-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Qems3nxgqE33/I2dXLda+L8i5gnkErvpXeRRHKuUJm8XR1bgP5n5q99QQwcJwA7K r78FttuVp8bIdIB0RpGj5Q== 0000898822-95-000124.txt : 19951024 0000898822-95-000124.hdr.sgml : 19951024 ACCESSION NUMBER: 0000898822-95-000124 CONFORMED SUBMISSION TYPE: S-4 PUBLIC DOCUMENT COUNT: 10 FILED AS OF DATE: 19951023 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MERCANTILE BANCORPORATION INC CENTRAL INDEX KEY: 0000064907 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 430951744 STATE OF INCORPORATION: MO FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 033-63609 FILM NUMBER: 95583354 BUSINESS ADDRESS: STREET 1: P O BOX 524 STREET 2: P O BOX 524 CITY: ST LOUIS STATE: MO ZIP: 63166-0524 BUSINESS PHONE: 3144252525 MAIL ADDRESS: STREET 1: P O BOX 524 CITY: ST LOUIS STATE: MO ZIP: 63166-0524 FORMER COMPANY: FORMER CONFORMED NAME: MERCANTILE TRUST CO DATE OF NAME CHANGE: 19720229 S-4 1 FORM S-4 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 23, 1995 REGISTRATION NO. 33- ======================================================================= SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 -------------------- FORM S-4 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 -------------------- MERCANTILE BANCORPORATION INC. (Exact name of Registrant as specified in Its Charter) Missouri 6712 43-0951744 (State or Other Jurisdiction of (Primary Standard (I.R.S. Employer Incorporation or Organization) Industrial Classification Identification No.) Code Number) P.O. Box 524 St. Louis, Missouri 63166-0524 (314) 425-2525 (Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices) -------------------- JON W. BILSTROM, ESQ. General Counsel and Secretary Mercantile Bancorporation Inc. P.O. Box 524 St. Louis, Missouri 63166-0524 (314) 425-2525 (Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent For Service) --------------------
With copies to: JOHN Q. ARNOLD EDWARD D. HERLIHY, ESQ. JOHN S. ZEILINGER, ESQ. Chief Financial Officer Wachtell, Lipton, Rosen & Katz Baird, Holm, McEachen, Mercantile Bancorporation Inc. 51 West 52nd Street Pedersen, Hamann & Strasheim P.O. Box 524 New York, New York 10019-6150 1500 Woodmen Tower St. Louis, Missouri 63166-0524 (212) 403-1000 Omaha, Nebraska 68102-2068 (314) 425-2525 (402) 344-0500
-------------------- Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of the 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. [ ] --------------------
CALCULATION OF REGISTRATION FEE ========================================================================================================== TITLE OF EACH PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION TO BE REGISTERED REGISTERED PER SHARE(2) OFFERING PRICE(2) FEE ---------------------------------------------------------------------------------------- Common Stock, $5.00 7,996,952 $43.06 $344,313,200.56 $118,728.69 par value(1) shares ---------------------------------------------------------------------------------------- (1) Includes one attached Preferred Share Purchase Right per share. (2) Pursuant to Rule 457(f)(1) and 457(c) promulgated under the Securities Act of 1933, as amended, and estimated solely for purposes of calculating the registration fee, the proposed maximum aggregate offering price is $344,313,200.56, which equals (x) the average of the high and low prices of the common stock, without par value ("Hawkeye Common Stock"), of Hawkeye Bancorporation ("Hawkeye"), of $25.1875, as reported on the Nasdaq National Market on October 17, 1995, multiplied by (y) the total number of shares of Hawkeye Common Stock (including shares issuable pursuant to the exercise of outstanding options to purchase Hawkeye Common Stock) to be cancelled in the merger of Hawkeye with and into a subsidiary of Mercantile Bancorporation Inc. (the "Merger"). The proposed maximum offering price per share is equal to the proposed maximum aggregate offering price determined in the manner described in the preceding sentence divided by the maximum number of shares of MBI common stock, $5.00 par value, that could be issued in the Merger. THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. ==========================================================================================================
MERCANTILE BANCORPORATION INC. CROSS REFERENCE SHEET PURSUANT TO REGULATION S-K, ITEM 501(B)
FORM S-4 ITEM PROXY STATEMENT-PROSPECTUS HEADING Information About the Transaction 1. Forepart of Registration Statement and Outside Front Facing Page; Cross Reference Sheet; Outside Front Cover Cover Page of Prospectus Page of Proxy Statement/Prospectus 2. Inside Front and Outside Back Cover Pages of Prospectus Available Information; Incorporation of Certain Information by Reference; Table of Contents 3. Risk Factors, Ratio of Earnings to Fixed Charges, and Summary Information; Pro Forma Financial Information Other Information 4. Terms of Transaction Summary Information; Terms of the Proposed Merger; Certain Federal Income Tax Consequences of the Merger; Dissenters' Rights of Shareholders of Hawkeye; Information Regarding MBI Stock; Supervision and Regulation 5. Pro Forma Financial Information Summary Information; Pro Forma Financial Information 6. Material Contacts with the Company Being Acquired Summary Information; Terms of the Proposed Merger 7. Additional Information Required for Reoffering by Persons Not Applicable and Parties Deemed to be Underwriters 8. Interests of Named Experts and Counsel Legal Matters 9. Disclosure of Commission Position on Indemnification Not Applicable for Securities Act Liabilities Information About the Registrant 10. Information With Respect to S-3 Registrants Incorporation of Certain Information by Reference; Summary Information -2- 11. Incorporation of Certain Information by Reference Incorporation of Certain Information by Reference 12. Information With Respect to S-2 or S-3 Registrants Not Applicable 13. Incorporation of Certain Information by Reference Not Applicable 14. Information with Respect to Registrants Other Than S-2 Not Applicable or S-3 Registrants Information About the Company Being Acquired 15. Information With Respect to S-3 Companies Incorporation of Certain Information by Reference; Summary Information 16. Information With Respect to S-2 or S-3 Companies Not Applicable 17. Information With Respect to Companies Other Than S-2 or Not Applicable S-3 Companies Voting and Management Information 18. Information if Proxies, Consents, or Authorizations Incorporation of Certain Information by Reference; Are to be Solicited Summary Information; Information Regarding Special Meeting; Terms of the Proposed Merger; Other Matters; Stockholder Proposals 19. Information if Proxies, Consents, or Authorizations Are Not Applicable Not to be Solicited, or in an Exchange Offer
-3- SCHEDULE 14A INFORMATION PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934 (AMENDMENT NO. ) FILED BY THE REGISTRANT [X] FILED BY A PARTY OTHER THAN THE REGISTRANT [ ] CHECK THE APPROPRIATE BOX: [X] PRELIMINARY PROXY STATEMENT [ ] CONFIDENTIAL, FOR USE OF THE [ ] DEFINITIVE PROXY STATEMENT COMMISSION ONLY [ ] DEFINITIVE ADDITIONAL MATERIALS [ ] SOLICITING MATERIAL PURSUANT TO RULE 14A-11(C) OR RULE 14A-12 HAWKEYE BANCORPORATION ........................................................................... (NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) N/A ........................................................................... (NAME OF PERSON(S) FILING PROXY STATEMENT, IF OTHER THAN THE REGISTRANT) PAYMENT OF FILING FEE (CHECK THE APPROPRIATE BOX): [ ] $125 PER EXCHANGE ACT RULES 0-11(C)(1)(II), 14A-6(I)(1), OR 14A- 6(I)(2) OR ITEM 22(A)(2) OF SCHEDULE 14A. [ ] $500 PER EACH PARTY TO THE CONTROVERSY PURSUANT TO EXCHANGE ACT RULE 14A-6(I)(3). [X] FEE COMPUTED ON TABLE BELOW PER EXCHANGE ACT RULES 14A-6(I)(4) AND 0-11. 1) TITLE OF EACH CLASS OF SECURITIES TO WHICH TRANSACTION APPLIES: Common Stock, without par value ("Hawkeye Common Stock") 2) AGGREGATE NUMBER OF SECURITIES TO WHICH TRANSACTION APPLIES: Up to 13,670,003 shares of Hawkeye Common Stock -4- 3) PER UNIT PRICE OR OTHER UNDERLYING VALUE OF TRANSACTION COMPUTED PURSUANT TO EXCHANGE ACT RULE 0-11: The amount on which the filing fee of $68,862.64 is calculated was determined pursuant to Rule 0-11(a)(4) and (c) of the Securities Exchange Act of 1934, as amended, by multiplying 1/50th of 1% by an amount equal to the product of (x) $25.1875, the average of the high and the low sale prices on October 17, 1995, of Hawkeye Common Stock, and (y) 13,670,003, the maximum number of shares of Hawkeye Common Stock expected to be cancelled in the transaction. 4) PROPOSED MAXIMUM AGGREGATE VALUE OF TRANSACTION: $344,313,200.56 5) TOTAL FEE PAID: $68,862.64 [ ] FEE PAID PREVIOUSLY WITH PRELIMINARY MATERIALS. [X] CHECK BOX IF ANY PART OF THE FEE IS OFFSET AS PROVIDED BY EXCHANGE ACT RULE 0-11(A)(2) AND IDENTIFY THE FILING FOR WHICH THE OFFSETTING FEE WAS PAID PREVIOUSLY. IDENTIFY THE PREVIOUS FILING BY REGISTRATION STATEMENT NUMBER, OR THE FORM OR SCHEDULE AND THE DATE OF ITS FILING. 1) AMOUNT PREVIOUSLY PAID: $118,728.69 2) FORM, SCHEDULE OR REGISTRATION STATEMENT NO.: Registration Statement on Form S-4 3) FILING PARTY: Mercantile Bancorporation Inc. (Commission File No. 1-11792) 4) DATE FILED: October 23, 1995 -5- [HAWKEYE BANCORPORATION LETTERHEAD] _________________, 1995 Dear Fellow Shareholders: The Board of Directors cordially invites you to attend a Special Meeting of Shareholders of Hawkeye Bancorporation ("Hawkeye") to be held at ______ A.M., Central Time, on _________________, 1995, at ____________________, Des Moines, Iowa. At this important meeting, you will be asked to consider and vote on a proposal to approve and adopt an Agreement and Plan of Reorganization, dated August 4, 1995 (the "Merger Agreement"), providing for the merger (the "Merger") of Hawkeye with and into a wholly owned subsidiary of Mercantile Bancorporation Inc. ("MBI"). I have enclosed 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 to Hawkeye 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 Hawkeye and MBI and describe the terms and conditions of the proposed Merger. The Board of Directors requests that you carefully review these materials before completing the enclosed proxy card or attending the Special Meeting. YOUR BOARD OF DIRECTORS HAS DETERMINED THAT THE TERMS OF THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY ARE IN THE BEST INTERESTS OF HAWKEYE AND ITS SHAREHOLDERS. ACCORDINGLY, THE HAWKEYE BOARD OF DIRECTORS RECOMMENDS THAT HAWKEYE SHAREHOLDERS VOTE FOR THE APPROVAL AND ADOPTION OF THE MERGER AGREEMENT. APPROVAL OF THE MERGER AGREEMENT IS A CONDITION TO THE CONSUMMATION OF THE MERGER. Accordingly, it is important that your shares be represented at the Special Meeting, whether or not you plan to attend the Special Meeting in person. Please complete, sign and date the enclosed proxy card and return it to Hawkeye 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 Secretary of Hawkeye a written notice of revocation bearing a later date than the proxy, or any later dated proxy relating to the same shares, or by attending the Special Meeting and voting in person. Attendance at the Special Meeting will not in itself constitute the revocation of a proxy. 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 Pamela J. Larsen at (515) 284-1930. Sincerely, Robert W. Murray President and Chief Executive Officer -2- HAWKEYE BANCORPORATION 222 Equitable Building 604 Locust Street Des Moines, Iowa 50309-3723 NOTICE OF SPECIAL MEETING OF SHAREHOLDERS To Be Held ___________________, 1995 TO THE SHAREHOLDERS OF HAWKEYE BANCORPORATION: Notice is hereby given that a Special Meeting of Shareholders of HAWKEYE BANCORPORATION, an Iowa corporation ("Hawkeye"), will be held at ____________________, Des Moines, Iowa, on ________________, 1995, at ______ A.M., Central Time, for the following purposes: (1) To consider and vote on a proposal to approve and adopt the Agreement and Plan of Reorganization, dated August 4, 1995 (the "Merger Agreement"), by and between Mercantile Bancorporation Inc., a Missouri corporation ("MBI"), and Hawkeye, pursuant to which, among other things, (i) Hawkeye will be merged (the "Merger") with and into Mercantile Bancorporation Inc. of Iowa, an Iowa corporation and a wholly owned subsidiary of MBI, with the result that the business and operations of Hawkeye will be continued through such wholly owned subsidiary, and (ii) upon consummation of the Merger, each outstanding share of Hawkeye common stock, without par value ("Hawkeye Common Stock"), other than shares held by Hawkeye, MBI or any of their respective wholly owned subsidiaries, in each case other than in a fiduciary capacity or as a result of debts previously contracted, all of which will be cancelled in the Merger, and other than shares held by shareholders of Hawkeye who exercise their dissenters' rights under the Iowa Business Corporation Act, will be converted into the right to receive .585 of a share of MBI common stock, par value $5.00 per share ("MBI Common Stock"), with cash in lieu of fractional shares, as set forth in detail in the attached Proxy Statement/Prospectus. (2) To transact such other business as may properly come before the Special Meeting or any adjournment or postponement thereof. The record date for determining the holders of Hawkeye Common Stock entitled to receive notice of, and to vote at, the Special Meeting or any adjournment or postponement thereof has been fixed as of the close of business on _________, 1995. Approval by the Hawkeye shareholders of the Merger Agreement requires the affirmative vote of the holders of a majority of the outstanding shares of Hawkeye Common Stock entitled to vote at the meeting. Any holder of Hawkeye Common Stock who (1) files with Hawkeye prior to the Special Meeting a written notice of the shareholder's intent to demand payment for the shareholder's shares, (2) does not vote in favor of the Merger, and (3) demands payment of the fair value of the shares, shall be entitled to payment of the fair value of the shareholder's shares of Hawkeye Common Stock, under the applicable provisions of Division XIII of the Iowa Business Corporation Act, as set forth in Annex A to the attached Proxy Statement/Prospectus. Information regarding the Merger and related matters is contained in the accompanying Proxy Statement/Prospectus and the annexes thereto, which are incorporated by reference herein and form a part of this Notice. WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE COMPLETE, SIGN AND DATE THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE. THE PROXY MAY BE REVOKED AT ANY TIME PRIOR TO THE VOTE AT THE SPECIAL MEETING BY FOLLOWING THE PROCEDURES SET FORTH IN THE ACCOMPANYING PROXY STATEMENT/PROSPECTUS. THE BOARD OF DIRECTORS OF HAWKEYE HAS DETERMINED THAT THE TERMS OF THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY ARE IN THE BEST INTERESTS OF HAWKEYE AND ITS SHAREHOLDERS. ACCORDINGLY, THE HAWKEYE BOARD OF DIRECTORS RECOMMENDS THAT HAWKEYE SHAREHOLDERS VOTE FOR THE APPROVAL AND ADOPTION OF THE MERGER AGREEMENT. BY ORDER OF THE BOARD OF DIRECTORS __________________________________ Secretary Des Moines, Iowa ____________________, 1995 PLEASE DO NOT SEND ANY SHARE CERTIFICATES AT THIS TIME -2- INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. SUBJECT TO COMPLETION, DATED OCTOBER 23, 1995 MERCANTILE BANCORPORATION INC. PROSPECTUS ____________________ HAWKEYE BANCORPORATION PROXY STATEMENT ____________________ This Prospectus of Mercantile Bancorporation Inc., a Missouri corporation ("MBI"), relates to up to 7,996,952 shares of common stock, par value $5.00 per share, and attached preferred share purchase rights (the "Rights"), of MBI (the Common Stock and Rights are collectively referred to herein as the "MBI Common Stock") to be issued to the shareholders of Hawkeye Bancorporation, an Iowa corporation ("Hawkeye"), upon consummation of the proposed merger (the "Merger") of Hawkeye with and into Mercantile Bancorporation Inc. of Iowa, an Iowa corporation ("Merger Sub") and a wholly owned subsidiary of MBI. The Merger will be consummated pursuant to the Agreement and Plan of Reorganization, dated August 4, 1995 (the "Merger Agreement"), by and between MBI and Hawkeye, upon the terms and subject to the conditions thereof. This Prospectus also serves as the Proxy Statement of Hawkeye for use in connection with the solicitation of proxies by the Board of Directors of Hawkeye to be used at the Special Meeting of Shareholders of Hawkeye (the "Special Meeting") to be held on _______, 1995, at ______ A.M., Central Time, at _______, Des Moines, Iowa, to approve and adopt the Merger Agreement. Upon consummation of the Merger, among other things, each outstanding share of Hawkeye common stock, without par value ("Hawkeye Common Stock"), other than shares held by Hawkeye, MBI or any of their respective wholly owned subsidiaries, in each case other than in a fiduciary capacity or as a result of debts previously contracted, all of which will be cancelled in the Merger, and other than shares held by shareholders of Hawkeye who exercise their dissenters' rights under the Iowa Business Corporation Act (the "Iowa Act"), will be converted into the right to receive .585 of a share of MBI Common Stock, with cash in lieu of fractional shares. See "TERMS OF THE PROPOSED MERGER" and "DISSENTERS' RIGHTS OF SHAREHOLDERS OF HAWKEYE." MBI Common Stock is quoted on the New York Stock Exchange (the "NYSE") under the symbol "MTL." On ________, 1995, the last sale price of MBI Common Stock as reported on the NYSE Composite Tape was $_____. Hawkeye Common Stock is quoted on the Nasdaq National Market ("NASDAQ/NM") under the symbol "HWKB." On ______, 1995 the last sale price for Hawkeye Common Stock as reported on the NASDAQ/NM was $_____. This Proxy Statement/Prospectus, the Letter to Hawkeye shareholders, the Notice of Special Meeting and the form of proxy are first being mailed to the shareholders of Hawkeye on or about , 1995. THE SECURITIES TO BE ISSUED PURSUANT TO THIS PROXY STATEMENT/ PROSPECTUS HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION (THE "COMMISSION") OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THE SHARES OF MBI COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS, DEPOSITS OR OTHER OBLIGATIONS OF ANY BANK OR SAVINGS ASSOCIATION AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE BANK INSURANCE FUND, THE SAVINGS ASSOCIATION INSURANCE FUND OR ANY OTHER GOVERNMENTAL AGENCY. ____________________ THE DATE OF THIS PROXY STATEMENT/PROSPECTUS IS ____________, 1995. AVAILABLE INFORMATION Each of MBI and Hawkeye is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance therewith, files reports, proxy statements and other information with the Commission. Such reports, proxy statements and other information concerning either MBI or Hawkeye can be inspected and copied at the public reference facilities maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the Commission's Regional Offices in New York (Suite 1300, Seven World Trade Center, New York, New York 10048) and Chicago (Suite 1400, Citicorp Center, 500 West Madison Street, Chicago, Illinois 60661). Copies of such material can also be obtained from the Public Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. MBI Common Stock is listed on the NYSE, and such reports, proxy statements and other information concerning MBI are available for inspection and copying at the offices of the NYSE, 20 Broad Street, New York, New York 10005. Hawkeye Common Stock is quoted on the NASDAQ/NM, and such reports, proxy statements and other information concerning Hawkeye are available for inspection and copying at the Public Reference section of the NASDAQ/NM at 1737 K Street, N.W., Washington, D.C. 20006. This Proxy Statement/Prospectus does not contain all of the information set forth in the Registration Statement on Form S-4 and exhibits thereto (together with any amendments thereto, the "Registration Statement") covering the securities offered hereby which has been filed by MBI with the Commission under the Securities Act of 1933, as amended (the "Securities Act"). As permitted by the rules and regulations of the Commission, this Proxy Statement/Prospectus omits certain information contained or incorporated by reference in the Registration Statement. Reference is hereby made to the Registration Statement for further information with respect to MBI and the securities offered hereby. Such additional information may be obtained from the Commission's principal office in Washington, D.C. Statements contained in this Proxy Statement/Prospectus or in any document incorporated by reference in this Proxy Statement/Prospectus provide a fair summary of the contents of any contract or other document referenced herein or therein but are not necessarily complete, and in each instance reference is made to the copy of such contract or other document filed as an exhibit to the Registration Statement or such other document, each such statement being qualified in all respects by such reference. -i- INCORPORATION OF CERTAIN INFORMATION BY REFERENCE THIS PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. COPIES OF THESE DOCUMENTS (EXCLUDING EXHIBITS UNLESS SPECIFICALLY INCORPORATED BY REFERENCE HEREIN OR IN SUCH DOCUMENTS) ARE AVAILABLE, WITHOUT CHARGE, TO ANY PERSON TO WHOM THIS PROXY STATEMENT/PROSPECTUS IS DELIVERED UPON WRITTEN OR ORAL REQUEST TO THE FOLLOWING: MBI DOCUMENTS HAWKEYE DOCUMENTS JON W. BILSTROM R. DOUGLAS FISHER GENERAL COUNSEL EXECUTIVE VICE PRESIDENT AND SECRETARY AND SECRETARY MERCANTILE BANCORPORATION INC. HAWKEYE BANCORPORATION P.O. BOX 524 222 EQUITABLE BUILDING ST. LOUIS, MISSOURI 63166-0524 604 LOCUST STREET (314) 425-2525 DES MOINES, IOWA 50309-3723 (515) 284-1930 IN ORDER TO ENSURE TIMELY DELIVERY OF SUCH DOCUMENTS, A REQUEST MUST BE RECEIVED NO LATER THAN ________, 1995 [DATE THAT IS FIVE BUSINESS DAYS PRIOR TO THE DATE OF THE SPECIAL MEETING]. The following documents filed with the Commission by MBI under the Exchange Act are incorporated herein by reference: (a) MBI's Annual Report on Form 10-K (Commission File No. 1-11792) for the year ended December 31, 1994, as amended by Form 10K/A (Amendment No. 1) dated June 29, 1995 (as amended, the "1994 MBI Form 10-K"). (b) MBI's Quarterly Reports on Form 10-Q (Commission File No. 1-11792) for the quarters ended March 31 and June 30, 1995. (c) The information contained in MBI's Proxy Statement dated March 24, 1995 for its Annual Meeting of Shareholders held on April 27, 1995 that has been incorporated by reference in the 1994 MBI Form 10-K. (d) MBI's Current Reports on Form 8-K (Commission File No. 1-11792) dated May 1, May 31 and August 4, 1995. -ii- (e) The description of MBI Common Stock set forth in Item 1 of MBI's Registration Statement on Form 8-A (Commission File No. 1-11792), dated March 5, 1993, and any amendment or report filed for the purpose of updating such description. (f) The description of the Rights set forth in Item 1 of MBI's Registration Statement on Form 8-A (Commission File No. 1-11792), dated March 5, 1993, and any amendment or report filed for the purpose of updating such description. The following documents filed with the Commission by Hawkeye under the Exchange Act are incorporated herein by reference: (a) Hawkeye's Annual Report on Form 10-K (Commission File No. 0-4742) for the year ended December 31, 1994 (the "1994 Hawkeye Form 10-K"). (b) Hawkeye's Quarterly Reports on Form 10-Q (Commission File No. 0-4742) for the quarters ended March 31 and June 30, 1995. (c) The information contained in Hawkeye's Proxy Statement dated March 20, 1995 for its Annual Meeting of Shareholders held on April 18, 1995 that has been incorporated by reference in the 1994 Hawkeye Form 10-K. (d) Hawkeye's Current Reports on Form 8-K (Commission File No. 0-4742) dated July 18 and August 4, 1995. All documents filed with the Commission by MBI or Hawkeye pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this Proxy Statement/Prospectus and prior to the date of the Special Meeting shall be deemed to be incorporated by reference herein and made a part hereof from the date any such document is filed. The information relating to MBI and Hawkeye contained in this Proxy Statement/Prospectus does not purport to be complete and should be read together with the information in the documents incorporated by reference herein. Any statement contained herein or in a document incorporated or deemed to be incorporated herein by reference shall be deemed to be modified or superseded for all purposes to the extent that a statement contained herein or in any other subsequently filed document incorporated or deemed to be incorporated by reference herein modifies or supersedes such statement. Any such statement so modified or superseded shall -iii- not be deemed, except as so modified or superseded, to constitute a part hereof. Any statements contained in this Proxy Statement/ Prospectus involving matters of opinion, whether or not expressly so stated, are intended as such and not as representations of fact. NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS OR IN THE DOCUMENTS INCORPORATED BY REFERENCE HEREIN AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY MBI OR HAWKEYE. THIS PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY SECURITIES, OR THE SOLICITATION OF A PROXY, IN ANY JURISDICTION IN WHICH, OR FROM ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER, SOLICITATION OF AN OFFER OR PROXY SOLICITATION. NEITHER THE DELIVERY OF THIS PROXY STATEMENT/ PROSPECTUS NOR ANY DISTRIBUTION OF THE SECURITIES TO WHICH IT RELATES SHALL IMPLY OR CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF MBI OR HAWKEYE OR ANY OF THEIR RESPECTIVE SUBSIDIARIES OR IN THE INFORMATION SET FORTH OR INCORPORATED BY REFERENCE HEREIN SUBSEQUENT TO THE DATE HEREOF. -iv- TABLE OF CONTENTS PAGE AVAILABLE INFORMATION.................................... i INCORPORATION OF CERTAIN INFORMATION BY REFERENCE........ ii SUMMARY INFORMATION...................................... 1 Business of MBI........................................ 1 Business of Merger Sub................................. 2 Business of Hawkeye.................................... 2 Special Meeting of Hawkeye Shareholders................ 3 The Proposed Merger.................................... 4 Stock Option Agreement................................. 5 Support Agreements..................................... 5 Reasons for the Merger; Hawkeye Board Recommendation... 6 Opinion of Hawkeye's Financial Advisor................. 6 Interests of Certain Persons in the Merger............. 7 Fractional Shares...................................... 8 Regulatory Approval.................................... 8 Waiver and Amendment................................... 9 Accounting Treatment................................... 9 Employee Stock Options and Stock Appreciation Rights... 9 Federal Income Tax Consequences in General............. 10 Dissenters' Rights..................................... 10 Market and Market Prices............................... 11 Comparative Unaudited Per Share Data................... 13 Summary Financial Data................................. 15 INFORMATION REGARDING SPECIAL MEETING.................... 18 General................................................ 18 Date, Time and Place................................... 18 Record Date; Vote Required............................. 18 Voting and Revocation of Proxies....................... 19 Solicitation of Proxies................................ 20 TERMS OF THE PROPOSED MERGER............................. 21 General Description of the Merger...................... 21 Stock Option Agreement................................. 22 Support Agreements..................................... 25 Background and Reasons for the Merger; Hawkeye Board Recommendation....................................... 26 Opinion of Hawkeye's Financial Advisor ................ 30 Interests of Certain Persons in the Merger............. 38 Conditions of the Merger............................... 40 Termination of the Merger Agreement.................... 42 Closing and Effective Time............................. 42 Surrender of Hawkeye Stock Certificates and Receipt -v- of MBI Capital Stock................................. 43 Fractional Shares...................................... 45 Regulatory Approval.................................... 45 Business Pending the Merger............................ 46 Bank Minority Shares................................... 50 Waiver and Amendment................................... 50 Accounting Treatment................................... 50 Management and Operations After the Merger............. 51 Employee Benefits...................................... 51 CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER.... 53 DISSENTERS' RIGHTS OF SHAREHOLDERS OF HAWKEYE............ 56 PRO FORMA FINANCIAL INFORMATION.......................... 59 Comparative Unaudited Per Share Data................... 59 Pro Forma Combined Consolidated Financial Statements (Unaudited)............................... 62 INFORMATION REGARDING MBI STOCK.......................... 71 Description of MBI Common Stock and Attached Preferred Share Purchase Rights...................... 71 Restrictions on Resale of MBI Capital Stock by Affiliates; Affiliate Agreements.................. 74 Comparison of the Rights of Shareholders of MBI and Hawkeye...................................... 74 SUPERVISION AND REGULATION............................... 79 General................................................ 79 Certain Transactions with Affiliates................... 80 Payment of Dividends................................... 80 Capital Adequacy....................................... 81 Support of Subsidiary Banks............................ 82 Recent Legislation..................................... 82 LEGAL MATTERS............................................ 88 EXPERTS.................................................. 88 OTHER MATTERS............................................ 88 STOCKHOLDER PROPOSALS.................................... 88 ANNEXES Annex A - Dissenters' Rights Provisions Under the Iowa Business Corporation Act..................... A-1 Annex B - Opinion of Donaldson, Lufkin & Jenrette Securities Corporation, dated _______, 1995.......................... B-1 -vi- SUMMARY INFORMATION THE FOLLOWING IS A SUMMARY OF CERTAIN TERMS OF THE MERGER AND RELATED INFORMATION DISCUSSED ELSEWHERE IN THIS PROXY STATEMENT/PROSPECTUS, IS NOT INTENDED TO BE COMPLETE AND IS QUALIFIED IN ALL RESPECTS BY THE MORE DETAILED INFORMATION INCLUDED IN THIS PROXY STATEMENT/PROSPECTUS AND THE DOCUMENTS INCORPORATED HEREIN BY REFERENCE. AS USED IN THIS PROXY STATEMENT/PROSPECTUS, THE TERMS "MBI" AND "HAWKEYE" REFER TO SUCH CORPORATIONS, RESPECTIVELY, AND WHERE THE CONTEXT REQUIRES, SUCH CORPORATIONS AND THEIR RESPECTIVE SUBSIDIARIES ON A CONSOLIDATED BASIS. SHAREHOLDERS OF HAWKEYE ARE URGED TO READ AND CONSIDER CAREFULLY ALL OF THE INFORMATION CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROXY STATEMENT/PROSPECTUS AND THE ANNEXES HERETO. ALL INFORMATION CONCERNING MBI INCLUDED IN THIS PROXY STATEMENT/PROSPECTUS HAS BEEN FURNISHED BY MBI AND ALL INFORMATION CONCERNING HAWKEYE INCLUDED IN THIS PROXY STATEMENT/PROSPECTUS HAS BEEN FURNISHED BY HAWKEYE. NEITHER MBI NOR HAWKEYE WARRANTS THE ACCURACY OR COMPLETENESS OF INFORMATION RELATING TO THE OTHER. BUSINESS OF MBI MBI, a Missouri corporation, was organized in 1970 and is a registered bank holding company under the federal Bank Holding Company Act of 1956, as amended (the "BHCA"). As of September 30, 1995, MBI owned, directly or indirectly, all of the capital stock (except for a small minority interest in one bank) of Mercantile Bank of St. Louis National Association, 51 other commercial banks and one federally chartered thrift that operated from 322 banking offices and 316 Fingertip Banking automated teller machines, including 37 off-premises machines, located throughout Missouri, southern Illinois, northern Iowa, northern Arkansas and eastern Kansas. MBI's services concentrate in three major lines of business -- consumer, corporate, and trust and investment advisory services. MBI also operates non-banking subsidiaries that provide related financial services, including investment management, brokerage services and asset-based lending. As of September 30, 1995, MBI reported, on a consolidated basis, total assets of $16.0 billion, total deposits of $11.8 billion, total loans of $10.6 billion and shareholders' equity of $1.4 billion. As of September 30, 1995, MBI had 55,333,878 shares of MBI Common Stock issued and outstanding and 14,806 shares of MBI preferred stock, without par value ("MBI Preferred Stock"), issued and outstanding. MBI's principal executive offices are located at One Mercantile Center, St. Louis, Missouri 63101 and its telephone number is (314) 425-2525. For additional information, see "TERMS OF THE PROPOSED MERGER," "SUPERVISION AND REGULATION," "PRO FORMA FINANCIAL INFORMATION" and "INCORPORATION OF CERTAIN INFORMATION BY REFERENCE." BUSINESS OF MERGER SUB Merger Sub, an Iowa corporation, was organized in 1993 as a wholly owned subsidiary of MBI. Merger Sub is a registered bank holding company under the BHCA which currently owns all of the stock of one bank and one savings association. Merger Sub will be the surviving corporation upon consummation of the Merger. The principal executive offices of Merger Sub are located at One Mercantile Center, St. Louis, Missouri 63101 and its telephone number is (314) 425-2525. BUSINESS OF HAWKEYE Hawkeye, an Iowa corporation, was organized in 1966 and is a registered bank holding company under the BHCA. As of September 30, 1995, Hawkeye owned controlling interests in 23 commercial bank subsidiaries and three non-bank subsidiaries that operated from 65 locations throughout Iowa. Hawkeye's bank subsidiaries are located primarily in county seat or local trade center communities where agriculture is the primary industry and provide a broad range of commercial bank financial services to business customers and a variety of consumer banking services to individual customers. Certain of the bank subsidiaries also provide trust services. Hawkeye's non-bank subsidiaries provide related financial services, including centralized proof and accounting services for Hawkeye bank subsidiaries, equipment leasing and funding and servicing of government guaranteed FMHA loans. As of September 30, 1995, Hawkeye reported, on a consolidated basis, total assets of $2.0 billion, total deposits of $1.7 billion, total loans of $1.3 billion and shareholders' equity of $192.8 million. As of September 30, 1995, Hawkeye had 13,461,373 shares of Hawkeye Common Stock issued and outstanding and no shares of Hawkeye preferred stock issued and outstanding. Hawkeye's principal executive offices are located at 222 Equitable Building, 604 Locust Street, Des Moines, Iowa 50309 and its telephone number is (515) 284-1930. -2- For additional information, see "TERMS OF THE PROPOSED MERGER," "SUPERVISION AND REGULATION," "PRO FORMA FINANCIAL INFORMATION" and "INCORPORATION OF CERTAIN INFORMATION BY REFERENCE." SPECIAL MEETING OF HAWKEYE SHAREHOLDERS The Special Meeting will be held at _____________, Des Moines, Iowa, on ______________, 1995, at ______ A.M., Central Time, at which the shareholders of Hawkeye will consider and vote on a proposal to approve and adopt the Merger Agreement and will transact such other business as may properly come before the Special Meeting or any adjournment or postponement thereof. Approval by the Hawkeye shareholders of the Merger Agreement requires the affirmative vote of the holders of a majority of the outstanding shares of Hawkeye Common Stock entitled to vote at the meeting (the "Shareholder Approval"). Only holders of record of Hawkeye Common Stock at the close of business on __________, 1995 (the "Record Date"), will be entitled to notice of, and to vote at, the Special Meeting. At such date, there were __________ shares of Hawkeye Common Stock outstanding held by approximately ____ holders of record. See "INFORMATION REGARDING SPECIAL MEETING." As of the Record Date, directors and executive officers of Hawkeye and certain of their affiliates owned beneficially an aggregate of __________ shares of Hawkeye Common Stock, or approximately ______% of the shares entitled to vote at the Special Meeting. All of Hawkeye's directors and executive officers and certain of their affiliates have indicated their intention to vote their shares of Hawkeye Common Stock for the approval of the Merger Agreement. In addition, all of the directors of Hawkeye, who as of the Record Date beneficially owned in the aggregate approximately ___% of the outstanding shares of Hawkeye Common Stock, have each agreed pursuant to a Support Agreement to vote all shares of Hawkeye Common Stock beneficially owned by such person, or over which such person has voting power or control, to approve the Merger Agreement. See "INFORMATION REGARDING SPECIAL MEETING" and "TERMS OF THE PROPOSED MERGER -- Support Agreements." Any shareholder of Hawkeye giving a proxy may revoke it at any time prior to the vote at the Special Meeting. Shareholders of Hawkeye wishing to revoke a proxy prior to the vote may do so by delivering to the Secretary of Hawkeye at 222 Equitable Building, 604 Locust Street, Des Moines, Iowa 50309- 3723 a written notice of revocation bearing a later date than the proxy or any later dated proxy relating to the same shares, -3- or by attending the Special Meeting and voting in person. Attendance at the Special Meeting will not in itself constitute the revocation of a proxy. THE BOARD OF DIRECTORS OF HAWKEYE HAS DETERMINED THAT THE TERMS OF THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY ARE IN THE BEST INTERESTS OF HAWKEYE AND ITS SHAREHOLDERS. ACCORDINGLY, THE HAWKEYE BOARD OF DIRECTORS RECOMMENDS THAT HAWKEYE SHAREHOLDERS VOTE FOR THE APPROVAL AND ADOPTION OF THE MERGER AGREEMENT. THE PROPOSED MERGER Subject to the satisfaction of the terms and conditions set forth in the Merger Agreement described below, Hawkeye will merge with and into Merger Sub. Upon consummation of the Merger, Hawkeye's corporate existence will terminate, with Merger Sub continuing as the surviving corporation, and each outstanding share of Hawkeye Common Stock, other than shares held by Hawkeye, MBI or any of their respective wholly owned subsidiaries, in each case other than in a fiduciary capacity or as a result of debts previously contracted, all of which will be cancelled in the Merger, and other than shares held by shareholders of Hawkeye who exercise their dissenters' rights under the Iowa Act, will be converted into the right to receive .585 (the "Exchange Ratio") of a share of MBI Common Stock, with cash in lieu of fractional shares (together, the "Merger Consideration"). See "TERMS OF THE PROPOSED MERGER" and DISSENTERS' RIGHTS OF SHAREHOLDERS OF HAWKEYE." Consummation of the Merger is subject to certain terms and conditions, including, among other things, the approval of the Merger Agreement by the affirmative vote of the holders of a majority of the outstanding shares of Hawkeye Common Stock entitled to vote at the Special Meeting and receipt of all requisite regulatory approvals. See "TERMS OF THE PROPOSED MERGER -- Conditions of the Merger" and "-- Regulatory Approval." The Merger will be consummated and become effective on the date and at the time (the "Effective Time") that the articles of merger are filed with the Iowa Secretary of State. Unless the parties otherwise agree, the closing (the "Closing") of the Merger shall take place at 10:00 A.M., local time, on the date (the "Closing Date") on which the Effective Time of the Merger occurs, which shall be such date as MBI shall notify Hawkeye in writing but (i) not earlier than the approval by Hawkeye shareholders of the Merger Agreement and the receipt of all requisite regulatory approvals (the "Approval Date"), and (ii) not later than the first business day -4- of the first full calendar month commencing at least five business days after the Approval Date. See "TERMS OF THE PROPOSED MERGER -- Effective Time." The Merger Agreement may be terminated at any time prior to the Effective Time by the mutual consent of the parties or by either party upon the occurrence of certain events or if the Merger is not consummated by August 4, 1996. See "TERMS OF THE PROPOSED MERGER -- Termination of the Merger Agreement." STOCK OPTION AGREEMENT In connection with the execution of the Merger Agreement, MBI and Hawkeye entered into the Stock Option Agreement, dated August 4, 1995 (the "Stock Option Agreement"), pursuant to which Hawkeye has issued MBI an option (the "Option") to purchase up to 2,678,000 shares of Hawkeye Common Stock (or ______% of the outstanding shares of Hawkeye Common Stock as of the Record Date, without including any shares subject to or issued pursuant to the Option) at an exercise price of $22 per share. The Option is exercisable upon the occurrence of certain events and provides MBI the right, under certain circumstances, to require Hawkeye to purchase for cash the unexercised portion of the Option and all shares of Hawkeye Common Stock purchased by MBI pursuant thereto. The Option, which MBI required that Hawkeye grant as a condition to MBI's entering into the Merger Agreement, may increase the likelihood of consummation of the Merger. See "TERMS OF THE PROPOSED MERGER -- Stock Option Agreement." SUPPORT AGREEMENTS Concurrently with the execution of the Merger Agreement, all of the directors of Hawkeye, who as of the Record Date beneficially owned in the aggregate approximately __% of the outstanding shares of Hawkeye Common Stock (each, a "Supporting Stockholder" and together, the "Supporting Stockholders"), executed separate Support Agreements with MBI pursuant to which each Supporting Stockholder agreed, among other things, to vote all shares of Hawkeye Common Stock beneficially owned by the Supporting Stockholder, or over which the Supporting Stockholder has voting power or control, directly or indirectly, to approve the Merger Agreement. Each Supporting Stockholder also thereby agreed, among other things, to not, and to not permit any company, trust or other entity controlled by such Supporting Stockholder to, (i) contract to sell, sell or otherwise transfer or dispose of any shares of Hawkeye Common Stock owned by the Supporting Stockholder, other than pursuant to the Merger or with MBI's prior written consent, or -5- (ii) initiate, solicit or encourage any discussions, inquiries or proposals with any third party relating to the disposition of any significant portion of the business or assets of Hawkeye or the acquisition of any capital stock or other securities of Hawkeye or the business combination, merger or consolidation of Hawkeye with any person or any similar transaction (each such transaction, an "Acquisition Transaction"), or provide any such person with information or assistance or negotiate with any such person with respect to an Acquisition Transaction or agree to or otherwise assist in the effectuation of any Acquisition Transaction. Each Support Agreement may be terminated at the option of any party thereto at any time after the earlier of (i) the termination of the Merger Agreement and (ii) the day following the Closing Date. See "TERMS OF THE PROPOSED MERGER -- Support Agreements." REASONS FOR THE MERGER; HAWKEYE BOARD RECOMMENDATION The Board of Directors of Hawkeye has determined that the terms of the Merger Agreement and the transactions contemplated thereby are in the best interests of Hawkeye and its shareholders. Accordingly, the Hawkeye Board of Directors recommends that Hawkeye shareholders vote FOR the approval and adoption of the Merger Agreement. The recommendation of Hawkeye's Board of Directors is based upon a number of factors, including the Exchange Ratio and other financial terms of the Merger, information concerning the business, financial condition, results of operations and prospects of MBI and Hawkeye, the value anticipated to be received by Hawkeye shareholders in the Merger in relation to the historical trading prices of Hawkeye Common Stock, similarities between the community banking philosophies of Hawkeye and MBI, and the financial advice and opinion rendered by Hawkeye's financial advisor, Donaldson, Lufkin & Jenrette. See "TERMS OF THE PROPOSED MERGER -- Background and Reasons for the Merger; Hawkeye Board Recommendation." OPINION OF HAWKEYE'S FINANCIAL ADVISOR Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"), Hawkeye's financial advisor, has delivered its written opinion, dated the date of this Proxy Statement/Prospectus, to the Board of Directors of Hawkeye stating that, as of the date of this Proxy Statement/Prospectus and based on the matters set forth in such opinion, the Exchange Ratio is fair, from a financial point of view, to the holders of Hawkeye Common Stock. The full text of the written opinion of DLJ, which sets forth -6- the assumptions made, the procedures followed, the matters considered and the limits on the review undertaken by DLJ, is attached as Annex B to this Proxy Statement/Prospectus and holders of Hawkeye Common Stock are urged to read carefully the opinion in its entirety. See "TERMS OF THE PROPOSED MERGER -- Opinion of Hawkeye's Financial Advisor." INTERESTS OF CERTAIN PERSONS IN THE MERGER In considering the recommendation of the Hawkeye Board with respect to the Merger Agreement, Hawkeye shareholders should be aware that certain executive officers and directors of Hawkeye (or their affiliates) have interests in the Merger that are different from and in addition to the interests of Hawkeye shareholders generally. The Board of Directors of Hawkeye was aware of these interests and took these interests into account in adopting the Merger Agreement. EMPLOYMENT AGREEMENT. On August 4, 1995, Robert W. Murray, President and Chief Executive Officer of Hawkeye, entered into an employment agreement (the "Employment Agreement") with MBI. The Employment Agreement is effective only upon the consummation of the Merger. It provides for the employment of Mr. Murray as Chairman of Hawkeye Bank, Des Moines, and any successor thereto ("Hawkeye Bank"), for a term of four years from the Effective Time (the "Employment Period"). In addition, Mr. Murray will be proposed for election to the Board of Directors of MBI for a term expiring on the third anniversary of the MBI annual meeting date for the year in which the Merger is consummated. Hawkeye Bank will pay Mr. Murray for each consecutive year of the Employment Period a base salary (inclusive in each case of all fees which would otherwise be payable to him as a director of Hawkeye Bank) of $250,000, $150,000, $100,000 and $100,000, respectively. Mr. Murray will also be entitled during the Employment Period, unless terminated for "cause" (as defined in the Employment Agreement), to employee benefits and customary prerequisites equivalent to those provided by MBI to similarly situated officers, including, pension benefits, health and welfare benefits, disability insurance benefits, life insurance benefits, vacation benefits and other fringe benefits. If Mr. Murray's employment is terminated by reason of death or "disability" (as defined in the Employment Agreement) or is involuntarily terminated other than for "cause," in each case prior to the expiration of the Employment Period, Mr. Murray, or his estate, will be entitled to continue to be paid his salary under the Employment Agreement to the same extent as if Mr. Murray had completed his employment obligations thereunder. -7- INDEMNIFICATION. In the Merger Agreement, MBI agreed that the Merger will not affect or diminish any of Hawkeye's duties and obligations of indemnification existing as of the Effective Time in favor of employees, agents, directors or officers of Hawkeye or its subsidiaries arising by virtue of their respective articles of incorporation or bylaws in the form in effect on August 4, 1995, or arising by operation of law or by virtue of any contract, resolution or other agreement or document existing on August 4, 1995, and such duties and obligations will continue in full force and effect for so long as they would (but for the Merger) otherwise survive. OTHER INTERESTS. Certain executive officers, including certain directors, of Hawkeye currently hold Hawkeye employee stock options and/or Hawkeye stock appreciation rights which will be converted at the Effective Time into rights with respect to MBI Common Stock. See "TERMS OF THE PROPOSED MERGER -- Employee Benefits." In addition, Robert W. Murray and R. Douglas Fisher will be entitled to receive in connection with the Merger up to $900,000 and $525,000, respectively, pursuant to certain change of control agreements between each of them and Hawkeye. In connection with the anticipated retirement of Donald R. Runger, Hawkeye and Mr. Runger entered into a deferred compensation agreement on July 25 1995, pursuant to which Mr. Runger will be paid in the aggregate $775,000. The deferred compensation agreement superseded and replaced the change of control agreement between Hawkeye and Mr. Runger. See "TERMS OF THE PROPOSED MERGER -- Interests of Certain Persons in the Merger" and "-- Employee Benefits." FRACTIONAL SHARES No fractional shares of MBI Common Stock will be issued to Hawkeye shareholders in connection with the Merger. Upon consummation of the Merger, each former holder of Hawkeye Common Stock who otherwise would have been entitled to receive a fraction of a share of MBI Common Stock shall be entitled to receive in lieu thereof cash, without interest, in an amount equal to the holder's fractional share interest multiplied by the closing stock price of MBI Common Stock on the last business day preceding the Effective Time. Cash received by Hawkeye shareholders in lieu of fractional shares may give rise to taxable income. See "CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER." REGULATORY APPROVAL The Merger is subject to the prior approval of the Board of Governors of the Federal Reserve System (the "Federal -8- Reserve Board") under the Bank Holding Company Act of 1956, as amended (the "BHCA"). Application for such approval has been or will be filed. There can be no assurance that any necessary regulatory approval or action will be received or taken or as to the timing of such approval or action. See "TERMS OF THE PROPOSED MERGER -- Regulatory Approval." WAIVER AND AMENDMENT Any term, condition or provision of the Merger Agreement may be waived in writing at any time by the party which is, or whose shareholders are, entitled to the benefits thereof. The Merger Agreement and the schedules thereto may be amended by or on behalf of the Boards of Directors of MBI and Hawkeye at any time before or after approval of the Merger Agreement by the shareholders of Hawkeye, by an instrument in writing signed on behalf of each party; PROVIDED that after any such approval by the shareholders of Hawkeye no such modification may alter or change the amount or kind of consideration to be received by holders of Hawkeye Common Stock in the Merger. ACCOUNTING TREATMENT It is intended that the Merger will be accounted for under the pooling-of-interests method of accounting. See "TERMS OF THE PROPOSED MERGER -- Accounting Treatment." EMPLOYEE STOCK OPTIONS AND STOCK APPRECIATION RIGHTS At the Effective Time, all rights with respect to Hawkeye Common Stock pursuant to Hawkeye employee stock options that are outstanding at the Effective Time, whether or not then exercisable, will be converted into and become rights with respect to MBI Common Stock, and MBI will assume each Hawkeye employee stock option in accordance with the terms of the stock option plan under which it was issued and the stock option agreement by which it is evidenced. From and after the Effective Time, (i) each Hawkeye employee stock option assumed by MBI will be exercisable solely for shares of MBI Common Stock, (ii) the number of shares of MBI Common Stock subject to each Hawkeye employee stock option will be equal to the number of shares of Hawkeye Common Stock subject to such Hawkeye employee stock option immediately prior to the Effective Time multiplied by the Exchange Ratio and (iii) the per share exercise price under each Hawkeye employee stock option will be adjusted by dividing the per share exercise price under such Hawkeye employee stock option by the Exchange Ratio and rounding down to the nearest cent; provided, however, that the terms of each Hawkeye employee stock option will, in accordance with its -9- terms, be subject to further adjustment as appropriate to reflect any stock split, stock dividend, recapitalization or other similar transaction subsequent to the Effective Time. It is intended that the foregoing assumption will be undertaken in a manner that will not constitute a "modification" as defined in the Internal Revenue Code of 1986, as amended (the "Internal Revenue Code"), as to any Hawkeye employee stock option that is an "incentive stock option." At the Effective Time, all stock appreciation rights with respect to Hawkeye Common Stock that are outstanding at the Effective Time, whether or not then exercisable, will be converted into and become stock appreciation rights with respect to MBI Common Stock with the same terms and conditions as were applicable to such Hawkeye stock appreciation rights immediately prior to the Effective Time. Certain executive officers, including certain executive officers who are directors, of Hawkeye currently hold Hawkeye employee stock options and/or Hawkeye stock appreciation rights which will be converted into rights with respect to MBI Common Stock as described above. FEDERAL INCOME TAX CONSEQUENCES IN GENERAL Wachtell, Lipton, Rosen & Katz, special counsel to MBI, and Baird, Holm, McEachen, Pedersen, Hamann & Strasheim, counsel to Hawkeye, have delivered their opinions to the effect that, assuming the Merger occurs in accordance with the Merger Agreement, and conditioned on the accuracy of certain representations made by MBI and Hawkeye, no gain or loss will be recognized by Hawkeye or MBI as a result of the Merger and Hawkeye shareholders will recognize no gain or loss as a result of the exchange of their Hawkeye Common Stock solely for shares of MBI Common Stock pursuant to the Merger, except with respect to cash received in lieu of fractional shares, if any. EACH HAWKEYE SHAREHOLDER IS URGED TO CONSULT HIS OR HER OWN TAX ADVISOR TO DETERMINE THE SPECIFIC TAX CONSEQUENCES OF THE MERGER TO SUCH SHAREHOLDER. See "CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER." DISSENTERS' RIGHTS Under the Iowa Act, a holder of shares of Hawkeye Common Stock may, in lieu of the consideration such shareholder would otherwise receive in the Merger, seek payment of the "fair value" of such shares and receive payment of such fair value in cash if the Merger is consummated by following certain procedures set forth in Division XIII of the Iowa Act, the text -10- of which is attached hereto as Annex A to this Proxy Statement/ Prospectus. Failure to follow such procedures may result in a loss of such shareholder's dissenters' rights. Any Hawkeye shareholder returning a blank executed proxy card will be deemed to have approved the Merger Agreement, thereby waiving any such dissenters' rights. See "DISSENTERS' RIGHTS OF SHAREHOLDERS OF HAWKEYE." MARKET AND MARKET PRICES MBI Common Stock is currently quoted on the NYSE under the symbol "MTL." Prior to March 25, 1993, MBI's Common Stock was quoted on the NASDAQ/NM, under the symbol "MTRC." On August 3, 1995, the last full trading day preceding public announcement of the Merger, the last sale price of MBI Common Stock was $43.88 per share as reported on the NYSE Composite Tape. The last sale price of MBI Common Stock on _______, 1995, the most recent practicable date prior to the mailing of this Proxy Statement/Prospectus, was $_____ per share as reported on the NYSE Composite Tape. Hawkeye Common Stock is currently quoted on the NASDAQ/NM, under the symbol "HWKB." On August 3, 1995, the last sale price of Hawkeye Common Stock was $22.75 per share as reported on the NASDAQ/NM. The value of Hawkeye Common Stock at August 3, 1995, on an equivalent per share basis, was $25.67 (based upon the Exchange Ratio of .585). The last sale price of Hawkeye Common Stock on ______, 1995, was $_____ per share as reported on the NASDAQ/NM. Shareholders are advised to obtain current market quotations for MBI Common Stock and Hawkeye Common Stock. There can be no assurance as to the market price of MBI Common Stock or Hawkeye Common Stock before, at, or, in the case of MBI Common Stock, after, the Effective Time. The following table sets forth for the periods indicated the high and low last sale prices (as reported on the NYSE Composite Tape and on the NASDAQ/NM, respectively) and per share cash dividend declared with respect to MBI Common Stock and Hawkeye Common Stock. -11-
