of First Financial Bancorporation and subsidiary. We also consent
to the reference to our Firm under the captions "Relationship with
Independent Accountants" and "Experts" in the prospectus.
/s/ McGladrey & Pullen, LLP
Davenport, Iowa
June 16, 1998
<PAGE> 1
Exhibit 23.3
------------
CONSENT OF ABN AMRO INCORPORATED
We hereby consent (i) to the use of our name and to the description of our draft
opinion letter, which has been approved by us, under the captions "SUMMARY
INFORMATION - Opinion of Financial Advisor to First Financial" and "TERMS OF THE
PROPOSED MERGER - Opinion of Financial Advisor to First Financial" in; and (ii)
to the inclusion of such draft opinion letter as Annex A to First Financial
Bancorporation's Proxy Statement which is part of Mercantile Bancorporation
Inc.'s Registration Statement on Form S-4 to be filed with the Securities
and Exchange Commission on June 18, 1998, with this consent as an exhibit.
Currently, we anticipate delivering to First Financial Bancorporation's Board
of Directors an opinion of even date with the Proxy Statement in substantially
the same form as our draft opinion. By giving such consent we do not thereby
admit that we are experts with respect to any part of such Registration
Statement within the meaning of the term "expert" as used in, or that may 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 of the
Securities and Exchange Commission promulgated thereunder.
ABN AMRO INCORPORATED
By: /s/ John J. Harris
------------------------------------------
John J. Harris
Managing Director
Chicago, Illinois
June 17, 1998