MBI Cash Hawkeye Cash Common Stock Dividend Common Stock Dividend ------------ ------------ High Low Declared High Low Declared ---- --- ---- --- -------- 1993 ---- First Quarter $35.625 $30.625 $.2475 $19.375 $15.625 $.10 Second Quarter 37.625 29.375 .2475 18.750 16.125 .10 Third Quarter 34.375 31.625 .2475 20.500 16.250 .11 Fourth Quarter 34.625 29.125 .2475 20.375 18.625 .11 1994 ---- First Quarter $34.125 $29.875 $.28 $20.250 $17.875 $.12 Second Quarter 38.125 31.125 .28 21.375 17.500 .12 Third Quarter 39.250 34.875 .28 21.250 19.375 .13 Fourth Quarter 36.875 29.500 .28 21.125 15.500 .13 1995 ---- First Quarter $37.250 $31.250 $.33 $21.875 $18.625 $.15 Second Quarter 44.875 36.000 .33 23.750 20.250 .15 Third Quarter 47.000 41.625 .33 26.000 20.500 .17 Fourth Quarter (through ____, 1995) [ ] [ ] [ ] [ ]
MBI has applied for the listing on the NYSE of the shares of MBI Common Stock to be issued in the Merger. MBI's Board of Directors has heretofore declared a dividend on shares of MBI Common Stock of $.33 per share, payable on January 2, 1996 to holders of record on December 11, 1995. The Board of Directors of MBI intends to maintain its present policy of paying quarterly cash dividends on the MBI Common Stock, when justified by the financial condition of MBI and its subsidiaries. The declaration and amount of future dividends will depend on circumstances existing at the time, including MBI's earnings, financial condition and capital requirements as well as regulatory limitations, note and indenture provisions and such other factors as the Board of Directors may deem relevant. See "INFORMATION REGARDING MBI STOCK -- Dividends." Pursuant to the Merger Agreement, Hawkeye has agreed that, during the period from the date of the Merger Agreement to the Effective Time, Hawkeye will not declare, set aside or pay any dividends or other distributions on the Hawkeye Common Stock, except that Hawkeye may declare and pay (x) for dividends payable in 1995, regular quarterly cash dividends of not more than $.17 per share on the Hawkeye Common Stock, and (y) for dividends payable in 1996, quarterly cash dividends of not -12- more than $.19 per share; PROVIDED, that Hawkeye may not declare or pay any dividends on Hawkeye Common Stock for any period in which its shareholders will be entitled to receive any regular quarterly dividend on the shares of MBI Common Stock to be issued in the Merger. The Board of Directors of Hawkeye has heretofore declared (i) a regular quarterly cash dividend of $.17 per share on the Hawkeye Common Stock, payable on November 15, 1995 to holders of record on November 1, 1995 and (ii) with the consent of MBI, a quarterly cash dividend of $.19 per share on the Hawkeye Common Stock, payable on January 2, 1996 to holders of record on December 12, 1995. COMPARATIVE UNAUDITED PER SHARE DATA The following table sets forth for the periods indicated selected historical per share data of MBI and Hawkeye and the corresponding pro forma and pro forma equivalent per share amounts giving effect to the proposed Merger, and the proposed acquisitions of First Sterling Bancorp, Inc. ("Sterling"), Security Bank of Conway, FSB ("Security Bank") and Metro Savings Banks, FSB ("Metro") and the acquisition of Ameribanc, Inc. ("ABNK"), which was completed on April 30, 1992. The data presented is based upon the supplemental consolidated financial statements and related notes of MBI and the consolidated financial statements and related notes of Hawkeye, Sterling, Security Bank and Metro included in this Proxy Statement/ Prospectus or in documents incorporated herein by reference, and the pro forma combined consolidated balance sheet and income statements, including the notes thereto, appearing elsewhere herein. This information should be read in conjunction with such historical and pro forma financial statements and related notes thereto. The assumptions used in the preparation of this table appear in the notes to the pro forma financial information appearing elsewhere in this Proxy Statement/Prospectus. See "PRO FORMA FINANCIAL INFORMATION." These data are not necessarily indicative of the results of the future operations of the combined organization or the actual results that would have occurred if the Merger, the completed merger of ABNK, or the proposed mergers of Sterling, Security Bank and Metro had been consummated prior to the periods indicated. -13-
MBI/HAWKEYE MBI HAWKEYE Pro Forma Reported Reported Combined(1) -------- -------- ----------- Book Value per Common Share: September 30, 1995..................... $ 25.43 $14.32 $25.09 December 31, 1994...................... 23.47 13.06 23.03 Cash Dividends Declared Per Common Share: Nine months ended September 30, 1995... $ .99 $ .47 $ .99 Year ended December 31, 1994 .......... 1.12 .50 1.12 Year ended December 31, 1993 .......... .99 .42 .99 Year ended December 31, 1992 .......... .93 .33 .93 Earnings per Common Share Before Change in Accounting Principle: Nine months ended September 30, 1995... $ 2.95 $ 1.28 $ 2.89 Year ended December 31, 1994 .......... 3.22 1.78 3.21 Year ended December 31, 1993 .......... 2.79 1.64 2.80 Year ended December 31, 1992 .......... 2.42 1.38 2.42 Market Price per Common Share: August 3, 1995(4)...................... $43.88 $22.75 -- ________, 1995(4)...................... -- -- -- -14- MBI/HAWKEYE MBI/All Entities MBI/All Entities Pro Forma Pro Forma Pro Forma Equivalent(2) Combined(3) Equivalent(2) ------------- ----------- ------------- $14.68 $25.16 $14.72 13.47 23.09 13.51 $ .58 $ .99 $ .58 .66 1.12 .66 .58 .99 .58 .54 .93 .54 $ 1.69 $ 2.88 $ 1.68 1.88 3.22 1.88 1.64 2.80 1.64 1.42 2.44 1.43 -- -- -- -- -- -- ------------------ (1) Includes the effect of pro forma adjustments for ABNK and Hawkeye as appropriate. See "PRO FORMA FINANCIAL INFORMATION." (2) Based upon the pro forma combined per share amounts multiplied by .585, the Exchange Ratio applicable to one share of Hawkeye Common Stock. See "PRO FORMA FINANCIAL INFORMATION." (3) Includes the effect of pro forma adjustments for ABNK, Hawkeye, Security Bank, Sterling and Metro as appropriate. See "PRO FORMA FINANCIAL INFORMATION." (4) The market values of MBI Common Stock and Hawkeye Common Stock were determined as of the last trading day preceding the public announcement of the Merger and as of the most recent practicable date prior to the mailing of this Proxy Statement/ Prospectus based on the last sales price as reported on the NYSE and NASDAQ/NM, respectively. /TABLE SUMMARY FINANCIAL DATA The following tables set forth for the periods indicated certain summary historical consolidated financial information for MBI and Hawkeye. The historical balance sheet data and income statement data included in the summary financial data for the periods indicated are derived from financial statements of MBI and Hawkeye as of and for such periods. These data include all adjustments which are, in the opinion of the respective managements of MBI and Hawkeye, necessary to present a fair statement of the results of these periods and all such adjustments are of a normal recurring nature. Results for interim periods are not necessarily indicative of results for the entire year. The following information should be read in conjunction with the consolidated financial statements of MBI and Hawkeye, and the related notes thereto, included in documents incorporated herein by reference and in conjunction with the unaudited pro forma combined consolidated financial information, including notes thereto, appearing elsewhere in this Proxy Statement/Prospectus. See "INCORPORATION OF CERTAIN INFORMATION BY REFERENCE" and "PRO FORMA FINANCIAL INFORMATION." -15-
MERCANTILE BANCORPORATION INC. SUMMARY FINANCIAL DATA NINE MONTHS ENDED SEPTEMBER 30 YEAR ENDED DECEMBER 31 --------------------- --------------------------------------------------------- 1995 1994 1994 1993 1992 1991 1990 --------- --------- --------- --------- --------- --------- --------- (Unaudited) (Audited) PER SHARE DATA Net income(1).................. $ 2.95 $ 2.68 $ 3.22 $ 2.79 $ 2.42 $ 2.25 $ 1.99 Dividends declared............. .99 .84 1.12 .99 .93 .93 .93 Book value at period end....... 25.43 23.26 23.47 21.92 19.76 19.48 18.04 Average common shares out- standing (thousands)......... 53,630 51,900 51,957 50,965 47,276 39,391 37,847 EARNINGS (THOUSANDS) Interest income................ $854,404 $730,270 $994,896 $971,482 $1,011,544 $1,018,688 $1,022,441 Interest expense............... 410,097 284,939 399,349 390,911 485,253 588,993 642,365 -------- -------- -------- -------- ---------- ---------- ---------- Net interest income............ 444,307 445,331 595,547 580,571 526,291 429,695 380,076 Provision for possible loan losses.................. 28,928 26,374 43,201 63,513 77,874 62,360 56,196 Other income................... 181,480 159,425 209,758 219,703 201,965 170,770 150,508 Other expense.................. 356,944 360,140 492,070 508,043 471,903 431,155 361,992 Income taxes................... 81,156 78,033 101,705 85,467 61,072 24,029 31,759 -------- -------- -------- -------- ---------- ---------- ---------- Net income..................... $158,759 $140,209 $168,329 $143,251 $ 117,407 $ 82,921 $ 80,637 ======== ======== ======== ======== ========== ========== ========== ENDING BALANCE SHEET (MILLIONS) Total assets................... $16,019 $14,723 $14,806 $14,423 $ 14,190 $ 12,377 $ 11,674 Earning assets................. 14,773 13,571 13,671 13,259 12,989 11,331 10,447 Investment securities.......... 3,847 3,956 3,844 4,180 4,106 2,949 2,286 Loans and leases, net of unearned income....... 10,648 9,360 9,670 8,702 8,525 7,881 7,827 Deposits....................... 11,835 11,025 11,189 11,599 11,629 10,211 9,660 Long-term debt................. 304 300 299 288 310 216 247 Shareholders' equity........... 1,419 1,224 1,234 1,133 996 805 683 Reserve for possible loan losses.................. 188 190 195 185 179 158 159 SELECTED RATIOS Return on average assets....... 1.37% 1.29% 1.16% 1.00% .86% .70% .73% Return on average equity....... 16.01 15.80 14.07 13.37 12.71 10.96 12.30 Net interest rate margin....... 4.26 4.57 4.55 4.55 4.34 4.12 3.95 Equity to assets (average)..... 8.86 8.31 8.34 7.85 7.02 6.50 5.85 Reserve for possible loan losses to: Outstanding loans.......... 1.76 2.03 2.01 2.12 2.10 2.00 2.04 Non-performing loans....... 352.34 469.36 579.62 278.62 147.60 105.33 108.49 (1) Based on weighted average common shares outstanding.
-16-
HAWKEYE BANCORPORATION SUMMARY FINANCIAL DATA NINE MONTHS ENDED SEPTEMBER 30 YEAR ENDED DECEMBER 31 --------------------- --------------------------------------------------------- 1995 1994 1994 1993 1992 1991 1990 --------------------------------------------------------------------------------- (Unaudited) (Audited) PER COMMON SHARE DATA Net income(1).................. $ 1.28 $ 1.31 $ 1.78 $ 1.64 $ 1.73 $ 1.63 $ 1.64 Dividends declared............. .47 .37 .50 .42 .33 .15 0 Book value at period end....... 14.32 12.88 13.06 12.15 10.84 9.38 7.87 Average common shares out- standing (thousands)......... 13,512 13,327 13,334 13,309 13,289 13,279 13,272 EARNINGS (THOUSANDS) Interest income................ $105,900 $90,495 $123,173 $123,129 $128,261 $138,133 $138,114 Interest expense............... 49,337 37,414 51,601 53,662 64,389 79,585 81,314 -------- -------- ------- -------- -------- -------- -------- Net interest income............ 56,563 53,081 71,572 69,467 63,872 58,548 56,800 Provision for possible loan losses....................... 249 48 64 789 1,677 1,668 281 Other income................... 20,195 20,092 26,803 25,886 22,491 18,360 16,994 Other expenses................. 50,178 47,259 63,106 62,139 57,740 53,836 49,308 Income taxes................... 9,004 8,420 11,460 10,607 8,609 4,866 2,472 -------- -------- ------- -------- -------- -------- -------- Net income before change in accounting principle... $17,327 $17,446 $23,745 $21,818 $18,337 $16,538 $21,733 ======= ======= ======= ======= ======= ======= ======= ENDING BALANCE SHEET (MILLIONS) Total assets................... $ 1,993 $ 1,891 $ 1,927 $ 1,827 $ 1,849 $ 1,674 $ 1,614 Earning assets................. 1,816 1,729 1,756 1,721 1,689 1,522 1,453 Investment securities.......... 415 426 437 490 526 463 435 Loan and leases, net of unearned income.............. 1,299 1,223 1,234 1,106 1,045 928 900 Deposits....................... 1,717 1,651 1,676 1,645 1,631 1,473 1,398 Shareholders' equity........... 193 172 174 163 147 129 119 Reserve for possible loan losses.................. 22 22 21 21 20 18 19 SELECTED RATIOS Return on average assets....... 1.18% 1.26% 1.27% 1.19% 1.07% 1.03% 1.40% Return on average equity....... 12.52 13.90 14.04 14.14 13.10 13.30 20.13 Net interest rate margin....... 4.39 4.34 4.35 4.34 4.27 4.11 4.00 Equity to assets (average)..... 9.46 9.04 9.05 8.45 8.18 7.72 6.97 Reserve for possible loan losses to: Outstanding loans.......... 1.66 1.77 1.73 1.91 1.91 1.98 2.07 Non-performing loans....... 457.70 334.37 485.64 418.60 239.83 161.74 151.63 (1) Based on weighted average common shares outstanding.
-17- INFORMATION REGARDING SPECIAL MEETING GENERAL This Proxy Statement/Prospectus is being furnished to holders of Hawkeye Common Stock in connection with the solicitation of proxies by the Board of Directors of Hawkeye for use at the Special Meeting and any adjournment or postponement thereof at which the shareholders of Hawkeye will consider and vote on a proposal to approve and adopt the Merger Agreement and will transact such other business as may properly come before the Special Meeting or any adjournment or postponement thereof. Each copy of this Proxy Statement/ Prospectus is accompanied by a Letter to Hawkeye shareholders, the Notice of Special Meeting of Shareholders of Hawkeye, a proxy card and a self-addressed return envelope to Hawkeye for the proxy card. This Proxy Statement/Prospectus is also furnished by MBI to each holder of Hawkeye Common Stock as a prospectus in connection with the issuance by MBI of shares of MBI Common Stock to Hawkeye shareholders upon the consummation of the Merger. This Proxy Statement/Prospectus, the Letter to Hawkeye shareholders, the Notice of Special Meeting and the form of proxy are first being mailed to shareholders of Hawkeye on or about _______________, 1995. DATE, TIME AND PLACE The Special Meeting will be held at ________________, Des Moines, Iowa, on __________________, 1995, at _____ A.M., Central Time. RECORD DATE; VOTE REQUIRED The Board of Directors of Hawkeye has fixed _______, 1995, as the Record Date for determination of shareholders of Hawkeye entitled to notice of and to vote at the Special Meeting. Accordingly, only holders of record of Hawkeye Common Stock at the close of business on ______, 1995 will be entitled to notice of, and to vote at, the Special Meeting. At the Record Date, there were ________ shares of Hawkeye Common Stock outstanding and entitled to vote which were held by approximately _____ holders of record. Each such share is entitled to one vote on each matter properly brought before the Special Meeting. The affirmative vote of the holders of a majority of the outstanding shares of Hawkeye Common Stock entitled to vote at the meeting is required to approve the Merger Agreement. -18- As of the Record Date, directors and executive officers of Hawkeye and certain of their affiliates owned beneficially an aggregate of _________ shares of Hawkeye Common Stock, or approximately ____% of the shares entitled to vote at the Special Meeting. All of Hawkeye's directors and executive officers and certain of their affiliates have indicated their intention to vote their shares of Hawkeye Common Stock for the approval of the Merger Agreement. In addition, the Supporting Stockholders, who as of the Record Date beneficially owned in the aggregate approximately __% of the outstanding shares of Hawkeye Common Stock, have each agreed pursuant to a Support Agreement to vote all shares of Hawkeye Common Stock beneficially owned by such person, or over which such person has voting power or control, to approve the Merger Agreement. VOTING AND REVOCATION OF PROXIES Shares of Hawkeye Common Stock entitled to vote and which are represented at the Special Meeting by a properly executed proxy received prior to the vote at the Special Meeting will be voted at such Special Meeting in the manner directed on the proxy card, unless such proxy is revoked in the manner set forth herein in advance of such vote. ANY HAWKEYE SHAREHOLDER RETURNING A BLANK EXECUTED PROXY CARD WILL BE DEEMED TO HAVE VOTED FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT. Failure to return a properly executed proxy card or to vote in person at the Special Meeting will have the practical effect of a vote against the Merger Agreement. Shares subject to abstentions will be treated as shares that are present at the Special Meeting for purposes of determining the presence of a quorum and as voted for the purposes of determining the base number of shares voting on the proposal. If a broker or other nominee holder indicates on the proxy card that it does not have discretionary authority to vote the shares it holds of record on the proposal, those shares will not be treated as shares that are present at the Special Meeting for purposes of determining the presence of a quorum and will not be considered as voted for purposes of determining the approval of shareholders on the proposal. Since the approval of the Merger Agreement requires the affirmative vote of the holders of a majority of the outstanding shares of Hawkeye Common Stock, abstentions and broker non-votes will have the same effect as a vote against the approval of the Merger Agreement. Any shareholder of Hawkeye giving a proxy may revoke it at any time prior to the vote at the Special Meeting. Shareholders of Hawkeye wishing to revoke a proxy prior to the vote may do so by delivering to the Secretary of Hawkeye at 222 -19- Equitable Building, 604 Locust Street, Des Moines, Iowa 50309- 3723 a written notice of revocation bearing a later date than the proxy or any later dated proxy relating to the same shares, or by attending the Special Meeting and voting in person. Attendance at the Special Meeting will not in itself constitute the revocation of a proxy. The Board of Directors of Hawkeye is not currently aware of any business to be brought before the Special Meeting other than that described herein. If, however, other matters are properly brought before such Special Meeting, or any adjournment or postponement thereof, the persons appointed as proxies will have discretionary authority to vote the shares represented by duly executed proxies in accordance with their discretion and judgment as to the best interest of Hawkeye. SOLICITATION OF PROXIES Hawkeye will bear its own costs of soliciting proxies, except that MBI will pay printing and mailing expenses and registration fees incurred in connection with preparing this Proxy Statement/Prospectus. Proxies will initially be solicited by mail, but directors, officers and selected other employees of Hawkeye may also solicit proxies in person or by telephone, telegram or other means of communication. Directors, officers and any other employees of Hawkeye who solicit proxies will not be specially compensated for such services, but may be reimbursed for reasonable out-of-pocket expenses in connection with such solicitation. Brokerage houses, nominees, fiduciaries, and other custodians will be requested to forward proxy materials to beneficial owners and will be reimbursed for their reasonable expenses incurred in connection therewith. HOLDERS OF HAWKEYE COMMON STOCK ARE REQUESTED TO COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE. -20- TERMS OF THE PROPOSED MERGER THE FOLLOWING IS A SUMMARY OF THE MATERIAL PROVISIONS OF THE MERGER AGREEMENT, A COPY OF WHICH IS FILED AS AN EXHIBIT TO THIS REGISTRATION STATEMENT. SEE "AVAILABLE INFORMATION." THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE MERGER AGREEMENT WHICH IS HEREBY INCORPORATED BY REFERENCE HEREIN. GENERAL DESCRIPTION OF THE MERGER The Merger Agreement provides that Hawkeye will merge at the Effective Time with and into Merger Sub, subject to the Shareholder Approval and the satisfaction or waiver of the other conditions to the Merger. Upon consummation of the Merger, Hawkeye's corporate existence will terminate, with Merger Sub continuing as the surviving corporation, and each share of Hawkeye Common Stock will be converted into the right to receive .585 of a share of MBI Common Stock, with cash in lieu of fractional shares. The value of MBI Common Stock to be issued pursuant to the Merger may fluctuate prior to and following the Effective Time. It is currently anticipated that the Effective Time will occur shortly after the date of the Special Meeting assuming the Merger Agreement is approved at such meeting. The amount and nature of the Merger Consideration was established through arm's-length negotiations between MBI and Hawkeye, and reflects the balancing of a number of countervailing factors. The total amount of the Merger Consideration reflects a price both parties concluded was appropriate. See "-- Background and Reasons for the Merger; Hawkeye Board Recommendation." The fact that the consideration is payable in shares of MBI Common Stock reflects the potential for change in the value of the MBI Common Stock and the desire to have the favorable tax attributes of a "reorganization" for federal income tax purposes. See "CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER." NO ASSURANCE CAN BE GIVEN THAT THE CURRENT FAIR MARKET VALUE OF MBI COMMON STOCK WILL BE EQUIVALENT TO THE FAIR MARKET VALUE OF MBI COMMON STOCK ON THE DATE SUCH STOCK IS RECEIVED BY A HAWKEYE SHAREHOLDER OR AT ANY OTHER TIME. THE FAIR MARKET VALUE OF MBI COMMON STOCK RECEIVED BY A HAWKEYE SHAREHOLDER MAY BE GREATER OR LESS THAN THE CURRENT FAIR MARKET VALUE OF MBI COMMON STOCK DUE TO NUMEROUS MARKET FACTORS. Following the Effective Time, each shareholder of Hawkeye will be required to submit to KeyCorp Shareholder Services Inc., which has been appointed as exchange agent in -21- the Merger (the "Exchange Agent"), a properly executed letter of transmittal and surrender to the Exchange Agent the stock certificate(s) formerly representing the shares of Hawkeye Common Stock in order to obtain issuance of a new stock certificate evidencing the shares of MBI Common Stock to which such shareholder is entitled. No dividends or other distributions will be paid to a former Hawkeye shareholder with respect to shares of MBI Common Stock until such person surrenders the certificates formerly representing shares of Hawkeye Common Stock, or documentation acceptable to the Exchange Agent in lieu of lost or destroyed certificates, at which time such dividends will be remitted to such person, without interest and less any taxes that may have been imposed thereon. See "-- Surrender of Hawkeye Stock Certificates and Receipt of MBI Common Stock." No fractional shares of MBI Common Stock will be issued in the Merger, but cash will be paid in lieu of such fractional shares, such cash amount being determined by multiplying the holder's fractional share interest by the closing stock price of MBI Common Stock on the NYSE Composite Tape as reported in THE WALL STREET JOURNAL (or in the absence thereof, by any other authoritative source) on the last business day preceding the Effective Time. See "-- Fractional Shares." The shares of MBI Common Stock to be issued pursuant to the Merger will be freely transferable except by certain shareholders of Hawkeye who are deemed to be "affiliates" (as such term is defined under the Securities Act) of Hawkeye. The shares of MBI Common Stock issued to such affiliates will be restricted in their transferability in accordance with the rules and regulations promulgated by the Commission and pursuant to agreements entered into thereby and delivered to MBI. See "INFORMATION REGARDING MBI STOCK -- Restrictions on Resale of MBI Stock by Affiliates." STOCK OPTION AGREEMENT In connection with the execution of the Merger Agreement, MBI and Hawkeye entered into the Stock Option Agreement pursuant to which Hawkeye has issued MBI an Option to purchase up to 2,678,000 shares of Hawkeye Common Stock (or ____% of the outstanding shares of Hawkeye Common Stock as of the Record Date, without including any shares subject to or issued pursuant to the Option) at an exercise price of $22 per share. The Option is exercisable (after receipt of the required regulatory approvals) upon the occurrence of one of the following events: (i) Hawkeye or any of its subsidiaries, without having received prior written consent from MBI, shall have entered into, authorized, recommended, proposed or publicly announced its intention to enter into, authorize, recommend, or propose, an agreement, arrangement or understanding with any person (other than MBI or any of its subsidiaries) to (1) effect a merger or -22- consolidation or similar transaction involving Hawkeye or any of its subsidiaries, (2) purchase, lease or otherwise acquire 15% or more of the assets of Hawkeye or any of its subsidiaries or (3) purchase or otherwise acquire (including by way of merger, consolidation, share exchange or similar transaction) Beneficial Ownership (as defined in Rule 13d-3 under the Exchange Act) of securities representing 10% or more of the voting power of Hawkeye or any of its subsidiaries; (ii) any person (other than MBI or any subsidiary of MBI, or Hawkeye or any subsidiary of Hawkeye in a fiduciary capacity) shall have acquired Beneficial Ownership or the right to acquire Beneficial Ownership of 10% or more of the voting power of Hawkeye; (iii) Hawkeye's Board of Directors shall have withdrawn or modified in a manner adverse to MBI the recommendation of Hawkeye's Board of Directors with respect to the Merger Agreement, in each case after an Extension Event (as defined below); or (iv) the holders of Hawkeye Common Stock shall not have approved the Merger Agreement at the Special Meeting, or such Special Meeting shall not have been held or shall have been cancelled prior to termination of the Merger Agreement in accordance with its terms, in each case after an Extension Event (each of the above-described events is referred to herein as a "Triggering Event"). No Triggering Event has occurred as of the date of this Proxy Statement/Prospectus. The Option terminates (i) on the earlier of (x) the Effective Time of the Merger and (y) the termination of the Merger Agreement (1) by mutual consent of MBI and Hawkeye, (2) after August 4, 1996 by a party not then in material breach of the Merger Agreement or (3) by either party if (A) the Federal Reserve Board has denied approval of the Merger and such denial has become final and nonappealable or (B) shareholders of Hawkeye shall not have approved the Merger Agreement at the Special Meeting following a favorable recommendation of Hawkeye's Board of Directors, provided that if such termination follows an Extension Event (as defined below), the Option will not terminate until 12 months following such termination or (ii) if the Option cannot be exercised on such day because of any injunction, order or similar restraint issued by a court of competent jurisdiction, on the 30th business day after such injunction, order or restraint shall have been dissolved or when such injunction, order or restraint shall have become permanent and no longer subject to appeal, as the case may be. An "Extension Event" is defined in the Stock Option Agreement as any of: (i) a Triggering Event of the type specified in clauses (i) and (ii) in the preceding paragraph; (ii) any person (other than MBI or any of its subsidiaries) shall have "commenced" (as such term is defined in Rule 14d-2 under the Exchange Act), or shall have filed a registration statement under the Securities Act with respect to, a tender offer or exchange offer to purchase -23- shares of Hawkeye Common Stock such that, upon consummation of such offer, such person would have Beneficial Ownership or the right to acquire Beneficial Ownership of 10% or more of the voting power of Hawkeye; or (iii) any person (other than MBI or any subsidiary of MBI, or Hawkeye or any subsidiary of Hawkeye in a fiduciary capacity) shall have publicly announced its willingness, or shall have publicly announced a proposal, or publicly disclosed an intention to make a proposal, (x) to make an offer described in clause (ii) of this sentence or (y) to engage in a transaction described in clause (i) of this sentence. The Stock Option Agreement further provides that, to the extent not terminated pursuant to its terms, from and after the date of a Triggering Event until 13 months immediately thereafter (the "Repurchase Period"), MBI will be entitled to require Hawkeye to repurchase for cash the Option from MBI together with all (but not less than all) shares of Hawkeye Common Stock purchased by MBI pursuant thereto, at a price equal to the sum of: (i) the exercise price paid by MBI for any shares of Hawkeye Common Stock acquired pursuant to the Option; (ii) the difference between (1) the "Market/Tender Offer Price" for shares of Hawkeye Common Stock (defined as the higher of (x) the highest price per share at which a tender or exchange offer has been made for shares of Hawkeye Common Stock or (y) the highest closing mean of the "bid" and the "ask" price per share of Hawkeye Common Stock reported by the NASDAQ/ NM for any day within that portion of the Repurchase Period which precedes the date MBI gives notice of the required repurchase) and (2) the exercise price, multiplied by the number of shares of Hawkeye Common Stock with respect to which the Option has not been exercised, but only if the Market/ Tender Offer Price is greater than such exercise price; (iii) the difference between the Market/Tender Offer Price and the exercise price paid by MBI for any shares of Hawkeye Common Stock purchased pursuant to the exercise of the Option, multiplied by the number of shares so purchased, but only if the Market/Tender Offer Price is greater than such exercise price; and (iv) MBI's reasonable out-of-pocket expenses incurred in connection with the transactions contemplated by the Merger Agreement, including, without limitation, legal, accounting and investment banking fees. The Option, which MBI required that Hawkeye grant as a condition to MBI's entering into the Merger Agreement, may increase the likelihood of consummation of the Merger. The foregoing is a summary of the material provisions of the Stock Option Agreement, a copy of which is filed as an -24- exhibit to this Registration Statement. See "AVAILABLE INFORMATION." This summary is qualified in its entirety by reference to the Stock Option Agreement which is incorporated herein by this reference. SUPPORT AGREEMENTS Concurrently with the execution of the Merger Agreement, the Supporting Stockholders (as previously defined), who as of the Record Date beneficially owned in the aggregate approximately ______% of the outstanding shares of Hawkeye Common Stock, executed separate Support Agreements with MBI pursuant to which each Supporting Stockholder agreed, among other things, that: (i) Supporting Stockholder will not, and will not permit any company, trust or other entity controlled by Supporting Stockholder to, contract to sell, sell or otherwise transfer or dispose of any shares of Hawkeye Common Stock owned by the Supporting Stockholder, other than (a) pursuant to the Merger or (b) with MBI's prior written consent; (ii) all of the shares of Hawkeye Common Stock beneficially owned by Supporting Stockholder, or over which Supporting Stockholder has voting power or control, directly or indirectly, in each case at the record date for any meeting of shareholders of Hawkeye called to consider and vote to approve the Merger Agreement and/or the transactions contemplated thereby will be voted by the Supporting Stockholder to approve the Merger Agreement; (iii) Supporting Stockholder will, and will cause any company, trust or other entity controlled by Supporting Stockholder to, cooperate with MBI in connection with the Merger Agreement and the transactions contemplated thereby; and (iv) Supporting Stockholder will not, and will not permit any such company, trust or other entity, directly or indirectly (including through its officers, directors, employees or other representatives) to initiate, solicit or encourage any discussions, inquiries or proposals with any third party relating to an Acquisition Transaction, or provide any such person with information or assistance or negotiate with any such person with respect to an Acquisition Transaction or agree to or otherwise assist in the effectuation of any Acquisition Transaction. Each Support Agreement may be terminated at the option of any party thereto at any time after the earlier of (i) the termination of the Merger Agreement and (ii) the day following the Closing Date. Each Supporting Stockholder and the number of shares of Hawkeye Common Stock beneficially owned by it over which it has voting power or control are as follows: Charles A. Armstrong (2,429 shares); Michael P. Donohue (5,000 shares); Paul D. Dunlap (279,054 shares); R. Douglas Fisher (66,389 shares); Kelly J. Housby (2,350 shares); Kyle J. Krause (6,020 shares); William A. Krause (357,551 shares); William J. Lillis (17,015 -25- shares); J. Bruce Meriwether (49,893 shares); Terrence J. Montgomery (1,400 shares); Robert W. Murray (159,793 shares); Donald R. Runger (105,552 shares); Jack Schroeder (5,508 shares); and Robert H. Wahlert (9,388 shares). The foregoing is a summary of the material provisions of the Support Agreements, a form of which is filed as an exhibit to this Registration Statement. See "AVAILABLE INFORMATION." This summary is qualified in its entirety by reference to the Support Agreement which is incorporated herein by this reference. BACKGROUND AND REASONS FOR THE MERGER; HAWKEYE BOARD RECOMMENDATION BACKGROUND OF THE MERGER. Over the past several years Hawkeye has pursued its strategy as an independent bank holding company. From time to time during this period, representatives of DLJ made presentations to Hawkeye's management and the Hawkeye Board of Directors (the "Hawkeye Board") regarding banking industry trends, market outlook, the Midwest banking environment, Hawkeye's position and its strategic alternatives, including maintaining independence or exploring a business combination with a larger bank holding company. On January 24, 1995, DLJ representatives made a presentation to the Hawkeye Board on Hawkeye's present position in the banking industry, the current merger and acquisition environment, and an analysis of strategic alternatives available to Hawkeye, including remaining independent or pursuing a business combination at that time or in the future. At that meeting, the Hawkeye Board approved an agreement between Hawkeye and DLJ, which was entered into February 1, 1995, engaging DLJ as Hawkeye's exclusive financial advisor to pursue the process of exploring potential strategic business combinations for Hawkeye. See "-- Opinion of Hawkeye's Financial Advisor." Commencing in early March 1995, DLJ delivered confidential materials regarding Hawkeye to MBI and nine other bank holding companies identified by Hawkeye as potential strategic merger partners. Each bank holding company was asked to submit its indication of interest regarding a potential strategic merger with Hawkeye by March 31, 1995. Three of these bank holding companies, including MBI, submitted preliminary, nonbinding indications of interest to acquire Hawkeye. A fourth bank holding company, to whom DLJ did not deliver confidential materials, initiated contact with DLJ and indicated its interest in acquiring Hawkeye. -26- At a meeting of the Hawkeye Board on April 18, 1995, DLJ reported on the status of the indications of interest received. The Hawkeye Board discussed at this meeting its strategy in response to the indications of interest and authorized DLJ to proceed in an effort to increase the values of the indications of interest. Following the board meeting, DLJ representatives pursued discussions with three of the companies, including MBI. These discussions led to meetings between representatives of these three companies, including MBI, and Hawkeye senior management during the week of April 24, 1995. No firm offers resulted from these meetings. At the time of the late April meetings between representatives of MBI and Hawkeye, MBI Common Stock was trading around $36.00 per share. By late June 1995, the price per share of MBI Common Stock had increased to $43.88, while the price of Hawkeye Common Stock had not changed significantly. This development led to a meeting in late June 1995, initiated by DLJ, between representatives of DLJ and MBI, to discuss the feasibility of a merger at a premium to Hawkeye's market price that would be attractive to Hawkeye and acceptable to MBI. In mid-July 1995, representatives of Hawkeye, MBI and DLJ met to discuss nonfinancial issues of a possible merger, which included similarities between MBI's and Hawkeye's approaches to community banking. Ensuing negotiations of financial terms of a merger were conducted by telephone between representatives of MBI and, on behalf of Hawkeye, of DLJ. This was followed by the preparation of a proposed merger agreement by MBI and its advisors. On August 1, 1995, the Hawkeye Board met, with its financial and legal advisors present, to consider the proposed merger agreement. All members of the Hawkeye Board were present in person, except Robert H. Wahlert, who participated in the meeting by telephone. Representatives of DLJ presented the background of the proposal, reported on the history of discussions with all interested parties, and presented a preliminary analysis of a combination of the businesses of Hawkeye and MBI from a financial point of view and of the financial terms of the proposed merger agreement, including the Exchange Ratio. See "-- Opinion of Hawkeye's Financial Advisor". In addition, the Hawkeye Board reviewed and discussed with Hawkeye's legal counsel the terms and conditions of the proposed merger agreement and of the proposed stock option agreement and support agreements (the execution of each of which MBI had indicated would be a condition to its entering into a definitive agreement to effect a combination with Hawkeye). Members of management of Hawkeye expressed their views supporting the proposed merger with MBI. Following discussion, the Hawkeye Board voted -27- unanimously to proceed with negotiation of a definitive agreement with MBI. During the week of July 31, 1995, officers and representatives of Hawkeye conducted due diligence of MBI's business and operations. On August 2 and 3, 1995, officers and representatives of Hawkeye and MBI met and negotiated the terms and conditions of the definitive Merger Agreement, the Stock Option Agreement and the Support Agreements. On August 4, 1995, the Hawkeye Board again met with its financial and legal advisors. All board members except Mr. Wahlert were present in person or participated in the meeting by telephone. Members of management of Hawkeye reviewed with the board the results of Hawkeye's due diligence review of MBI, and Hawkeye's legal counsel reviewed therewith the final terms of the Merger Agreement, Stock Option Agreement and Support Agreements. DLJ reviewed with the board the financial terms of the Merger Agreement and rendered to the Hawkeye Board its oral opinion that, as of August 4, 1995, the Exchange Ratio is fair from, a financial point of view, to Hawkeye shareholders. Following discussion, the Hawkeye Board concluded that the Merger Agreement was in the best interests of Hawkeye and its shareholders, and, by unanimous vote of the directors participating in the meeting, the Hawkeye Board adopted the Merger Agreement and Stock Option Agreement and directed that the Merger Agreement be submitted to a vote of the shareholders of Hawkeye with the favorable recommendation of the board. See"-- Opinion of Hawkeye's Financial Advisor." On August 4, 1995, following the meeting of the Hawkeye Board, Hawkeye and MBI executed the Merger Agreement and the Stock Option Agreement and the Supporting Stockholders executed and delivered the Support Agreements. On August 4, 1995, the parties issued a press release announcing the Merger. HAWKEYE'S REASONS FOR THE MERGER; HAWKEYE BOARD RECOMMENDATION. In reaching its conclusion that the Merger is in the best interests of Hawkeye and its shareholders, the Hawkeye Board carefully considered a variety of factors. Among the factors considered were those described above and the following: -- The Exchange Ratio and other financial terms of the Merger, including the expectation that the Merger will be tax-free to Hawkeye shareholders, who will receive MBI Common Stock in the Merger which is traded on the NYSE, and accounted for under the pooling-of-interests method of accounting; -28- -- A comparison of the terms of the Merger with comparable transactions in Iowa and nationwide; -- Information concerning the business, financial condition, results of operations and prospects of MBI and Hawkeye; -- The value anticipated to be received by Hawkeye shareholders in the Merger in relation to the historical trading prices of Hawkeye Common Stock; -- The review by the Hawkeye Board with its legal and financial advisors of the provisions of the Merger Agreement, the Stock Option Agreement and the Support Agreements; -- The financial advice rendered by DLJ to the Hawkeye Board and the oral opinion rendered by DLJ that the Exchange Ratio is fair from a financial point of view to Hawkeye shareholders; -- Similarities between the community banking philosophies of Hawkeye and MBI, including MBI's policy to emphasize the local character of community banks and to continue the involvement of members of the Hawkeye bank boards, as well as members of management of such banks; and -- The likelihood that the proposed transaction would be consummated. While each member of the Hawkeye Board individually considered the foregoing and other factors, the Hawkeye Board did not collectively assign any specific or relative weights to the factors considered and did not make any determination with respect to any individual factor. The Hawkeye Board collectively made its determination with respect to the Merger based on the conclusion reached by its members, in light of the factors that each of them individually considered as appropriate, that the Merger is in the best interests of Hawkeye and its shareholders. MBI'S REASONS FOR THE MERGER. MBI has considered a number of factors, including, among other things, the financial condition of Hawkeye, the projected synergies between MBI and Hawkeye which are anticipated to result from the Merger, and the opportunity for MBI to expand into a new market area with the potential for increased revenues from marketing its existing products and services. MBI has concluded that the Merger presents a unique opportunity for MBI to expand its position in the banking market in the state of Iowa through the acquisition of an established banking organization with expertise and a major market presence in the state. MBI's decision to pursue -29- discussions with Hawkeye was primarily a result of MBI's assessment of the value of Hawkeye's franchise within the targeted market, its substantial asset base within that area and the compatibility of the businesses of the two organizations. OPINION OF HAWKEYE'S FINANCIAL ADVISOR In February of 1995, the Board of Directors of Hawkeye retained DLJ to act as its exclusive financial advisor with respect to the sale, merger, consolidation, or any other business combination involving Hawkeye. As part of its services, DLJ analyzed Hawkeye and its operations, historical performance and future prospects; identified and contacted a limited number of bank holding companies acceptable to the Hawkeye Board to solicit indications of interest in a possible business combination with Hawkeye; participated in certain negotiations concerning the financial aspects of the Merger Agreement under the guidance of the Hawkeye Board; and provided an opinion as to the fairness, from a financial point of view, of the Exchange Ratio to the holders of Hawkeye Common Stock. At the meeting of the Hawkeye Board on August 4, 1995, at which the terms of the proposed Merger were discussed and considered, DLJ rendered an oral opinion to the Hawkeye Board that, as of the date of such opinion, the Exchange Ratio was fair, from a financial point of view, to the holders of Hawkeye Common Stock. DLJ has confirmed its August 4, 1995 opinion by delivery of a written opinion to the Hawkeye Board dated the date of this Proxy Statement/Prospectus stating that, as of the date of this Proxy Statement/Prospectus and based on the matters set forth in such opinion, the Exchange Ratio is fair, from a financial point of view, to the holders of Hawkeye Common Stock. THE FULL TEXT OF DLJ'S OPINION DATED THE DATE OF THIS PROXY STATEMENT/PROSPECTUS, WHICH SETS FORTH THE ASSUMPTIONS MADE, THE PROCEDURES FOLLOWED, THE MATTERS CONSIDERED AND THE LIMITS ON THE REVIEW UNDERTAKEN BY DLJ, IS ATTACHED AS APPENDIX B HERETO AND IS INCORPORATED HEREIN BY THIS REFERENCE. THE DESCRIPTION OF THE DLJ OPINION SET FORTH IN THIS PROXY STATEMENT/PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH OPINION. HAWKEYE STOCKHOLDERS ARE URGED TO READ THE DLJ OPINION IN ITS ENTIRETY. DLJ's opinion is limited to the fairness, from a financial point of view, of the Exchange Ratio to the holders of Hawkeye Common Stock and does not address Hawkeye's underlying business decision to proceed with the Merger, nor does it express an opinion as to the prices at which shares of MBI Common -30- Stock issued in the Merger may trade if and when they are issued or at any future time. The opinion is directed only to the Exchange Ratio in the Merger and does not constitute a recommendation to any holder of Hawkeye Common Stock as to how such holder should vote with respect to the Merger Agreement at any meeting of holders of Hawkeye Common Stock. DLJ is a nationally recognized investment banking firm regularly engaged, with respect to bank holding companies and other corporations, in the valuation of businesses and their securities in connection with mergers and acquisitions, negotiated underwritings, competitive biddings, secondary distributions of listed and unlisted securities, private placements, and valuations for corporate and other purposes. The Hawkeye Board selected DLJ on the basis of its familiarity with the financial services industry, its qualifications, ability and previous experience, and its reputation with respect to mergers and acquisitions. For purposes of its opinion dated the date of this Proxy Statement/Prospectus and in connection with its review of the proposed transaction with MBI, DLJ, among other things: (i) participated in discussions and negotiations among representatives of Hawkeye and MBI and their respective legal advisors that resulted in the Merger Agreement; (ii) reviewed the terms of the Merger Agreement and Stock Option Agreement; (iii) reviewed this Proxy Statement/Prospectus; (iv) reviewed certain publicly available financial statements, both audited and unaudited, of Hawkeye and MBI, including those included in their respective Annual Reports on Form 10-K for the five years ended December 31, 1994 and the respective Quarterly Reports on Form 10-Q for the periods ended March 31, 1995 and June 30, 1995; (v) reviewed certain financial statements and other financial and operating data concerning Hawkeye and MBI prepared by their respective managements; (vi) reviewed certain financial forecasts of Hawkeye prepared by its management and made inquiries of representatives of MBI management as to the expected future financial performance of MBI on a stand-alone basis and giving effect to the Merger; (vii) discussed certain aspects of the past and current business operations, financial condition and future prospects of Hawkeye and MBI with certain members of their respective managements; (viii) reviewed reported market prices and historical trading activity of Hawkeye Common Stock and MBI Common Stock; (ix) reviewed certain aspects of the financial performance of Hawkeye and MBI and compared such financial performance of Hawkeye and MBI, together with stock market data relating to Hawkeye Common Stock and MBI Common Stock, with similar data available for certain other financial institutions and certain of their publicly traded securities; (x) reviewed certain of the -31- financial terms, to the extent publicly available, of certain recent business combinations involving other financial institutions; and (xi) conducted such other studies, analyses, and examinations as DLJ deemed appropriate. In conducting its review and rendering its opinion dated the date hereof, DLJ relied upon and assumed without independent verification the accuracy and completeness of all of the financial and other information provided to DLJ by Hawkeye, MBI and their respective representatives and of the publicly available information reviewed by DLJ. With Hawkeye's permission, DLJ also relied upon the managements of both Hawkeye and MBI as to the reasonableness and achievability of the financial and operating forecasts provided to DLJ (and the assumptions and bases therefor). In that regard, DLJ assumed with Hawkeye's permission that such forecasts, including without limitation projected cost savings and operating synergies resulting from the Merger, reflect the best currently available estimates and judgments of such managements and that such forecasts will be realized in the amounts and in the time periods estimated by the managements of Hawkeye and MBI. DLJ did not independently verify and relied on and assumed that the aggregate allowances for loan losses set forth in the balance sheets of each of Hawkeye and MBI at June 30, 1995 are adequate to cover such losses and complied fully with applicable law, regulatory policy and sound banking practice as of the date of such financial statements. DLJ was not retained to and DLJ did not conduct a physical inspection of any of the properties or facilities of Hawkeye and MBI, did not make any independent evaluation or appraisal of the assets, liabilities or prospects of Hawkeye and MBI, was not furnished with any such evaluation or appraisal, and did not review any individual credit files. In rendering its opinion, DLJ was advised by Hawkeye and MBI and assumed with Hawkeye's permission that there were no other factors that would delay or subject to adverse conditions any necessary regulatory or governmental approval for the Merger, and further assumed that all conditions to the Merger will be satisfied and not waived and that the Merger will be accounted for as a pooling of interests. Set forth below is a brief summary of the analyses performed by DLJ in reaching its August 4, 1995 opinion. STOCK TRADING HISTORY. DLJ examined the history of trading prices and volume for Hawkeye Common Stock and MBI Common Stock and the relationship between the movements of such trading prices to movements of the Standard & Poor's Regional Bank Index and of the trading prices of the common stocks of the companies in the Hawkeye Peer Group (as defined below) and -32- the MBI Peer Group (consisting of AmSouth Bancorporation, Bancorp Hawaii, Inc., Bank South Corporation, BayBanks, Inc., Central Fidelity Banks, Inc., Commerce Bancshares, Inc., Compass Bancshares, Inc., Crestar Financial Corporation, Fifth Third Bancorp, First American Corporation, First Citizens Bancshares, Inc., First Commerce Corporation, First Empire State Corporation, First Hawaiian, Inc., First Security Corporation, First Tennessee National Corporation, First Virginia Banks, Inc., Firstar Corporation, Fourth Financial Corporation, Hibernia Corporation, Huntington Bancshares Incorporated, Integra Financial Corporation, Marshall & Ilsley Corporation, Mercantile Bankshares Corporation, Meridian Bancorp, Inc., Midlantic Corporation, Northern Trust Corporation, Old Kent Financial Corporation, ONBANCorp, Inc., Regions Financial Corporation, Signet Banking Corporation, Southern National Corporation, SouthTrust Corporation, Star Banc Corporation, State Street Boston Corporation, Synovus Financial Corp., UJB Financial Corp., UMB Financial Corporation, Union Planters Corporation and West One Bancorp, all of which are publicly-traded U.S. bank holding companies with total assets in the approximate range of $5 billion to $25 billion). COMPARISON WITH SELECTED COMPANIES. DLJ compared selected financial ratios (at or for the twelve months ended June 30, 1995) and trading multiples (as of July 28, 1995) for Hawkeye to the corresponding ratios and multiples of the Hawkeye Peer Group (consisting of AMCORE Financial, Inc., Associated Banc-Corp, Brenton Banks, Inc., Chemical Financial Corporation, CNB Bancshares, Inc., Community First Bankshares, Inc., First Commerce Bancshares, Inc., First Financial Bancorp., First Michigan Bank Corporation, 1st Source Corporation, Firstbank of Illinois Co., FirsTier Financial, Inc., Fort Wayne National Corporation, Magna Group, Inc., Mark Twain Bancshares, Inc., Mid Am, Inc., Park National Corporation and River Forest Bancorp, Inc., all of which are publicly- traded commercial bank holding companies headquartered in the Midwest with total assets in the approximate range of $1 billion to $5 billion). DLJ also calculated implied values for Hawkeye Common Stock based on the mean trading multiples for the Hawkeye Peer Group. The trading multiples used in calculating such implied values were market price as a multiple of: (i) book value (which was 1.52x for Hawkeye as compared to a mean of 1.77x for the Hawkeye Peer Group); (ii) tangible book value (which was 1.72x for Hawkeye as compared to an mean of 1.86x for the Hawkeye Peer Group) (iii) earnings per share ("EPS") for the twelve months ended June 30, 1995 (which was 12.2x for Hawkeye as compared to a mean of 13.5x for the Hawkeye Peer Group); (iv) 1995 estimated EPS (which was 11.9x for Hawkeye as compared to a mean of 13.2x for the Hawkeye Peer Group); and (v) 1996 estimated EPS (which was 11.3x for Hawkeye as compared to a mean of 11.4x for -33- the Hawkeye Peer Group). DLJ used Hawkeye management's projected earnings estimates for Hawkeye and earnings estimates as published by the Institutional Brokers Estimate System ("IBES") for the companies comprising the Hawkeye Peer Group. IBES is a data service which monitors and publishes a compilation of earnings estimates produced by selected research analysts on companies of interest to investors. The implied values derived from this analysis ranged from $19.69 to $24.92 per share of Hawkeye Common Stock. DLJ also compared selected financial ratios (at or for the twelve months ended June 30, 1995) and trading multiples (as of July 28, 1995) for MBI to the corresponding ratios and multiples of the MBI Peer Group. The trading multiples used in comparing MBI to the MBI Peer Group were market price as a multiple of: (i) book value (which was 1.83x for MBI as compared to a mean of 1.70x for the MBI Peer Group); (ii) EPS for the twelve months ended June 30, 1995 (which was 11.7x for MBI as compared to a mean of 11.2x for the MBI Peer Group); (iii) 1995 estimated EPS (which was 11.2x for MBI as compared to a mean of 11.5x for the MBI Peer Group); and (iv) 1996 estimated EPS (which was 10.3x for MBI as compared to a mean of 10.5x for the MBI Peer Group). DLJ used earnings estimates as published by IBES for MBI and the companies comprising the MBI Peer Group. ANALYSIS OF SELECTED MERGERS. As part of its analyses, DLJ reviewed two sets of mergers: (i) eleven mergers and acquisitions involving Iowa-based depository institutions announced from January 1, 1990 to July 28, 1995 in which the total assets of the acquired company were greater than $200 million (the "Iowa Transactions"), and (ii) eight mergers and acquisitions involving banks and bank holding companies headquartered anywhere in the United States announced from August 1, 1994 to July 28, 1995 (the "National Transactions"). The Iowa Transactions involved the following pairs of institutions (acquiror/acquiree): Firstar Corporation/Harvest Financial Corp., First Midwest Bancorp/CF Bancorp Inc., Mercantile Bancorporation Inc./Plains Spirit Financial Corp., Community First Bankshares, Inc./Minowa Bancshares, Inc., FirsTier Financial Inc./Cornerstone Bank Group, Mercantile Bancorporation Inc./Metro Bancorporation, Inc., Iowa National Bankshares Corp./MidAmerica Financial Corp., Hawkeye Bancorporation/First Dubuque Corporation, Boatmen's Bancshares, Inc./First Interstate of Iowa, Inc., Norwest Corporation/ Davenport Bank and Trust Company, and Firstar Corporation/Banks of Iowa, Inc. The National Transactions involved the following pairs of institutions (acquiror/acquiree): NationsBank Corporation/Intercontinental Bank, Meridian Bancorp, Inc./ United Counties Bancorp., Comerica Incorporated/Metrobank, Mercantile -34- Bancorporation/TC Bankshares Inc., Synovus Financial Corporation/NBSC Corporation, Meridian Bancorp, Inc./United Counties Bancorp., Norwest Corporation/Independent of Arizona and Boatmen's Bancshares, Inc./Worthen Banking Corporation. For each transaction for which data was available, DLJ calculated the multiple of the offer value to the acquired company's: (i) EPS for the twelve months preceding ("LTM"), fiscal year containing ("FY Est.") and fiscal year following ("FY+1 Est.") the announcement date of the transaction; (ii) book value per share; (iii) tangible book value per share; and (iv) market price per share. The calculations for the Iowa Transactions yielded a range of multiples of offer value to LTM EPS of 10.1x to 17.3x, with a mean of 13.1x and a median of 12.4x; a range of multiples of offer value to book value of 1.12x to 2.08x, with a mean of 1.51x and a median of 1.49x; a range of multiples of offer value to tangible book value of 1.12x to 2.68x, with a mean of 1.64x and a median of 1.59x; a range of multiples of offer value to market price of 1.10x to 1.38x, with a mean of 1.25x and a median of 1.24x. The calculations for the National Transactions yielded a range of multiples of offer value to LTM EPS of 10.3x to 21.6x, with a mean of 15.2x and a median of 14.9x; a range of multiples of offer value to FY Est. EPS of 14.1x to 19.8x, with a mean of 16.3x and a median of 15.0x; a range of multiples of offer value to FY+1 Est. EPS of 12.4x to 16.4x, with a mean of 14.2x and a median of 13.8x; a range of multiples of offer value to book value of 1.12x to 2.18x, with a mean of 1.85x and a median of 1.94x; a range of multiples of offer value to tangible book value of 1.27x to 2.71x, with a mean of 2.03x and a median of 2.01x. DLJ compared these multiples with the corresponding multiples for the Merger, valuing the Exchange Ratio at $26.325 (the "Exchange Value"). In calculating the multiples for the Merger, DLJ used Hawkeye's EPS for the twelve months ended June 30, 1995, estimated EPS for the year ending December 31, 1995, estimated EPS for the year ending December 31, 1996, book value per share and tangible book value per share as of June 30, 1995, and the closing price per share of Hawkeye Common Stock on July 28, 1995. DLJ calculated that the Exchange Value represented multiples of 15.0x Hawkeye's LTM EPS, 14.7x its 1995 estimated EPS, 13.9x its 1996 estimated EPS, 1.87x its book value per share, 2.11x its tangible book value per share and 1.23x its market price per share. No company or transaction used in the above analyses as a comparison is identical to Hawkeye, MBI, or the Merger. -35- Accordingly, an analysis of the results of the foregoing is not mathematical; rather, it involves complex considerations and judgments concerning differences in financial and operating characteristics of the companies and other facts that could affect the public trading value of the companies to which they are being compared. DISCOUNTED CASH FLOW ANALYSIS. Using discounted cash flow analysis, DLJ estimated the future dividend streams that Hawkeye could produce over the period from June 30, 1995 through December 31, 1999, assuming a minimum required tangible equity level of 7.0% of tangible total assets, if Hawkeye performed in accordance with forecasts provided by management of Hawkeye. DLJ also estimated the terminal value of Hawkeye's common equity as of December 31, 1999 by applying multiples of 10.0x to 12.0x to Hawkeye's projected 1999 earnings. DLJ selected the range of terminal multiples on the basis of past and current trading multiples for Hawkeye and other commercial banks. The dividend streams and terminal value were discounted to present values as of June 30, 1995 using discount rates ranging from 12.0% to 13.0%, which reflect different assumptions regarding the required rates of return of holders and prospective buyers of Hawkeye Common Stock. The range of present values per fully diluted share of Hawkeye Common Stock resulting from this analysis was $18.17 to $21.29. PRO FORMA MERGER ANALYSIS. In the course of discussions preceding execution of the Merger Agreement, management of MBI informed DLJ that, with various cost savings and revenue enhancements that it believed could be obtained as a result of the Merger, management of MBI expected the transaction to be slightly dilutive to MBI's EPS in the first year following the Effective Time and slightly accretive in the second. Management of MBI also informed DLJ that it anticipated the transaction would initially be slightly dilutive to MBI's book value and tangible book value per share. DLJ performed certain calculations to confirm MBI's statements regarding the anticipated effect of the Merger on MBI's EPS, book value per share and tangible book value per share. DLJ also analyzed certain additional pro forma effects of the Merger. DLJ's analysis showed that holders of Hawkeye Common Stock would experience an increase in dividend income of 13.6%, based on Hawkeye's and MBI's current dividend payments as of August 1, 1995, and that the shares of MBI Common Stock issued in the Merger would represent 12.4% of the pro forma total number of outstanding shares of MBI Common Stock. -36- In connection with its written opinion dated as of the date of this Proxy Statement/Prospectus, DLJ performed procedures to update certain of its analyses and reviewed the assumptions on which such analyses were based and the factors considered in connection therewith. In updating its opinion, DLJ did not utilize any methods of analysis in addition to those described. The summary set forth above describes the material analyses performed by DLJ and presented to the Hawkeye Board and does not purport to be a complete description of such analyses. The preparation of a fairness opinion is a complex process and is not necessarily susceptible to partial analysis or summary description. DLJ believes that its analyses must be considered as a whole and that selecting portions of its analyses, without considering all factors and analyses, would create an incomplete view of the process underlying the analyses by which DLJ reached its opinions. The ranges of valuations resulting from any particular analysis described above should not be taken to be DLJ's view of the actual value of Hawkeye, the combined company or the trading price for MBI Common Stock. In performing its analyses, DLJ made numerous assumptions with respect to industry performance, general business and economic conditions and other matters, many of which are beyond the control of Hawkeye and MBI. The analyses performed by DLJ are not necessarily indicative of actual values or actual future results, which may be significantly more or less favorable than suggested by such analyses. Such analyses were prepared solely as part of DLJ's analysis of the fairness of the Exchange Ratio, from a financial point of view, to the holders of Hawkeye Common Stock. The analyses do not purport to be appraisals or to reflect the prices at which a company or its securities may actually be bought or sold. DLJ used in its analyses various projections prepared by Hawkeye's management and relied on statements of MBI's management as to the expected future financial performance of MBI. Neither Hawkeye nor MBI publicly discloses internal management projections of the type provided to DLJ in connection with its review. Such projections were not prepared for, or with a view toward, public disclosure. In addition, such projections were based on numerous variables and assumptions that are inherently uncertain, including, without limitation, factors related to general economic and competitive conditions, many of which are beyond the control of the managements of MBI and Hawkeye. Accordingly, actual results could vary significantly from those set forth in such projections. Pursuant to the terms of a letter agreement dated February 1, 1995 (the "Engagement Letter"), for DLJ's services -37- in connection with the Merger, including the rendering of its opinions, Hawkeye (i) has paid DLJ $475,000, with an additional $75,000 payable on December 14, 1995, and (ii) has agreed to pay DLJ an amount equal to 0.70% of the aggregate amount of consideration received by the Company and/or its shareholders (treating any shares issuable upon exercise of options, warrants or other rights of conversion as outstanding), less the amount paid by the Company pursuant to clause (i) above. Because the major portion of the aggregate consideration to be received by the holders of Hawkeye Common Stock is to be paid in the form of securities, the Engagement Letter provides that the value of such securities, for purposes of calculating the fee payable to DLJ, will be determined by the last sale price for such securities on the last trading day thereof prior to consummation of the Merger. Such fee shall be payable in cash upon consummation of the Merger. Hawkeye has also agreed under the Engagement Letter to reimburse DLJ for all reasonable out- of-pocket expenses, including reasonable fees and expenses of legal counsel, and has agreed to indemnify DLJ against certain expenses and liabilities incurred in connection with its engagement, including liabilities under Federal securities law. DLJ was initially retained by Hawkeye to provide certain ongoing financial advisory services, including the review and analysis of financial and structural alternatives available to Hawkeye with a view to meeting its long term, strategic objectives. This initial engagement was governed by a letter agreement dated June 14, 1993 pursuant to which Hawkeye paid DLJ a fee of $75,000 for a one-year engagement. Hawkeye renewed DLJ's engagement for an additional year in a letter agreement dated June 14, 1994, pursuant to which Hawkeye paid DLJ a fee of $150,000. Both letter agreements also provided for the reimbursement of DLJ's reasonable out-of- pocket expenses and the indemnification of DLJ against certain expenses and liabilities incurred in connection with its engagement, including liabilities under Federal securities law. DLJ may, in the ordinary course of its business, actively trade securities of Hawkeye and MBI for its own account or for the accounts of customers and thus may hold long or short positions in such securities at any time. INTERESTS OF CERTAIN PERSONS IN THE MERGER In considering the recommendation of the Hawkeye Board with respect to the Merger Agreement, Hawkeye shareholders should be aware that certain executive officers and directors of Hawkeye (or their affiliates) have interests in the Merger that are different from and in addition to the interests of Hawkeye shareholders generally. The Board of -38- Directors of Hawkeye was aware of these interests and took these interests into account in adopting the Merger Agreement. EMPLOYMENT AGREEMENT. On August 4, 1995, Robert W. Murray, President and Chief Executive Officer of Hawkeye, entered into an employment agreement (the "Employment Agreement") with MBI. The Employment Agreement is effective only upon the consummation of the Merger. It provides for the employment of Mr. Murray as Chairman of Hawkeye Bank, Des Moines, and any successor thereto ("Hawkeye Bank"), for a term of four years from the Effective Time (the "Employment Period"). In addition, Mr. Murray will be proposed for election to the Board of Directors of MBI for a term expiring on the third anniversary of the MBI annual meeting date for the year in which the Merger is consummated. Hawkeye Bank will pay Mr. Murray for each consecutive year of the Employment Period a base salary (inclusive in each case of all fees which would otherwise be payable to him as a director of Hawkeye Bank) of $250,000, $150,000, $100,000 and $100,000, respectively. Mr. Murray will also be entitled during the Employment Period, unless terminated for "cause" (as defined in the Employment Agreement), to employee benefits and customary prerequisites equivalent to those provided by MBI to similarly situated officers, including, pension benefits, health and welfare benefits, disability insurance benefits, life insurance benefits, vacation benefits and other fringe benefits. If Mr. Murray's employment is terminated by reason of death or "disability" (as defined in the Employment Agreement) or is involuntarily terminated other than for "cause," in each case prior to the expiration of the Employment Period, Mr. Murray, or his estate, will be entitled to continue to be paid his salary under the Employment Agreement to the same extent as if Mr. Murray had completed his employment obligations thereunder. INDEMNIFICATION. In the Merger Agreement, MBI agreed that the Merger will not affect or diminish any of Hawkeye's duties and obligations of indemnification existing as of the Effective Time in favor of employees, agents, directors or officers of Hawkeye or its subsidiaries arising by virtue of their respective articles of incorporation or bylaws in the form in effect on August 4, 1995, or arising by operation of law or by virtue of any contract, resolution or other agreement or document existing on August 4, 1995, and such duties and obligations will continue in full force and effect for so long as they would (but for the Merger) otherwise survive. OTHER INTERESTS. Certain executive officers, including certain directors, of Hawkeye currently hold Hawkeye -39- employee stock options and/or Hawkeye stock appreciation rights which will be converted at the Effective Time into rights with respect to MBI Common Stock. See "TERMS OF THE PROPOSED MERGER -- Employee Benefits." In addition, Robert W. Murray and R. Douglas Fisher will be entitled to receive in connection with the Merger up to $900,000 and $525,000, respectively, pursuant to certain change of control agreements between each of them and Hawkeye. In connection with the anticipated retirement of Donald R. Runger, Hawkeye and Mr. Runger entered into a deferred compensation agreement on July 25, 1995, pursuant to which Mr. Runger will be paid in the aggregate $775,000. The deferred compensation agreement superseded and replaced the change of control agreement between Hawkeye and Mr. Runger. See "-- Employee Benefits." CONDITIONS OF THE MERGER The respective obligations of MBI and Hawkeye to consummate the Merger are subject to the fulfillment or waiver at or prior to the Effective Time of the following conditions: (i) The Merger Agreement shall have received the requisite approval of shareholders of Hawkeye. (ii) All requisite approvals of the Merger Agreement and the transactions contemplated thereby shall have been received from the Federal Reserve Board, the Superintendent of the Banking Division of the Commerce Department of the State of Iowa (the "State Bank Regulator"), if required, and any other necessary governmental or regulatory authority or agency (the "Regulatory Authorities"). (iii) The Registration Statement shall have been declared effective and shall not be subject to a stop order or any threatened stop order. (iv) Neither MBI nor Hawkeye shall be subject to any order, decree or injunction of a court or agency of competent jurisdiction which enjoins or prohibits the consummation of the Merger. (v) Each of MBI and Hawkeye shall have received, from counsel reasonably satisfactory to it, an opinion reasonably satisfactory in form and substance to it to the effect that the Merger will constitute a reorganization within the meaning of Section 368 of the Internal Revenue Code and that no gain or loss will be recognized by the shareholders of Hawkeye to the extent they receive MBI Common Stock solely in exchange for shares of Hawkeye Common Stock. -40- Hawkeye's obligation to effect the Merger is subject to the fulfillment or waiver at or prior to the Effective Time of the following additional conditions: (i) The representations and warranties of MBI set forth in Article III of the Merger Agreement shall be true and correct in all material respects as of August 4, 1995 and as of the Effective Time (as though made on and as of the Effective Time except (A) to the extent such representations and warranties are by their express provisions made as of a specified date or period and (B) for the effect of transactions contemplated by the Merger Agreement). (ii) MBI shall have performed in all material respects all obligations required to be performed by it under the Merger Agreement prior to the Effective Time. (iii) Hawkeye shall have received a certificate of the chairman or chief financial officer of MBI as to the satisfaction of the conditions set forth in clauses (i) and (ii). MBI's obligation to effect the Merger is subject to the fulfillment or waiver at or prior to the Effective Time of the following additional conditions: (i) The representations and warranties of Hawkeye set forth in Article II of the Merger Agreement shall be true and correct in all material respects as of August 4, 1995 and as of the Effective Time (as though made on and as of the Effective Time except (A) to the extent such representations and warranties are by their express provisions made as of a specified date or period and (B) for the effect of transactions contemplated by the Merger Agreement). (ii) Hawkeye shall have performed in all material respects all obligations required to be performed by it under the Merger Agreement prior to the Effective Time. (iii) MBI shall have received certificates of the chairman and the president and chief executive officer of Hawkeye as to the satisfaction of the conditions set forth in clauses (i) and (ii). (iv) MBI shall have received an opinion addressed to MBI from KPMG Peat Marwick LLP, satisfactory in form and substance to MBI, stating that the Merger will qualify for pooling-of-interests accounting treatment (the -41- "Pooling Letter") and such opinion shall not have been withdrawn (see "-- Accounting Treatment"). TERMINATION OF THE MERGER AGREEMENT The Merger Agreement may be terminated at any time prior to the Effective Time, whether before or after any requisite shareholder approval: (i) by mutual consent of the Executive Committee of the Board of Directors of MBI and the Board of Directors of Hawkeye; (ii) by the Executive Committee of the Board of Directors of MBI or the Board of Directors of Hawkeye (A) at any time after August 4, 1996 if the Merger shall not theretofore have been consummated (provided that the terminating party is not then in material breach of the Merger Agreement), (B) if the Federal Reserve Board has denied approval of the Merger and such denial has become final and nonappealable or (C) if shareholders of Hawkeye shall not have approved the Merger Agreement at the Special Meeting following a favorable recommendation of Hawkeye's Board of Directors; (iii) by the Executive Committee of the Board of Directors of MBI in the event (A) of a material breach by Hawkeye of the Merger Agreement, which breach is not cured within 30 days after written notice thereof to Hawkeye by MBI or (B) that (x)(1) the estimated costs of all remedial or other corrective actions or measures with regard to certain real properties referred to in the Merger Agreement required by applicable law exceed $5,000,000 in the aggregate or (2) such cost cannot be reasonably estimated to be such amount or less with any reasonable degree of certainty and (y) after providing Hawkeye with written notice of MBI's intent to so terminate the Merger Agreement Hawkeye shall not have taken and completed, within the six-month period from the date of such notice, to the reasonable satisfaction of MBI, all such remedial or other corrective actions and measures (the aggregate cost of which incurred by Hawkeye and its subsidiaries shall not exceed $5,000,000); or (iv) by the Board of Directors of Hawkeye in the event of a material breach by MBI of the Merger Agreement, which breach is not cured within 30 days after written notice thereof is given to MBI by Hawkeye. No assurance can be given that the Merger will be consummated, that MBI and Hawkeye will not mutually agree to terminate the Merger Agreement or that MBI or Hawkeye will not elect to terminate the Merger Agreement if the Merger has not been consummated on or before August 4, 1996. CLOSING AND EFFECTIVE TIME Unless the parties otherwise agree, the Closing of the Merger will take place at 10:00 A.M., local time, on the -42- date on which the Effective Time occurs, which shall be such date as MBI notifies Hawkeye in writing but not earlier than the Approval Date, and not later than the first business day of the first full calendar month commencing at least five business days after the Approval Date. The Effective Time will occur upon the filing of the articles of merger with the Iowa Secretary of State. It is currently anticipated that the Effective Time will occur shortly after the date of the Special Meeting assuming the Merger Agreement is approved at such meeting. SURRENDER OF HAWKEYE STOCK CERTIFICATES AND RECEIPT OF MBI COMMON STOCK Except for the shares of Hawkeye Common Stock subject to the exercise of dissenters' rights, at the Effective Time of the Merger, each outstanding share of Hawkeye Common Stock (other than shares held by Hawkeye or MBI or any of their respective subsidiaries, in each case other than in a fiduciary capacity or as a result of debts previously contracted, which shall be cancelled) will be converted into the right to receive .585 of a share of MBI Common Stock. As soon as practicable after the Effective Time, holders of record of certificates formerly representing shares of Hawkeye Common Stock (the "Certificates") will be instructed to tender such Certificates to the Exchange Agent pursuant to a letter of transmittal that MBI will deliver or cause to be delivered to such holders. Such letters of transmittal will specify that risk of loss and title to Certificates will pass only upon delivery of such Certificates to the Exchange Agent. After the Effective Time, each previous holder of a Certificate that surrenders such Certificate to the Exchange Agent will, upon acceptance thereof by the Exchange Agent, be entitled to a certificate or certificates representing the number of full shares of MBI Common Stock into which the Certificate so surrendered will have been converted pursuant to the Merger Agreement and any dividend theretofore declared and not yet paid with respect to such shares of MBI Common Stock, without interest. The Exchange Agent will accept Certificates upon compliance with such reasonable terms and conditions as MBI or the Exchange Agent may impose to effect an orderly exchange thereof in accordance with customary exchange practices. Certificates must be appropriately endorsed or accompanied by such instruments of transfer as MBI or the Exchange Agent may require. Each outstanding Certificate will, until duly surrendered to the Exchange Agent, be deemed to evidence ownership -43- of the Merger Consideration into which the stock previously represented by such Certificate will have been converted in the Merger. After the Effective Time, holders of Certificates will cease to have rights with respect to the stock previously represented by such Certificates, and their sole right will be to exchange such Certificates for such Merger Consideration. After the Effective Time, there will be no further transfer on the records of Hawkeye of Certificates, and if such Certificates are presented to Hawkeye for transfer, they will be cancelled against delivery of such Merger Consideration. MBI will not be obligated to deliver the Merger Consideration to which any former holder of Hawkeye Common Stock is entitled as a result of the Merger until such holder surrenders the Certificates as provided herein. No dividends declared on MBI Common Stock will be remitted to any person entitled to receive MBI Common Stock in the Merger until such person surrenders the Certificate representing the right to receive such MBI Common Stock, at which time such dividends will be remitted to such person, without interest and less any taxes that may have been imposed thereon. Certificates surrendered for exchange by any person constituting an "affiliate" of Hawkeye for purposes of Rule 145 of the Securities Act will not be exchanged for certificates representing MBI Common Stock until MBI has received a written agreement from such person not to sell or otherwise dispose of any shares of MBI Common Stock received by such person until financial results covering at least 30 days of combined operations have been published and thereafter only in compliance with Rule 145. See "INFORMATION REGARDING MBI STOCK -- Restrictions on Resale of MBI Capital Stock by Affiliates; Affiliate Agreement." Neither the Exchange Agent nor Hawkeye nor MBI, nor any affiliate thereof, will be liable to any holder of stock represented by any Certificate for any Merger Consideration paid to a public official pursuant to applicable abandoned property, escheat or similar laws. MBI and the Exchange Agent will be entitled to rely upon the stock transfer books of Hawkeye to establish the identity of those persons entitled to receive Merger Consideration, which books will be conclusive with respect thereto. In the event of a dispute with respect to ownership of stock represented by any Certificate, MBI and the Exchange Agent will be entitled to deposit any Merger Consideration represented thereby in escrow with an independent third party and thereafter be relieved with respect to any claims thereto. -44- FRACTIONAL SHARES No fractional shares of MBI Common Stock will be issued to the former shareholders of Hawkeye in connection with the Merger. Each former holder of Hawkeye Common Stock who otherwise would have been entitled to receive a fraction of a share of MBI Common Stock will receive cash in lieu thereof, without interest, in an amount equal to the holder's fractional share interest multiplied by the closing stock price of MBI Common Stock on the NYSE Composite Tape as reported in The Wall Street Journal (or in the absence thereof, by any other authoritative source) on the last business day preceding the Effective Time. No shareholder of Hawkeye entitled to receive cash in lieu of fractional shares will be entitled to dividends, voting rights or any other rights in respect of such fractional shares. Cash received by Hawkeye shareholders in lieu of fractional shares may give rise to taxable income. See "CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER." REGULATORY APPROVAL The obligations of the parties to effect the Merger are subject to prior approval of the Federal Reserve Board and the State Bank Regulator, if required, and any other necessary regulatory authority. The Merger is subject to the prior approval of the Federal Reserve Board under the BHCA. Under the BHCA, the Federal Reserve Board is required, in approving transactions such as the Merger, to take into consideration the financial and managerial resources and future prospects of the existing and proposed institutions and the convenience and needs of the communities to be served. In considering financial resources and future prospects, the Federal Reserve Board will, among other things, evaluate the adequacy of the capital levels of MBI and its bank subsidiaries following the Merger. The BHCA prohibits the Federal Reserve Board from approving the Merger if the Merger would result in a monopoly or be in furtherance of any combination or conspiracy to monopolize or to attempt to monopolize the business of banking in any part of the United States, or if their effect in any section of the country may be substantially to lessen competition or to tend to create a monopoly, or if it would in any other manner result in a restraint of trade, unless the Federal Reserve Board finds that the anticompetitive effects of the Merger are clearly outweighed in the public interest by the probable effect of transactions in meeting the convenience and needs of the communities to be served. In addition, under the Community Reinvestment Act of 1977, as amended, the Federal -45- Reserve Board must take into account the record of performance of the existing institutions in meeting the credit needs of the entire community, including low- and moderate-income neighborhoods, served by such institutions. Under the BHCA, the Merger may not be consummated until the 30th day following the date of Federal Reserve Board approval (or, if the Department of Justice has not submitted adverse comments with respect to competitive factors, the 15th day), during which time the United States Department of Justice may challenge the Merger on antitrust grounds. The commencement of an antitrust action would stay the effectiveness of the Federal Reserve Board's approval unless a court specifically orders otherwise. The BHCA provides for the publication of notice and public comment on the applications and authorizes the Federal Reserve Board to permit interested parties to intervene in the proceedings. If an interested party is permitted to intervene, such intervention could delay the regulatory approvals required for consummation of the Merger. Application for such Federal Reserve Board approval has been or will be filed. MBI and Hawkeye are not aware of any governmental approvals or actions that may be required for consum- mation of the Merger other than as described above. Should any other approval or action be required, it is presently conemplated that such approval or action would be sought. There can be no ass- urance that any necessary regulatory approval or action will be re- ceived or taken, as to the timing of such approval or action, that no action will be brought challenging such approval or action, or if such a challenge is brought, the result thereof, or that any such approval or action will not be conditioned in a manner that would cause the parties to abandon the Merger. See "-- Effective Time," "-- Conditions of the Merger," "-- Waiver and Amendment," "-- Termination of the Merger Agreement" and "SUPERVISION AND REGULATION." BUSINESS PENDING THE MERGER From August 4, 1995 to the Effective Time, each of MBI and Hawkeye agreed to, and agreed to cause each of their respective subsidiaries to, conduct its business according to the ordinary and usual course consistent with past practices, and agreed to, and agreed to cause each such subsidiary to, use its best efforts to maintain and preserve its business organization, employees and advantageous business relationships and retain the services of its officers and key employees. -46- Furthermore, from August 4, 1995 to the Effective Time, the Merger Agreement provides that, except as provided in the Merger Agreement, Hawkeye has agreed not to, and to cause each of its subsidiaries not to, without the prior written consent of MBI: (i) declare, set aside or pay any dividends or other distributions, directly or indirectly, in respect of its capital stock (other than dividends from a subsidiary of Hawkeye to Hawkeye or another subsidiary of Hawkeye), except that Hawkeye may declare and pay (x) for dividends payable in 1995, regular quarterly cash dividends of not more than $0.17 per share on the Hawkeye Common Stock, and (y) for dividends payable in 1996, quarterly cash dividends of not more than $0.19 per share; PROVIDED, that Hawkeye may not declare or pay any dividends on Hawkeye Common Stock for any period in which its shareholders will be entitled to receive any regular quarterly dividend on the shares of MBI Common Stock to be issued in the Merger; (ii) enter into or amend any employment, severance or similar agreement or arrangement with any director or officer or employee, or materially modify any of Hawkeye's employee benefit plans specified in the Merger Agreement or grant any salary or wage increase or materially increase any employee benefit (including incentive or bonus payments), except normal individual increases in compensation to employees consistent with past practice, or as required by law or contract; (iii) authorize, recommend (subject to the fiduciary duties of Hawkeye's Board of Directors, upon written advice of counsel to Hawkeye, which counsel is reasonably acceptable to MBI), propose or announce an intention to authorize, recommend or propose, or enter into an agreement in principle with respect to, any merger, consolidation or business combination (other than the Merger), any acquisition of a material amount of assets or securities, any disposition of a material amount of assets or securities or any release or relinquishment of any material contract rights; (iv) propose or adopt any amendments to its articles of incorporation, association or other charter document or by-laws; (v) issue, sell, grant, confer or award any of its Equity Securities (as defined in the Merger Agreement) -47- (except shares of Hawkeye Common Stock issued upon exercise of Hawkeye Employee Stock Options outstanding on August 4, 1995) or effect any stock split or adjust, combine, reclassify or otherwise change its capitalization as it existed on August 4, 1995; (vi) purchase, redeem, retire, repurchase, or exchange, or otherwise acquire or dispose of, directly or indirectly, any of its Equity Securities, whether pursuant to the terms of such Equity Securities or otherwise; (vii) (A) without first consulting with MBI, enter into, renew or increase any loan or credit commitment (including stand-by letters of credit) to, or invest or agree to invest in any person or entity or modify any of the material provisions or renew or otherwise extend the maturity date of any existing loan or credit commitment (collectively, "lend to") in an amount in excess of $1,500,000, or in an amount which, when aggregated with any and all loans or credit commitments to such person or entity, would be in excess of $1,500,000; (B) without first obtaining the written consent of MBI, lend to any person or entity in an amount in excess of $3,000,000 or in an amount which, when aggregated with any and all loans or credit commitments to such person or entity, would be in excess of $3,000,000; (C) Lend to any person other than in accordance with lending policies as in effect on August 4, 1995; PROVIDED that in the case of clauses (B) and (C) Hawkeye or any Hawkeye subsidiary may make any such loan in the event (1) Hawkeye or any Hawkeye subsidiary has delivered to MBI or its designated representative a notice of its intention to make such loan and such information as MBI or its designated representative may reasonably require in respect thereof and (2) MBI or its designated representative shall not have reasonably objected to such loan by giving written or facsimile notice of such objection within two business days following the delivery to MBI of the notice of intention and information as aforesaid; or (D) Lend to any person or entity any of the loans or other extensions of credit to which, or investments in which, are on a "watch list" or similar internal report of Hawkeye or any Hawkeye subsidiary (except those denoted "pass" thereon), in an amount in excess of $500,000; PROVIDED, HOWEVER, that nothing described in this paragraph will prohibit Hawkeye or any Hawkeye subsidiary from honoring any contractual obligation in existence on August 4, 1995, PROVIDED FURTHER, HOWEVER, that notwithstanding clauses (A) and (B) of this paragraph, Hawkeye is authorized without first consulting with MBI or obtaining MBI's prior written consent, to increase the aggregate amount of -48- any credit facilities theretofore established in favor of any person or entity (each a "Pre-Existing Facility"), provided that the aggregate amount of any and all such increases with respect to any Pre-Existing Facility shall not be in excess of the lesser of ten percent (10%) of such Pre-Existing Facility or $250,000; (viii) directly or indirectly (including through its officers, directors, employees or other representatives) initiate, solicit or encourage any discussions, inquiries or proposals with any third party relating to the disposition of any significant portion of the business or assets of Hawkeye or any Hawkeye subsidiary or the acquisition of Equity Securities of Hawkeye or any Hawkeye subsidiary or the merger of Hawkeye or any Hawkeye subsidiary with any person (other than MBI) or any similar transaction (each such transaction being referred to as an "Acquisition Transaction"), or provide any such person with information or assistance or negotiate with any such person with respect to an Acquisition Transaction, and Hawkeye shall promptly notify MBI orally of all the relevant details relating to all inquiries, indications of interest and proposals which it may receive with respect to any Acquisition Transaction; (ix) take any action that would (A) materially impede or delay the consummation of the transactions contemplated by the Merger Agreement or the ability of MBI or Hawkeye to obtain any approval of any Regulatory Authority required for the transactions contemplated by the Merger Agreement or to perform its covenants and agreements under the Merger Agreement or (B) prevent the Merger from qualifying as a reorganization within the meaning of Section 368 of the Internal Revenue Code; (x) other than in the ordinary course of business consistent with past practice, incur any indebtedness for borrowed money, assume, guarantee, endorse or otherwise as an accommodation become responsible or liable for the obligations of any other individual, corporation or other entity, or, without prior approval of MBI, which shall not be unreasonably withheld, pay fees and expenses to attorneys, accountants or investment bankers in connection with the Merger in excess of the amount set forth in the Merger Agreement; (xi) restructure or materially change its investment securities portfolio, through purchases, sales or otherwise, or the manner in which the portfolio is classified or reported or execute any individual investment -49- transaction (A) in United States Treasury securities in excess of $5,000,000 and (B) in any other investment securities in excess of $1,000,000; or (xii) agree in writing or otherwise to take any of the foregoing actions or engage in any activity, enter into any transaction or take or omit to take any other act which would make any of the representations and warranties of Hawkeye in the Merger Agreement untrue or incorrect in any material respect if made anew after engaging in such activity, entering into such transaction, or taking or omitting such other act. BANK MINORITY SHARES Hawkeye has agreed to use, as soon as reasonably possible, all reasonable efforts to cooperate with MBI in respect of each person holding capital stock of any of the bank subsidiaries of Hawkeye (other than Hawkeye or any of its subsidiaries), whether as qualifying shares or otherwise, with the goal of purchasing such shares at any time and/or from time to time, at a price reasonably acceptable to MBI. WAIVER AND AMENDMENT Any term, condition or provision of the Merger Agreement may be waived in writing at any time by the party which is, or whose shareholders are, entitled to the benefits thereof. The Merger Agreement and the schedules thereto may be amended by or on behalf of the Boards of Directors of MBI and Hawkeye at any time before or after approval of the Merger Agreement by the shareholders of Hawkeye, by an instrument in writing signed on behalf of each party; PROVIDED that after any such approval by the shareholders of Hawkeye no such modification may alter or change the amount or kind of consideration to be received by holders of Hawkeye Common Stock in the Merger. See "CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER." ACCOUNTING TREATMENT It is intended that the Merger be accounted for under the pooling-of-interests method of accounting. It is a condition to the obligations of MBI to effect the Merger that the Pooling Letter shall have been received by MBI and shall not have been withdrawn. See "-- Conditions of the Merger." MBI and Hawkeye have agreed to use their best efforts to cause the Merger to qualify for pooling-of-interest accounting treatment. -50- Under the pooling-of-interests method of accounting, the historical basis of the assets and liabilities of MBI and Hawkeye will be combined at the Effective Time and carried forward at their previously recorded amounts, and the shareholders' equity accounts of MBI and Hawkeye will be combined on MBI's consolidated balance sheet and no goodwill or other intangible assets will be created. Financial statements of MBI issued after the Effective Time will be restated retroactively to reflect the consolidated operations of MBI and Hawkeye as if the Merger had taken place prior to the periods covered by such financial statements. See "SUMMARY INFORMATION -- Comparative Unaudited Per Share Data," "SUMMARY INFORMATION -- Summary Financial Data," "-- Conditions of the Merger," and "PRO FORMA FINANCIAL INFORMATION." MANAGEMENT AND OPERATIONS AFTER THE MERGER Merger Sub, a wholly owned subsidiary of MBI, will be the surviving corporation resulting from the Merger. Merger Sub will be governed by the laws of the state of Iowa and will operate in accordance with the articles of incorporation and bylaws of Merger Sub as in effect immediately prior to the Merger, until otherwise amended or repealed after the Effective Time. EMPLOYEE BENEFITS EMPLOYEE BENEFITS. The provisions of Hawkeye's stock option and incentive plans set forth in the Merger Agreement ("Hawkeye Stock Plans") and of any other plan, program or arrangement providing for the issuance or grant of any other interest in respect of the capital stock of Hawkeye or any Hawkeye subsidiary will be deleted and terminated as of the Effective Time, and Hawkeye will ensure that following the Effective Time no holder of Hawkeye employee stock options or any participant in any Hawkeye Stock Plan shall have any right thereunder to acquire any securities of Hawkeye or any Hawkeye subsidiary. Except as set forth in the Merger Agreement, the Hawkeye Employee Plans (as defined and set forth in the Merger Agreement) will not be terminated by reason of the Merger but will continue thereafter as plans of the Surviving Corporation until such time as the employees of Hawkeye and Hawkeye's subsidiaries are integrated into MBI's employee benefit plans that are available to other employees of MBI and MBI's subsidiaries, subject to the terms and conditions specified in such plans and to such changes therein as may be necessary to reflect the consummation of the Merger. MBI will take such steps as are necessary or required to integrate the employees of Hawkeye and -51- Hawkeye's subsidiaries in to MBI's employee benefit plans available to other employees of MBI and MBI's subsidiaries as soon as practicable after the Effective Time, with (i) full credit for prior service with Hawkeye or any Hawkeye subsidiary for purposes of vesting and eligibility for participation (but not benefit accruals under any defined benefit plan), and co- payments and deductibles, and (ii) waiver of all waiting periods and pre-existing condition exclusions or penalties. EMPLOYEE STOCK OPTIONS AND STOCK APPRECIATION RIGHTS. At the Effective Time, all rights with respect to Hawkeye Common Stock pursuant to Hawkeye employee stock options that are outstanding at the Effective Time, whether or not then exercisable, will be converted into and become rights with respect to MBI Common Stock, and MBI will assume each Hawkeye employee stock option in accordance with the terms of the stock option plan under which it was issued and the stock option agreement by which it is evidenced. From and after the Effective Time, (i) each Hawkeye employee stock option assumed by MBI will be exercisable solely for shares of MBI Common Stock, (ii) the number of shares of MBI Common Stock subject to each Hawkeye employee stock option will be equal to the number of shares of Hawkeye Common Stock subject to such Hawkeye employee stock option immediately prior to the Effective Time multiplied by the Exchange Ratio and (iii) the per share exercise price under each Hawkeye employee stock option will be adjusted by dividing the per share exercise price under such Hawkeye employee stock option by the Exchange Ratio and rounding down to the nearest cent; provided, however, that the terms of each Hawkeye employee stock option will, in accordance with its terms, be subject to further adjustment as appropriate to reflect any stock split, stock dividend, recapitalization or other similar transaction subsequent to the Effective Time. It is intended that the foregoing assumption will be undertaken in a manner that will not constitute a "modification" as defined in the Internal Revenue Code, as to any Hawkeye employee stock option that is an "incentive stock option." At the Effective Time, all stock appreciation rights with respect to Hawkeye Common Stock that are outstanding at the Effective Time, whether or not then exercisable, will be converted into and become stock appreciation rights with respect to MBI Common Stock with the same terms and conditions as were applicable to such Hawkeye stock appreciation rights immediately prior to the Effective Time. Certain executive officers, including certain executive officers who are directors, of Hawkeye currently hold Hawkeye employee stock options and/or Hawkeye stock appreciation rights which will be -52- converted into rights with respect to MBI Common Stock as described above. INDEMNIFICATION. In the Merger Agreement, MBI agreed that the Merger will not affect or diminish any of Hawkeye's duties and obligations of indemnification existing as of the Effective Time in favor of employees, agents, directors or officers of Hawkeye or its subsidiaries arising by virtue of their respective articles of incorporation or bylaws in the form in effect on August 4, 1995, or arising by operation of law or by virtue of any contract, resolution or other agreement or document existing on August 4, 1995, and such duties and obligations will continue in full force and effect for so long as they would (but for the Merger) otherwise survive. CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER The following discussion summarizes the material federal income tax consequences of the Merger. The discussion does not address all aspects of federal taxation that may be relevant to particular Hawkeye shareholders, and it may not be applicable to shareholders who are not citizens or residents of the United States, or who acquired their Hawkeye Common Stock pursuant to the exercise of employee stock options or otherwise as compensation. The discussion does not address the effect of any applicable state, local or foreign tax laws or any federal tax laws other than those pertaining to the income tax. EACH HAWKEYE SHAREHOLDER SHOULD CONSULT HIS OR HER OWN TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES TO HIM OR HER OF THE MERGER. This discussion is based on the Internal Revenue Code, regulations and rulings now in effect or proposed thereunder, current administrative rulings and practice, and judicial precedent, all of which are subject to change. Any such change, which may or may not be retroactive, could alter the tax consequences to Hawkeye shareholders discussed herein. This discussion is also based on certain assumptions regarding the factual circumstances that will exist at the Effective Time, including certain representations to be made by Hawkeye and MBI. This discussion assumes that Hawkeye shareholders hold their Hawkeye Common Stock as a capital asset within the meaning of Section 1221 of the Internal Revenue Code. MBI has received an opinion from Wachtell, Lipton, Rosen & Katz, counsel to MBI, and Hawkeye has received an opinion from Baird, Holm, McEachen, Pedersen, Hamann & Strasheim, -53- counsel to Hawkeye, that, assuming the Merger occurs in accordance with the Merger Agreement, and conditioned on the accuracy of certain representations made by MBI and Hawkeye, the material federal income tax consequences expected to result from the Merger, under currently applicable law, are as follows: (i) The Merger will constitute a "reorganization" for federal income tax purposes under Section 368(a) of the Internal Revenue Code. (ii) No gain or loss will be recognized by Hawkeye or MBI as a result of the Merger. (iii) Hawkeye shareholders will recognize no gain or loss as a result of the exchange of their Hawkeye Common Stock solely for shares of MBI Common Stock pursuant to the Merger, except with respect to cash received in lieu of fractional shares, if any, as discussed below. (iv) A holder of shares of Hawkeye Common Stock who receives cash in the Merger in lieu of a fractional share interest of MBI Common Stock will be treated as if the fractional shares were received in the exchange and then redeemed by MBI. A holder of shares of Hawkeye Common Stock will be treated as if the shareholder sold his or her fractional share of MBI Common Stock for the amount of cash received and will therefore recognize gain (or loss) to the extent that the amount of cash received exceeds (or is less than) the tax basis of the fractional share. Such gain or loss will be capital gain or loss if the shares of Hawkeye Common Stock were held as capital assets and will be long-term capital gain or loss if the holding period of the shares of Hawkeye Common Stock so exchanged was more than one year. (v) The aggregate adjusted tax basis of the MBI Common Stock received by a shareholder of Hawkeye in the Merger, including for the purpose of (iv) above the tax basis of any fractional share interest, will be equal to the aggregate adjusted tax basis of the respective shares of Hawkeye Common Stock surrendered. (vi) The holding period of the shares of MBI Common Stock received by a shareholder of Hawkeye in the Merger, including for purposes of (iv) above the holding period of any fractional share interest, will include the holding period of the respective shares of Hawkeye Common Stock exchanged therefor, provided the shares of Hawkeye Common Stock were held as capital assets. -54- (vii) A Hawkeye shareholder who receives only cash as a result of the exercise of dissenters' rights, will realize gain or loss for federal income tax purposes (determined separately as to each block of Hawkeye Common Stock exchanged) in an amount equal to the difference between (x) the amount of cash received by such shareholder, and (y) such shareholder's tax basis for the shares of Hawkeye Common Stock surrendered in exchange therefor, provided that the cash payment does not have the effect of the distribution of a dividend. Any such gain or loss will be recognized for federal income tax purposes and will be treated as capital gain or loss, provided the shares of Hawkeye Common Stock were held as capital assets. However, if the cash payment does have the effect of the distribution of a dividend, the amount of taxable income recognized generally will equal the amount of cash received; such income generally will be taxable as a dividend; and no loss (or other recovery of such shareholder's tax basis for the shares of Hawkeye Common Stock surrendered in the exchange) generally will be recognized by such shareholder. The determination of whether a cash payment has the effect of the distribution of a dividend will be made pursuant to the provisions and limitations of Section 302 of the Internal Revenue Code, taking into account the constructive stock ownership rules of Section 318 of the Internal Revenue Code. An opinion of counsel, unlike a private letter ruling from the Internal Revenue Service (the "Service"), has no binding effect on the Service. The Service could take a position contrary to counsel's opinion and, if the matter is litigated, a court may reach a decision contrary to the opinion. The Service is not expected to issue a ruling on the tax effects of the Merger, and no such ruling has been requested. THE FOREGOING IS A GENERAL DISCUSSION OF THE MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER AND IS INCLUDED FOR GENERAL INFORMATION ONLY. THE FOREGOING DISCUSSION DOES NOT TAKE INTO ACCOUNT THE PARTICULAR FACTS AND CIRCUMSTANCES OF EACH SHAREHOLDER'S TAX STATUS AND ATTRIBUTES. AS A RESULT, THE FEDERAL INCOME TAX CONSEQUENCES ADDRESSED IN THE FOREGOING DISCUSSION MAY NOT APPLY TO EACH SHAREHOLDER. IN VIEW OF THE INDIVIDUAL NATURE OF INCOME TAX CONSEQUENCES, EACH SHAREHOLDER IS URGED TO CONSULT HIS OR HER OWN TAX ADVISOR TO DETERMINE THE SPECIFIC TAX CONSEQUENCES OF THE MERGER TO SUCH SHAREHOLDER, INCLUDING THE APPLICATION AND EFFECT OF FEDERAL, STATE, LOCAL AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN FEDERAL AND OTHER TAX LAWS. -55- DISSENTERS' RIGHTS OF SHAREHOLDERS OF HAWKEYE Each shareholder of Hawkeye has the right to demand to be paid the fair value of his or her shares of Hawkeye Common Stock in cash upon consummation of the Merger if the shareholder follows the dissenters' rights procedures set forth in Division XIII of the Iowa Act. "Fair value" is defined in the Iowa Act as the value of the subject shares immediately prior to the consummation of the Merger, excluding any appreciation or depreciation in anticipation of the Merger unless such an exclusion would be inequitable. Under the Iowa Act, a shareholder of Hawkeye may dissent from the Merger and obtain the fair value of the shares owned by such shareholder with such fair value to be paid in cash if the Merger is consummated. Any shareholder of Hawkeye who wishes to assert his or her dissenters' rights must do each of the following: (i) deliver to Hawkeye before the vote on the Merger Agreement is taken a written notice of such shareholder's intent to demand payment of the fair value of his or her shares if the Merger is effectuated, and (ii) not vote such shares in favor of the approval of the Merger Agreement at the Special Meeting. A VOTE AGAINST THE APPROVAL OF THE MERGER AGREEMENT WILL NOT, BY ITSELF, BE REGARDED AS A WRITTEN NOTICE OF A SHAREHOLDER'S INTENT TO ASSERT DISSENTERS' RIGHTS. If the Merger Agreement is approved at the Special Meeting, Hawkeye shall deliver a written notice to each person who asserted dissenters' rights and who did not vote in favor of the approval of the Merger Agreement as described above. The notice must be sent by Hawkeye no later than 10 days after the Special Meeting and must contain the following information: (i) a statement as to where a demand for payment must be sent by the dissenting shareholder and where and when the certificates evidencing shares of Hawkeye Common Stock owned by such shareholders must be deposited, (ii) a statement to holders of uncertificated shares stating to what extent transfer of the shares will be restricted after the payment is received, (iii) a form with which dissenting shareholders may make their demands for payment, which form will include the date of the first public announcement of the proposed Merger and a requirement that all dissenting shareholders certify as to whether or not he or she had acquired beneficial ownership of the shares subject to the dissenters' rights demand prior to the date of the first public announcement of the proposed Merger, (iv) a statement as to the date by which Hawkeye must receive the demand for payment from the dissenting shareholder, such date to be not fewer than 30 nor more than 60 days after the date of Hawkeye's notice to dissenting shareholders, and (v) a copy of Division XIII of the Iowa Act. -56- A dissenting shareholder must demand payment for his or her shares, certify as to whether the acquisition dates of such shares were prior to or after the public announcement of the proposed Merger and deposit the certificates evidencing such shares prior to the date set in and in accordance with the notice sent by Hawkeye to the dissenting shareholders. A shareholder who does not demand payment or deposit certificates for shares by the date or in the manner set forth in the notice to dissenting shareholders sent by Hawkeye will be deemed to have waived his or her dissenters' rights and will not be entitled to payment of the fair value of his or her shares under Division XIII of the Iowa Act. Hawkeye (or Merger Sub, as the Surviving Corporation in the Merger) must make a cash payment to each dissenting shareholder who files a demand for payment as described above equal to Hawkeye's (or Merger Sub's) estimate of the fair value of the shares of Hawkeye Common Stock owned by such shareholders, plus accrued interest on such payment from the Closing Date. Such payment must be made upon the later of: (i) the time the Merger is consummated or (ii) the receipt of the demand for payment from the dissenting shareholder. If the Merger is not consummated within 60 days of the date set by Hawkeye for receipt of the dissenting shareholders' demands for payment and deposits of stock certificates, Hawkeye must return the deposited certificates and release the transfer restrictions on uncertificated shares and send a new notice to dissenting shareholders when the Merger is actually consummated and repeat the payment demand procedure. The payment must be accompanied by the following: (i) Hawkeye's balance sheet as of the end of its most recently completed fiscal year, an income statement and a statement of changes in shareholders' equity as of the most recently completed fiscal year and interim financial statements of Hawkeye as of and for the most recent date or period available, (ii) a statement of Hawkeye's (or Merger Sub's) estimate of the fair value of the Hawkeye shares, (iii) an explanation as to how the interest payment was calculated, (iv) a statement of the dissenting shareholder's right to demand a greater payment than Hawkeye's estimate as described below, and (v) a copy of Division XIII of the Iowa Act. Hawkeye may elect to withhold payment from those dissenting shareholders who do not certify in their demand for payment that they owned the shares subject to the dissenters' rights demand prior to the public announcement of the proposed Merger. To the extent that Hawkeye elects to withhold payment from such dissenting shareholders, Hawkeye shall estimate the -57- fair value of the shares owned by such holders and accrued interest thereon and offer to pay the same to each such dissenting shareholder who agrees to accept it in full satisfaction of his or her demand. The offer to such shareholders must be accompanied by: (i) a statement of Hawkeye's estimate of fair value, (ii) an explanation as to how the interest payment was calculated and (iii) a statement of the dissenting shareholder's right to demand a greater payment than Hawkeye's estimate as described below. After receipt of Hawkeye's (or Merger Sub's) estimate of fair value in either of the above cases, the dissenting shareholder may deliver notice to Hawkeye (or Merger Sub) of his or her own estimate of fair value for the shares and the amount of interest due and demand payment of the difference in amount, if any, previously paid by Hawkeye (or Merger Sub) to such shareholder and the amount of the shareholder's estimate. In order to make such a demand: (i) the dissenting shareholder must believe that the amount paid or offered by Hawkeye (or Merger Sub) is less than the fair value of the shares or the interest is incorrectly calculated, or (ii) Hawkeye (or Merger Sub) has not made payment for the shares within 60 days after the date set by Hawkeye (or Merger Sub) as the last day that Hawkeye (or Merger Sub) set for accepting demands for payment, or (iii) the Merger has not been consummated within the 60-day period after the last date that Hawkeye (or Merger Sub) set for accepting demands for payment and Hawkeye has not returned the stock certificates deposited by the dissenting shareholder or released the transfer restrictions imposed on uncertificated shares. A dissenting shareholder will waive his or her right to seek a greater payment than Hawkeye's estimate of fair value and accrued interest unless such shareholder notifies Hawkeye (or Merger Sub) in writing of the same within 30 days of the receipt of Hawkeye's (or Merger Sub's) payment or offer of payment for the shares. If, within 60 days of receiving the dissenting shareholder's notice of a demand for increased payment, the demand remains unsettled, Hawkeye (or Merger Sub) must commence proceedings in the district court of the county where its principal office is located, petitioning the court to determine the fair value and accrued interest of such shares. If Hawkeye (or Merger Sub) fails to start such proceedings within the 60- day period, Hawkeye (or Merger Sub) must pay each dissenting shareholder whose demand remains unsettled the amount that such shareholder has demanded. All dissenting shareholders with claims remaining unsettled will be made parties to the proceedings and the court may appoint one or more appraisers to receive evidence and recommend the fair value of the shares. The -58- court will find either (i) that the fair value and accrued interest already paid by Hawkeye (or Merger Sub) equals or exceeds the amount determined by the court, in which case the shareholder will be entitled to no additional payment from Hawkeye (or Merger Sub), or (ii) Hawkeye (or Merger Sub) must pay an additional amount equal to the difference between the court's determination of fair value and accrued interest and the amount already paid by Hawkeye (or Merger Sub) to the shareholder. The court shall also determine all costs of the proceedings, including the reasonable compensation and expenses of the appraisers and shall assess such costs against Hawkeye (or Merger Sub) unless the court finds that such an assessment would be inequitable because the dissenting shareholders had acted arbitrarily, vexatiously or not in good faith, in which case the court may assess costs against all or some of the dissenters. Fees and expenses of legal counsel and experts will generally be borne by each of the parties except that the experts' and attorneys' fees and expenses of the dissenting shareholders will be assessed against Hawkeye (or Merger Sub) to the extent that the court finds Hawkeye did not substantially comply with the procedures set forth in Division XIII of the Iowa Act or to either party in favor of the other party to the extent that the court finds that the assessed party acted arbitrarily, vexatiously or not in good faith. To the extent that counsel for one dissenting shareholder is found by the court to have provided a substantial benefit to other dissenting shareholders, the court may order that the fees of such counsel be paid out of the amounts awarded to the dissenting shareholders who have been benefited. THE PRECEDING DISCUSSION IS A SUMMARY OF THE PROVISIONS REGARDING DISSENTERS' RIGHTS UNDER THE IOWA ACT AND IS QUALIFIED IN ITS ENTIRETY BY THE TEXT OF DIVISION XIII OF THE IOWA ACT WHICH IS ATTACHED AS ANNEX A TO THIS PROXY STATEMENT/PROSPECTUS. HAWKEYE SHAREHOLDERS WHO ARE INTERESTED IN ASSERTING DISSENTERS' RIGHTS PURSUANT TO THE IOWA ACT IN CONNECTION WITH THE MERGER MAY WISH TO CONSULT WITH THEIR COUNSEL FOR ADVICE AS TO THE PROCEDURES REQUIRED TO BE FOLLOWED. PRO FORMA FINANCIAL INFORMATION COMPARATIVE UNAUDITED PER SHARE DATA The following table sets forth for the periods indicated selected historical per share data of MBI and Hawkeye and the corresponding pro forma and pro forma equivalent per share -59- amounts giving effect to the proposed Merger, the proposed acquisitions of Sterling, Security Bank and Metro and the acquisition of ABNK by merger with and into a wholly owned subsidiary of MBI, which was completed on April 30, 1992 (ABNK is the surviving entity from that merger). The data presented is based upon the supplemental consolidated financial statements and related notes of MBI and the consolidated financial statements and related notes of Hawkeye, Sterling, Security Bank and Metro included in this Proxy Statement/ Prospectus or in documents incorporated herein by reference, and the pro forma combined consolidated balance sheet and income statements, including the notes thereto, appearing elsewhere herein. This information should be read in conjunction with such historical and pro forma financial statements and related notes thereto. The assumptions used in the preparation of this table appear in the notes to the pro forma financial information appearing elsewhere in the Proxy Statement/Prospectus. See "-- Pro Forma Combined Consolidated Financial Statements (Unaudited)." This data is not necessarily indicative of the results of the future operations of the combined organization or the actual results that would have occurred if the Merger, the completed merger of ABNK, or the proposed mergers of Sterling, Security Bank and Metro had been consummated prior to the periods indicated. -60-
MBI/HAWKEYE MBI HAWKEYE Pro Forma Reported Reported Combined(1) -------- -------- ----------- Book Value per Common Share: September 30, 1995..................... $ 25.43 $14.32 $25.09 December 31, 1994...................... 23.47 13.06 23.03 Cash Dividends Declared Per Common Share: Nine months ended September 30, 1995... $ .99 $ .47 $ .99 Year ended December 31, 1994 .......... 1.12 .50 1.12 Year ended December 31, 1993 .......... .99 .42 .99 Year ended December 31, 1992 .......... .93 .33 .93 Earnings per Common Share Before Change in Accounting Principle: Nine months ended September 30, 1995... $ 2.95 $ 1.28 $ 2.89 Year ended December 31, 1994 .......... 3.22 1.78 3.21 Year ended December 31, 1993 .......... 2.79 1.64 2.80 Year ended December 31, 1992 .......... 2.42 1.38 2.42 Market Price per Common Share: August 3, 1995(4)...................... $43.88 $22.75 -- ________, 1995(4)...................... -- -- -- -61- MBI/HAWKEYE MBI/All Entities MBI/All Entities Pro Forma Pro Forma Pro Forma Equivalent(2) Combined(3) Equivalent(2) ------------- ----------- ------------- $14.68 $25.16 $14.72 13.47 23.09 13.51 $ .58 $ .99 $ .58 .66 1.12 .66 .58 .99 .58 .54 .93 .54 $ 1.69 $ 2.88 $ 1.68 1.88 3.22 1.88 1.64 2.80 1.64 1.42 2.44 1.43 -- -- -- -- -- -- ------------------ (1) Includes the effect of pro forma adjustments for ABNK and Hawkeye as appropriate. See "PRO FORMA FINANCIAL INFORMATION." (2) Based upon the pro forma combined per share amounts multiplied by .585, the Exchange Ratio applicable to one share of Hawkeye Common Stock. See "PRO FORMA FINANCIAL INFORMATION." (3) Includes the effect of pro forma adjustments for ABNK, Hawkeye, Security Bank, Sterling and Metro as appropriate. See "PRO FORMA FINANCIAL INFORMATION." (4) The market values of MBI Common Stock and Hawkeye Common Stock were determined as of the last trading day preceding the public announcement of the Merger and as of the most recent practicable date prior to the mailing of this Proxy Statement/ Prospectus based on the last sales price as reported on the NYSE and NASDAQ/NM, respectively. /TABLE PRO FORMA COMBINED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) The following unaudited pro forma combined consolidated balance sheet gives effect to the Merger and the proposed acquisitions of Sterling, Security Bank and Metro as if each of the mergers were consummated on December 31, 1994. MBI acquired ABNK on April 30, 1992, which acquisition was accounted for under the purchase method of accounting. Accordingly, the historical results of operations of MBI include the results of operations of ABNK from May 1, 1992 forward. The following pro forma combined consolidated income statements include the results of operations of ABNK from January 1, 1992 through the date of acquisition. The following pro forma combined consolidated income statements for the nine months ended September 30, 1995 and 1994 and for the years ended December 31, 1994, 1993, and 1992 set forth the results of operations of MBI combined with the results of operations of Hawkeye, Sterling, Security Bank and Metro as if the Merger, and the proposed acquisitions of Sterling, Security Bank and Metro had occurred as of the first day of the period presented. As stated above, the pro forma combined consolidated income statements for the year ended December 31, 1992 include the results of operations of ABNK from January 1, 1992 through the date of acquisition. The unaudited pro forma combined consolidated financial statements should be read in conjunction with the accompanying Notes to Pro Forma Combined Consolidated Financial Statements and with the historical financial statements of MBI, Hawkeye, Sterling, Security Bank, Metro and ABNK. The historical interim financial information for the nine months ended September 30, 1995 and 1994, used as a basis for the pro forma combined consolidated financial statements, include all necessary adjustments, which, in management's opinion, are necessary to present the data fairly. These pro forma combined consolidated financial statements may not be indicative of the results of operations that actually would have occurred if the completed and proposed mergers had been consummated on the dates assumed above or the results of operations that may be achieved in the future. -62-
MERCANTILE BANCORPORATION INC. PRO FORMA COMBINED CONSOLIDATED BALANCE SHEET September 30, 1995 (Thousands) (Unaudited) MBI, Hawkeye Pro Forma Hawkeye Combined MBI(1) Hawkeye Adjustments(2) Consolidated --- ------- ----------- ------------ ASSETS: Cash and due from banks........... $822,849 $96,917 ($33,961)(3) $885,805 Due from banks - interest bearing. 97,473 200 97,673 Federal funds sold and repurchase agreements........................ 179,778 102,004 281,782 Investments in debt and equity securities: Trading.......................... 4,696 0 4,696 Available-for-sale............... 768,422 287,270 1,055,692 Held-to-Maturity................. 3,074,207 127,896 3,202,103 --------- ------- ----------- --------- Total....................... 3,847,325 415,166 0 4,262,491 Loans and Leases................... 10,648,008 1,298,589 11,946,597 Reserve for possible loan losses... (187,872) (21,553) (209,425) ---------- --------- ----------- ---------- Net Loans and Leases.............. 10,460,136 1,277,036 0 11,737,172 Other assets....................... 611,092 101,242 712,334 192,819(8) (192,819)(9) ----------- ---------- ----------- ---------- Total Assets..................... $16,018,653 $1,992,565 ($33,961) $17,977,257 =========== ========== =========== =========== -63- Sterling All Entities Security Bank Pro Forma Metro Combined Sterling Security Bank Metro Adjustments(2) Consolidated -------- ------------- ----- ------------ ------------ $7,167 $15,043 $200 ($2,373)(3) $903,522 (1,420)(3) (900)(3) 99 1,366 99,138 827 125 0 282,734 0 0 0 4,696 46,239 577 7,084 1,109,592 26,675 4,353 19,247 3,252,378 -------- -------- ------- ------- ---------- 72,914 4,930 26,331 0 4,366,666 85,681 75,792 54,674 12,162,744 (1,380) (287) (510) (211,602) -------- -------- ------- ------- ---------- 84,301 75,505 54,164 0 11,951,142 4,793 4,620 1,288 18,259(6) 723,035 (18,259)(7) 8,598(4) (8,598)(5) 5,911(10) (5,911)(11) -------- -------- ------- ------- ---------- $170,002 $100,322 $83,349 ($4,693) $18,326,237 ======== ======== ======= ======= =========== See notes to pro forma combined consolidated financial statements. /TABLE
MERCANTILE BANCORPORATION INC. PRO FORMA COMBINED CONSOLIDATED BALANCE SHEET September 30, 1995 (Thousands) (Unaudited) MBI, Hawkeye Pro Forma Hawkeye Combined MBI(1) Hawkeye Adjustments(2) Consolidated --- ------- ----------- ------------ LIABILITIES: Deposits: Non-interest bearing............. $1,798,605 $204,619 $2,003,224 Interest bearing................. 9,875,943 1,512,456 11,388,399 Foreign.......................... 160,736 0 160,736 ---------- --------- --------- ---------- Total Deposits............... 11,835,284 1,717,075 0 13,552,359 Federal funds purchased and repurchase agreements............ 1,611,392 15,003 1,626,395 Other borrowings.................. 949,186 46,241 995,427 Other liabilities................. 203,624 21,427 225,051 ---------- --------- --------- ---------- Total Liabilities................ 14,599,486 1,799,746 0 16,399,232 SHAREHOLDERS' EQUITY: Preferred stock................... 12,153 12,153 Common stock...................... 279,658 135 319,033 39,375(8) (135)(9) Capital surplus.................... 216,757 105,129 282,646 65,889(8) (105,129)(9) Retained earnings.................. 936,311 87,555 1,023,866 87,555(8) (87,555)(9) -64- Treasury stock..................... (25,712) (33,961)(3) (59,673) ----------- ---------- --------- ----------- Total Shareholders' Equity.... 1,419,167 192,819 (33,961) 1,578,025 ----------- ---------- --------- ----------- Total Liabilities and Shareholders' Equity........ $16,018,653 $1,992,565 ($33,961) $17,977,257 =========== ========== ========= =========== Sterling All Entities Security Bank Pro Forma Metro Combined Sterling Security Bank Metro Adjustments(2) Consolidated -------- ------------- ----- ------------ ------------ $20,613 $1,191 $2,728 $0 $2,027,756 111,900 86,725 73,984 11,661,008 0 0 0 160,736 ------- ------ ------ ------ ---------- 132,513 87,916 76,712 0 13,849,500 17,917 0 0 1,644,312 0 3,248 400 999,075 1,303 560 326 227,240 ------- ------ ------ ------ ---------- 151,733 91,724 77,436 0 16,720,127 12,153 3,685 1,032 192 2,607(6) 324,247 (3,685)(7) 1,610(4) (1,032)(5) 997(10) (192)(11) 799 4 1,409 1,877(6) 284,553 (799)(7) (574)(4) (4)(5) 604(10) (1,409)(11) 13,785 7,562 4,310 13,785(6) 1,049,523 (13,785)(7) 7,562(4) (7,562)(5) 4,310(10) (4,310)(11) (2,373)(3) (64,366) (1,420)(3) (900)(3) -------- -------- ------- ------- ----------- 18,269 8,598 5,911 (4,693) 1,606,110 -------- -------- ------- ------- ----------- $170,002 $100,322 $83,349 ($4,693) $18,326,237 ======== ======== ======= ======= =========== See notes to pro forma combined consolidated financial statements. /TABLE
MERCANTILE BANCORPORATION INC. PRO FORMA COMBINED CONSOLIDATED INCOME STATEMENT For the Nine Months Ended September 30, 1995 (Thousands except per share data) (Unaudited) MBI, Hawkeye Pro Forma Combined MBI(1) Hawkeye Consolidated --- ------- ------------ Interest Income......................... $854,404 $105,900 $960,304 Interest Expense........................ 410,097 49,337 459,434 -------- -------- -------- Net Interest Income................... 444,307 56,563 500,870 Provision for Possible Loan Losses...... 28,928 249 29,177 -------- ------- -------- Net Interest Income after Provision for Possible Loan Losses............. 415,379 56,314 471,693 Other Income: Trust................................. 48,252 3,888 52,140 Service charges....................... 50,062 6,267 56,329 Credit card fees...................... 14,169 1,451 15,620 Securities gains (losses)............. 3,672 104 3,776 Other................................. 65,325 8,485 73,810 -------- ------- -------- Total Other Income.................. 181,480 20,195 201,675 Other Expense: Salaries and employee benefits...... 195,825 23,528 219,353 Net occupancy and equipment......... 53,547 6,825 60,372 Other............................... 107,572 19,825 127,397 -------- ------- -------- Total Other Expense............... 356,944 50,178 407,122 -------- ------- -------- Income Before Income Taxes........ 239,915 26,331 266,246 Income Taxes ........................... 81,156 9,004 90,160 -------- ------- -------- Net Income Before Change in Accounting Principle....................... $158,759 $17,327 $176,086 ======== ======= ======== -65- Per Share Data: Average Common Shares Outstanding... 53,629,980 60,717,393 Net Income Before Change in Accounting Principle........... $2.95 $2.89 All Entities Pro Forma Combined Sterling Security Bank Metro Consolidated(12) -------- ------------- ----- ------------ $9,069 $5,704 $4,745 $979,822 4,247 3,291 2,614 469,586 ------ ------ ------ -------- 4,822 2,413 2,131 510,236 162 45 30 29,414 ------ ----- ----- -------- 4,660 2,368 2,101 480,822 129 0 0 52,269 242 138 0 56,709 0 0 0 15,620 (1) 0 (508) 3,267 286 169 214 74,479 ------ ---- ---- -------- 656 307 (294) 202,344 1,735 682 766 222,536 475 243 137 61,227 1,411 520 627 129,955 ------ ---- ---- -------- 3,621 1,445 1,530 413,718 ------ ----- ----- -------- 1,695 1,230 277 269,448 386 382 293 91,221 ------ ----- ---- -------- $1,309 $848 ($16) $178,227 ====== ==== ==== ======== 61,656,363 $2.88 See notes to pro forma combined consolidated financial statements. /TABLE
MERCANTILE BANCORPORATION INC. PRO FORMA COMBINED CONSOLIDATED INCOME STATEMENT For the Nine Months Ended September 30, 1994 (Thousands except per share data) (Unaudited) MBI, Hawkeye Pro Forma Combined MBI(1) Hawkeye Consolidated --- ------- ------------ Interest Income......................... $730,270 $90,495 $820,765 Interest Expense........................ 284,939 37,414 $322,353 -------- ------- -------- Net Interest Income................... 445,331 53,081 498,412 Provision for Possible Loan Losses...... 26,374 48 26,422 -------- ------- -------- Net Interest Income after Provision for Possible Loan Losses ............ 418,957 53,033 471,990 Other Income: Trust................................. 46,560 3,804 50,364 Service charges....................... 52,089 5,918 58,007 Credit card fees...................... 18,087 1,272 19,359 Securities gains ..................... 1,718 396 2,114 Other................................. 40,971 8,702 49,673 -------- ------- -------- Total Other Income.................. 159,425 20,092 179,517 Other Expense: Salaries and employee benefits...... 190,801 22,878 213,679 Net occupancy and equipment......... 51,837 6,032 57,869 Other............................... 117,502 18,349 135,851 -------- ------- -------- Total Other Expense............... 360,140 47,259 407,399 -------- ------- -------- Income Before Income Taxes........ 218,242 25,866 244,108 Income Taxes............................ 78,033 8,420 86,453 -------- ------- -------- Net Income Before Change in Accounting Principle....................... $140,209 $17,446 $157,655 ======== ======= ======== -66- Per Share Data: Average Common Shares Outstanding... 51,900,015 58,987,428 Net Income Before Change in Accounting Principle......................... $2.68 $2.64 All Entities Pro Forma Combined Sterling Security Bank Metro Consolidated -------- ------------- ----- ------------ $8,289 $4,765 $4,149 $837,968 3,257 2,564 2,188 330,362 ------ ------ ------ -------- 5,032 2,201 1,961 507,606 66 45 (17) 26,516 ------ ----- ----- -------- 4,966 2,156 1,978 481,090 124 0 0 50,488 289 89 0 58,385 0 0 0 19,359 (44) 0 0 2,070 300 301 240 50,514 ------ ---- ---- -------- 669 390 240 180,816 1,766 585 756 216,786 491 191 133 58,684 1,650 689 524 138,714 ------ ---- ---- -------- 3,907 1,465 1,413 414,184 ------ ----- ----- -------- 1,728 1,081 805 247,722 441 397 295 87,586 ------ ----- ---- -------- $1,287 $684 $510 $160,136 ====== ==== ==== ======== 59,926,398 $2.64 See notes to pro forma combined consolidated financial statements. /TABLE
MERCANTILE BANCORPORATION INC. PRO FORMA COMBINED CONSOLIDATED INCOME STATEMENT For the Year Ended December 31, 1994 (Thousands except per share data) (Unaudited) MBI, Hawkeye Pro Forma Combined MBI(1) Hawkeye Consolidated --- ------- ------------ Interest Income......................... $994,896 $123,173 $1,118,069 Interest Expense........................ 399,349 51,601 450,950 -------- -------- ---------- Net Interest Income................... 595,547 71,572 667,119 Provision for Possible Loan Losses...... 43,201 64 43,265 -------- ------- -------- Net Interest Income after Provision for Possible Loan Losses............. 552,346 71,508 623,854 Other Income: Trust................................. 60,769 5,119 65,888 Service charges....................... 68,783 8,024 76,807 Credit card fees...................... 24,895 1,693 26,588 Securities gains...................... 2,177 402 2,579 Other................................. 53,134 11,565 64,699 -------- ------- -------- Total Other Income.................. 209,758 26,803 236,561 Other Expense: Salaries and employee benefits...... 258,546 30,229 288,775 Net occupancy and equipment......... 69,784 8,101 77,885 Other............................... 163,740 24,776 188,516 -------- ------- -------- Total Other Expense............... 492,070 63,106 555,176 -------- ------- -------- Income Before Income Taxes........ 270,034 35,205 305,239 Income Taxes............................ 101,705 11,460 113,165 -------- ------- -------- Net Income Before Change in Accounting Principle........................ $168,329 $23,745 $192,074 ======== ======= ======== -67- Per Share Data: Average Common Shares Outstanding... 51,957,002 59,044,415 Net Income Before Change in Accounting Principle............ $3.22 $3.21 All Entities Pro Forma Combined Sterling Security Bank Metro Consolidated -------- ------------- ----- ------------ $11,236 $6,257 $5,680 $1,141,242 4,471 3,487 3,046 461,954 ------- ------ ------ ---------- 6,765 2,770 2,634 679,288 66 60 10 43,401 ------ ----- ----- -------- 6,699 2,710 2,624 635,887 168 0 0 66,056 386 195 0 77,388 0 0 0 26,588 (43) 0 0 2,536 368 211 471 65,749 ------ ---- ---- -------- 879 406 471 238,317 2,380 727 953 292,835 583 236 157 78,861 2,170 750 728 192,164 ------ ---- ---- -------- 5,133 1,713 1,838 563,860 ------ ----- ----- -------- 2,445 1,403 1,257 310,344 591 551 474 114,781 ------ ----- ----- -------- $1,854 $852 $783 $195,563 ====== ==== ==== ======== 59,983,385 $3.22 See notes to pro forma combined consolidated financial statements. /TABLE
MERCANTILE BANCORPORATION INC. PRO FORMA COMBINED CONSOLIDATED INCOME STATEMENT For the Year Ended December 31, 1993 (Thousands except per share data) (Unaudited) MBI, Hawkeye Pro Forma Combined MBI(1) Hawkeye Consolidated --- ------- ------------ Interest Income......................... $971,482 $123,129 $1,094,611 Interest Expense........................ 390,911 53,662 444,573 -------- -------- ---------- Net Interest Income................... 580,571 69,467 650,038 Provision for Possible Loan Losses...... 63,513 789 64,302 -------- ------- -------- Net Interest Income after Provision for Possible Loan Losses............. 517,058 68,678 585,736 Other Income: Trust................................. 61,996 4,786 66,782 Service charges....................... 67,144 7,317 74,461 Credit card fees...................... 24,312 1,377 25,689 Securities gains...................... 5,121 179 5,300 Other................................. 61,130 12,227 73,357 ------- ------- -------- Total Other Income.................. 219,703 25,886 245,589 Other Expense: Salaries and employee benefits...... 245,469 30,080 275,549 Net occupancy and equipment......... 70,911 7,763 78,674 Other............................... 191,663 24,296 215,959 -------- ------- -------- Total Other Expense............... 508,043 62,139 570,182 -------- ------- -------- Income Before Income Taxes........ 228,718 32,425 261,143 Income Taxes............................ 85,467 10,607 96,074 -------- ------- -------- Net Income Before Change in Accounting Principle............. $143,251 $21,818 $165,069 ======== ======= ======== -68- Per Share Data: Average Common Shares Outstanding... 50,965,103 58,052,516 Net Income Before Change in Accounting Principle......................... $2.79 $2.80 All Entities Pro Forma Combined Sterling Security Bank Metro Consolidated -------- ------------- ----- ------------ $11,261 $5,849 $6,306 $1,118,027 4,568 3,309 3,561 456,011 ------- ------ ------ ---------- 6,693 2,540 2,745 662,016 258 60 129 64,749 ------ ----- ----- -------- 6,435 2,480 2,616 597,267 147 0 0 66,929 363 112 0 74,936 0 0 0 25,689 11 0 9 5,320 344 173 366 74,240 ------ ---- ---- -------- 865 285 375 247,114 2,678 559 858 279,644 929 186 153 79,942 2,050 614 714 219,337 ------ ---- ---- -------- 5,657 1,359 1,725 578,923 ------ ----- ----- -------- 1,643 1,406 1,266 265,458 366 517 477 97,434 ------ ----- ----- -------- $1,277 $889 $789 $168,024 ====== ==== ==== ======== 58,991,486 $2.80 See notes to pro forma combined consolidated financial statements. /TABLE
MERCANTILE BANCORPORATION INC. PRO FORMA COMBINED CONSOLIDATED INCOME STATEMENT For the Year Ended December 31, 1992 (Thousands except per share data) (Unaudited) MBI, Hawkeye Pro Forma Combined MBI(1) Hawkeye Consolidated --- ------- ------------ Interest Income......................... $1,040,492 $128,261 $1,168,753 Interest Expense........................ 501,802 64,389 566,191 ---------- -------- ---------- Net Interest Income................... 538,690 63,872 602,562 Provision for Possible Loan Losses...... 79,787 1,677 81,464 -------- ------- -------- Net Interest Income after Provision for Possible Loan Losses............. 458,903 62,195 521,098 Other Income: Trust................................. 58,835 4,174 63,009 Service charges....................... 64,813 6,482 71,295 Credit card fees...................... 21,745 547 22,292 Securities gains...................... 5,590 617 6,207 Other................................. 55,091 10,671 65,762 -------- ------- -------- Total Other Income.................. 206,074 22,491 228,565 Other Expense: Salaries and employee benefits...... 224,948 27,887 252,835 Net occupancy and equipment......... 64,466 6,893 71,359 Other............................... 196,930 22,960 219,890 -------- ------- -------- Total Other Expense............... 486,344 57,740 544,084 -------- ------- -------- Income Before Income Taxes........ 178,633 26,946 205,579 Income Taxes............................ 60,990 8,609 69,599 -------- ------- -------- Net Income Before Change in Accounting Principle.............. $117,643 $18,337 $135,980 ======== ======= ======== -69- Per Share Data: Average Common Shares Outstanding... 47,972,446 55,059,859 Net Income Before Change in Accounting Principle.............. $2.43 $2.42 All Entities Pro Forma Combined Sterling Security Bank Metro Consolidated -------- ------------- ----- ------------ $12,541 $6,142 $7,293 $1,194,729 6,026 3,874 4,753 580,844 ------- ------ ------ ---------- 6,515 2,268 2,540 613,885 375 60 202 82,101 ------ ----- ----- -------- 6,140 2,208 2,338 531,784 129 0 0 63,138 469 97 0 71,861 0 0 0 22,292 24 4 (29) 6,206 251 72 486 66,571 ------ ---- ---- -------- 873 173 457 230,068 2,402 438 816 256,491 566 103 171 72,199 2,037 525 733 223,185 ----- ---- ---- -------- 5,005 1,066 1,720 551,875 ----- ----- ----- -------- 2,008 1,315 1,075 209,977 457 459 445 70,960 ------ ----- ----- -------- $1,551 $856 $630 $139,017 ====== ==== ==== ======== 55,998,829 $2.44 See notes to pro forma combined consolidated financial statements. /TABLE MERCANTILE BANCORPORATION INC. NOTES TO PRO FORMA COMBINED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (1) Represents MBI restated historical consolidated financial statements reflecting the acquisition of UNSL Financial Corp. effective January 3, 1995 and the acquisitions of Central Mortgage Bancshares, Inc. and TCBankshares, Inc. effective May 1, 1995, each of which was accounted for as a pooling-of-interest. (2) The acquisitions of Security Bank, Sterling, Metro and Hawkeye will be accounted for as of pooling-of- interests. (3) In conjunction with all of the proposed acquisitions, MBI may repurchase up to 891,390 shares of its own common stock in the open market. (4) Acquisition of Security Bank with 322,000 shares of MBI Common Stock. (5) Elimination of MBI's investment in Security Bank. (6) Acquisition of Sterling with 521,424 shares of MBI Common Stock. (7) Elimination of MBI's investment in Sterling. (8) Acquisition of Hawkeye with 7,874,903 shares of MBI common stock, based on the exchange ratio of .585 shares of MBI Common Stock per share of Hawkeye Common Stock. (9) Elimination of MBI's investment in Hawkeye. (10) Acquisition of Metro with 199,446 shares of MBI Common Stock, based on the exchange ratio of 1.0286 shares of MBI Common Stock per share of Metro common stock. (11) Elimination of MBI's investment in Metro. (12) Upon consummation of the Merger, MBI expects to record certain adjustments related to the proposed Merger and to conform Hawkeye's accounting and credit policies regarding loan and other asset valuations to those of MBI. The pre-tax adjustments are expected to total $30- 35 million and would include an increase in the provision for loan losses to conform Hawkeye's credit evaluation policies to those of Mercantile and an increase in other expense to largely accrue for the change of control agreements, contract cancellation penalties and professional fees. -70- INFORMATION REGARDING MBI STOCK DESCRIPTION OF MBI COMMON STOCK AND ATTACHED PREFERRED SHARE PURCHASE RIGHTS GENERAL. MBI has authorized 5,000,000 shares of Preferred Stock, and 100,000,000 shares of MBI Common Stock. At the Record Date, MBI had 5,306 shares of Series B-1 Preferred Stock and 9,500 shares of Series B-2 Preferred Stock issued and outstanding and shares of MBI Common Stock issued and outstanding. Under Missouri law, MBI's Board of Directors may generally approve the issuance of authorized shares of Preferred Stock and MBI Common Stock without stockholder approval. MBI's Board of Directors is also authorized to fix the number of shares and determine the designation of any series of Preferred Stock and to determine or alter the rights, preferences, privileges and restrictions granted to or imposed upon any series of Preferred Stock. MBI's Board of Directors has designated and reserved Series A Junior Participating Preferred Stock pursuant to MBI's Preferred Share Purchase Rights Plan described below. The existence of a substantial number of unissued and unreserved shares of MBI Common Stock and undesignated shares of Preferred Stock may enable the MBI Board of Directors to issue shares to such persons and in such manner as may be deemed to have an antitakeover effect. DIVIDENDS. The holders of the MBI Common Stock are entitled to share ratably in dividends when, as and if declared by the MBI Board of Directors from funds legally available therefor, after full cumulative dividends have been paid or declared, and funds sufficient for the payment thereof set apart, on all series of Preferred Stock ranking superior as to dividends to the MBI Common Stock. The Board of Directors of MBI intends to maintain its present policy of paying quarterly cash dividends on the MBI Common Stock, when justified by the financial condition of MBI and its subsidiaries. The declaration and amount of future dividends will depend on circumstances existing at the time, including MBI's earnings, financial condition and capital requirements as well as regulatory limitations, note and indenture provisions and such other factors as the Board of Directors may deem relevant. The payment of dividends to MBI by subsidiary banks is subject to extensive regulation by various state and federal regulatory agencies. See "SUPERVISION AND REGULATION." -71- VOTING RIGHTS. Each holder of MBI Common Stock has one vote for each share held on matters presented for consideration by the stockholders, except that, in the election of directors, such stockholders presently have cumulative voting rights which entitle each such stockholder to the number of votes which equals the number of shares held by the stockholder multiplied by the number of directors to be elected. All such cumulative votes may be cast for one candidate for election as a director or may be distributed among two or more candidates. PREEMPTIVE RIGHTS. The holders of MBI Common Stock have no preemptive right to acquire any additional unissued shares or treasury shares of MBI. LIQUIDATION RIGHTS. In the event of liquidation, dissolution or winding-up of MBI, whether voluntary or involuntary, the holders of MBI Common Stock will be entitled to share ratably in any of its assets or funds that are available for distribution to its stockholders after the satisfaction of its liabilities (or after adequate provision is made therefor) and after preferences on any outstanding Preferred Stock. ASSESSMENT AND REDEMPTION. Shares of MBI Common Stock issuable in the Merger will be, when issued, fully paid and nonassessable. Such shares do not have any redemption provisions. PREFERRED SHARE PURCHASE RIGHTS PLAN. One Right is attached to each share of MBI Common Stock. The Rights trade automatically with shares of MBI Common Stock, and become exercisable and will trade separately from the MBI Common Stock on the 10th day after public announcement, or notice to MBI, that a person or group has acquired, or has the right to acquire, beneficial ownership of 20% or more of the outstanding shares of MBI Common Stock, or upon commencement or announcement, or notice to MBI, of intent to make a tender offer for 20% or more of the outstanding shares of MBI Common Stock, in either case without prior written consent of a majority of the Board of Directors. When exercisable, each Right will entitle the holder to buy 1/100 of a share of Series A Junior Participating Preferred Stock at an exercise price of $100 per Right. In the event a person or group acquires beneficial ownership of 20% or more of MBI Common Stock, holders of Rights (other than the acquiring person or group) may purchase MBI Common Stock having a market value of twice the then current exercise price of each Right. If MBI is acquired by any person or group after the Rights become exercisable, each Right will entitle its holder to purchase stock of the acquiring company having a market value of twice the current exercise price of each Right. The -72- Rights are designed to protect the interests of MBI and its stockholders against coercive takeover tactics. The purpose of the Rights is to encourage potential acquirors to negotiate with MBI's Board of Directors prior to attempting a takeover and to give the Board leverage in negotiating on behalf of all stockholders the terms of any proposed takeover. The Rights may deter certain takeover proposals. The Rights, which can be redeemed by MBI's Board of Directors in certain circumstances, expire by their terms on June 3, 1998. CLASSIFICATION OF BOARD OF DIRECTORS. The Board of Directors of MBI is divided into three classes, and the directors are elected by classes to three-year terms, so that one of the three classes of the directors of MBI will be elected at each annual meeting of the stockholders. While this provision promotes stability and continuity of the Board of Directors, classification of the Board of Directors may also have the effect of decreasing the number of directors that could otherwise be elected at each annual meeting of stockholders by a person who obtains a controlling interest in the MBI Common Stock and thereby could impede a change in control of MBI. Because fewer directors will be elected at each annual meeting, such classification also will reduce the effectiveness of cumulative voting as a means of establishing or increasing minority representation on the Board of Directors. OTHER MATTERS. MBI's Restated Articles of Incorporation and By-Laws also contain provisions which: (i) require the affirmative vote of holders of at least 75% of the voting power of all of the outstanding shares of MBI entitled to vote in the election of directors to remove a director or directors without cause; (ii) require the affirmative vote of the holders of at least 75% of the voting power of all shares of the outstanding capital stock of MBI to approve certain "business combinations" with "interested parties" unless at least two-thirds of the Board of Directors first approve such business combinations; and (iii) require an affirmative vote of at least 75% of the voting power of all shares of the outstanding capital stock of MBI for the amendment, alteration, change or repeal of any of the above provisions unless at least two-thirds of the Board of Directors first approve such an amendment, alteration, change or repeal. MBI's Restated Articles of Incorporation also requires the Board of Directors, in considering any business combination, to give due consideration to all factors that the Board of Directors may consider relevant, including the effects of the proposed transaction on the depositors and customers of MBI and its subsidiaries, on their communities and geographic areas and on any of their businesses and properties; and the adequacy of the consideration offered in the proposed transaction in relation to the current market price of MBI's -73- outstanding securities and to the value of MBI in a freely negotiated transaction and the Board's estimate of the future value of MBI. Such provisions may be deemed to have an antitakeover effect. RESTRICTIONS ON RESALE OF MBI CAPITAL STOCK BY AFFILIATES; AFFILIATE AGREEMENTS MBI COMMON STOCK. Under Rule 145 of the Securities Act, all Supporting Stockholders, by virtue of being "affiliates" of Hawkeye, will be limited in their right to resell the stock so received in the Merger. Supporting Stockholders who desire to resell the MBI Common Stock so received must sell such stock either pursuant to an effective registration statement under the Securities Act or in accordance with an applicable exemption. In addition, Supporting Stockholders who become "affiliates" of MBI following the Merger will be limited in their right to resell the MBI Common Stock received in the Merger. Rule 145(d) provides that persons deemed to be affiliates of a company such as MBI solely by virtue of having been affiliates of a company such as Hawkeye prior to a transaction such as the Merger may resell their stock pursuant to certain of the requirements of Rule 144 under the Securities Act if such stock is sold within the first two years after the receipt thereof. After two years if such person is not an affiliate of MBI and if MBI is current with respect to its required public filings, a former affiliate of Hawkeye may freely resell the stock received in the Merger without limitation. After three years from the issuance of the stock, if such person is not an affiliate of MBI at the time of sale and for at least three months prior to such sale, such person may freely resell such stock, without limitation, regardless of the status of MBI's required public filings. The shares of MBI Common Stock to be received by affiliates of Hawkeye in the Merger will be legended as to the restrictions imposed upon resale of such stock. COMPARISON OF THE RIGHTS OF SHAREHOLDERS OF MBI AND HAWKEYE MBI is incorporated under the laws of the State of Missouri. Hawkeye is organized under the laws of the State of Iowa. The rights of MBI's stockholders are governed by MBI's Restated Articles of Incorporation and By-Laws and The General and Business Corporation Law of the State of Missouri (the "Missouri Act"). The rights of Hawkeye's shareholders are governed by Hawkeye's Restated Articles of Incorporation and By-Laws and by the Iowa Act. The rights of Hawkeye shareholders -74- who receive shares of MBI Common Stock in the Merger will thereafter be governed by MBI's Restated Articles of Incorporation and By-Laws and by the Missouri Act. The material rights of such shareholders, and, where applicable, material differences between the rights of MBI stockholders and Hawkeye shareholders, are summarized below. PREFERRED SHARE PURCHASE RIGHTS PLAN. As described above under "-- Description of MBI Common Stock and Attached Preferred Share Purchase Rights," MBI Common Stock has attached Rights, which may deter certain takeover proposals. Hawkeye does not have a rights plan. SUPERMAJORITY PROVISIONS. MBI's Restated Articles of Incorporation and MBI's By-Laws contain provisions requiring a supermajority vote of the stockholders of MBI to approve certain proposals. Under both MBI's Restated Articles and By- Laws, removal by the stockholders of the entire Board of Directors or any individual director from office without cause requires the affirmative vote of not less than 75% of the total votes entitled to be voted at a meeting of stockholders called for the election of directors. Amendment by the stockholders of MBI's Restated Articles or By-Laws relating to (i) the number or qualification of directors; (ii) the classification of the Board of Directors; (iii) the filling of vacancies on the Board of Directors; or (iv) the removal of directors, requires the affirmative vote of not less than 75% of the total votes of MBI's then outstanding capital stock entitled to vote, voting together as a single class, unless such amendment has previously been expressly approved by at least 66-2/3% of the Board of Directors. The MBI Restated Articles of Incorporation also provides that, in addition to any stockholder vote required under Missouri law, the affirmative vote of the holders of not less than 75% of the total votes to which all of the then outstanding shares of capital stock of MBI are entitled, voting together as a single class (the "Voting Stock"), shall be required for the approval of any Business Combination. A "Business Combination" is defined generally to include sales, exchanges, leases, transfers or other dispositions of assets, mergers or consolidations, issuances of securities, liquidations or dissolutions of MBI, reclassifications of securities or recapitalizations of MBI, involving MBI on the one hand, and an Interested Shareholder or an affiliate of an Interested Shareholder on the other hand. An "Interested Shareholder" is defined generally to include any person, firm, corporation or other entity which is the beneficial owner of 5% or more of the voting power of the outstanding Voting Stock. If, however, at least 66-2/3% of the Board of Directors of MBI approve the Business Combination, such Business Combination shall require only the vote of stockholders as provided by Missouri law or -75- otherwise. The amendment of the provisions of MBI's Restated Articles relating to the approval of Business Combinations requires the affirmative vote of the holders of at least 75% of the Voting Stock unless such amendment has previously been approved by at least 66-2/3% of the Board of Directors. Hawkeye's Articles of Incorporation and By-Laws do not require supermajority approval by shareholders of any corporate actions. VOTING FOR DIRECTORS. MBI's By-Laws provide for cumulative voting in the election of directors. Cumulative voting entitles each stockholder to cast an aggregate number of votes equal to the number of voting shares held, multiplied by the number of directors to be elected. Each stockholder may cast all such votes for one nominee or distribute them among two or more nominees, thus permitting holders of less than a majority of the outstanding shares of voting stock to achieve board representation. Hawkeye's Articles and By-Laws likewise provide for cumulative voting in the election of directors. CLASSIFIED BOARD. As described under "-- Description of MBI Common Stock and Attached Preferred Share Purchase Rights -- Classification of Board of Directors," the Board of Directors of MBI is divided into three classes of directors, with each class being elected to a staggered three-year term. By reducing the number of directors to be elected in any given year, the existence of a classified Board of Directors diminishes the benefits of the cumulative voting rights of minority stockholders. Hawkeye's Board of Directors is likewise divided into three classes of directors, with each class being elected to a staggered three-year term. DISSENTERS' RIGHTS. Under the Missouri Act, a stockholder of any corporation which is party to a merger or consolidation, or which sells all or substantially all of its assets, has the right to dissent from such corporate action and to demand payment of the fair value of such shares. Under the Iowa Act, shareholders of Hawkeye are entitled to dissenters' rights upon the consolidation or merger of Hawkeye or the sale of all or substantially all of Hawkeye's property which are similar but not identical to those under the Missouri Act. Specifically, the procedures and the filing deadlines applicable to dissenters' rights under the Missouri Act are somewhat different than those applicable in dissenters' rights proceedings under the Iowa Act. ANTITAKEOVER STATUTES. The Missouri Act contains certain provisions applicable to Missouri corporations such as MBI which may be deemed to have an antitakeover effect. Such -76- provisions include Missouri's Business Combination Statute and the Control Share Acquisition Statute. The Missouri Business Combination Statute protects domestic corporations from hostile takeovers by prohibiting certain transactions once an acquiror has gained control. Specifically, the statute restricts certain "Business Combinations" between a corporation and an "Interested Shareholder" or affiliates of the Interested Shareholder for a period of five years unless certain conditions are met. A "Business Combination" includes a merger or consolidation, certain sales, leases exchanges, mortgages, pledges, transfers and similar dispositions of corporate assets or stock and certain reclassifications, recapitalizations, liquidations or dissolutions. An "Interested Shareholder" includes any person or entity which beneficially owns or controls 20% or more of the outstanding voting shares of the corporation. During the initial five-year restricted period, no Business Combination may occur unless such Business Combination or the transaction in which an Interested Shareholder becomes "interested" is approved by the board of directors of the corporation on or prior to the date of the transaction on which the Interested Shareholder became "interested." Furthermore, no Business Combinations may occur unless (i) prior to the stock acquisition by the Interested Shareholder, the board of directors approves the transaction in which the Interested Shareholder became such or approves the Business Combination in question; (ii) the holders of a majority of the outstanding voting stock, other than stock owned by the Interested Shareholder, approve the Business Combination; or (iii) the Business Combination satisfies certain detailed fairness and procedural requirements. The Missouri Act exempts from its provisions (i) corporations not having a class of voting stock registered under Section 12 of the Exchange Act, unless the articles provide otherwise; (ii) corporations which adopt, as provided in the statute, provisions in their articles of incorporation or by-laws expressly electing not to be covered by the statute; and (iii) certain circumstances in which a stockholder inadvertently becomes an Interested Shareholder. MBI's Restated Articles of Incorporation and By-Laws do not "opt out" of the Missouri Business Combination Statute. The Missouri Act also contains a "Control Share Acquisition Statute" which provides that an "Acquiring Person" who after any acquisition of shares of a publicly traded corporation has the voting power, when added to all shares of the -77- same corporation previously owned or controlled by the Acquiring Person, to exercise or direct the exercise of: (i) 20% but less than 33-1/3%, (ii) 33-1/3% or more but less than a majority or (iii) a majority or more, of the voting power of outstanding stock of such corporation must obtain stockholder approval for the purchase of the "Control Shares." If approval is not given, the Acquiring Person's Control Shares lose the right to vote. The statute prohibits an Acquiring Person from voting its Control Shares unless certain disclosure requirements are met and the retention or restoration of voting rights is approved by both: (i) a majority of the outstanding voting stock, and (ii) a majority of the outstanding voting stock after exclusion of "Interested Shares." Interested Shares are defined as shares owned by the Acquiring Person, by directors who are also employees, and by officers of the corporation elected or appointed by the directors of the corporation. Stockholders are given dissenters' rights with respect to the vote on Control Share Acquisitions and may demand payment of the fair value of their shares. A number of acquisitions of shares are deemed not to constitute Control Share Acquisitions, including good faith gifts, transfers pursuant to wills, purchases pursuant to an issuance by the corporation, mergers involving the corporation which satisfy the other requirements of the Missouri Act, transactions with a person who owned a majority of the voting power of the corporation within the prior year, or purchases from a person who has previously satisfied the provisions of the Control Share Acquisition Statute so long as the transaction does not result in the purchasing party having voting power after the purchase in a percentage range (as set forth in the immediately preceding paragraph) beyond the range for which the selling party previously satisfied the provisions of the statute. Additionally, a corporation may exempt itself from application of the statute by inserting a provision in its articles of incorporation or by-laws expressly electing not to be covered by the statute. MBI's Restated Articles of Incorporation and By-Laws do not "opt out" of the Control Share Acquisition Statute. The Iowa Act does not include similar anti-takeover statutes. SHAREHOLDER'S RIGHT TO INSPECT. Under the Iowa Act, any shareholder may inspect the corporation's stock ledger, shareholder list and other books and records if the shareholder's demand for inspection is made in good faith and for a proper purpose. The Iowa Act specifically provides that a shareholder may appoint an agent for the purpose of examining -78- the books and records of the corporation. The right of stockholders to inspect under the Missouri Act is generally similar to that of shareholders under the Iowa Act. However, in comparison with the Iowa Act, in a given situation a Missouri stockholder may be provided with less guidance as to the scope of his or her ability to inspect the books and records of the corporation. SIZE OF BOARD OF DIRECTORS. As permitted under the Missouri Act, the number of directors on the Board of Directors of MBI is set forth in MBI's By-Laws, which provide that the number of directors may be fixed from time to time at not less than 12 nor more than 24 by an amendment of the By-Laws or by a resolution of the Board of Directors, in either case, adopted by the vote or consent of at least 66-2/3% of the number of directors then authorized under the By-Laws. MBI's By-Laws provide for 19 directors on the Board of Directors of MBI. MBI's Board currently has 16 directors. Similar to the Missouri Act, the Iowa Act provides that a corporation may fix the number of directors in its articles of incorporation or by- laws. Hawkeye's Articles of Incorporation provide for a classified board with three classes of directors serving three- year terms. Hawkeye's By-Laws provide for 17 directors on the Board of Directors of Hawkeye. Hawkeye's By-Laws, including the provision establishing the number of members of Hawkeye's Board of Directors, may be amended by the vote of the holders of a majority of the Hawkeye Common Stock or by the vote of a majority of the members of the Hawkeye Board of Directors. Hawkeye's Board currently has 14 directors. SUPERVISION AND REGULATION GENERAL As a bank holding company, MBI is subject to regulation under the BHCA and its examination and reporting requirements. Under the BHCA, a bank holding company may not directly or indirectly acquire the ownership or control of more than 5% of the voting shares or substantially all of the assets of any company, including a bank or savings and loan association, without the prior approval of (or, in the case of certain non-bank companies, prior notice to) the Federal Reserve Board. In addition, bank holding companies are generally prohibited under the BHCA from engaging in nonbanking activities, subject to certain exceptions. As a savings and loan holding company, MBI is also subject to regulatory oversight by the Office of Thrift Supervision (the "OTS"). As such, MBI is required to register -79- and file reports with the OTS and is subject to regulation by the OTS. In addition, the OTS has enforcement authority over MBI which permits the OTS to restrict or prohibit activities that are determined to be a serious risk to its subsidiary savings association. MBI and its subsidiaries are subject to supervision and examination by applicable federal and state banking agencies. The earnings of MBI's subsidiaries, and therefore the earnings of MBI, are affected by general economic conditions, management policies and the legislative and governmental actions of various regulatory authorities, including the Federal Reserve Board, the OTS, the Federal Deposit Insurance Corporation (the "FDIC"), the Comptroller of the Currency (the "Comptroller") and the state banking regulatory agencies. In addition, there are numerous governmental requirements and regulations that affect the activities of MBI and its subsidiaries. CERTAIN TRANSACTIONS WITH AFFILIATES There are various legal restrictions on the extent to which a bank holding company such as MBI and its nonbank subsidiaries can engage in certain transactions, including borrowing or otherwise obtaining credit from its bank subsidiaries. In general, these restrictions require that any such extensions of credit must be on non-preferential terms and secured by designated amounts of specified collateral and be limited, as to any one of the holding company or such nonbank subsidiaries, to 10% of the lending bank's capital stock and surplus, and as to the holding company and all such nonbank subsidiaries in the aggregate, to 20% of such bank's capital stock and surplus. See "-- Recent Legislation." PAYMENT OF DIVIDENDS MBI is a legal entity separate and distinct from its banking and other subsidiaries. The principal source of MBI's revenues is dividends from its national and state banking subsidiaries. Various federal and state statutory provisions limit the amount of dividends the affiliate banks can pay to MBI without regulatory approval. The approval of the appropriate bank regulator is generally required for any dividend by a national bank or state member bank if the total of all dividends declared by the bank in any calendar year would exceed the total of its net profits, as defined by regulatory authorities, for such year combined with its retained net profits for the preceding two years. In addition, a national bank or a state member bank generally may not pay a dividend in an amount -80- greater than its net profits then on hand. The payment of dividends by any affiliate bank may also be affected by other factors, such as the maintenance of adequate capital for such affiliate bank. CAPITAL ADEQUACY The Federal Reserve Board has issued standards for measuring capital adequacy for bank holding companies. These standards are designed to provide risk-responsive capital guidelines and to incorporate a consistent framework for use by financial institutions operating in major international financial markets. The banking regulators have issued standards for banks that are similar but not identical to the standards for bank holding companies. In general, the risk-related standards require banks and bank holding companies to maintain capital based on "risk adjusted" assets so that categories of assets with potentially higher credit risk will require more capital backing than categories with lower credit risk. In addition, banks and bank holding companies are required to maintain capital to support off-balance sheet activities such as loan commitments. The standards classify total capital for this risk- based measure into two tiers referred to as Tier 1 and Tier 2. Tier 1 capital consists of common stockholders' equity, certain noncumulative and cumulative perpetual preferred stock, and minority interests in equity accounts of consolidated subsidiaries; Tier 2 capital consists of the allowance for loan and lease losses (within certain limits), perpetual preferred stock not included in Tier 1, hybrid capital instruments, term subordinated debt, and intermediate-term preferred stock. By December 31, 1992, bank holding companies were required to meet a minimum ratio of 8% of qualifying total capital to risk- adjusted assets, and a minimum ratio of 4% of qualifying Tier 1 capital to risk-adjusted assets. Capital that qualifies as Tier 2 capital is limited in amount to 100% of Tier 1 capital in testing compliance with the total risk-based capital minimum standards. See "-- Recent Legislation." In addition, the Federal Reserve Board has established minimum leverage ratio guidelines for bank holding companies. These guidelines provide for a minimum ratio of Tier 1 capital to adjusted average total assets (the "leverage ratio") of 3% for bank holding companies that meet certain specified criteria, including having the highest regulatory rating. Other bank holding companies generally are required to maintain a leverage ratio of at least 3% plus 100 to 200 basis points. -81- The guidelines also provide that bank holding companies experiencing internal growth or making acquisitions will be expected to maintain strong capital positions substantially above minimum supervisory levels, without significant reliance on intangible assets. Furthermore, the Federal Reserve Board has indicated that it may consider other indicia of capital strength in evaluating proposals for expansion or new activities. SUPPORT OF SUBSIDIARY BANKS Under Federal Reserve Board policy, MBI is expected to act as a source of financial strength to each subsidiary bank and to commit resources to support each of the subsidiaries in circumstances where it might not choose to do so absent such a policy. In addition, any capital loans by MBI to any of its subsidiaries would also be subordinate in right of payment to deposits and certain other indebtedness of such subsidiary. This support may be required at times when MBI may not find itself able to provide it. Consistent with this policy regarding bank holding companies serving as a source of financial strength for their subsidiary banks, the Federal Reserve Board has stated that, as a matter of prudent banking, a bank holding company generally should not maintain a rate of cash dividends unless its net income available to common stockholders has been sufficient to fully fund the dividends, and the prospective rate of earnings retention appears consistent with the bank holding company's capital needs, asset quality and overall financial condition. RECENT LEGISLATION The Financial Institutions Reform, Recovery and Enforcement Act of 1989 ("FIRREA") contains a "cross-guarantee" provision which could result in insured depository institutions owned by MBI being assessed for losses incurred by the FDIC in connection with assistance provided to, or the failure of, any other insured depository institution owned by MBI. Under FIRREA, failure to meet the capital guidelines could subject a banking institution to a variety of enforcement remedies available to federal regulatory authorities, including the termination of deposit insurance by the FDIC. The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA") made extensive changes to the federal banking laws, some of which have delayed effective dates or require implementing regulations. FDICIA instituted certain changes to the supervisory process, including provisions that -82- mandate certain regulatory agency actions against undercapitalized institutions within specified time limits, and contain various provisions that may affect the operations of banks and savings institutions. The prompt corrective action provisions of FDICIA require the federal banking regulators to assign each insured institution to one of five capital categories ("well capitalized," "adequately capitalized" or one of three "undercapitalized" categories) and to take progressively more restrictive actions as specified below. Under FDICIA, capital requirements would include a leverage limit, a risk-based capital requirement and any other measure of capital deemed appropriate by the federal banking regulators for measuring the capital adequacy of an insured depository institution. All institutions, regardless of their capital levels, are restricted from making any capital distribution or paying any management fees that would cause the institution to fail to satisfy the minimum levels for any relevant capital measure. An institution that fails to meet the minimum level for any relevant capital measure (an "undercapitalized institution") shall be: (i) subject to increased monitoring by the appropriate federal banking regulator; (ii) required to submit an acceptable capital restoration plan within 45 days after the institution becomes undercapitalized; (iii) subject to asset growth limits; and (iv) required to obtain prior regulatory approval for acquisitions, branching and new lines of businesses. The capital restoration plan must include a guarantee by the institution's holding company (under which the holding company would be liable up to the lesser of 5% of the institution's total assets at the time the institution became undercapitalized or the amount necessary to bring the institution into capital compliance as of the date it failed to comply with its capital restoration plan) that the institution will comply with the plan until it has been adequately capitalized on average for four consecutive quarters. The bank regulatory agencies have discretionary authority to reclassify a well capitalized institution as adequately capitalized or to impose on an adequately capitalized institution requirements or actions specified for undercapitalized institutions if the agency determines after notice and an opportunity for hearing that the institution is in an unsafe or unsound condition or is engaging in an unsafe or unsound practice, which can consist of the receipt of an unsatisfactory examination rating if the deficiencies cited are not corrected. A significantly undercapitalized institution, as well as any undercapitalized institution that did not submit or implement an acceptable capital restoration plan, may be subject to regulatory demands for recapitalization, broader application of restrictions on transactions with affiliates, limitations on -83- interest rates paid on deposits, restrictions on asset growth and other activities, possible replacement of directors and officers, and restrictions on capital distributions by any bank holding company controlling the institution. Any company controlling the institution could also be required to divest the institution or the institution could be required to divest subsidiaries. The senior executive officers of a significantly undercapitalized institution may not receive bonuses or increases in compensation without prior approval and a critically undercapitalized institution is prohibited from making payments of principal or interest on its debt that is subordinated to claims of general creditors. If an institution's ratio of tangible equity to total assets falls below a level established by the appropriate federal banking regulator, which may not be less than 2% of total assets nor more than 65% of the minimum tangible equity level otherwise required (the "critical capital level"), the institution will be subject to conservatorship or receivership within 90 days unless periodic determinations are made that forbearance from such action would better protect the deposit insurance fund. Unless appropriate findings and certifications are made to the appropriate federal bank regulatory agencies, a critically undercapitalized institution must be placed in receivership if it remains critically undercapitalized on average during the calendar quarter beginning 270 days after the date it became critically undercapitalized. The FDIC, the Comptroller and the Federal Reserve Board have adopted capital-related regulations under FDICIA. Under those regulations, a bank will be deemed well capitalized if it: (a) has a risk-based capital ratio of 10% or greater; (b) has a ratio of Tier 1 capital to risk-adjusted assets of 6% or greater; (c) has a ratio of Tier 1 capital to adjusted total assets of 5% or greater; and (d) is not subject to an order, written agreement, capital directive, or prompt corrective action directive to meet and maintain a specific capital level for any capital measure. An association will be deemed adequately capitalized if it was not "well-capitalized" and: (a) has a risk-based capital ratio of 8% or greater; (b) has a ratio of Tier 1 capital to risk-adjusted assets of 4% or greater; and (c) has a ratio of Tier 1 capital to adjusted total assets of 4% or greater (except that certain associations rated "composite 1" under the federal banking agencies' CAMEL rating system may be adequately capitalized if their ratio of Tier 1 capital to adjusted total assets were 3% or greater). An institution that does not meet one or more of the "adequately capitalized" tests is deemed to be "undercapitalized." If the institution has a total risk-based capital ratio that is less than 6%, a Tier 1 risk-based capital ratio that is less than 3%, or a leverage ratio that is less than 3%, the institution -84- is deemed to be "significantly undercapitalized." An institution is deemed to be "critically undercapitalized" if it has a ratio of tangible equity (as defined in the OCC's regulations) to total assets that is equal to or less than 2%. The federal bank regulatory agencies have issued various proposals to amend the risk-based capital guidelines for banks and bank holding companies. Under one proposal, a bank would be required to give explicit consideration to interest rate risk as an element of capital adequacy by maintaining capital to compensate for such risk in an amount measured by such bank's exposure to interest rate risk in excess of a regulatory threshold. Another proposal would revise the treatment given to (i) low-level recourse arrangements to reduce the amount of capital required and (ii) certain direct credit substitutes provided by banking organizations to require that capital be maintained against the value of the assets enhanced or the loans protected. A proposal recently issued by the Federal Reserve Board and expected to be joined in by the other bank regulatory agencies increases the amount of capital required to be carried against certain long-term derivative contracts; in addition, the proposal recognizes the effect of certain bilateral netting arrangements in reducing potential future exposure under these contracts. The FDIC has adopted final regulations under FDICIA governing the receipt of brokered deposits. Under these regulations, a bank cannot accept brokered deposits unless (i) it is "well capitalized" or (ii) it is "adequately capitalized" and receives a waiver from the FDIC. In addition, banks that accept brokered deposits pursuant to such waivers (as well as banks in conservatorship) may not pay interest on such deposits in excess of 75 basis points over prevailing market rates. A bank that cannot receive brokered deposits also cannot offer "pass-through" insurance on certain employee benefit accounts. There are no such restrictions on a bank that is "well capitalized." The FDIC, pursuant to the directive of FDICIA, has adopted a risk-based premium schedule. Each financial institution is assigned to one of the 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 super- visiors and on the basis of other information relevant to the institution's financial conditions and the risk posed to the applicable insurance fund. The actual assessment rate applicable to a particular institution will, therefore, depend in part upon the risk assessment classification so assigned to the institution by the FDIC. The legislation adopted in August 1989 to provide for the resolution of insolvent savings associations also required the FDIC to establish separate deposit insurance funds -- the Bank Insurance Fund ("BIF") for banks and the Savings Association Insurance Fund ("SAIF") for savings associations. The law also requires the FDIC to set deposit insurance assessments at such levels as will cause BIF and SAIF to reach their "designated reserve ratios" of 1.25 percent of the deposits insured by them within a reasonable period of time. Due to low costs of resolving bank insolvencies in the last few years, BIF reached its designated reserve ratio in May, 1995. As a result, the FDIC recently lowered deposit insurance assessment -85- rates on banks by revising the range to $.04 to $.31 for every $100 of deposits. However, the balance in SAIF is not expected to reach the designated reserve ratio until about the year 2002, as the law provides that a significant portion of the costs of resolving past insolvencies of savings associations must be paid from its source. MBI, which has acquired substantial amounts of SAIF-insured deposits during the years from 1989 to the present, is required to pay deposit insurance premiums on these SAIF-insured deposits. Currently, SAIF-member institutions pay deposit insurance premiums based on a schedule of from $0.23 to $0.31 per $100 of deposits. Bills have recently been proposed by the U.S. Congress to recapitalize the SAIF through a one-time special assessment of approximately 85 basis points on the amount of deposits held by the institution. If such special assessment occurs, it is expected that the deposit premiums paid by the SAIF-member institutions would be reduced to approximately $.04 for every $100 of deposits and would have the effect of immediately reducing the capital of SAIF-member institutions by the amount of the fee (provided SAIF-member institutions are not permitted to amortize the expense of the one-time fee over a period of years). MBI cannot predict whether the special assessment proposal will be enacted, or, if enacted, the amount of any one-time fee or whether ongoing SAIF premiums will be reduced to a level equal to that of BIF premiums. If the one-time assessment is not enacted, it is presently expected that the SAIF will not be recapitalized until 2002 and the disparity between SAIF and BIF deposit premiums will continue. MBI does not expect that either such additional deposit insurance costs or the proposed one-time assessment will have a significant, adverse effect on its earnings. Proposals recently have been introduced in the U.S. Congress that, if adopted, would overhaul the savings association industry. The most significant of these proposals would recapitalize the SAIF through a one-time special assessment, spread the FICO Bond obligation across the BIF and SAIF, merge the Comptroller and the OTS, abolish the federal savings association charter, require federal thrifts to convert to commercial banks and merge the SAIF and the BIF. MBI cannot predict whether these or any other legislative proposals will be enacted, or, if enacted, the final form of the law. FDICIA also made extensive changes in existing rules regarding audits, examinations and accounting. It generally requires annual on-site, full-scope examinations by each bank's primary federal regulator. It also imposed new responsibilities on management, the independent audit committee and outside -86- accountants to develop or approve reports regarding the effectiveness of internal controls, legal compliance and off- balance sheet liabilities and assets. Legislation enacted in August 1993 provides a preference for deposits and certain claims for administrative expenses and employee compensation against an insured depository institution, such as Hawkeye's and MBI's insured bank subsidiaries, in the "liquidation or other resolution" of such an institution by any receiver. Such obligations would be afforded priority over other general unsecured claims against such an institution, including federal funds and letters of credit, as well as any obligation to stockholders of such an institution in their capacity as such. In September 1994, legislation was enacted that is expected to have a significant effect in restructuring the banking industry in the United States. The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 facilitates the interstate expansion and consolidation of banking organizations (i) by permitting bank holding companies that are adequately capitalized and managed, one year after enactment of the legislation, to acquire banks located in states outside their home states regardless of whether such acquisitions are authorized under the law of the host state, (ii) by permitting the interstate merger of banks after June 1, 1997, subject to the right of individual states to "opt in" or to "opt out" of this authority before that date, (iii) by permitting banks to establish new branches on an interstate basis provided that such action is specifically authorized by the law of the host state, (iv) by permitting foreign banks to establish, with approval of the regulators in the United States, branches outside their home states to the same extent that national or state banks located in the home state would be authorized to do so, and (v) by permitting, beginning September 29, 1995, banks to receive deposits, renew time deposits, close loans, service loans and receive payments on loans and other obligations as agent for any bank or thrift affiliate, whether the affiliate is located in the same state or a different state. One effect of this legislation will be to permit MBI to acquire banks located in any state and to permit bank holding companies located in any state to acquire banks and bank holding companies in Missouri. Overall, this legislation is likely to have the effects of increasing competition and promoting geographic diversification in the banking industry. -87- LEGAL MATTERS The validity of the MBI Common Stock to be issued in the Merger will be passed upon by Jon W. Bilstrom, General Counsel and Secretary of MBI, who, as of the Record Date, beneficially owned [30,216] shares of MBI Common Stock and held options to acquire [51,749] additional shares of MBI Common Stock. EXPERTS The consolidated financial statements of MBI as of December 31, 1994, 1993 and 1992, and for each of the years in the three-year period ended December 31, 1994, incorporated by reference in the 1994 MBI Form 10-K, and the supplemental consolidated financial statements of MBI as of December 31, 1994, 1993 and 1992, and for each of the years in the three- year period ended December 31, 1994, contained in MBI's Current Report on Form 8-K dated May 31, 1995, have been incorporated by reference herein in reliance upon the report of KPMG Peat Marwick LLP, independent certified public accountants, incorporated by reference herein, and upon the authority of such firm as experts in accounting and auditing. The consolidated financial statements incorporated in this Proxy Statement/Prospectus by reference from the 1994 Hawkeye Form 10-K have been audited by Deloitte & Touche LLP, independent auditors, as stated in their report, which is incorporated herein by this reference, and have been so incorporated in reliance upon the report of such firm given upon their authority as experts in accounting and auditing. OTHER MATTERS The Board of Directors of Hawkeye, at the date hereof, is not aware of any business to be presented at the Special Meeting other than that referred to in the Notice of Special Meeting and discussed herein. If any other matter should properly come before the Special Meeting, the persons named as proxies will have discretionary authority to vote the shares represented by proxies in accordance with their discretion and judgment as to the best interests of Hawkeye. STOCKHOLDER PROPOSALS If the Merger is consummated, shareholders of Hawkeye will become stockholders of MBI at the Effective Time. MBI -88- stockholders may submit to MBI proposals for formal consideration at the 1996 annual meeting of MBI's stockholders and inclusion in MBI's proxy statement and proxy for such meeting. All such proposals must be received in writing by the Corporate Secretary at Mercantile Bancorporation Inc., P.O. Box 524, St. Louis, Missouri 63166-0524 by November 25, 1995 in order to be considered for inclusion in MBI's Proxy Statement and proxy for the 1996 annual meeting. -89- ANNEX A DISSENTERS' RIGHTS PROVISIONS UNDER THE IOWA BUSINESS CORPORATION ACT Set forth below is the text of the statutory dissenters' rights provisions under Division XIII of the Iowa Business Corporation Act. DIVISION XIII DISSENTERS' RIGHTS PART A 490.1301 DEFINITIONS FOR DIVISION XIII.--In this division: 1. "Beneficial shareholder" means the person who is a beneficial owner of shares held by a nominee as the record shareholder. 2. "Corporation" means the issuer of the shares held by a dissenter before the corporate action, or the surviving or acquiring corporation by merger or share exchange of that issuer. 3. "Dissenter" means a shareholder who is entitled to dissent from corporate action under section 490.1302 and who exercises that right when and in the manner required by sections 490.1320 through 490.1328. 4. "Fair value", with respect to a dissenter's shares, means the value of the shares immediately before the effectuation of the corporate action to which the dissenter objects, excluding any appreciation or depreciation in anticipation of the corporate action unless exclusion would be inequitable. 5. "Interest" means interest from the effective date of the corporate action until the date of payment, at the average rate currently paid by the corporation on its principal bank loans or, if none, at a rate that is fair and equitable under all the circumstances. 6. "Record shareholder" means the person in whose name shares are registered in the records of a corporation or the beneficial owner of shares to the extent of the rights granted by a nominee certificate on file with a corporation. A-1 7. "Shareholder" means the record shareholder or the beneficial shareholder. 490.1302 SHAREHOLDERS' RIGHT TO DISSENT.--1. A shareholder is entitled to dissent from, and obtain payment of the fair value of the shareholder's shares in the event of, any of the following corporate actions: a. Consummation of a plan of merger to which the corporation is a party if either of the following apply: (1) Shareholder approval is required for the merger by section 490.1103 or the articles of incorporation and the shareholder is entitled to vote on the merger. (2) The corporation is a subsidiary that is merged with its parent under section 490.1104. b. Consummation of a plan of share exchange to which the corporation is a party as the corporation whose shares will be acquired, if the shareholder is entitled to vote on the plan. c. Consummation of a sale or exchange of all, or substantially all, of the property of the corporation other than in the usual and regular course of business, if the shareholder is entitled to vote on the sale or exchange, including a sale in dissolution, but not including a sale pursuant to court order or a sale for cash pursuant to a plan by which all or substantially all of the net proceeds of the sale will be distributed to the shareholders within one year after the date of sale. 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. A-2 (5) Reduces the number of shares owned by the shareholder to a fraction of a share if the fractional share so created is to be acquired for cash under section 490.604. (6) Extends, for the first time after being governed by this chapter, the period of duration of a corporation organized under chapter 491 or 496A and existing for a period of years on the day preceding the date the corporation is first governed by this chapter. e. Any corporate action taken pursuant to a shareholder vote to the extent the articles of incorporation, bylaws, or a resolution of the board of directors provides that voting or nonvoting shareholders are entitled to dissent and obtain payment for their shares. 2. A shareholder entitled to dissent and obtain payment for the shareholder's shares under this chapter is not entitled to challenge the corporate action creating the shareholder's entitlement unless the action is unlawful or fraudulent with respect to the shareholder or the corporation. 490.1303 DISSENT BY NOMINEES AND BENEFICIAL OWNERS.--1. A record shareholder may assert dissenters' rights as to fewer than all the shares registered in that shareholder's name only if the shareholder dissents with respect to all shares beneficially owned by any one person and notifies the corporation in writing of the name and address of each person on whose behalf the shareholder asserts dissenters' rights. The rights of a partial dissenter under this subsection are determined as if the shares as to which the shareholder dissents and the shareholder's other shares were registered in the names of different shareholders. 2. A beneficial shareholder may assert dissenters' rights as to shares held on the shareholder's behalf only if the shareholder does both of the following: a. Submits to the corporation the record shareholder's written consent to the dissent not later than the time the beneficial shareholder asserts dissenters' rights. b. Does so with respect to all shares of which the shareholder is the beneficial shareholder or over which that beneficial shareholder has power to direct the vote. PART B 490.1320 NOTICE OF DISSENTERS' RIGHTS.--1. If proposed corporate action creating dissenters' rights under section A-3 490.1302 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. 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. A-4 c. Supply a form for demanding payment that includes the date of the first announcement to news media or to shareholders of the terms of the proposed corporate action and requires that the person asserting dissenters' rights certify whether or not the person acquired beneficial ownership of the shares before that date. d. Set a date by which the corporation must receive the payment demand, which date shall not be fewer than thirty nor more than sixty days after the date the DISSENTERS' notice is delivered. e. Be accompanied by a copy of this division. 490.1323 DUTY TO DEMAND PAYMENT.--1. A shareholder sent a dissenter's notice described in section 490.1322 must demand payment, certify whether the shareholder acquired beneficial ownership of the shares before the date required to be set forth in the dissenter's notice pursuant to section 490.1322, subsection 2, paragraph "c", and deposit the shareholder's certificates in accordance with the terms of the notice. 2. The shareholder who demands payment and deposits the shareholder's shares under subsection 1 retains all other rights of a shareholder until these rights are canceled or modified by the taking of the proposed corporate action. 3. A shareholder who does not demand payment or deposit the shareholder's share certificates where required, each by the date set in the dissenters' notice, is not entitled to payment for the shareholder's shares under this division. 490.1324 SHARE RESTRICTIONS.--1. The corporation may restrict the transfer or uncertificated shares from the date the demand for their payment is received until the proposed corporate action is taken or the restrictions released under section 490.1326. 2. The person for whom dissenters' rights are asserted as to uncertificated shares retains all other rights of a shareholder until these rights are canceled or modified by the taking of the proposed corporate action. 490.1325 PAYMENT.--1. Except as provided in section 490.1327, AT THE TIME the proposed corporate action is taken, or upon receipt of a payment demand, WHICHEVER OCCURS LATER, the corporation shall pay each dissenter who complied with section 490.1323 the amount the corporation estimates to be the fair value of the dissenter's shares, plus accrued interest. A-5 2. The payment must be accompanied by all of the following: a. The corporation's balance sheet as of the end of a fiscal year ending not more than sixteen months before the date of payment, an income statement for that year, a statement of changes in shareholders' equity for that year, and the latest available interim financial statements, if any. b. A statement of the corporation's estimate of the fair value of the shares. c. An explanation of how the interest was calculated. d. A statement of the dissenter's right to demand payment under section 490.1328. e. A copy of this division. 490.1326 FAILURE TO TAKE ACTION.--1. If the corporation does not take the proposed action within sixty days after the date set for demanding payment and depositing share certificates, the corporation shall return the deposited certificates and release the transfer restrictions imposed on uncertificated shares. 2. If after returning deposited certificates and releasing transfer restrictions, the corporation takes the proposed action, it must send a new dissenters' notice under section 490.1322 AS IF THE CORPORATE ACTION WAS TAKEN WITHOUT A VOTE OF THE SHAREHOLDERS and repeat the payment demand procedure. 490.1327 AFTER-ACQUIRED SHARES.--1. A corporation may elect to withhold payment required by section 490.1325 from a dissenter unless the dissenter was the beneficial owner of the shares before the date set forth in the dissenters' notice as the date of the first announcement to news media or to shareholders of the terms of the proposed corporate action. 2. To the extent the corporation elects to withhold payment under subsection 1, after taking the proposed corporate action, it shall estimate the fair value of the shares, plus accrued interest, and shall pay this amount to each dissenter who agrees to accept it in full satisfaction of the dissenter's demand. The corporation shall send with its offer a statement of its estimate of the fair value of the shares, an explanation of how the interest was calculated, and a statement of the dissenter's right to demand payment under section 490.1328. A-6 490.1328 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. A-7 3. The corporation shall make all dissenters, whether or not residents of this state, whose demands remain unsettled parties to the proceeding as in an action against their shares and all parties must be served with a copy of the petition. Nonresidents may be served by registered or certified mail or by publication as provided by law. 4. The jurisdiction of the court in which the proceeding is commenced under subsection 2 is plenary and exclusive. The court may appoint one or more persons as appraisers to receive evidence and recommend decision on the question of fair value. The appraisers have the powers described in the order appointing them, or in any amendment to it. The dissenters are entitled to the same discovery rights as parties in other civil proceedings. 5. Each dissenter made a party to the proceeding is entitled to judgment for either of the following: a. The amount, if any, by which the court finds the fair value of the dissenter's shares, plus interest, exceeds the amount paid by the corporation. b. The fair value, plus accrued interest, of the dissenter's after-acquired shares for which the corporation elected to withhold payment under section 490.1327. 490.1331 COURT COSTS AND COUNSEL FEES.--1. The court in an appraisal proceeding commenced under section 490.1330 shall determine all costs of the proceeding, including the reasonable compensation and expenses of appraisers appointed by the court. The court shall assess the costs against the corporation, except that the court may assess costs against all or some of the dissenters, in amounts the court finds equitable, to the extent the court finds the dissenters acted arbitrarily, vexatiously, or not in good faith in demanding payment under section 490.1328. 2. The court may also assess the fees and expenses of counsel and experts for the respective parties, in amounts the court finds equitable, for either of the following: a. Against the corporation and in favor of any or all dissenters if the court finds the corporation did not substantially comply with the requirements of sections 490.1320 through 490.1328. b. Against either the corporation or a dissenter, in favor of any other party, if the court finds that the party against whom the fees and expenses are assessed acted A-8 arbitrarily, vexatiously, or not it good faith with respect to the rights provided by this chapter. 3. If the court finds that the services of counsel for any dissenter were of substantial benefit to other dissenters similarly situated, and that the fees for those services should not be assessed against the corporation, the court may award to these counsel reasonable fees to be paid out of the amounts awarded the dissenters who were benefited. A-9 ANNEX B FORM OF OPINION OF DLJ __________, 1995 Board of Directors Hawkeye Bancorporation 222 Equitable Building 604 Locust Street Des Moines, Iowa 50309-3723 Members of the Board: You have requested our opinion as to the fairness, from a financial point of view, to the holders of the outstanding shares of common stock, without par value (the "Hawkeye Common Stock"), of Hawkeye Bancorporation ("Hawkeye") of the exchange ratio for the exchange of common shares in the merger (the "Merger") of Hawkeye with and into Mercantile Bancorporation Inc. of Iowa, a wholly-owned subsidiary of Mercantile Bancorporation Inc. ("MBI"), pursuant to the Agreement and Plan of Reorganization, dated August 4, 1995, between Hawkeye and MBI (the "Merger Agreement"). Pursuant to the Merger Agreement, in the Merger each share of Hawkeye Common Stock shall be converted into the right to receive .585 of a share of common stock, par value $5.00 per share, of MBI ("MBI Common Stock") (the "Exchange Ratio"). We understand that the Merger is conditioned upon, among other things, receipt of opinions to the effect that the Merger will qualify for treatment as a tax-free reorganization and as a pooling of interests for accounting purposes. In connection with the Merger, the parties have also entered into an agreement (the "Stock Option Agreement") pursuant to which Hawkeye has irrevocably granted MBI an option to purchase 2,678,000 shares of Hawkeye Common Stock (subject to adjustment in certain circumstances but in no event to exceed 19.9% of the then outstanding shares of Hawkeye Common Stock), at a price and on B-1 Board of Directors Hawkeye Bancorporation ___________, 1995 Page 2 the terms and conditions set forth in the Stock Option Agreement. The terms of the Merger are more fully set forth in the Merger Agreement. For purposes of this opinion and in connection with our review of the proposed transaction, we have, among other things: 1. Participated in discussions and negotiations among representatives of Hawkeye and MBI and their respective legal advisors that resulted in the Merger Agreement; 2. Reviewed the terms of the Merger Agreement and Stock Option Agreement; 3. Reviewed the proxy statement/prospectus dated the date hereof relating to the Merger to be sent to the holders of Hawkeye Common Stock; 4. Reviewed certain publicly available financial statements, both audited and unaudited, of Hawkeye and MBI, including those included in their respective Annual Reports on Form 10-K for the five years ended December 31, 1994 and the respective Quarterly Reports on Form 10-Q for the periods ended March 31, 1995 and June 30, 1995; 5. Reviewed certain financial statements and other financial and operating data concerning Hawkeye and MBI prepared by their respective managements; 6. Reviewed certain financial forecasts of Hawkeye prepared by its management and made inquiries of representatives of MBI management as to the expected future financial performance of MBI on a stand-alone basis and giving effect to the Merger; 7. Discussed certain aspects of the past and current business operations, financial condition and future prospects of Hawkeye and MBI with certain members of their respective managements; B-2 Board of Directors Hawkeye Bancorporation ___________, 1995 Page 3 8. Reviewed reported market prices and historical trading activity of Hawkeye Common Stock and MBI Common Stock; 9. Reviewed certain aspects of the financial performance of Hawkeye and MBI and compared such financial performance of Hawkeye and MBI, together with stock market data relating to Hawkeye Common Stock and MBI Common Stock, with similar data available for certain other financial institutions and certain of their publicly traded securities; 10. Reviewed certain of the financial terms, to the extent publicly available, of certain recent business combinations involving other financial institutions; and 11. Conducted such other studies, analyses, and examinations as we deemed appropriate. We have relied upon and assumed without independent verification the accuracy and completeness of all of the financial and other information that has been provided to us by Hawkeye, MBI and their respective representatives and of the publicly available information that was reviewed by us. With your permission, we have also relied upon the managements of both Hawkeye and MBI as to the reasonableness and achievability of the financial and operating forecasts provided to us (and the assumptions and bases therefor). In that regard, we have assumed with your permission that such forecasts, including without limitation projected cost savings and operating synergies resulting from the Merger, reflect the best currently available estimates and judgments of such respective managements and that such forecasts will be realized in the amounts and in the time periods currently estimated by the managements of Hawkeye and MBI. We have not independently verified and have relied on and assumed that the aggregate allowances for loan losses set forth in the balance sheets of each of Hawkeye and MBI at June 30, 1995 are adequate to cover such losses and complied fully with applicable law, regulatory policy and sound banking practice as of the date of such financial statements. We were not retained to and we did not conduct a physical inspection of any of the properties or facilities of Hawkeye or MBI, did not make any independent evaluation or appraisal of the assets, liabilities or prospects of Hawkeye or MBI, were B-3 Board of Directors Hawkeye Bancorporation ___________, 1995 Page 4 not furnished with any such evaluation or appraisal, and did not review any individual credit files. In rendering our opinion, we have been advised by Hawkeye and MBI and have assumed with your permission that there are no other factors that would delay or subject to adverse conditions any necessary regulatory or governmental approval for the Merger, and we have assumed that all conditions to the Merger will be satisfied and not waived. Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"), as part of its investment banking business, is regularly engaged, with respect to bank holding companies and other corporations, in the valuation of businesses and their securities in connection with mergers and acquisitions, negotiated underwritings, competitive biddings, secondary distributions of listed and unlisted securities, private placements, and valuations for corporate and other purposes. DLJ has performed investment banking services for Hawkeye in the past and has been compensated for such services. In the ordinary course of our business we may actively trade the debt and equity securities of companies, including Hawkeye and MBI, for our own account and for the accounts of customers and may hold a long or short position in such securities at any time. Our opinion is based solely upon the information available to us and the economic, market, and other circumstances as they exist as of the date hereof. Events occurring after the date hereof could materially affect the assumptions used in preparing this opinion. We have not undertaken to reaffirm or revise this opinion or otherwise comment upon any events occurring after the date hereof. We are not expressing any opinion herein as to the prices at which shares of MBI Common Stock issued in the Merger may trade if and when they are issued or at any future time. Our opinion as expressed herein is limited to the fairness, from a financial point of view, of the Exchange Ratio to the holders of Hawkeye Common Stock and does not address Hawkeye's underlying business decision to proceed with the Merger. We have been retained on behalf of Hawkeye's Board of Directors, and our opinion does not constitute a recommendation to any holder of Hawkeye Common Stock as to how such holder should vote with respect to the Merger Agreement at any meeting of holders of Hawkeye Common Stock. B-4 Board of Directors Hawkeye Bancorporation ___________, 1995 Page 5 Subject to the foregoing and based on our experience as investment bankers, our activities as described above, and other factors we have deemed relevant, we are of the opinion as of the date hereof that the Exchange Ratio is fair, from a financial point of view, to the holders of Hawkeye Common Stock. Very truly yours, DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION By:_________________________ David D. Olson Managing Director [FORM OF PROXY] [FRONT] HAWKEYE BANCORPORATION THIS PROXY SOLICITED BY THE BOARD OF DIRECTORS FOR THE SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON _____________ __, 1995 The undersigned hereby appoints Paul D. Dunlap, Robert W. Murray and R. Douglas, and each of them with full power to act alone, the true and lawful attorneys in fact and proxies of the undersigned to vote all shares of Common Stock of HAWKEYE BANCORPORATION, an Iowa corporation (the "Company"), held by the undersigned, with full power of substitution, with the same force and effect as the undersigned would be entitled to vote if personally present at the Special Meeting of Shareholders of the Company to be held at ______________, Des Moines, Iowa, on __________ __, 1995, at ______ a.m. (Central Time), and at any adjournment or postponement thereof, as follows: [X] PLEASE MARK YOUR VOTES AS IN THIS EXAMPLE 1. Approval and adoption of the Agreement and FOR AGAINST ABSTAIN Plan of Reorganization, dated August 4, [ ] [ ] [ ] 1995 (the "Merger Agreement"), by and between Mercantile Bancorporation Inc., a Missouri corporation, and the Company. 2. OTHER MATTERS: Discretionary authority is hereby granted to transact such other business as may properly come before the meeting or any adjournment or postponement thereof. ======================================================================= [BACK] THE COMPANY'S BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL AND ADOPTION OF THE MERGER AGREEMENT. PLEASE COMPLETE, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY, USING THE ENCLOSED ENVELOPE. THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN. IF THIS PROXY IS SUBMITTED, BUT NO DIRECTIONS ARE MADE, THIS PROXY WILL BE VOTED "FOR" THE APPROVAL AND ADOPTION OF THE MERGER AGREEMENT. The undersigned hereby acknowledges receipt of the Notice of Special Meeting of Shareholders and the Proxy Statement/ Prospectus, each dated _________ __, 1995, furnished herewith. Dated: ______________________, 1995 Signature: ____________________________________________________ Signature(s) (if held jointly): _______________________________ Title or Authority:____________________________________________ IMPORTANT: Please sign your name exactly as it appears hereon. When signing as attorney, agent, executor, administrator, trustee, guardian or corporate officer, please give your full title as such. Each joint owner should sign the proxy. If executed by a partnership, this proxy should be signed by an authorized partner. PART II INFORMATION NOT REQUIRED IN THE PROSPECTUS ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS Sections 351.355(1) and (2) of The General and Business Corporation Law of the State of Missouri provide that a corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful, except that, in the case of an action or suit by or in the right of the corporation, the corporation may not indemnify such persons against judgments and fines and no person shall be indemnified as to any claim, issue or matter as to which such person shall have been adjudged to be liable for negligence or misconduct in the performance of his duty to the corporation, unless and only to the extent that the court in which the action or suit was brought determines upon application that such person is fairly and reasonably entitled to indemnity for proper expenses. Section 331.355(3) provides that, to the extent that a director, officer, employee or agent of the corporation has been successful in the defense of any such action, suit or proceeding or any claim, issue or matter therein, he shall be indemnified against expenses, including attorneys' fees, actually and reasonably, incurred in connection with such action, suit or proceeding. Section 351.355(7) provides that a corporation may provide additional indemnification to any person indemnifiable under 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, as provided in Article 12 of the Restated Articles of Incorporation of the Registrant, which involved an accounting for profits pursuant to Section 16(b) of the Securities Exchange Act of 1934. Article 12 of the Restated Articles of Incorporation of the Registrant provides that the Registrant shall extend to its directors and executive officers the indemnification specified in subsections (1) and (2) and may also extend the additional indemnification authorized in subsection (7) and that it may extend to other officers, employees and agents such indemnification and additional indemnification. Pursuant to directors' and officers' lability insurance policies, with total annual limits of $30,000,000, the Registrant's directors and officers are insured, subject to the limits, retention, exceptions and other terms and conditions of such policy, against liability for any actual or alleged error, misstatement, misleading statement, act or omission, or neglect or breach of duty by the directors or officers of the Registrant, individually or collectively, or any matter claimed against them solely by reason of their being directors or officers of the Registrant. ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) EXHIBITS. See Exhibit Index. (b) FINANCIAL STATEMENT SCHEDULES. Not Applicable. (c) REPORT, OPINION OR APPRAISAL. Not Applicable. ITEM 22. UNDERTAKINGS (a) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question 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. (b) The undersigned Registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan's annual report pursuant to Section 15(d) II-2 of the Securities Exchange Act of 1934) that is incorporated by reference in the Registration Statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (c) The undersigned Registrant hereby undertakes as follows: that prior to any public reoffering of the securities registered hereunder through use of a prospectus which is a part of this Registration Statement, by any person or party who is deemed to be an underwriter within the meaning of Rule 145(c), the issuer undertakes that such reoffering prospectus will contain the information called for by the applicable registration form with respect to reofferings by persons who may be deemed underwriters, in addition to the information called for by the other Items of the applicable form. (d) The Registrant undertakes that every prospectus: (i) that is filed pursuant to paragraph (c) immediately preceding, or (ii) that purports to meet the requirements of Section 10(a)(3) of the Act and is used in connection with an offering of securities subject to Rule 415, will be filed as a part of an amendment to the Registration Statement and will not be used until such amendment is effective, and that, for purposes of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offering therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (e) The undersigned Registrant hereby undertakes to respond to requests for information that is incorporated by reference into the prospectus pursuant to Item 4, 10(b), 11 or 13 of this Form, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in the documents filed subsequent to the effective date of the Registration Statement through the date of responding to the request. (f) The undersigned Registrant hereby undertakes to supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in the Registration Statement when it became effective. (g) The undersigned Registrant hereby undertakes: 1. To file during any period in which offers and sales are being made, a post-effective amendment to this Registration Statement: (i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; II-3 (ii) To reflect in the prospectus any facts or events arising after the effective date of the Registration Statement (or the most recent post- effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the Registration Statement; and (iii) To include any material information with respect to the plan of distribution not previously disclosed in the Registration Statement or any material change to such information in the Registration Statement. 2. That for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. 3. To remove from registration by means of a post- effective amendment any of the securities being registered which remain unsold at the termination of the offering. II-4 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 October 23, 1995. MERCANTILE BANCORPORATION INC. By: /S/ THOMAS H. JACOBSEN -------------------------------- Thomas H. Jacobsen Chairman of the Board, President and Chief Executive Officer POWER OF ATTORNEY We, the undersigned officers and directors of Mercantile Bancorporation Inc., hereby severally and individually constitute and appoint Thomas H. Jacobsen and John H. Beirise, 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 and all instruments necessary or advisable in connection therewith and to file the same with the Securities and Exchange Commission, each of said attorneys and agents to have the power to act with or without the others and to have full power and authority to do and perform in the name and on behalf of each of the undersigned every act whatsoever necessary or advisable to be done in the premises as fully and to all intents and purposes as any of the undersigned might or could do in person, and we hereby ratify and confirm our signatures as they may be signed by our said attorneys and agents or each of them to any and all such amendments and instruments. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the date indicated. Signature Title Date /s/ Thomas H. Jacobsen Chairman of the Board, October 20, 1995 Thomas H. Jacobsen President, Chief Executive Principal Executive Officer Officer and Director II-5 Signature Title Date /s/ John Q. Arnold Senior Executive October 20, 1995 John Q. Arnold Vice President and Principal Financial Officer Chief Financial Officer /s/ Michael T. Normile Senior Vice President -- October 20, 1995 Michael T. Normile Finance and Control Principal Accounting Officer /s/ Richard P. Conerly Director October 20, 1995 Richard P. Conerly /s/ Harry M. Cornell, Jr. Director October 20, 1995 Harry M. Cornell, Jr. /s/ Earl K. Dille Director October 20, 1995 Earl K. Dille /s/ William A. Hall Director October 20, 1995 William A. Hall /s/ Thomas A. Hays Director October 20, 1995 Thomas A. Hays /s/ William G. Heckman Director October 20, 1995 William G. Heckman /s/ Charles H. Price II Director October 20, 1995 Charles H. Price II /s/ Harvey Saligman Director October 20, 1995 Harvey Saligman ________________ Director _______ __, 1995 Craig D. Schnuck _______________ Director _______ __, 1995 Robert L. Stark II-6 Signature Title Date /s/ Patrick T. Stokes Director October 20, 1995 Patrick T. Stokes /s/ Francis A. Stroble Director October 20, 1995 Francis A. Stroble ______________ Director _______ __, 1995 John A. Wright /s/ Frank Lyon, Jr. Director October 20, 1995 Frank Lyon, Jr. II-7 EXHIBIT INDEX Exhibit Number Description Page 2.1 Agreement and Plan of Reorganization dated as of August 4, 1995 by and among MBI and Hawk- eye. 2.2 Stock Option Agreement, dated August 4, 1995, between MBI and Hawkeye. 3.1 MBI's Restated Articles of Incorporation, as amended and currently in effect, filed as Exhibit 3(i) to MBI's Quarterly Report on Form 10-Q for the quarter ended June 30, 1994 (File No. 1-11792), are incorporated herein by reference. 3.2 MBI's By-Laws, as amended and currently in effect, filed as Exhibit 3.2 to MBI's Regis- tration Statement No. 33-57489, are incorpo- rated herein by reference. 4.1 Form of Indenture Regarding Subordinated Se- curities between MBI and The First National Bank of Chicago, Trustee, filed as Exhibit 4- 1 to MBI's Report on Form 8-K dated September 24, 1992 (File No. 1-11792), is incorporated herein by reference. 4.2 Rights Agreement dated as of May 23, 1988 between MBI and Mercantile Bank of St. Louis National Association, as Rights Agent (in- cluding as exhibits thereto the form of Cer- tificate of Designation, Preferences and Rights of Series A Junior Participating Pre- ferred Stock and the form of Right Certifi- cate), filed on May 24, 1988 as Exhibits 1 and 2 to MBI's Registration Statement on Form 8-A (File No. 1-11792), is incorporated herein by reference. 4.3 Certificate of Designation, Preferences, and Relative Rights, Qualifications, Limitations and Restrictions of the Series B-1 Preferred Stock of MBI, filed as Exhibit 4-1 to MBI's Report on Form 10-Q for the quarter ended March 31, 1995 (File No. 1-11792), is incor- porated herein by reference. II-8 Exhibit Number Description Page 4.4 Certificate of Designation, Preferences, and Relative Rights, Qualifications, Limitations and Restrictions of the Series B-2 Preferred Stock of MBI, filed as Exhibit 4-2 to MBI's Report on Form 10-Q for the quarter ended March 31, 1995 (File No. 1-11792), is incor porated herein by reference. 5 Opinion of Jon W. Bilstrom as to the legality of the securities being issued. 8.1 Opinion of Wachtell, Lipton, Rosen & Katz as to certain tax matters in the Merger. 8.2 Opinion of Baird, Holm, McEachen, Pedersen, Hamann & Strasheim as to certain tax matters in the Merger. 23.1 Consent of KPMG Peat Marwick LLP with regard to use of its report on MBI's financial statements. 23.2 Consent of Deloitte & Touche LLP with regard to the use of its report on Hawkeye's finan- cial statements. 23.3 Consent of Jon W. Bilstrom (included in Ex- hibit 5). 23.4 Consent of Wachtell, Lipton, Rosen & Katz (included in Exhibit 8.1). 23.5 Consent of Baird, Holm, McEachen, Pedersen, Hamann & Strasheim (included in Exhibit 8.2). 23.6 Consent of Donaldson, Lufkin & Jenrette Secu- rities Corporation. 24.1 Power of Attorney (included on signature page). 99.9 Form of Support Agreement dated as of August 4, 1995 by and between MBI and the directors of Hawkeye. II-9 EX-99 2 EXHIBIT 2.1 AGREEMENT AND PLAN OF REORGANIZATION between MERCANTILE BANCORPORATION INC., as Buyer, and HAWKEYE BANCORPORATION, as Seller Dated August 4, 1995 AGREEMENT AND PLAN OF REORGANIZATION This AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is made and entered into on August 4, 1995 by and between MERCANTILE BANCORPORATION INC., a Missouri corporation ("Buyer"), and HAWKEYE BANCORPORATION, an Iowa corporation (together with its predecessors, "Seller"). W I T N E S S E T H: WHEREAS, Buyer is a registered bank holding company under the Bank Holding Company Act of 1956, as amended (the "Holding Company Act"); and WHEREAS, Seller is a registered bank holding company under the Holding Company Act; and WHEREAS, the Board of Directors of Seller and the Executive Committee of the Board of Directors of Buyer have approved the merger (the "Merger") of Seller with and into a wholly owned subsidiary of Buyer organized or to be organized under the laws of Iowa ("Merger Sub") pursuant to the terms and subject to the conditions of this Agreement; and WHEREAS, as a condition to, and immediately after the execution of this Agreement, Buyer and each director of Seller will enter into Support Agreements (the "Support Agreements") in the form attached hereto as Exhibit A; and -1- WHEREAS, as a condition to, and immediately prior to execution of this Agreement, Buyer and Seller will enter into a stock option agreement (the "Stock Option Agreement") in the form attached hereto as Exhibit B; and WHEREAS, the parties desire to provide for certain undertakings, conditions, representations, warranties and covenants in connection with the transactions contemplated by this Agreement. NOW THEREFORE, in consideration of the premises and the representations, warranties and agreements herein contained, the parties agree as follows: ARTICLE I THE MERGER 1.01. The Merger. (a) Subject to the terms and conditions of this Agreement, Seller shall be merged with and into Merger Sub in accordance with the Iowa Business Corporation Act (the "Iowa Act") and the separate corporate existence of Seller shall cease. Merger Sub shall be the surviving corporation of the Merger (sometimes referred to herein as the "Surviving Corporation") and shall continue to be governed by the laws of the State of Iowa. -2- 1.02. Closing. The closing (the "Closing") of the Merger shall take place at 10:00 a.m., local time, on the date that the Effective Time (as defined in Section 1.03) occurs, or at such other time, and at such place, as Buyer and Seller shall agree (the "Closing Date"). 1.03. Effective Time. The Merger shall become effective on the date and at the time (the "Effective Time") on which appropriate documents in respect of the Merger are filed with the Secretary of State of the State of Iowa in such form as required by, and in accordance with, the relevant provisions of the Iowa Act. Subject to the terms and conditions of this Agreement, the Effective Time shall occur on such date as Buyer shall notify Seller in writing (such notice to be at least five business days in advance of the Effective Time) but (i) not earlier than the satisfaction of all conditions set forth in Section 6.01(a) and 6.01(b) (the "Approval Date") and (ii) subject to clause (i), not later than the first business day of the first full calendar month commencing at least five business days after the Approval Date. As soon as practicable following the Effective Time, Buyer and Seller shall cause a certificate or plan of merger reflecting the terms of this Agreement to be delivered for filing and recordation with other appropriate state or local officials in the State of Iowa in accordance with the Iowa Act. -3- 1.04. Additional Actions. If, at any time after the Effective Time, Buyer or the Surviving Corporation shall consider or be advised that any further deeds, assignments or assurances or any other acts are necessary or desirable to (b) 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 (c) otherwise carry out the purposes of this Agreement, Seller and Merger Sub and each of their respective officers and directors, shall be deemed to have granted to the Surviving Corporation an irrevocable power of attorney to execute and deliver all such deeds, assignments or assurances and to do all acts necessary or desirable to vest, perfect or confirm title and possession to such rights, properties or assets in the Surviving Corporation and otherwise to carry out the purposes of this Agreement, and the officers and directors of the Surviving Corporation are authorized in the name of Seller or otherwise to take any and all such action. 1.05. Articles of Incorporation and Bylaws. The Articles of Incorporation and Bylaws of Merger Sub in effect immediately prior to the Effective Time shall be the Articles of Incorporation and Bylaws of the Surviving Corporation following the Merger until otherwise amended or repealed. -4- 1.06. Boards of Directors and Officers. At the Effective Time, the directors and officers of Merger Sub immediately prior to the Effective Time shall be directors and officers, respectively, of the Surviving Corporation following the Merger; such directors and officers shall hold office in accordance with the Surviving Corporation's Bylaws and applicable law. 1.07. Conversion of Securities. At the Effective Time, by virtue of the Merger and without any action on the part of Buyer, Seller or the holder of any of the following securities: (i) Each share of the common stock, par value $.01 per share, of Merger Sub that is issued and outstanding immediately prior to the Effective Time shall remain outstanding and shall be unchanged after the Merger and shall thereafter constitute all of the issued and outstanding capital stock of the Surviving Corporation; and (ii) Each share of the common stock, without par value ("Seller Common Stock"), of Seller issued and outstanding immediately prior to the Effective Time, other than any Dissenting Shares (as defined in Section 1.09), shall cease to be outstanding and shall be converted into and become the right to receive 0.585 (the "Exchange Ratio") of a share of common stock, par value $5.00 per share ("Buyer -5- Common Stock"), of Buyer; provided, however, that any shares of Seller Common Stock held by Seller or any of its wholly owned Subsidiaries (as defined in Rule 1-02 of Regulation S-X promulgated by the Securities and Exchange Commission (the "SEC")), or Buyer or any of its wholly owned Subsidiaries, in each case other than in a fiduciary capacity or as a result of debts previously contracted, shall be cancelled and shall not represent capital stock of the Surviving Corporation and shall not be exchanged for shares of Buyer Common Stock. 1.08. Exchange Procedures. (a) As soon as practicable after the Effective Time, holders of record of certificates formerly representing shares of Seller Common Stock (the "Certificates") shall be instructed to tender such Certificates to Buyer pursuant to a letter of transmittal that Buyer shall deliver or cause to be delivered to such holders. Such letters of transmittal shall specify that risk of loss and title to Certificates shall pass only upon delivery of such Certificates to Buyer. (b) Subject to Section 1.10, after the Effective Time, each previous holder of a Certificate that surrenders such Certificate to the Buyer or, at the election of Buyer, an exchange agent designated by Buyer (the "Exchange Agent") will, upon acceptance thereof by Buyer or the Exchange Agent, be entitled to a certificate or certificates representing the -6- number of full shares of Buyer 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 Buyer Common Stock, without interest. (c) Buyer or, at the election of Buyer, the Exchange Agent shall accept Certificates upon compliance with such reasonable terms and conditions as Buyer or the Exchange Agent may impose to effect an orderly exchange thereof in accordance with customary exchange practices. Certificates shall be appropriately endorsed or accompanied by such instruments of transfer as Buyer or the Exchange Agent may require. (d) Each outstanding Certificate shall until duly surrendered to Buyer or the Exchange Agent be deemed to evidence ownership of the consideration into which the stock previously represented by such Certificate shall have been converted pursuant to this Agreement. (e) After the Effective Time, holders of Certificates shall cease to have rights with respect to the stock previously represented by such Certificates, and their sole rights shall be to exchange such Certificates for the consideration provided for in this Agreement. After the Effective Time, there shall be no further transfer on the records -7- of Seller of Certificates, and if such Certificates are presented to Seller for transfer, they shall be cancelled against delivery of the consideration provided therefor in this Agreement. Buyer shall not be obligated to deliver the consideration to which any former holder of Seller Common Stock is entitled as a result of the Merger until such holder surrenders the Certificates as provided herein. No dividends declared will be remitted to any person entitled to receive Buyer Common Stock under this Agreement until such person surrenders the Certificate representing the right to receive such Buyer Common Stock, at which time such dividends shall be remitted to such person, without interest and less any taxes that may have been imposed thereon. Certificates surrendered for exchange by any person constituting an "affiliate" of Seller for purposes of Rule 145 of the Securities Act of 1933, as amended (together with the rules and regulations thereunder, the "Securities Act"), shall not be exchanged for certificates representing Buyer Common Stock until Buyer has received a written agreement from such person in the form attached as Exhibit C. Neither the Exchange Agent nor any party to this Agreement nor any affiliate thereof shall be liable to any holder of stock represented by any Certificate for any consideration paid to a public official pursuant to applicable abandoned property, escheat or similar laws. Buyer and the Exchange Agent shall be entitled to rely upon -8- the stock transfer books of Seller to establish the identity of those persons entitled to receive consideration specified in this Agreement, which books shall be conclusive with respect thereto. In the event of a dispute with respect to ownership of stock represented by any Certificate, Buyer and the Exchange Agent shall be entitled to deposit any consideration represented thereby in escrow with an independent third party and thereafter be relieved with respect to any claims thereto. 1.09. Dissenting Shares. (a) "Dissenting Shares" means any shares held by any holder who becomes entitled to payment of the fair value of such shares under the Iowa Act. Any holders of Dissenting Shares shall be entitled to payment for such shares only to the extent permitted by and in accordance with the provisions of the Iowa Act; provided, however, that if, in accordance with the Iowa Act, any holder of Dissenting Shares shall forfeit such right to payment of the fair value of such shares, such shares shall thereupon be deemed to have been converted into and to have become exchangeable for, as of the Effective Time, the right to receive the consideration provided in this Article I. (b) Seller shall give Buyer (i) prompt notice of any written objections to the Merger and any written demands for the payment of the fair value of any shares, withdrawals -9- of such demands, and any other instruments served pursuant to the Iowa Act received by Seller and (ii) the opportunity to direct all negotiations and proceedings with respect to such demands under the Iowa Act. Seller shall not voluntarily make any payment with respect to any demands for payment of fair value and shall not, except with the prior written consent of Buyer, settle or offer to settle any such demands. 1.10. No Fractional Shares. Notwithstanding any other provision of this Agreement, neither certificates nor scrip for fractional shares of Buyer Common Stock shall be issued in the Merger. Each holder who otherwise would have been entitled to a fraction of a share of Buyer Common Stock shall receive in lieu thereof cash (without interest) in an amount determined by multiplying the fractional share interest to which such holder would otherwise be entitled by the Closing Price per share of Buyer Common Stock on the last business day preceding the Effective Time. With respect to a share of stock, "Closing Price" shall mean: the closing price as reported on the Consolidated Tape (as reported in The Wall Street Journal or in the absence thereof, by any other authoritative source). No such holder shall be entitled to dividends, voting rights or any other rights in respect of any fractional share. -10- 1.11. Anti-Dilution Adjustments. If prior to the Effective Time Buyer shall declare a stock dividend or make distributions upon or subdivide, split up, reclassify or combine Buyer Common Stock or declare a dividend or make a distribution on Buyer Common Stock in any security convertible into Buyer Common Stock, appropriate adjustment or adjustments will be made to the Exchange Ratio. 1.12. Reservation of Right to Revise Transaction. Buyer may at any time change the method of effecting the acquisition of Seller or Seller's Subsidiaries by Buyer (including without limitation the provisions of this Article I) if and to the extent it deems such change to be desirable, including without limitation to provide for a merger of Seller directly into Buyer, in which Buyer is the surviving corporation, provided, however, that no such change shall (A) alter or change the amount or kind of consideration to be issued to holders of Seller Common Stock as provided for in this Agreement (the "Merger Consideration"), (B) adversely affect the tax treatment to Seller's stockholders as a result of receiving the Merger Consideration or (C) materially impede or delay receipt of any approval referred to in Section 6.01(b) or the consummation of the transactions contemplated by this Agreement. -11- ARTICLE II REPRESENTATIONS, WARRANTIES AND COVENANTS OF SELLER Seller represents and warrants to and covenants with Buyer 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 and has 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 "Board") under the Holding Company Act. True and complete copies of the Restated Articles of Incorporation and the Bylaws of Seller and, to the extent requested in writing by Buyer, of the Articles of Incorporation and Bylaws of the Seller Subsidiaries (as defined in Section 2.02), each as in effect on the date of this Agreement, have been provided to Buyer. 2.02. Subsidiaries. Schedule 2.02 sets forth, among other things, a complete and correct list of all of -12- Seller's Subsidiaries (each a "Seller Subsidiary" and collectively the "Seller Subsidiaries"), all outstanding Equity Securities of each of which, except as set forth on Schedule 2.02, are owned directly or indirectly by Seller. "Equity Securities" of an issuer means capital stock or other equity securities of such issuer, options, warrants, scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights convertible into, shares of any capital stock or other Equity Securities of such issuer, or contracts, commitments, understandings or arrangements by which such issuer is or may become bound to issue additional shares of its capital stock or other Equity Securities of such issuer, or options, warrants, scrip or rights to purchase, acquire, subscribe to, calls on or commitments for, or stock appreciation or similar rights in respect of, any shares of its capital stock or other Equity Securities. Except as set forth on Schedule 2.02, all of the outstanding shares of capital stock of the Seller Subsidiaries are validly issued, fully paid and nonassessable, and those shares owned by Seller are owned free and clear of any lien, claim, charge, option, encumbrance, agreement, mortgage, pledge, security interest or restriction (a "Lien") with respect thereto. Each of the Seller Subsidiaries is a corporation or association duly incorporated or organized, validly existing, and in good standing under the laws of its -13- 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 the financial condition, results of operations or business (collectively, the "Condition") of Seller and its Subsidiaries, taken as a whole. Except as set forth on Schedule 2.02, Seller does not own beneficially, directly or indirectly, five percent or more of any shares of any class of Equity Securities or similar interests of any corporation, bank, business trust, association or similar organization. All of Seller's bank Subsidiaries (the "Banks") are either state banking associations chartered under the laws of the State of Iowa or national banking associations chartered by the Office of the Comptroller of the Currency. The deposits of each of the Banks are insured by the Bank Insurance Fund ("BIF") or, to the extent transferred to a Bank by the Resolution Trust Corporation, by the Savings Association Insurance Fund, of the Federal Deposit Insurance Corporation (the "FDIC"). The aggregate "adjusted attributable deposit amount" (as defined in 12 U.S.C. Section 1815) of the Banks, as of June 30, 1995, is -14- $54,866,000. The Banks identified as such on Schedule 2.02 are members in good standing of the Federal Reserve System. Except as set forth on Schedule 2.02, neither Seller nor any Seller Subsidiary holds any interest in a partnership or joint venture of any kind. 2.03. Capitalization. The authorized capital stock of Seller consists of (i) 200,000,000 shares of Seller Common Stock, of which, as of June 30, 1995, 13,461,373 shares were issued and outstanding, (ii) 200,000,000 shares of Preference Stock, without par value, of which no shares are issued and outstanding, (iii) 5,000,000 shares of Preferred Stock, par value $1.00 per share, of which no shares are issued and outstanding. As of June 30, 1995, Seller had reserved 208,630 shares of Seller Common Stock for issuance under Seller's stock option and incentive plans, a list of which is set forth on Schedule 2.03 (the "Seller Stock Plans"), pursuant to which options ("Seller Stock Options") covering 208,630 shares of Seller Common Stock and 65,000 stock appreciation rights were outstanding as of June 30, 1995. Since June 30, 1995, no Equity Securities of Seller have been issued other than shares of Seller Common Stock which may have been issued upon the exercise of Seller Employee Stock Options. 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 -15- validly issued, fully paid, and nonassessable, and have not been issued in violation of any preemptive right of any stockholder of Seller. Seller maintains no dividend reinvestment or similar plan. 2.04. Authorization. (a) Seller has the corporate power and authority to enter into this Agreement and, subject to the approval of this Agreement by the stockholders of Seller, to carry out its obligations hereunder. The only stockholder vote required for Seller to approve this Agreement is the affirmative vote of the holders of at least a majority of the votes entitled to be cast on the Agreement by the holders of shares of Seller Common Stock. The execution, delivery and performance of this Agreement by Seller and the consummation by Seller of the transactions contemplated hereby have been duly authorized by the Board of Directors of Seller. Subject to approval by the stockholders of Seller, this Agreement is a valid and binding obligation of Seller enforceable against Seller in accordance with its terms. (b) Except as set forth on Schedule 2.04B, 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 -16- an event which, with notice or lapse of time or both, would constitute a default) under, or result in the termination of, or accelerate the performance required by, or result in a right of termination or acceleration of, or result in the creation of, any Lien upon any of the material properties or assets of Seller or any Seller Subsidiary under any of the terms, conditions or provisions of (x) its articles or certificate of incorporation or bylaws or (y) any material note, bond, mortgage, indenture, deed of trust, license, lease, agreement or other instrument or obligation to which Seller or any Seller Subsidiary is a party or by which it may be bound, or to which Seller or any Seller Subsidiary or any of the material properties or assets of Seller or any Seller Subsidiary may be subject, or (ii) subject to compliance with the statutes and regulations referred to in paragraph (c) of this Section 2.04, to the best knowledge of Seller, violate any judgment, ruling, order, writ, injunction, decree, statute, rule or regulation applicable to Seller or any Seller Subsidiary or any of their respective material properties or assets. (c) Other than in connection or in compliance with the provisions of the Iowa Act, the Securities Act, the Securities Exchange Act of 1934 and the rules and regulations thereunder (the "Exchange Act"), the securities or blue sky laws of the various states or filings, consents, reviews, -17- authorizations, approvals or exemptions required under the Holding Company Act, and the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR Act"), or any required approvals of or filings with the Superintendant of the Banking Division of the Commerce Department of the State of Iowa (the "State Bank Regulator"), 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. 2.05. Seller Financial Statements. The consolidated and parent-company only balance sheets of Seller and its Subsidiaries as of December 31, 1994, 1993 and 1992 and related consolidated statements of income, cash flows and changes in stockholders' equity for each of the three years in the three-year period ended December 31, 1994, together with the notes thereto, audited by Deloitte & Touche LLP and included in an annual report on Form 10-K as filed with the SEC, and the unaudited consolidated balance sheets of Seller and its Subsidiaries as of March 31 and June 30, 1995 and the related unaudited consolidated statements of income and cash flows for the periods then ended included in quarterly reports on Form 10-Q (each a "Seller Form 10-Q") as filed with the SEC (collectively, the "Seller Financial Statements"), have been prepared in accordance with generally accepted accounting principles applied on a consistent basis ("GAAP"), -18- present fairly the consolidated financial position of Seller and its Subsidiaries at the dates and the consolidated results of operations, cash flows and changes in stockholders' equity of Seller and its Subsidiaries for the periods stated therein and are derived from the books and records of Seller and its Subsidiaries, which are complete and accurate in all material respects and have been maintained in all material respects in accordance with applicable laws and regulations. Neither Seller nor any of its Subsidiaries has any material contingent liabilities that are not described in the financial statements described above. The Seller Financial Statements are set forth on Schedule 2.05. 2.06. Seller Reports. Since January 1, 1992, each of Seller and the Seller Subsidiaries has filed all material reports, registrations and statements, together with any required material amendments thereto, that it was required to file with (i) the SEC, including, but not limited to, Forms 10-K, Forms 10-Q, Forms 8-K and proxy statements, (ii) the Board, (iii) the FDIC, (iv) the State Bank Regulator, and (v) any other federal, state, municipal, local or foreign government, securities, banking, savings and loan, insurance and other governmental or regulatory authority and the agencies and staffs thereof (the entities in the foregoing clauses (i) through (v) being referred to herein collectively as the "Regulatory Authorities" and individually as a "Regulatory -19- Authority"). All such reports and statements filed with any such Regulatory Authority are collectively referred to herein as the "Seller Reports." As of its respective date, each Seller Report complied in all material respects with all the rules and regulations promulgated by the applicable Regulatory Authority and did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. 2.07. Properties and Leases. Except as may be reflected in the Seller Financial Statements, except for any Lien for current taxes not yet delinquent and except with respect to assets classified as real estate owned, Seller and its Subsidiaries have good title free and clear of any material Lien to all the real and personal property reflected in Seller's consolidated balance sheet as of June 30, 1995 included in the most recent Seller Form 10-Q and, in each case, all real and personal property acquired since such date, except such real and personal property as has been disposed of in the ordinary course of business. All leases material to Seller or any Seller Subsidiary pursuant to which Seller or any Seller Subsidiary, as lessee, leases real or personal property, are valid and effective in accordance with their respective terms, and there is not, under any of such leases, -20- any material existing default by Seller or any Seller Subsidiary or any event which, with notice or lapse of time or both, would constitute such a material default. Substantially all of Seller's and Seller Subsidiaries' buildings, structures and equipment in regular use have been well maintained and are in good and serviceable condition, normal wear and tear excepted. 2.08. Taxes. Except as previously disclosed, Seller and each Seller Subsidiary have timely filed or will timely (including extensions) file all material tax returns required to be filed at or prior to the Closing Date ("Seller Returns"). Each of Seller and its 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 returns and has set up adequate reserves on the most recent financial statements Seller has filed under the Exchange Act for the payment of all taxes anticipated to be payable in respect of all periods up to and including the latest period covered by such financial statements. Neither Seller nor any Seller Subsidiary will have any liability material to the Condition of Seller and the Seller Subsidiaries, taken as a whole, for any such taxes in excess of the amounts so paid or reserves so established and no material deficiencies for any tax, assessment -21- or governmental charge have been proposed, asserted or assessed (tentatively or definitely) against any of Seller or any Seller Subsidiary which would not be covered by existing reserves. Neither Seller nor any Seller Subsidiary is delinquent in the payment of any material tax, assessment or governmental charge, nor, except as previously disclosed, has it requested any extension of time within which to file any tax returns in respect of any fiscal year which have not since been filed and no requests for waivers of the time to assess any tax are pending. The federal and state income tax returns of Seller and the Seller Subsidiaries have been audited and settled by the Internal Revenue Service (the "IRS") or appropriate state tax authorities for all periods ended through December 31, 1981. There is no deficiency or refund litigation or matter in controversy with respect to Seller Returns. Neither Seller nor any Seller Subsidiary has extended or waived any statute of limitations on the assessment of any tax due that is currently in effect. 2.09. Material Adverse Change. Since December 31, 1994, there has been no material adverse change in the Condition of Seller and its Subsidiaries, taken as a whole, except as may have resulted or may result from changes to laws and regulations or changes in economic conditions applicable to banking institutions generally or in general levels of interest rates affecting banking institutions generally. -22- 2.10. Commitments and Contracts. (a) Except as set forth on Schedule 2.10A, neither Seller nor any Seller Subsidiary is a party or subject to any of the following (whether written or oral, express or implied): (i) any material agreement, arrangement or commitment (A) not made in the ordinary course of business or (B) pursuant to which Seller or any of its Subsidiaries is or may become obligated to invest in or contribute capital to any Seller Subsidiary; (ii) any agreement, indenture or other instrument not disclosed in the Seller Financial Statements relating to the borrowing of money by Seller or any Seller Subsidiary or the guarantee by Seller or any Seller Subsidiary of any such obligation (other than trade payables or instruments related to transactions entered into in the ordinary course of business by any Seller Subsidiary, such as deposits and Fed Funds borrowings); (iii) any contract, agreement or understanding with any labor union or collective bargaining organization; -23- (iv) any contract containing covenants which limit the ability of Seller or any Seller Subsidiary to compete in any line of business or with any person or which involve any restriction of the geographical area in which, or method by which, Seller or any Seller Subsidiary may carry on its business (other than as may be required by law or any applicable Regulatory Authority); (v) any other contract or agreement which is a "material contract" within the meaning of Item 601(b)(10) of Regulation S-K promulgated by the SEC; or (vi) any lease with annual rental payments aggregating $250,000 or more. (b) Neither Seller nor any Seller Subsidiary is in violation of its charter documents or bylaws or in default under any material agreement, commitment, arrangement, lease, insurance policy, or other instrument, whether entered into in the ordinary course of business or otherwise and whether written or oral, and there has not occurred any event that, with the lapse of time or giving of notice or both, would constitute such a default, except, in all cases, where such default would not have a material adverse effect on the Condition of Seller and its Subsidiaries, taken as a whole. -24- 2.11. Litigation and Other Proceedings. Except as set forth on Schedule 2.11, neither Seller nor any Seller Subsidiary is a party to any pending or, to the best knowledge of Seller, threatened claim, action, suit, investigation or proceeding, or is subject to any order, judgment or decree, except for matters which, in the aggregate, will not have, or reasonably could not be expected to have, a material adverse effect on the Condition of Seller and its Subsidiaries, taken as a whole, or which purports or seeks to enjoin or restrain the transactions contemplated by this Agreement. Without limiting the generality of the foregoing, there are no actions, suits, or proceedings pending or, to the best knowledge of Seller, threatened against Seller or any Seller Subsidiary or any of their respective officers or directors by any stockholder of Seller or any Seller Subsidiary (or any former stockholder of Seller or any Seller Subsidiary) or involving claims under the Securities Act, the Exchange Act, the Community Reinvestment Act of 1977, as amended, or the fair lending laws. 2.12. Insurance. Set forth on Schedule 2.12 is a list of all insurance policies maintained by or for the benefit of Seller or its Subsidiaries or their directors, officers, employees or agents. -25- 2.13. Compliance with Laws. (a) Seller and each of its Subsidiaries have all permits, licenses, authorizations, orders and approvals of, and have made all filings, applications and registrations with, all Regulatory Authorities that are required in order to permit them to own or lease their properties and assets and to carry on their business as presently conducted and that are material to the business of Seller and its Subsidiaries; 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. (b) Except for failures to comply or defaults which individually or in the aggregate would not have a material adverse effect on the Condition of Seller and its Subsidiaries, taken as a whole, (i) each of Seller and its Subsidiaries has complied with all laws, regulations and orders (including without limitation zoning ordinances, building codes, the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and securities, tax, environmental, civil rights, and occupational health and safety laws and regulations and including without limitation in the case of any Seller Subsidiary that is a bank or savings association, banking organization, banking corporation or trust -26- company, all statutes, rules, regulations and policy statements pertaining to the conduct of a banking, deposit- taking, lending or related business, or to the exercise of trust powers) and governing instruments applicable to them and to the conduct of their business, and (ii) neither Seller nor any Seller Subsidiary is in default under, and no event has occurred which, with the lapse of time or notice or both, could result in the default under, the terms of any judgment, order, writ, decree, permit, or license of any Regulatory Authority or court, whether federal, state, municipal, or local and whether at law or in equity. Except for liabilities which individually or in the aggregate would not have a material adverse effect on the Condition of Seller and its Subsidiaries, taken as a whole, neither Seller nor any Seller Subsidiary is subject to or reasonably likely to incur a liability as a result of its ownership, operation, or use of any Property (as defined below) of Seller (whether directly or, to the best knowledge of Seller, as a consequence of such Property being part of the investment portfolio of Seller or any Seller Subsidiary) (A) that is contaminated by or contains any hazardous waste, toxic substance, or related materials, including without limitation asbestos, PCBs, pesticides, herbicides, and any other substance or waste that is hazardous to human health or the environment (collectively, a "Toxic Substance"), or (B) on which any Toxic Substance has -27- been stored, disposed of, placed, or used in the construction thereof. "Property" of a person shall include all property (real or personal, tangible or intangible) owned or controlled by such person, including without limitation property under foreclosure, property held by such person or any Subsidiary of such person in its capacity as a trustee and property in which any venture capital or similar unit of such person or any Subsidiary of such person has an interest. No claim, action, suit, or proceeding is pending against Seller or any Seller Subsidiary relating to Property of Seller before any court or other Regulatory Authority or arbitration tribunal relating to hazardous substances, pollution, or the environment, and there is no outstanding judgment, order, writ, injunction, decree, or award against or affecting Seller or any Seller Subsidiary with respect to the same. Except for statutory or regulatory restrictions of general application, no Regulatory Authority has placed any restriction on the business of Seller or any Seller Subsidiary which reasonably could be expected to have a material adverse effect on the Condition of Seller and its Subsidiaries, taken as a whole. (c) From and after January 1, 1992, neither Seller nor any Seller Subsidiary has received any notification or communication which has not been resolved from any Regulatory Authority (i) asserting that any Seller or any Subsidiary of -28- Seller, is not in substantial compliance with any of the statutes, regulations or ordinances that such Regulatory Authority enforces, except with respect to matters which (A) are set forth on Schedule 2.13(c) or in any writing previously furnished to Buyer or (B) reasonably could not be expected to have a material adverse effect on the Condition of Seller and its Subsidiaries, taken as a whole, (ii) threatening to revoke any license, franchise, permit or governmental authorization that is material to the Condition of Seller and its Subsidiaries, taken as a whole, including without limitation such company's status as an insured depositary institution under the Federal Deposit Insurance Act, or (iii) requiring or threatening to require Seller or any of its Subsidiaries, or indicating that Seller or any of its Subsidiaries may be required, to enter into a cease and desist order, agreement or memorandum of understanding or any other agreement restricting or limiting or purporting to direct, restrict or limit in any manner the operations of Seller or any of its Subsidiaries, including without limitation any restriction on the payment of dividends. No such cease and desist order, agreement or memorandum of understanding or other agreement is currently in effect. (d) Neither Seller nor any Seller Subsidiary is required by Section 32 of the Federal Deposit Insurance Act to give prior notice to any federal banking agency of the proposed addition of an individual to its board of directors -29- or the employment of an individual as a senior executive officer. 2.14. Labor. No work stoppage involving Seller or any Seller Subsidiary, is pending or, to the best knowledge of Seller, threatened. Neither Seller nor any Seller Subsidiary is involved in, or, to the best knowledge of Seller, threatened with or affected by, any labor dispute, arbitration, lawsuit or administrative proceeding which reasonably could be expected to have a material adverse affect on the Condition of Seller and its Subsidiaries, taken as a whole. Employees of neither Seller nor any Seller Subsidiary, are represented by any labor union or any collective bargaining organization. 2.15. Material Interests of Certain Persons. (a) Except as set forth in Seller's Proxy Statement for its 1995 Annual Meeting of Stockholders, to the best knowledge of Seller, no officer or director of Seller or any Subsidiary of Seller, or any "associate" (as such term is defined in Rule l4a-1 under the Exchange Act) of any such officer or director, has any material interest in any material contract or property (real or personal, tangible or intangible), used in, or pertaining to the business of, Seller or any Subsidiary of Seller, which in the case of Seller is required to be disclosed by Item 404 of Regulation S-K promulgated by the SEC or in the case of any such Subsidiary would be required to be -30- so disclosed if such Subsidiary had a class of securities registered under Section 12 of the Exchange Act. (b) Except as set forth in Seller's Proxy Statement for its 1995 Annual Meeting of Stockholders or on Schedule 2.15B, as of June 30, 1995, there are no loans from Seller or any Seller Subsidiary to any present officer, director, employee or any associate or related interest of any such person which was or would be required under any rule or regulation to be approved by or reported to Seller's or Seller Subsidiary's Board of Directors ("Insider Loans"), and no Insider Loans in excess of $500,000 have been made since June 30, 1995. All outstanding Insider Loans from Seller or any Seller Subsidiary were approved by or reported to the appropriate board of directors in accordance with applicable law and regulations. 2.16. Allowance for Loan and Lease Losses; Nonperforming Assets. (a) The allowances for loan and lease losses contained in the Seller Financial Statements were established in accordance with the past practices and experiences of Seller and its Subsidiaries, and the allowance for loan losses shown on the consolidated condensed balance sheet of Seller and its Subsidiaries contained in the most recent Seller Form 10-Q is adequate in all material respects under the requirements of GAAP to provide for possible losses on -31- loans (including without limitation accrued interest receivable) and credit commitments (including without limitation stand-by letters of credit) outstanding as of the date of such balance sheet. (b) The aggregate amount of all Nonperforming Assets (as defined below) on the books of Seller and its Subsidiaries does not exceed $5,498,000. "Nonperforming Assets" shall mean (i) all loans and leases (A) that are contractually past due 90 days or more in the payment of principal and/or interest, (B) that are on nonaccrual status, (C) where 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, (D) that have been classified "doubtful", "loss" or the equivalent thereof by any Regulatory Authority, and (ii) all assets classified as real estate acquired through foreclosure or repossession and other assets acquired through foreclosure or repossession. 2.17. Employee Benefit Plans. (a) Except as set forth in Schedule 2.17A, neither Seller nor any Seller Subsidiary is a party to any existing employment, management, consulting, deferred compensation, change-in-control or other similar contract. "Seller Employee Plans" means all pension, -32- retirement, supplemental retirement, savings, profit sharing, stock option, stock purchase, stock ownership, stock appreciation right, deferred compensation, consulting, bonus, medical, disability, workers' compensation, vacation, group insurance, severance and other material employee benefit, incentive and welfare policies, contracts, plans and arrangements, and all trust agreements related thereto, maintained (currently or at any time in the last five years) by or contributed to by Seller or any Seller Subsidiary in respect of any of the present or former directors, officers, or other employees of and/or consultants to Seller or any Seller Subsidiary. Schedule 2.17A lists all Seller Employee Plans currently in effect. Seller has furnished Buyer 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 recent Form 5500 or Form 5500-C (including all schedules thereto), if applicable; (iii) the most recent financial statements and actuarial reports, if any; (iv) the summary plan description currently in effect and all material modifications thereof, if any; and (v) the most recent Internal Revenue Service determination letter, if any. Without limiting the generality -33- of the foregoing, Seller has furnished Buyer with true and complete copies of each form of stock option grant or stock option agreement that is outstanding under any stock option plan of Seller or any Seller Subsidiary. (b) Except as set forth in Schedule 2.17A, all Seller Employee Plans have been maintained and operated materially in accordance with their terms and with the material requirements of all applicable statutes, orders, rules and final regulations, including without limitation ERISA and the Internal Revenue Code. All contributions required to be made to Seller Employee Plans have been made. (c) With respect to each of the Seller Employee Plans which is a pension plan (as defined in Section 3(2) of ERISA) (the "Pension Plans"): (i) each Pension Plan which is intended to be "qualified" within the meaning of Section 401(a) of the Internal Revenue Code has been determined to be so qualified by the Internal Revenue Service and, to the knowledge of Seller, such determination letter may still be relied upon, and each related trust is exempt from taxation under Section 501(a) of the Internal Revenue Code; (ii) the present value of all benefits vested and all benefits accrued under each Pension Plan which is subject to Title IV of -34- ERISA, valued using the assumptions in the most recent actuarial report, did not, in each case, as of the last applicable annual valuation date (as indicated on Schedule 2.17A), exceed the value of the assets of the Pension Plan allocable to such vested or accrued benefits; (iii) to the best knowledge of Seller, there has been no "prohibited transaction," as such term is defined in Section 4975 of the Internal Revenue Code or Section 406 of ERISA, which could subject any Pension Plan or associated trust, or the Seller or any Seller Subsidiary, to any material tax or penalty; (iv) except as set forth on Schedule 2.17C, no Pension Plan subject to Title IV of ERISA or any trust created thereunder has been terminated, nor have there been any "reportable events" with respect to any Pension Plan, as that term is defined in Section 4043 of ERISA on or after January 1, 1985; and (v) no Pension Plan or any trust created thereunder has incurred any "accumulated funding deficiency", as such term is defined in Section 302 of ERISA (whether or not waived). No Pension Plan is a "multiemployer plan" as that term is defined in Section 3(37) of ERISA. With respect to each Pension Plan that is described in Section 4063(a) of ERISA (a "Multiple Employer Pension Plan"): (i) neither Seller nor any Seller Subsidiary would have any liability or obligation to post a bond under Section 4063 of ERISA if Seller and all -35- Seller Subsidiaries were to withdraw from such Multiple Employer Pension Plan; and (ii) neither Seller nor any Seller Subsidiary would have any liability under Section 4064 of ERISA if such Multiple Employer Pension Plan were to terminate. (d) Except as set forth on Schedule 2.17D, neither Seller nor any Seller Subsidiary has any liability for any post-retirement health, medical or similar benefit of any kind whatsoever, except as required by statute or regulation. (e) Neither Seller nor any Seller Subsidiary has any material liability under ERISA or the Internal Revenue Code as a result of its being a member of a group described in Sections 414(b), (c), (m) or (o) of the Internal Revenue Code. (f) Except as set forth on Schedule 2.17F, neither the execution nor delivery of this Agreement, nor the consummation of any of the transactions contemplated hereby, will (i) result in any material payment (including without limitation severance, unemployment compensation or golden parachute payment) becoming due to any director or employee of Seller or any Seller Subsidiary from any of such entities, (ii) materially 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. No -36- holder of an option to acquire stock of Seller has or will have at any time through the Effective Time the right to receive any cash or other payment (other than the issuance of stock of Seller) in exchange for or with respect to all or any portion of such option. Seller shall use its best efforts to insure that no amounts paid or payable by Seller, Seller Subsidiaries or Buyer to or with respect to any employee or former employee of Seller or any Seller Subsidiary will fail to be deductible for federal income tax purposes by reason of Section 280G of the Internal Revenue Code. No Seller Employee Stock Option has an associated "Additional Option Right" or similar "re-load" feature. 2.18. Conduct of Seller to Date. From and after January 1, 1995 through the date of this Agreement, except as set forth on Schedule 2.18 or in Seller Financial Statements: (i) Seller and the Seller Subsidiaries have conducted their respective businesses in the ordinary and usual course consistent with past practices; (ii) Seller has not issued, sold, granted, conferred or awarded any of its Equity Securities (except shares of Seller Common Stock upon exercise of Seller Employee Stock Options), or any corporate debt securities which would be classified under GAAP as long- term debt on the balance sheets of Seller; (iii) Seller has not effected any stock split or adjusted, combined, reclassified or otherwise changed its capitalization; (iv) Seller has not -37- declared, set aside or paid any dividend (other than its regular quarterly or regular semi-annual common 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 Seller Subsidiary has incurred any material obligation or liability (absolute or contingent), except normal trade or business obligations or liabilities incurred in the ordinary course of business, or subjected to Lien any of its assets or properties other than in the ordinary course of business consistent with past practice; (vi) neither Seller nor any Seller Subsidiary has discharged or satisfied any material Lien or paid any material obligation or liability (absolute or contingent), other than in the ordinary course of business; (vii) neither Seller nor any Seller Subsidiary 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 Seller Subsidiary has (A) increased the rate of compensation of, or paid any bonus to, any of its directors, officers, or other employees, except merit or promotion increases in accordance with existing policy, (B) entered into -38- 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 Seller Subsidiary has cancelled or compromised any debt, except for debts charged off or compromised in accordance with the past practice of Seller and its Subsidiaries, and (xi) neither Seller nor any Seller Subsidiary has entered into any material transaction, contract or commitment outside the ordinary course of its business. 2.19. Proxy Statement, etc. None of the information regarding Seller or any Seller Subsidiary supplied or 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 Buyer for the purpose of registering the shares of Buyer Common Stock to be exchanged for shares of Seller Common Stock pursuant to the provisions of this Agreement (the -39- "Registration Statement"), (ii) the proxy or information statement (the "Proxy Statement") to be mailed to Seller's stockholders in connection with the transactions contemplated by this Agreement or (iii) any other documents to be filed with any Regulatory Authority in connection with the transactions contemplated hereby will, at the respective times such documents are filed with any Regulatory Authority and, in the case of the Registration Statement, when it becomes effective and, with respect to the Proxy Statement, when mailed, be false or misleading with respect to any material fact, or omit to state any material fact necessary in order to make the statements therein not misleading or, in the case of the Proxy Statement or any amendment thereof or supplement thereto, at the time of the meeting of Seller's stockholders referred to in Section 5.03 (the "Meeting") (or, if no Meeting is held, at the time the Proxy Statement is first furnished to Seller's stockholders), be false or misleading with respect to any material fact, or omit to state any material fact necessary to correct any statement in any earlier communication with respect to the solicitation of any proxy for the Meeting. All documents which Seller or any Seller Subsidiary is responsible for filing with any Regulatory Authority in connection with the Merger will comply as to form in all material respects with the provisions of applicable law. -40- 2.20. Registration Obligations. Except as set forth on Schedule 2.20, neither Seller nor any Seller Subsidiary is under any obligation, contingent or otherwise to register any of its securities under the Securities Act. 2.21. State Takeover Statutes. The transactions contemplated by this Agreement are not subject to any applicable state takeover law under the laws of the State of Iowa. 2.22. Accounting, Tax and Regulatory Matters. Neither Seller nor any Seller Subsidiary has taken or agreed to take any action or has any knowledge of any fact or circumstance that would (i) prevent the transactions contemplated hereby from qualifying (A) for pooling-of- interests accounting treatment or (B) as a reorganization within the meaning of Section 368 of the Internal Revenue Code or (ii) materially impede or delay receipt of any approval referred to in Section 6.01(b) or the consummation of the transactions contemplated by this Agreement. 2.23. Brokers and Finders. Except for Donaldson, Lufkin & Jenrette Securities Corporation, neither Seller nor any Seller Subsidiary nor any of their respective officers, directors or employees has employed any broker or finder or incurred any liability for any financial advisory fees, brokerage fees, commissions or finder's fees, and no broker or -41- finder has acted directly or indirectly for Seller or any Seller Subsidiary in connection with this Agreement or the transactions contemplated hereby. Schedule 2.23 discloses a bona fide estimate of the aggregate amount of all fees and expenses expected to be paid by Seller to all attorneys, accountants or investment bankers in connection with the Merger ("Merger Fees"). 2.24. Other Activities. (a) Except as set forth on Schedule 2.24A, neither Seller nor any of its Subsidiaries engages in any insurance activities other than acting as a principal, agent or broker for insurance that is directly related to an extension of credit by Seller or any of its Subsidiaries and limited to assuring the repayment of the balance due on the extension of credit in the event of the death, disability or involuntary unemployment of the debtor. (b) Except as set forth on Schedule 2.24B, to the knowledge of Seller's management: each Subsidiary that is a bank that performs personal trust, corporate trust and other fiduciary activities ("Trust Activities") has done so with requisite authority under applicable law of Regulatory Authorities and in material accordance with the agreements and instruments governing such Trust Activities, sound fiduciary principles and applicable law and regulation (specifically including but not limited to Section 9 of Title 12 of the -42- Code of Federal Regulations); there is no investigation or inquiry by any governmental entity pending or threatened against Seller or any of its Subsidiaries thereof relating to the compliance by Seller or any of its Subsidiaries with sound fiduciary principles and applicable law and regulations; and each employee of any such bank had the authority to act in the capacity in which such employee acted with respect to Trust Activities in each case in which such employee was held out as a representative of such bank; and such bank has established policies and procedures for the purpose of complying with applicable laws of governmental entities relating to Trust Activities, has followed such policies and procedures in all material respects and has performed appropriate internal audit reviews of Trust Activities, which audits have disclosed no material violations of applicable laws of governmental entities or such policies and procedures. 2.25. Interest Rate Risk Management Instruments. (a) Set forth on Schedule 2.25A is a list of all interest rate swaps, caps, floors, and option agreements and other interest rate risk management arrangements to which Seller or any of its Subsidiaries is a party or by which any of their properties or assets may be bound. -43- (b) All interest rate swaps, caps, floors and option agreements and other interest rate risk management arrangements to which Seller or any of its Subsidiaries is a party or by which any of their properties or assets may be bound were entered into in the ordinary course of business and in accordance with prudent banking practice and applicable rules, regulations and policies of Regulatory Authorities and with counterparties believed to be financially responsible at the time and are legal, valid and binding obligations and are in full force and effect. Seller and each of its Subsidiaries has duly performed in all material respects all of its obligations thereunder to the extent that such obligations to perform have accrued, and there are no material breaches, violations or defaults or allegations or assertions of such by any party thereunder. 2.26. Accuracy of Information. The statements of Seller 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 in all material respects, and such statements and documents do not omit any material fact necessary to make the statements contained therein not misleading. -44- ARTICLE III REPRESENTATIONS, WARRANTIES AND COVENANTS OF BUYER Buyer represents, and warrants to and covenants with Seller as follows: 3.01. Organization and Authority. Buyer and each of its Subsidiaries is a corporation, bank, trust company or other entity duly organized, validly existing and in good standing under the laws of the jurisdiction of organization, is duly qualified to do business and is in good standing in all jurisdictions where its ownership or leasing of property or the conduct of its business requires it to be so qualified and has corporate power and authority to own its properties and assets and to carry on its business as it is now being conducted, except, in the case of the Buyer Subsidiaries, where the failure to be so qualified would not have a material adverse effect on the Condition of Buyer and its Subsidiaries, taken as a whole. Buyer is registered as a bank holding company with the Board under the Holding Company Act. True and complete copies of the Articles of Incorporation and Bylaws of Buyer, each in effect on the date of this Agreement, have been provided to Seller. 3.02. Capitalization of Buyer. The authorized capital stock of Buyer consists of (i) 100,000,000 shares of Buyer Common Stock, of which, as of July 31, 1995, 54,423,205 -45- shares were issued and outstanding and (ii) 5,000,000 shares of preferred stock, no par value ("Buyer Preferred Stock"), issuable in series, of which 5,306 shares of Series B-1 Preferred Stock and 9,500 shares of Series B-2 Preferred Stock are issued or outstanding. Buyer has designated 1,000,000 shares of Buyer Preferred Stock as "Series A Junior Participating Preferred Stock" and has reserved such shares under a Rights Agreement dated May 23, 1988 (the "Buyer Rights Agreement"), between Buyer and Mercantile Bank of St. Louis National Association, as Rights Agent. As of July 31, 1995 Buyer had reserved (i) 4,515,373 shares of Buyer Common Stock for issuance under various stock option and incentive plans ("Buyer Stock Options"), (ii) 322,000 shares of Buyer Common Stock for issuance upon the acquisition of Security Bank of Conway, FSB ("Conway") pursuant to an Agreement and Plan of Reorganization dated July 7, 1995, (iii) 675,000 shares of Buyer Common Stock for issuance upon the acquisition of Southwest Bancshares, Inc. ("Southwest") pursuant to an Agreement and Plan of Merger dated January 27, 1995, (iv) 661,385 shares of Buyer Common Stock for issuance upon the acquisition of AmeriFirst Bancorporation Inc. ("AmeriFirst") pursuant to an Agreement and Plan of Merger dated February 16, 1995, and (v) 521,424 shares of Buyer Common Stock for issuance upon the acquisition of First Sterling Bancorp, Inc. ("Sterling") pursuant to an Agreement and Plan of Merger -46- dated July 24, 1995. From July 31, 1995 through the date of this Agreement, no shares of Buyer Common Stock or other Equity Securities of Buyer have been issued excluding any such shares which may have been issued pursuant to stock- based employee benefit or incentive plans and programs, or pursuant to the foregoing agreements. Buyer 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, Buyer may, depending on market conditions and other factors, otherwise determine to issue equity, equity-linked or other securities for financing purposes. Notwithstanding the foregoing, Buyer will not take any action that would (i) prevent the transactions contemplated hereby from qualifying (A) for pooling-of-interests accounting treatment or (B) as a reorganization within the meaning of Section 368 of the Internal Revenue Code or (ii) materially impede or delay receipt of any approval referred to in Section 6.01(b) or the consummation of the transactions contemplated by this Agreement. Except as set forth above and except for securities to be issued in connection with Buyer's -47- pending acquisitions of Conway and Sterling and except pursuant to the Buyer Rights Agreement, there are no other Equity Securities of Buyer outstanding. All of the issued and outstanding shares of Buyer Common Stock are validly issued, fully paid, and nonassessable, and have not been issued in violation of any preemptive right of any stockholder of Buyer. At the Effective Time, the Buyer Common Stock to be issued in the Merger will be duly authorized, validly issued, fully paid and non-assessable, and will not be issued in violation of any preemptive right of any stockholder of Buyer. 3.03. Authorization. (a) Buyer has the corporate power and authority to enter into this Agreement and to carry out its obligations hereunder. No stockholder vote is required for Buyer to approve this Agreement. The execution, delivery and performance of this Agreement by Buyer and the consummation by Buyer of the transactions contemplated hereby have been duly authorized by all requisite corporate action of Buyer. This Agreement is a valid and binding obligation of Buyer enforceable against Buyer in accordance with its terms. (b) Neither the execution, delivery and performance by Buyer of this Agreement, nor the consummation by Buyer of the transactions contemplated hereby, nor compliance -48- by Buyer with any of the provisions hereof, will (i) violate, conflict with or result in a breach of any provisions of, or constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) or result in the termination of, or accelerate the performance required by, or result in a right of termination or acceleration of, or result in the creation of, any Lien upon any of the material properties or assets of Buyer or any Buyer Subsidiary under any of the terms, conditions or provisions of (x) its articles or certificate of incorporation or bylaws, or (y) any material note, bond, mortgage, indenture, deed of trust, license, lease, agreement or other instrument or obligation to which Buyer or any of the material properties or assets of Buyer is a party or by which it may be bound, or to which Buyer may be subject, or (ii) subject to compliance with the statutes and regulations referred to in paragraph (c) of this Section 3.03, to the best knowledge of Buyer, violate any judgment, ruling, order, writ, injunction, decree, statute, rule or regulation applicable to Buyer or any of its Subsidiaries or any of their respective material properties or assets. (c) Other than in connection with or in compliance with the provisions of The General and Business Corporation Law of Missouri (the "Missouri Act"), the Iowa Act, the Securities Act, the Exchange Act, the securities or blue sky -49- laws of the various states or filings, consents, reviews, authorizations, approvals or exemptions required under the Holding Company Act, and the HSR Act, or any required approvals of 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 Buyer of the transactions contemplated by this Agreement. 3.04. Buyer Financial Statements. The supplemental consolidated and parent company only balance sheets of Buyer and its Subsidiaries as of December 31, 1994, 1993 and 1992 and related supplemental consolidated and parent company only statements of income, cash flows and changes in stockholders' equity for each of the three years in the three-year period ended December 31, 1994, together with the notes thereto, audited by KPMG Peat Marwick ("Buyer Auditors") and included in Buyer's current report on Form 8-K dated May 31, 1995 as filed with the SEC, and the unaudited consolidated balance sheets of Buyer and its Subsidiaries as of March 31 and June 30, 1995 and the related unaudited consolidated statements of income and cash flows for the periods then ended included in quarterly reports on Form 10-Q as filed with the SEC (collectively, the "Buyer Financial Statements"), have been prepared in accordance with GAAP, present fairly the consolidated financial position of Buyer and its -50- Subsidiaries at the dates and the consolidated results of operations, changes in stockholders' equity and cash flows of Buyer and its Subsidiaries for the periods stated therein and are derived from the books and records of Buyer and its Subsidiaries, which are complete and accurate in all material respects and have been maintained in all material respects in accordance with applicable laws and regulations. Neither Buyer nor any of its Subsidiaries has any material contingent liabilities that are not described in the financial statements described above. 3.05. Buyer Reports. Since January 1, 1992, each of Buyer and the Buyer Subsidiaries has filed all material reports, registrations and statements, together with any required material amendments thereto, that it was required to file with any Regulatory Authority. All such reports and statements filed with any such Regulatory Authority are collectively referred to herein as the "Buyer Reports." As of its respective date, each Buyer 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. -51- 3.06. Material Adverse Change. Since December 31, 1994, there has been no material adverse change in the Condition of Buyer and its Subsidiaries, taken as a whole, except as may have resulted or may result from changes to laws and regulations or changes in economic conditions applicable to banking institutions generally or in general levels of interest rates affecting banking institutions generally. 3.07. Compliance with Laws. (a) Each of Buyer and its Subsidiaries has complied with all laws, regulations, and orders (including without limitation zoning ordinances, building codes, ERISA, and securities, tax, environmental, civil rights, and occupational health and safety laws and regulations and including without limitation in the case of any Buyer Subsidiary that is a bank, banking organization, thrift, banking corporation or trust company, all statutes, rules and regulations, pertaining to the conduct of a banking, deposit-taking or lending or related business or to the exercise of trust powers) and governing instruments applicable to them and to the conduct of their business, except where such failure to comply would not have a material adverse effect on the Condition of Buyer and its Subsidiaries, taken as a whole, and (ii) neither Buyer nor any Buyer Subsidiary is in default under, and no event has occurred which, with the lapse of time or notice or both, could result in the -52- default under, the terms of any judgment, order, writ, decree, permit, or license of any Regulatory Authority or court, whether federal, state, municipal, or local and whether at law or in equity, except where such default would not have a material adverse effect on the Condition of Buyer and its Subsidiaries, taken as a whole. Neither Buyer nor any Buyer Subsidiary is subject to or reasonably likely to incur a liability as a result of its ownership, operation, or use of any Property of Buyer (whether directly or, to the best knowledge of Buyer, as a consequence of such Property being part of the investment portfolio of Buyer or any Buyer Subsidiary) (A) that is contaminated by or contains any Toxic Substance, or (B) on which any Toxic Substance has been stored, disposed of, placed, or used in the construction thereof; and which, in each case, reasonably could be expected to have a material adverse effect on the Condition of Buyer and its Subsidiaries, taken as a whole. Except for statutory or regulatory restrictions of general application, no Regulatory Authority has placed any restriction on the business of Buyer or any Buyer Subsidiary which reasonably could be expected to have a material adverse effect on the Condition of Buyer and its Subsidiaries, taken as a whole. No claim, action, suit, or proceeding is pending against Buyer or any Buyer Subsidiary relating to Property of Buyer before any court or other Regulatory Authority or arbitration -53- tribunal relating to hazardous substances, pollution, or the environment, and there is no outstanding judgment, order, writ, injunction, decree, or award against or affecting Buyer or any Buyer Subsidiary with respect to the same. (b) Buyer and each of its Subsidiaries have all permits, licenses, authorizations, orders and approvals of, and have made all filings, applications and registrations with, all Regulatory Authorities that are required in order to permit them to own or lease their properties and assets and to carry on their business as presently conducted and that are material to the business of Buyer and its Subsidiaries; all such permits, licenses, certificates of authority, orders and approvals are in full force and effect and, to the best knowledge of Buyer, no suspension or cancellation of any of them is threatened; and all such filings, applications and registrations are current. (c) From and after January 1, 1992, neither Buyer nor any Buyer Subsidiary has received any notification or communication which has not been resolved from any Regulatory Authority (i) asserting that any Buyer or any Subsidiary of Buyer, is not in substantial compliance with any of the statutes, regulations or ordinances that such Regulatory Authority enforces, except with respect to matters which (A) are set forth on Schedule 3.07 or in any writing previously -54- furnished to Buyer or (B) reasonably could not be expected to have a material adverse effect on the Condition of Buyer and its Subsidiaries, taken as a whole, (ii) threatening to revoke any license, franchise, permit or governmental authorization that is material to the Condition of Buyer and its Subsidiaries, taken as a whole, including without limitation such company's status as an insured depositary institution under the Federal Deposit Insurance Act, or (iii) requiring or threatening to require Buyer or any of its Subsidiaries, or indicating that Buyer or any of its Subsidiaries may be required, to enter into a cease and desist order, agreement or memorandum of understanding or any other agreement restricting or limiting or purporting to direct, restrict or limit in any manner the operations of Buyer or any of its Subsidiaries, including without limitation any restriction on the payment of dividends. No such cease and desist order, agreement or memorandum of understanding or other agreement is currently in effect. 3.08. Registration Statement, etc. None of the information regarding Buyer or any of its Subsidiaries supplied or to be supplied by Buyer 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 -55- the respective times such documents are filed with any Regulatory Authority and, in the case of the Registration Statement, when it becomes effective and, with respect to the Proxy Statement, when mailed (or furnished to stockholders of Seller), be false or misleading with respect to any material fact, or omit to state any material fact necessary in order to make the statements therein not misleading or, in the case of the Proxy Statement or any amendment thereof or supplement thereto, at the time of the Meeting, be false or misleading with respect to any material fact, or omit to state any material fact necessary to correct any statement in any earlier communication with respect to the solicitation of any proxy for the Meeting. All documents which Buyer or any of its Subsidiaries are responsible for filing with any Regulatory Authority in connection with the Merger will comply as to form in all material respects with the provisions of applicable law. 3.09. Brokers and Finders. Neither Buyer nor any of its Subsidiaries nor any of their respective officers, directors or employees has employed any broker or finder or incurred any liability for any financial advisory fees, brokerage fees, commissions or finder's fees, and no broker or finder has acted directly or indirectly for Buyer or any of its Subsidiaries in connection with this Agreement or the transactions contemplated hereby. -56- 3.10. Commitments and Contracts. Neither Buyer nor any Buyer Subsidiary is in violation of its charter documents or bylaws or in default under any material agreement, commitment, arrangement, lease, insurance policy, or other instrument, whether entered into in the ordinary course of business or otherwise and whether written or oral, and there has not occurred any event that, with the lapse of time or giving of notice or both, would constitute such a default, except, in all cases, where such default would not have a material adverse effect on the Condition of Buyer and its Subsidiaries, taken as a whole. 3.11. Litigation and Other Proceedings. Neither Buyer nor any Buyer Subsidiary is a party to any pending or, to the best knowledge of Buyer, threatened claim, action, suit, investigation or proceeding, or is subject to any order, judgment or decree, except for matters which, in the aggregate, will not have, or reasonably could not be expected to have, a material adverse effect on the Condition of Buyer and its Subsidiaries, taken as a whole, or which purports or seeks to enjoin or restrain the transactions contemplated by this Agreement. Without limiting the generality of the foregoing, there are no actions, suits, or proceedings pending or, to the best knowledge of Buyer, threatened against Buyer or any Buyer Subsidiary or any of their respective officers or directors by any stockholder of Buyer -57- or any Buyer Subsidiary (or any former stockholder of Buyer or any Buyer Subsidiary) or involving claims under the Securities Act, the Exchange Act, the Community Reinvestment Act of 1977, as amended, or the fair lending laws. 3.12. Interest Rate Risk Management Instruments. All interest rate swaps, caps, floors and option agreements and other interest rate risk management arrangements to which Buyer or any of its Subsidiaries is a party or by which any of their properties or assets may be bound were entered into in the ordinary course of business and in accordance with prudent banking practice and applicable rules, regulations and policies of Regulatory Authorities and with counterparties believed to be financially responsible at the time and are legal, valid and binding obligations and are in full force and effect. Buyer and each of its Subsidiaries has duly performed in all material respects all of its obligations thereunder to the extent that such obligations to perform have accrued, and there are no material breaches, violations or defaults or allegations or assertions of such by any party thereunder. 3.13. Taxes. Buyer and each Buyer Subsidiary have timely filed or will timely (including extensions) file all material tax returns required to be filed at or prior to the -58- Closing Date ("Buyer Returns"). Each of Buyer and its Subsidiaries has paid, or set up adequate reserves on the Buyer Financial Statements for the payment of, all taxes required to be paid in respect of the periods covered by such returns and has set up adequate reserves on the most recent financial statements Buyer has filed under the Exchange Act for the payment of all taxes anticipated to be payable in respect of all periods up to and including the latest period covered by such financial statements. Neither Buyer nor any Buyer Subsidiary will have any liability material to the Condition of Buyer and the Buyer Subsidiaries, taken as a whole, for any such taxes in excess of the amounts so paid or reserves so established and no material deficiencies for any tax, assessment or governmental charge have been proposed, asserted or assessed (tentatively or definitely) against any of Buyer or any Buyer Subsidiary which would not be covered by existing reserves. Neither Buyer nor any Buyer Subsidiary is delinquent in the payment of any material tax, assessment or governmental charge, nor, except as previously disclosed, has it requested any extension of time within which to file any tax returns in respect of any fiscal year which have not since been filed and no requests for waivers of the time to assess any tax are pending. The federal and state income tax returns of Buyer and the Buyer Subsidiaries have been audited and settled by the Internal Revenue Service -59- (the "IRS") or appropriate state tax authorities for all periods ended through December 31, 1988. There is no deficiency or material refund litigation or matter in controversy with respect to Buyer Returns. Neither Buyer nor any Buyer Subsidiary has extended or waived any statute of limitations on the assessment of any tax due that is currently in effect. 3.14. Accounting, Tax and Regulatory Matters. Neither Buyer nor any Buyer Subsidiary has taken or agreed to take any action or has any knowledge of any fact or circumstance that would (i) prevent the transactions contemplated hereby from qualifying (A) for pooling-of- interests accounting treatment or (B) as a reorganization within the meaning of Section 368 of the Internal Revenue Code or (ii) materially impede or delay receipt of any approval referred to in Section 6.01(b) or the consummation of the transactions contemplated by this Agreement. 3.15. Accuracy of Information. The statements of Buyer contained in this Agreement, the Schedules and in any other written document executed and delivered by or on behalf of Buyer pursuant to the terms of this Agreement are true and correct in all material respects, and such statements and documents do not omit any material fact necessary to make the statements contained herein or therein not misleading. -60- ARTICLE IV CONDUCT OF BUSINESSES PRIOR TO THE EFFECTIVE TIME 4.01. Conduct of Businesses Prior to the Effective Time. During the period from the date of this Agreement to the Effective Time, each of Buyer and Seller shall, and shall cause each of their respective Subsidiaries to, conduct its business according to the ordinary and usual course consistent with past practices and shall, and shall cause each such Subsidiary to, use its best efforts to maintain and preserve its business organization, employees and advantageous business relationships and retain the services of its officers and key employees. 4.02. Forbearances. Except as set forth on Schedule 4.02 or as otherwise contemplated by this Agreement, during the period from the date of this Agreement to the Effective Time, Seller shall not and shall not permit any of its Subsidiaries to, without the prior written consent of Buyer: (a) declare, set aside or pay any dividends or other distributions, directly or indirectly, in respect of its capital stock (other than dividends from a Subsidiary of Seller to Seller or another Subsidiary of Seller), except that Seller may declare and pay cash dividends on the Seller Common Stock of not more than -61- (x) for dividends payable in 1995, $.17 per share per quarterly period and (y) for dividends payable in 1996, per quarterly period, $.19 per share; provided, that Seller shall not declare or pay any dividends on Seller Common Stock for any period in which its stockholders will be entitled to receive any regular quarterly dividend on the shares of Buyer Common Stock to be issued in the Merger; or, (b) enter into or amend any employment, severance or similar agreement or arrangement with any director or officer or employee, or materially modify any of the Seller Employee Plans or grant any salary or wage increase or materially increase any employee benefit (including incentive or bonus payments), except normal individual increases in compensation to employees consistent with past practice, or as required by law or contract; or, (c) authorize, recommend (subject to the fiduciary duties of Seller's Board of Directors, based upon written advice of counsel to Seller, which counsel is reasonably acceptable to Buyer), propose or announce an intention to authorize, so recommend or propose, or enter into an agreement in principle with respect to, any merger, consolidation or business combination (other -62- than the Merger), any acquisition of a material amount of assets or securities, any disposition of a material amount of assets or securities or any release or relinquishment of any material contract rights; or (d) propose or adopt any amendments to its articles of incorporation, association or other charter document or bylaws; or (e) issue, sell, grant, confer or award any of its Equity Securities (except shares of Seller Common Stock issued upon exercise of Seller Employee Stock Options outstanding on the date of this Agreement) or effect any stock split or adjust, combine, reclassify or otherwise change its capitalization as it existed on the date of this Agreement; or (f) purchase, redeem, retire, repurchase, or exchange, or otherwise acquire or dispose of, directly or indirectly, any of its Equity Securities, whether pursuant to the terms of such Equity Securities or otherwise; or (g) (i) without first consulting with Buyer, 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 -63- modify any of the material provisions or renew or otherwise extend the maturity date of any existing loan or credit commitment (collectively, "Lend to") in an amount in excess of $1,500,000 or in an amount which, or when aggregated with any and all loans or credit commitments to such person or entity, would be in excess of $1,500,000; (ii) without first obtaining the written consent of Buyer, lend to any person or entity in an amount in excess of $3,000,000 or in an amount which, when aggregated with any and all loans or credit commitments to such person or entity, would be in excess of $3,000,000; (iii) Lend to any person other than in accordance with lending policies as in effect on the date hereof; provided that in the case of clauses (ii) and (iii) Seller or any Seller Subsidiary may make any such loan in the event (A) Seller or any Seller Subsidiary has delivered to Buyer or its designated representative a notice of its intention to make such loan and such information as Buyer or its designated representative may reasonably require in respect thereof and (B) Buyer or its designated representative shall not have reasonably objected to such loan by giving written or facsimile notice of such objection within two business days following the delivery to Buyer of the notice of intention and information as aforesaid; or (iv) Lend to any -64- person or entity any of the loans or other extensions of credit to which or investments in which are on a "watch list" or similar internal report of Seller or any Seller Subsidiary (except those denoted "pass" thereon), in an amount in excess of $500,000; provided, however, that nothing in this paragraph shall prohibit Seller or any Seller Subsidiary from honoring any contractual obligation in existence on the date of this Agreement. Notwithstanding clauses (i) and (ii) of this Section 4.02(g), Seller shall be authorized without first consulting with Buyer or obtaining Buyer's prior written consent, to increase the aggregate amount of any credit facilities theretofore established in favor of any person or entity (each a "Pre-Existing Facility"), provided that the aggregate amount of any and all such increases with respect to any Pre-Existing Facility shall not be in excess of the lesser of ten percent (10%) of such Pre-Existing Facility or $250,000; or (h) directly or indirectly (including through its officers, directors, employees or other representatives) initiate, solicit or encourage any discussions, inquiries or proposals with any third party relating to the disposition of any significant portion of the business or assets of Seller or any Seller Subsidiary or the acquisition of Equity Securities of Seller or any Seller -65- Subsidiary or the merger of Seller or any Seller Subsidiary with any person (other than Buyer) or any similar transaction (each such transaction being referred to herein as an "Acquisition Transaction"), or provide any such person with information or assistance or negotiate with any such person with respect to an Acquisition Transaction, and Seller shall promptly notify Buyer orally of all the relevant details relating to all inquiries, indications of interest and proposals which it may receive with respect to any Acquisition Transaction; or (i) take any action that would (A) materially impede or delay the consummation of the transactions contemplated by this Agreement or the ability of Buyer or Seller to obtain any approval of any Regulatory Authority required for the transactions contemplated by this Agreement or to perform its covenants and agreements under this Agreement or (B) prevent the transactions contemplated hereby from qualifying as a reorganization within the meaning of Section 368 of the Internal Revenue Code; or (j) other than in the ordinary course of business consistent with past practice, incur any indebtedness for borrowed money, assume, guarantee, endorse or otherwise as -66- an accommodation become responsible or liable for the obligations of any other individual, corporation or other entity, or, without prior approval of Buyer, which shall not be unreasonably withheld, pay any Merger Fees in excess of the amount set forth on Schedule 2.23; or (k) restructure or materially change its investment securities portfolio, through purchases, sales or otherwise, or the manner in which the portfolio is classified or reported, or execute any individual investment transaction (i) in United States Treasury securities in excess of $5,000,000 and (ii) in any other investment securities in excess of $1,000,000; or (l) agree in writing or otherwise to take any of the foregoing actions or engage in any activity, enter into any transaction or take or omit to take any other act which would make any of the representations and warranties in Article II of this Agreement untrue or incorrect in any material respect if made anew after engaging in such activity, entering into such transaction, or taking or omitting such other act. -67- ARTICLE V ADDITIONAL AGREEMENTS 5.01. Access and Information. (a) Buyer and its Subsidiaries, on the one hand, and Seller and its Subsidiaries, on the other hand, shall each afford to each other, and to the other's accountants, counsel and other representatives, full access during normal business hours, during the period prior to the Effective Time, to all their respective properties, books, contracts, commitments and records and, during such period, each shall furnish promptly to the other (i) a copy of each report, schedule and other document filed or received by it during such period pursuant to the requirements of federal and state securities laws and (ii) all other information concerning its business, properties and personnel as such other party may reasonably request. Each party hereto shall, and shall cause its advisors and representatives to, (A) hold confidential all information obtained in connection with any transaction contemplated hereby with respect to the other party which is not otherwise public knowledge, (B) return all documents (including copies thereof) obtained hereunder from the other party to such other party and (C) use its best efforts to cause all information obtained pursuant to this Agreement or in connection with the negotiation of this Agreement to be treated as confidential and not use, or knowingly permit others to use, any -68- such information unless such information becomes generally available to the public. (b) Each party promptly following the date of this Agreement shall commence its review of the other and the respective operations, business affairs, prospects and financial conditions of each, including, without limitation, those matters which are the subject of Seller's representations and warranties (the "Due Diligence Review"). Each party shall conclude such review by not later than thirty (30) business days after the date of this Agreement (the "Due Diligence Period"), but the pendency of such Due Diligence Review shall not delay Buyer's obligation pursuant to Section 5.02 of this Agreement to file a Registration Statement with the SEC and all other necessary applications and filings with the appropriate federal and state regulatory agencies. Each party shall promptly advise the other of any situation, event, circumstance or other matter which first came to the attention of such party after the date hereof which could result in the termination of this Agreement pursuant to Section 7.01 hereof, or, if applicable, of the absence of any situation, event, circumstance or other matter. Notwithstanding anything herein or implied to the contrary, the Due Diligence Review shall not limit, restrict or preclude, or be construed to limit, restrict or preclude, either party, at any time or from time to time thereafter, from conducting such further -69- reviews or from exercising any rights available to it hereunder as a result of the existence or occurrence prior to the Due Diligence Period of any event or condition which was not detected in the Due Diligence Review and which would constitute a breach of any representation, warranty or agreement under this Agreement. 5.02. Registration Statement; Regulatory Matters. (a) Buyer shall prepare and, subject to the review and consent of Seller with respect to matters relating to Seller, file with the SEC as soon as is reasonably practicable the Registration Statement (or the equivalent in the form of preliminary proxy material) with respect to the shares of Buyer Common Stock to be issued in the Merger. Buyer shall prepare and file an application with the Federal Reserve Board as soon as reasonably practicable. Buyer shall use all reasonable efforts to cause the Registration Statement to become effective. Buyer shall also take any action required to be taken under any applicable state blue sky or securities laws in connection with the issuance of such shares, and Seller and its Subsidiaries shall furnish Buyer all information concerning Seller and its Subsidiaries and the stockholders thereof as Buyer may reasonably request in connection with any such action. -70- (b) Seller and Buyer 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 Buyer, to consummate such other mergers, consolidations or asset transfers or other transactions by and among Buyer's Subsidiaries and Seller's Subsidiaries concurrently with or following the Effective Time. 5.03. Stockholder Approval. Seller shall call a meeting of its stockholders to be held as soon as practicable for the purpose of voting upon the Merger or take other action for stockholders to authorize the Merger. In connection therewith, Buyer shall prepare the Proxy Statement and, with the approval of each of Buyer and Seller, the Proxy Statement shall be filed with the SEC and mailed to the stockholders of Seller. The Board of Directors of Seller shall submit for approval of Seller's stockholders the matters to be voted upon in order to authorize the Merger. The Board of Directors of Seller hereby does and (subject to the fiduciary duties of Seller's Board of Directors, based upon written advice of counsel to Seller, which counsel is reasonably acceptable to Buyer) will recommend this Agreement and the transactions contemplated hereby to stockholders of Seller -71- and will use its best efforts to obtain any vote of Seller's stockholders that is necessary for the approval and adoption of this Agreement and consummation of the transactions contemplated hereby. 5.04. Current Information. During the period from the date of this Agreement to the Effective Time, each party shall promptly furnish the other with copies of all monthly and other interim financial information or reports as the same become available and shall cause one or more of its designated representatives to confer on a regular and frequent basis with representatives of the other party. Each party shall promptly notify the other party of any material change in its business or operations and of any governmental complaints, investigations or hearings (or communications indicating that the same may be contemplated), or the institution or the threat of material litigation involving such party, and shall keep the other party fully informed of such events. 5.05. Agreements of Affiliates. As soon as practicable after the date of this Agreement, Seller shall deliver to Buyer a letter identifying all persons whom Seller believes to be, at the time this Agreement is submitted to a vote of the stockholders of Seller, "affiliates" of Seller for purposes of Rule 145 under the Securities Act. Seller -72- shall use its best efforts to cause each person who is so identified as an "affiliate" to deliver to Buyer as soon as practicable thereafter, and in any event no later than the publication of notice in the Federal Register of Buyer's application with the Federal Reserve Board referred to in Section 5.02, a written agreement providing that from the date of such agreement each such person will agree not to sell, pledge, transfer or otherwise dispose of any shares of stock of Seller held by such person or any shares of Buyer Common Stock to be received by such person in the Merger except in compliance with the applicable provisions of the Securities Act and until such time as financial results covering at least 30 days of combined operations of Buyer and Seller shall have been published. Prior to the Effective Time, Seller shall amend and supplement such letter and use its best efforts to cause each additional person who is identified as an "affiliate" to execute a written agreement as set forth in this Section 5.05. 5.06. Expenses. Each party hereto shall bear its own expenses incident to preparing, entering into and carrying out this Agreement and to consummating the Merger. 5.07. Miscellaneous Agreements and Consents. (a) Subject to the terms and conditions herein provided, each of the parties hereto agrees to use its respective best efforts -73- to take, or cause to be taken, all action, and to do, or cause to be done, all things necessary, proper or advisable under applicable laws and regulations to consummate and make effective the transactions contemplated by this Agreement as expeditiously as possible, including without limitation using its respective best efforts to lift or rescind any injunction or restraining order or other order adversely affecting the ability of the parties to consummate the transactions contemplated hereby. Each party shall, and shall cause each of its respective subsidiaries to, use its best efforts to obtain consents of all third parties and Regulatory Authorities necessary or, in the opinion of Buyer, 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 Buyer for its governance and that of its Subsidiaries and not otherwise referenced in Section 5.16 hereof, including, without limitation, policies and procedures pertaining to the accounting, asset/liability management, audit, credit, human resources, treasury and legal functions, and (ii) at the request of Buyer, conform Seller's existing policies and procedures in respect of such matters to Buyer's policies and procedures or, in the absence of any existing Seller policy -74- or procedure regarding any such function, introduce Buyer's 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 of any Regulatory Authority having jurisdiction over Seller and/or the Seller Subsidiary affected thereby. 5.08. Employee Benefits. (a) The provisions of the Seller Stock Plans and of any other plan, program or arrangement providing for the issuance or grant of any other interest in respect of the capital stock of Seller or any Seller Subsidiary shall be deleted and terminated as of the Effective Time, and Seller shall ensure that following the Effective Time no holder of Seller Employee Stock Options or any participant in any Seller Stock Plan shall have any right thereunder to acquire any securities of Seller or any Seller Subsidiary. (b) Except as set forth in Section 5.08(a) hereof, the Seller Employee Plans shall not be terminated by reason of the Merger but shall continue thereafter as plans of the Surviving Corporation until such time as the employees of the Seller and the Seller Subsidiaries are integrated into Buyer's employee benefit plans that are available to other employees of Buyer and Buyer Subsidiaries, subject to the terms and conditions specified in such plans and to such -75- changes therein as may be necessary to reflect the consummation of the Merger. Buyer shall take such steps as are necessary or required to integrate the employees of Seller and the Seller Subsidiaries in Buyer's employee benefit plans available to other employees of Buyer and Buyer Subsidiaries as soon as practicable after the Effective Time, with (i) full credit for prior service with Seller or any of the Seller Subsidiaries for purposes of vesting and eligibility for participation (but not benefit accruals under any defined benefit plan), and co-payments and deductibles, and (ii) waiver of all waiting periods and pre-existing condition exclusions or penalties. 5.09. Employee Stock Options. At the Effective Time, all rights with respect to Seller Common Stock pursuant to Seller Employee Stock Options that are outstanding at the Effective Time, whether or not then exercisable, shall be converted into and become rights with respect to Buyer Common Stock, and Buyer shall assume each Seller Employee Stock Option in accordance with the terms of the stock option plan under which it was issued and the stock option agreement by which it is evidenced. From and after the Effective Time, (i) each Seller Employee Stock Option assumed by Buyer shall be exercised solely for shares of Buyer Common Stock, (ii) the number of shares of Buyer Common Stock subject to each Seller Employee Stock Option shall be equal to the number of shares of Seller -76- Common Stock subject to such Seller Employee Stock Option immediately prior to the Effective Time multiplied by the Exchange Ratio and (iii) the per share exercise price under each Seller Employee Stock Option shall be adjusted by dividing the per share exercise price under such Seller Employee Stock Option by the Exchange Ratio and rounding down to the nearest cent; provided, however, that the terms of each Seller Employee Stock Option shall, in accordance with its terms, be subject to further adjustment as appropriate to reflect any stock split, stock dividend, recapitalization or other similar transaction subsequent to the Effective Time. It is intended that the foregoing assumption shall be undertaken in a manner that will not constitute a "modification" as defined in the Internal Revenue Code, as to any Seller Employee Stock Option that is an "incentive stock option." 5.10. Press Releases. Except as may be required by law, Seller and Buyer shall consult and agree with each other as to the form and substance of any proposed press release relating to this Agreement or any of the transactions contemplated hereby. 5.11. State Takeover Statutes. Seller will take all steps necessary to exempt the transactions contemplated by this Agreement and any agreement contemplated hereby from, -77- and if necessary challenge the validity of, any applicable state takeover law. 5.12 D&O Indemnification. Buyer agrees that the Merger shall not affect or diminish any of Seller's duties and obligations of indemnification existing as of the Effective Time in favor of employees, agents, directors or officers of Seller or its Subsidiaries arising by virtue of their respective Articles of Incorporation or Bylaws in the form in effect at the date of this Agreement or arising by operation of law or arising by virtue of any contract, resolution or other agreement or document existing at the date of this Agreement, and such duties and obligations shall continue in full force and effect for so long as they would (but for the Merger) otherwise survive and continue in full force and effect. 5.13. Best Efforts. Each of Buyer and Seller undertakes and agrees to use its best efforts to cause the Merger (i) to qualify (A) for pooling-of-interests accounting treatment and (B) as a reorganization within the meaning of Section 368 of the Internal Revenue Code (including, if necessary, to take reasonable steps to restructure the transactions contemplated by this Agreement to so qualify) and (ii) to occur as soon as practicable. Each of Buyer and Seller agrees to not take any action that would materially impede or -78- delay the consummation of the transactions contemplated by this Agreement or the ability of Buyer 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. 5.14. Insurance. As soon as practicable following the date hereof, Seller shall, and Seller shall cause its Subsidiaries to, use its best efforts to maintain its existing insurance and, if not already obtained, obtain (and maintain through the Effective Time) insurance with respect to employee benefit matters and umbrella insurance in respect of automobile fleet coverage for amounts as reasonably requested by Buyer with financially sound and reputable insurance companies. 5.15. Bank Minority Shares. As soon as reasonably practicable, Seller shall use all reasonable efforts to cooperate with Buyer in respect of each person holding capital stock of any of the Banks (other than Seller or any of the Seller Subsidiaries), whether as qualifying shares or otherwise, with the goal of purchasing such shares at any time and/or from time to time, at a price reasonably acceptable to Buyer. 5.16. Conforming Entries. (a) Notwithstanding that Seller believes that Seller and the Seller Subsidiaries -79- have established all reserves and taken all provisions for possible loan losses required by GAAP and applicable laws, rules and regulations, Seller recognizes that Buyer 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 to the Effective Time, Seller and Buyer 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 Buyer, 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 to the Effective Time, Seller and Buyer 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 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 Buyer shall consult and cooperate with each other with respect to determining, as specified in -80- a written notice from Buyer to Seller, based upon such consultation and as hereinafter provided, the amount and the timing for recognizing for financial accounting purposes Seller's expenses of the Merger and the restructuring charges relating to or to be incurred in connection with the Merger. (d) At the request of Buyer, Seller shall (i) establish and take such reserves and accruals as Buyer shall request to conform Seller's loan, accrual and reserve policies to Buyer's policies, and (ii) establish and take such accruals, reserves and charges in order to implement such policies in respect of excess facilities and equipment capacity, severance costs, litigation matters, write-off or write-down of various assets and other appropriate accounting adjustments, and to recognize for financial accounting purposes such expenses of the Merger and restructuring charges related to or to be incurred in connection with the Merger, in each case at such times as are requested by Buyer in a written notice to Seller, in accordance with the following objective. It is the objective of Buyer and Seller that such reserves, accruals and charges referred to in this Section 5.16 to be taken as at or immediately prior to December 31, 1995, provided that if such reserves, accruals and charges are to be taken as at or prior to December 31, 1995 and the Closing Date is to occur thereafter, Buyer shall certify to -81- Seller on or prior to December 31, 1995, that the bank regulatory approval conditions to its obligations contemplated by Section 6.01(b) have been satisfied or waived (except to the extent that any waiting period associated therewith may then have commenced but not expired) and Buyer and Seller shall have mutually agreed by December 31, 1995 to the scheduling of the Closing Date; and provided, further, that Seller shall not be required to take any such action that is not consistent with GAAP. 5.17. Environmental Reports. Seller shall provide to Buyer as soon as reasonably practicable, but not later than ninety (90) days after the date hereof, a report of a phase one environmental investigation on all real property owned, leased or operated by Seller or any of the Seller Subsidiaries as of the date hereof (but excluding "other real estate owned," property held in trust or in a fiduciary capacity and space in retail or similar establishments leased by Seller or any of the Seller Subsidiaries for automatic teller machines or bank branch facilities where the space leased comprises less than 20% of the total space leased to all tenants of such property) and within ten (10) days after the acquisition or lease of any real property acquired or leased by Seller or any of the Seller Subsidiaries after the -82- date hereof (but excluding space in retail and similar establishments leased by Seller or any of the Seller Subsidiaries for automatic teller machines or bank branch facilities where the space leased comprises less than 20% of the total space leased to all tenants of such property). If advisable in light of the phase one report with respect to any parcel of real property referred to above, in the reasonable opinion of Buyer, Seller shall also provide to Buyer a phase two investigation report on such designated parcels. Buyer shall have fifteen (15) business days from the receipt of any such phase two investigation report to notify Seller of any dissatisfaction with the contents of such report. If the estimated costs of all remedial or other corrective actions or measures with regard to the real properties referred to above required by applicable law exceed $5,000,000 in the aggregate, as reasonably estimated by an environmental expert retained for such purpose by Seller, at Seller's expense, upon Buyer's reasonable request, or if such cost cannot be so reasonably estimated by such expert to be such amount or less with any reasonable degree of certainty, then Buyer, after providing Seller with written notice of Buyer's intent to do so and allowing Seller a six- month period from the date of such notice to take and complete, to the reasonable satisfaction of Buyer, all such remedial or other corrective actions and measures (the aggregate cost of which incurred by -83- Seller and the Seller Subsidiaries shall not exceed $5,000,000), shall have the right pursuant to Section 7.01(h) hereof to terminate this Agreement, which shall be Buyer's sole remedy in such event. ARTICLE VI CONDITIONS 6.01. Conditions to Each Party's Obligation To Effect the Merger. The respective obligations of each party to effect the Merger shall be subject to the fulfillment or waiver at or prior to the Effective Time of the following conditions: (a) This Agreement shall have received the requisite approval of stockholders of Seller. (b) All requisite approvals of this Agreement and the transactions contemplated hereby shall have been received from the Federal Reserve Board, the State Bank Regulator and any other Regulatory Authority. (c) The Registration Statement shall have been declared effective and shall not be subject to a stop order or any threatened stop order. (d) Neither Seller nor Buyer shall be subject to any order, decree or injunction of a court or agency of -84- competent jurisdiction which enjoins or prohibits the consummation of the Merger. (e) Each of Buyer and Seller shall have received, from counsel reasonably satisfactory to it, an opinion reasonably satisfactory in form and substance to it to the effect that the Merger will constitute a reorganization within the meaning of Section 368 of the Internal Revenue Code and that no gain or loss will be recognized by the stockholders of Seller to the extent they receive Buyer Common Stock solely in exchange for shares of Seller Common Stock. 6.02. Conditions to Obligations of Seller To Effect the Merger. The obligations of Seller to effect the Merger shall be subject to the fulfillment or waiver at or prior to the Effective Time of the following additional conditions: (a) Representations and Warranties. The representations and warranties of Buyer set forth in Article III of this Agreement shall be true and correct in all material respects as of the date of this Agreement and as of the Effective Time (as though made on and as of the Effective Time except (i) to the extent such representations and warranties are by their express provisions made as of a specified date or period and (ii) for -85- the effect of transactions contemplated by this Agreement) and Seller shall have received a certificate of the chairman or chief financial officer of Buyer to that effect. (b) Performance of Obligations. Buyer shall have performed in all material respects all obligations required to be performed by it under this Agreement prior to the Effective Time, and Seller shall have received a certificate of the chairman or chief financial officer of Buyer to that effect. 6.03. Conditions to Obligations of Buyer To Effect the Merger. The obligations of Buyer to effect the Merger shall be subject to the fulfillment or waiver at or prior to the Effective Time of the following additional conditions: (a) Representations and Warranties. The representations and warranties of Seller set forth in Article II of this Agreement shall be true and correct in all material respects as of the date of this Agreement and as of the Effective Time (as though made on and as of the Effective Time except (i) to the extent such representations and warranties are by their express provisions made as of a specific date or period and (ii) for the effect of transactions contemplated by this Agreement) and Buyer shall have received a certificate of the -86- chairman of Seller and a certificate of the president and chief executive officer of Seller to that 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 Buyer shall have received a certificate of the chairman of Seller and a certificate of the president and chief executive officer of Seller to that effect. (c) Auditors' Opinion. Buyer shall have received an opinion of Buyer Auditors addressed to Buyer, satisfactory in form and substance to Buyer, that the Merger will qualify for pooling-of-interests accounting treatment, which opinion shall not have been withdrawn. ARTICLE VII TERMINATION, AMENDMENT AND WAIVER 7.01. Termination. This Agreement may be terminated at any time prior to the Effective Time, whether before or after any requisite stockholder approval: (a) by mutual consent by the Executive Committee of the Board of Directors of Buyer and the Board of Directors of Seller; -87- (b) by the Executive Committee of the Board of Directors of Buyer or the Board of Directors of Seller at any time after the date that is twelve months after the date of this Agreement if the Merger shall not theretofore have been consummated (provided that the terminating party is not then in material breach of any representation, warranty, covenant or other agreement contained herein); (c) by the Executive Committee of the Board of Directors of Buyer or the Board of Directors of Seller if (i) the Federal Reserve Board has denied approval of the Merger and such denial has become final and nonappealable or (ii) stockholders of Seller shall not have approved this Agreement at the Meeting following a favorable recommendation of Seller's Board of Directors; (d) by the Executive Committee of the Board of Directors of Buyer in the event of a material breach by Seller of any representation, warranty, covenant or other agreement contained in this Agreement, which breach is not cured within 30 days after written notice thereof to Seller by Buyer; (e) by the Executive Committee of the Board of Directors of Buyer in the event that (i) Buyer's Due -88- Diligence Review of Seller and its Subsidiaries discloses matters the impact of which affects Seller and its Subsidiaries, taken as a whole, except as may have resulted from changes to laws and regulations or changes in economic conditions applicable to banking institutions generally, or in general interest rates that affect Seller and its Subsidiaries, taken as a whole, consistent with the manner in which changes in the general levels of interest rates since December 31, 1994 have affected Seller and its Subsidiaries, taken as a whole, which the Executive Committee of the Board of Directors of Buyer in the good faith exercise of its reasonable judgment believes either (A) to be inconsistent in any material and adverse respect with any of the representations or warranties of Seller, or (B) (x) to be of such significance as to materially and adversely affect the Condition of Seller and its Subsidiaries, taken as a whole, or (y) to deviate materially and adversely from the financial statements for the year ended December 31, 1994 of Seller, (ii) Buyer notifies Seller of such matters within 5 business days of the expiration of the Due Diligence Period, and (iii) such matters (A) are not capable of being cured or (B) have not been cured within 30 days after written notice thereof to Seller by Buyer; -89- (f) by the Board of Directors of Seller in the event that (i) Seller's Due Diligence Review of Buyer and its Subsidiaries discloses matters the impact of which affects Buyer and its Subsidiaries, taken as a whole, except as may have resulted from changes to laws and regulations or changes in economic conditions applicable to banking institutions generally, or in general levels of interest rates that affect Buyer and its Subsidiaries, taken as a whole, consistent with the manner in which changes in the general levels of interest rates since December 31, 1994 has affected Buyer and its Subsidiaries, taken as a whole, which the Board of Directors of Seller in the good faith exercise of its reasonable judgment believe either (A) to be inconsistent in any material and adverse respect with any of the representations or warranties of Buyer, or (B) (x) to be of such significance as to materially and adversely affect the Condition of Buyer and its Subsidiaries, taken as a whole, or (y) to deviate materially and adversely from the financial statement for the year ended December 31, 1994 of Buyer, (ii) Seller notifies Buyer of such matters within 5 business days of the expiration of the Due Diligence Period, and (iii) such matters (A) are not capable of being cured or (B) have not been cured within 30 days after written notice thereof to Buyer; -90- (g) by the Board of Directors of Seller in the event of a material breach by Buyer of any representation, warranty, covenant or other agreement contained in this Agreement, which breach is not cured within 30 days after written notice thereof is given to Buyer by Seller; or (h) by the Executive Committee of the Board of Directors of Buyer pursuant to and in accordance with the provisions of Section 5.17 hereof. 7.02. Effect of Termination. In the event of termination of this Agreement as provided in Sections 7.01(a) through 7.01(c) and Sections 7.01(e), 7.01(f) and 7.01(h) above, this Agreement shall forthwith become void and there shall be no liability or obligation on the part of Buyer or Seller or their respective officers or directors except as set forth in the second sentence of Section 5.01(a) and in Section 5.06. 7.03. Amendment. This Agreement and the Schedules hereto may be amended by the parties hereto, by action taken by or on behalf of their respective Boards of Directors, at any time before or after approval of this Agreement by the stockholders of Seller; provided, however, that after any -91- such approval by the stockholders of Seller no such modification shall alter or change the amount or kind of consideration to be received by holders of Seller Common Stock as provided in this Agreement. This Agreement may not be amended except by an instrument in writing signed on behalf of each of Buyer and Seller. 7.04. Severability. Any term, provision, covenant or restriction contained in this Agreement held by a court or a Regulatory Authority of competent jurisdiction to be invalid, void or unenforceable, shall be ineffective to the extent of such invalidity, voidness or unenforceability, but neither the remaining terms, provisions, covenants or restrictions contained in this Agreement nor the validity or enforceability thereof in any other jurisdiction shall be affected or impaired thereby. Any term, provision, covenant or restriction contained in this Agreement that is so found to be so broad as to be unenforceable shall be interpreted to be as broad as is enforceable. 7.05. Waiver. Any term, condition or provision of this Agreement may be waived in writing at any time by the party which is, or whose stockholders are, entitled to the benefits thereof. -92- 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 Buyer and Seller or in any instrument delivered by Buyer 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 or, in the case of any other such instrument, in accordance with the terms of such instrument. In the event of consummation of the Merger, the agreements contained in or referred to in Sections 5.02(b), 5.07, 5.08, 5.09 and 5.12 shall survive the Effective Time. In the event of termination of this Agreement in accordance with its terms, the agreements contained in or referred to in the second sentence of Section 5.01(a), Section 5.06 and Section 7.02 shall survive such termination. 8.02. Notices. All notices and other communications hereunder shall be in writing and shall be deemed to be duly received (vi) on the date given if delivered personally -93- or (vii) upon confirmation of receipt, if by facsimile transmission or (viii) on the date received if mailed by registered or certified mail (return receipt requested), or (iv) on the business date after being delivered to a reputable overnight delivery service, if by such service, to the parties at the following addresses (or at such other address for a party as shall be specified by like notice): (i) if to Buyer: Mercantile Bancorporation Inc. Mercantile Tower P.O. Box 524 St. Louis, Missouri 63166-0524 Attention: John W. Rowe Executive Vice President, Mercantile Bank of St. Louis, National Association Copies to: Jon W. Bilstrom, Esq. General Counsel Mercantile Bancorporation Inc. Mercantile Tower P.O. Box 524 St. Louis, Missouri 63166-0524 and Wachtell, Lipton, Rosen & Katz 51 West 52nd Street New York, New York 10019 Attention: Edward D. Herlihy, Esq. Telecopy: (212) 403-2000 -94- (ii) if to Seller: Hawkeye Bancorporation 222 Equitable Building 604 Locust Street Des Moines, Iowa 50309-3723 Attention: Robert W. Murray President and Chief Executive Officer Copies to: Baird, Holm, McEachen, Pedersen, Hamann & Strasheim 1500 Woodmen Tower Omaha, Nebraska 68102-2068 Attention: John S. Zeilinger, Esq. 8.03. Miscellaneous. This Agreement (including the Schedules and other written documents referred to herein or provided hereunder) (i) constitutes the entire agreement and supersedes all other prior agreements and understandings, both written and oral, among the parties, or any of them, with respect to the subject matter hereof, including any confidentiality agreement between the parties hereto, (ii) is not intended to confer upon any person not a party hereto any rights or remedies hereunder, (iii) shall not be assigned by operation of law or otherwise and (iv) shall be governed in all respects by the laws of the State of Missouri, except as otherwise specifically provided herein or required by the Iowa Act. Nothing in this Agreement shall be construed to require any party (or any subsidiary or affiliate of any party) to take any action or fail to take any action in violation of applicable law, rule or regulation. This Agreement -95- may be executed in counterparts which together shall constitute a single agreement. -96- IN WITNESS WHEREOF, Buyer and Seller have caused this Agreement to be signed and, by such signature, acknowledged by their respective officers thereunto duly authorized, and such signatures to be attested to by their respective officers thereunto duly authorized, all as of the date first written above. Attest: MERCANTILE BANCORPORATION INC. /s/ Jon W. Bilstrom By:/s/ Thomas H. Jacobsen Name: Jon W. Bilstrom Name: Thomas H. Jacobsen Title: General Counsel Title: Chairman, President & Chief Executive Officer Attest: HAWKEYE BANCORPORATION /s/ R. Douglas Fisher By: /s/ Robert W. Murray Name: R. Douglas Fisher Name: Robert W. Murray Title: Senior Vice President, Title: Chief Executive Officer, Credit Administration Chief Operating Officer & Secretary Chief Financial Officer -97- EX-99 3 EXHIBIT 2.2 STOCK OPTION AGREEMENT STOCK OPTION AGREEMENT ("Option Agreement") dated August 4, 1995, between MERCANTILE BANCORPORATION INC. ("Buyer"), a Missouri corporation registered as a bank hold- ing company under the Bank Holding Company Act of 1956, as amended (the "Holding Company Act"), and HAWKEYE BANCORPORA- TION ("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, the Executive Committee of the Board of Directors of Buyer and the Board of Directors of Seller have approved an Agreement and Plan of Reorganization dated as of even date herewith (the "Merger Agreement") providing for the merger of Seller with and into a wholly owned subsidiary of Buyer; 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 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 "Op- tion") to purchase up to 2,678,000 authorized and unissued shares of Seller Common Stock at a price of $22 per share (the "Purchase Price") payable in cash as provided in Section 4 hereof. 3. Exercise of Option. (a) 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 exer- cised, it shall terminate and be of no further force and ef- fect upon the earliest to occur of the Effective Time of the Merger and the termination of the Merger Agreement in ac- cordance with Sections 7.01(a) through 7.01(c) thereof, pro- vided that if such termination follows an Extension Event (as defined below), the Option shall not terminate until the date -2- that is 12 months following such termination; (ii) if the Op- tion cannot be exercised on such day because of any injunc- tion, order or similar restraint issued by a court of compe- tent jurisdiction, the Option shall expire on the 30th busi- ness 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, autho- rize, recommend, or propose, an agreement, arrangement or understanding with any person (other than Buyer or any of its Subsidiaries) to (A) effect a merger or con- solidation or similar transaction involving Seller or any of its Subsidiaries, (B) purchase, lease or other- wise acquire 15% or more of the assets of Seller or any of its Subsidiaries or (C) purchase or otherwise acquire -3- (including by way of merger, consolidation, share ex- change or similar transaction) Beneficial Ownership of securities representing 10% or more of the voting power of Seller or any of its Subsidiaries; (ii) any person (other than Buyer or any Subsidiary of Buyer, or Seller or any Subsidiary of Seller in a fi- duciary capacity) shall have acquired Beneficial Owner- ship or the right to acquire Beneficial Ownership of 10% or more of the voting power of Seller; or (iii) Seller's Board of Directors shall have with- drawn or modified in a manner adverse to Buyer the rec- ommendation of Seller's Board of Directors with respect to the Merger Agreement, in each case after an Extension Event; or (iv) the holders of Seller Common Stock shall not have approved the Merger Agreement at the Meeting, or such Meeting shall not have been held or shall have been cancelled prior to termination of the Merger Agreement in accordance with its terms, in each case after an Ex- tension Event. (c) As used herein, the term "Extension Event" shall mean any of the following events: -4- (i) a Purchase Event of the type specified in clauses (b)(i) and (b)(ii) above; (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 Ben- eficial Ownership (as defined below) or the right to ac- quire Beneficial Ownership of 10% 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 fi- duciary capacity) shall have publicly announced its willingness, or shall have publicly announced a pro- posal, or publicly disclosed an intention to make a pro- posal, (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 Owner- ship" and "Beneficially Own" shall have the meanings ascribed to them in Rule 13d-3 under the Exchange Act. -5- (e) In the event Buyer wishes to exercise the Op- tion, 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 pur- chase pursuant to such exercise and (ii) a place and date not earlier than three business days nor later than 60 calendar days from the Notice Date for the closing of such purchase (the "Closing Date"). 4. Payment and Delivery of Certificates. (a) At the closing referred to in Section 3 hereof, Buyer shall pay to Seller the aggregate purchase price for the shares of Seller Common Stock purchased pursu- ant to the exercise of the Option in immediately available funds by wire transfer to a bank account designated by Seller. (b) At such closing, simultaneously with the de- livery of cash as provided in Section 4(a), Seller shall de- liver 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 other- wise dispose of such shares in violation of applicable law or the provisions of this Option Agreement. -6- (c) If at the time of issuance of any Seller Com- mon Stock pursuant to any exercise of the Option, Seller shall have issued any share purchase rights or similar secu- rities 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 cer- tificate is subject to certain provisions of an agreement between the registered holder hereof and Hawkeye Bancorporation, a copy of which is on file at the principal office of Hawkeye Bancorporation, and to resale restrictions arising under the Secu- rities Act of 1933 and any applicable state secu- rities laws. A copy of such agreement will be provided to the holder hereof without charge upon receipt by Hawkeye Bancorporation of a written re- quest therefor. It is understood and agreed that the above legend shall be removed by delivery of substitute certificate(s) without such legend if Buyer shall have delivered to Seller an opinion of counsel, in form and substance reasonably satisfactory to Seller and its counsel, to the effect that such legend is not required for purposes of the Securities Act and any ap- plicable state securities laws. -7- 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 Sec- tion 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 val- idly 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 ac- tion 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, shares of Seller Common Stock, all of which, upon issuance pursuant hereto, shall be duly authorized, -8- validly issued, fully paid and nonassessable, and shall be delivered free and clear of all claims, liens, encum- brances, restrictions (other than federal and state se- curities restrictions) and security interests and not subject to any preemptive rights. (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 Sec- tion 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 val- idly executed and delivered and represents a valid and legally binding obligation of Buyer, enforceable against Buyer in accordance with its terms; and -9- (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 ex- cept in compliance with the Securities Act. 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 Op- tion, and the purchase price per share, as the case may be, shall be adjusted appropriately. In the event that any addi- tional 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 considering any shares subject to or issued pursuant to the Option). -10- 7. Repurchase. (a) Subject to Section 11(i), at the request of Buyer at any time commencing upon the occurrence of a Pur- chase Event and ending 13 months immediately thereafter (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 thereto with respect to which Buyer then has Beneficial Ownership, at a price (per share, the "Per Share Repurchase Price") equal to the sum of: (i) The exercise price paid by 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 of (x) 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 mean of the "bid" and the "ask" price per share of Seller Common Stock reported by NASDAQ, the automated quotation system of the National Association of Securi- ties Dealers, Inc., for any day within that portion of the Repurchase Period which precedes the date Buyer -11- gives notice of the required repurchase under this Sec- tion 7) and (B) the exercise price as determined pursu- ant to Section 2 hereof (subject to adjustment as pro- vided 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; (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 to the exercise of the Option, multiplied by the number of shares so purchased, but only if the Market/Tender Offer Price is greater than such exercise price; and (iv) Buyer's reasonable out-of-pocket expenses in- curred in connection with the transactions contemplated by the Merger Agreement, including, without limitation, legal, accounting and investment banking fees. (b) In the event Buyer exercises its rights under this Section 7, Seller shall, within 10 business days there- after, pay the required amount to Buyer by wire transfer of immediately available funds to an account designated by Buyer -12- and Buyer shall surrender to Seller the Option and the cer- tificates evidencing the shares of Seller Common Stock pur- chased thereunder with respect to which Buyer then has Ben- eficial 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, re- strictions and encumbrances of any kind whatsoever. (c) In determining the Market/Tender Offer Price, the value of any consideration other than cash shall be de- termined by an independent nationally recognized investment banking firm selected by Buyer and reasonably acceptable to Seller. 8. Repurchase at Option of Seller and First Re- fusal. (a) Except to the extent that Buyer shall have previously exercised its rights under Section 7, at the re- quest of Seller during the six-month period commencing 13 months following the first occurrence of a Purchase Event, Seller may repurchase from Buyer, and Buyer shall sell to Seller, 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) 110% of the Market/Tender Offer Price per -13- share, (ii) the Per Share Repurchase Price or (iii) the sum of (A) the aggregate Purchase Price of the shares so repur- chased 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 an- nounced by Buyer as its prime or base lending or reference rate during such period, less any dividends received on the shares so repurchased, plus (C) Buyer's reasonable out-of- pocket expenses incurred in connection with the transactions contemplated by the Merger Agreement, including, without limitation, legal, accounting and investment banking fees. Any repurchase under this Section 8(a) shall be consummated in accordance with Section 7(b). (b) If, at any time after the occurrence of a Pur- chase 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 de- sire to sell, assign, transfer or otherwise dispose of the Option or all or any of the shares of Seller Common Stock ac- quired by it pursuant to the Option, it shall give Seller written notice of the proposed transaction (an "Offeror's No- tice"), 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 -14- 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. The purchase of the Option or any such shares by Seller shall be closed within 10 busi- ness days of the date of the acceptance of the offer and the purchase price shall be paid to Buyer by wire transfer of im- mediately 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 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 No- tice, sell all, but not less than all, of the Option or such shares to such third party at no less than the price speci- fied and on terms no more favorable to the purchaser than those set forth in the Offeror's Notice. The requirements of this Section 8(b) shall not apply to (i) any disposition as a result of which the proposed transferee would Beneficially Own not more than 2% of the voting power of Seller or (ii) any disposition of Seller Common Stock by a person to whom Buyer has sold shares of Seller Common Stock issued upon ex- ercise of the Option. -15- 9. Registration Rights. At any time after a Purchase Event, Seller shall, if requested by any holder or beneficial owner of shares of Seller Common Stock issued upon exercise of the Option (ex- cept any beneficial holder who acquired all of such holder's shares in a transaction exempt from the requirements of Sec- tion 8(b) by reason of clause (i) thereof) (each a "Holder"), as expeditiously as possible file a registration statement on a form for general use under the Securities Act if necessary in order to permit the sale or other disposition of the shares of 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 any such Holder (it being understood and agreed that any such sale or other dis- position 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). Each such Holder shall pro- vide all information reasonably requested by Seller for in- clusion in any registration statement to be filed hereunder. Seller shall use its best efforts to cause such registration statement first to become effective and then to remain effec- tive for such period not in excess of 180 days from the day such registration statement first becomes effective as may be -16- reasonably necessary to effect such sales or other disposi- tions. The registration effected under this Section 9 shall be at Seller's expense except for underwriting commissions and the fees and disbursements of such Holders' counsel at- tributable 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 distribu- tion by Seller of Seller Common Stock or if a special audit of Seller would otherwise be required in connection there- with. If requested by any such Holder in connection with such registration, Seller shall become a party to any under- writing agreement relating to the sale of such shares, but only to the extent of obligating itself in respect of repre- sentations, warranties, indemnities and other agreements cus- tomarily included in such underwriting agreements for parties similarly situated. Upon receiving any request for registra- tion under this Section 9 from any Holder, Seller agrees to send a copy thereof to any other person known to Seller to be entitled to registration rights under this Section 9, in each case by promptly mailing the same, postage prepaid, to the address of record of the persons entitled to receive such copies. -17- 10. Severability. Any term, provision, covenant or restriction con- tained in this Option Agreement held by a court or a Regula- tory 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 re- maining terms, provisions, covenants or restrictions con- tained in this Option Agreement nor the validity or enforce- ability thereof in any other jurisdiction shall be affected or impaired thereby. Any term, provision, covenant or re- striction 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 pursu- ant to Section 6 hereof), it is the express intention of the parties hereto to allow Buyer or such other person to ac- quire, or Seller to repurchase or purchase, such lesser num- ber of shares as may be permissible, without any amendment or modification hereof. -18- 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, in- cluding fees and expenses of its own financial consultants, investment bankers, accountants and counsel, except as other- wise provided herein. (b) Entire Agreement. Except as otherwise ex- pressly 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 re- spect thereto, written or oral. (c) Successors; No Third Party Beneficiaries. The terms and conditions of this Option Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective successors and permitted assigns. Nothing in this Option Agreement, expressed or implied, is intended to confer upon any party, other than the parties hereto, and their respective successors and assigns, any rights, reme- dies, obligations, or liabilities under or by reason of this Option Agreement, except as expressly provided herein. -19- (d) Assignment. Other than as provided in Sec- tions 8 and 9 hereof, neither of the parties hereto may sell, transfer, assign or otherwise dispose of any of its rights or obligations under this Option Agreement or the Option created hereunder to any other person (whether by operation of law or otherwise), without the express written consent of the other party. (e) Notices. All notices or other communications which are required or permitted hereunder shall be in writing and sufficient if delivered in accordance with Section 8.02 of the Merger Agreement (which is incorporated herein by ref- erence). (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 counter- parts 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 Agree- ment, 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 -20- relief, and the parties hereto further agree to waive any re- quirement for the securing or posting of any bond in connec- tion with the obtaining of any such injunctive or other equi- table relief. This provision is without prejudice to any other rights that either party hereto may have against the other party hereto for any failure to perform its obligations under this Option Agreement. (h) Governing Law. This Option Agreement shall be governed by and construed in accordance with the laws of the State of Missouri applicable to agreements made and entirely to be performed within such state. Nothing in this Option Agreement shall be construed to require any party (or any subsidiary or affiliate of any party) to take any action or fail to take any action in violation of applicable law, rule or regulation. (i) Regulatory Approvals; Section 16(b). If, in connection with (A) the exercise of the Option under Sec- tion 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 Board or any other Regulatory Authority is required, then the required notice or application for ap- proval shall be promptly filed and expeditiously processed and periods of time that otherwise would run pursuant to such -21- 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 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. -22- (k) Waiver and Amendment. Any provision of this Agreement may be waived at any time by the party that is en- titled to the benefits of such provision. This Option Agree- ment may not be modified, amended, altered or supplemented except upon the execution and delivery of a written agreement executed by the parties hereto. -23- IN WITNESS WHEREOF, each of the parties hereto has executed this Option Agreement as of the date first written above. MERCANTILE BANCORPORATION INC. By: /s/ John W. Rowe Name: John W. Rowe Title: Executive Vice President Mercantile Bank of St. Louis National Association HAWKEYE BANCORPORATION By: /s/ Robert W. Murray Name: Robert W. Murray Title: Chief Executive Officer, Chief Operating Officer & Chief Financial Officer -24- EX-5 4 EXHIBIT 5 Mercantile Mercantile Tower [Mercantile Bancorporation Bancorporation P.O. Box 524 Inc. Logo] Inc. St. Louis, MO 63155-0524 JON W. BILSTROM General Counsel 314-425-8180 October 19, 1995 Board of Directors Mercantile Bancorporation Inc. P.O. Box 524 St. Louis, Missouri 63166-0524 Gentlemen: In connection with the proposed registration under the Securities Act of 1933, as amended, of up to 7,996,952 shares of common stock, par value $5.00 per share (collectively, the "Shares"), of Mercantile Bancorporation Inc., a Missouri corporation (the "Company"), which are to be issued by the Company upon consummation of the merger (the "Merger") of Hawkeye Bancorporation, an Iowa corporation, with and into Mercantile Bancorporation Inc. of Iowa, an Iowa corporation, I have examined such corporate records and other documents, including the Registration Statement on Form S-4 relating to the Shares (together with the Proxy Statement/ Prospectus contained in such Registration Statement, and any amendments or supplements thereto, the "Registration Statement") and have reviewed such matters of law as I have deemed necessary or appropriate for this opinion. Based on such examination and review, it is my opinion that, when issued upon consummation of the Merger as contemplated by the Registration Statement, the Shares will be duly authorized, validly issued, fully paid and nonassessable. I consent to be named in the Registration Statement as the attorney who passed upon the validity of the Shares, and to the filing of a copy of this opinion as an exhibit to the Registration Statement. Sincerely, /s/ Jon W. Bilstrom EX-99 5 EXHIBIT 8.1 [LETTERHEAD OF WACHTELL, LIPTON, ROSEN & KATZ] Dated the Effective Date of the Proxy Statement/Prospectus Mercantile Bancorporation Inc. P.O. Box 524 St. Louis, Missouri 63166-0524 Gentlemen: We have acted as special counsel to Mercantile Ban- corporation Inc., a Missouri corporation ("MBI"), in connec- tion with the proposed merger (the "Merger") of Hawkeye Ban- corporation, an Iowa corporation ("Hawkeye"), with and into Mercantile Bancorporation Inc. of Iowa, an Iowa corporation and a wholly-owned direct subsidiary of MBI ("Merger Sub"), upon the terms and conditions set forth in the Agreement and Plan of Reorganization, dated August 4, 1995 (the "Agree- ment"), by and between MBI and Hawkeye. At your request, in connection with the filing by MBI of the Registration State- ment on Form S-4 (the "Registration Statement") to be filed with the Securities and Exchange Commission under the Securities Act Act of 1933, as amended (the "Act"), in respect of the shares of MBI Common Stock to be issued in the Merger and the preliminary Proxy Statement/Prospectus of MBI and Hawkeye filed with the Securities Exchange Commission on October 23, 1995 (the "Proxy Statement/Prospectus") included as part thereof, we are rendering our opinion concerning certain fed- eral income tax consequences of the Merger. Mercantile Bancorporation Inc. Page 2 For purposes of the opinion set forth below, we have relied, with the consent of MBI and the consent of Hawk- eye, upon the accuracy and completeness of the statements and representations (which statements and representations we have neither investigated nor verified) contained, respectively, in the certificates of the officers of MBI, Merger Sub and Hawkeye (copies of which are attached hereto and which are incorporated herein by reference), and have assumed that such certificates will be complete and accurate as of the Effec- tive Time. We have also relied upon the accuracy of the Proxy Statement/Prospectus. Any capitalized term used and not defined herein has the meaning given to it in the Proxy Statement/Prospectus or the appendices thereto. We have also assumed that the transactions contem- plated by the Agreement will be consummated in accordance therewith and as described in the Proxy Statement/Prospectus and that the Merger will qualify as a statutory merger under the applicable laws of the State of Iowa and the United States. Based upon and subject to the foregoing, it is our opinion that, under currently applicable law, the Merger will constitute a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code"), and that, accordingly, the following will be all the material federal income tax consequences of the Merger: (i) No gain or loss will be recognized by Hawkeye, Merger Sub or MBI as a result of the Merger. (ii) Hawkeye shareholders will recognize no gain or loss as a result of the exchange of their Hawkeye Common Stock solely for shares of MBI Common Stock pursu- ant to the Merger, except with respect to cash re- ceived in lieu of fractional shares, if any, as discussed below. (iii) A holder of shares of Hawkeye Common Stock who re- ceives cash in the Merger in lieu of a fractional share interest of MBI Common Stock will be treated as if the fractional shares were received in ex- change and then redeemed by MBI. A holder of shares of Hawkeye Common Stock will be treated as if the shareholder sold his or her fractional share of MBI Common Stock for the amount of cash received Mercantile Bancorporation Inc. Page 3 and will therefore recognize gain (or loss) to the extent that the amount of cash received exceeds (or is less than) the tax basis of the fractional share. Such gain or loss will be capital gain or loss if the shares of Hawkeye Common Stock were held as capital assets and will be long-term capi- tal gain or loss if the holding period of the shares of Hawkeye Common Stock so exchanged was more than one year. (iv) The aggregate adjusted tax basis of the MBI Common Stock received by a shareholder of Hawkeye in the Merger, including for the purpose of (iii) above the tax basis of any fractional share interest, will be equal to the aggregate adjusted tax basis of the respective shares of Hawkeye Common Stock surrendered. (v) The holding period of the shares of MBI Common Stock received by a shareholder of Hawkeye in the Merger, including for purposes of (iii) above the holding period of any fractional share interest, will include the holding period of the respective shares of Hawkeye Common Stock exchanged therefor, provided the shares of Hawkeye Common Stock were held as capital assets. (vi) A Hawkeye shareholder who receives only cash as a result of the exercise of dissenters' rights will realize gain or loss for federal income tax pur- poses (determined separately as to each block of Hawkeye Common Stock exchanged) in an amount equal to the difference between (x) the amount of cash received by such shareholder, and (y) such shareholder's tax basis for the shares of Hawkeye Common Stock surrendered in exchange therefor, pro- vided that the cash payment does not have the ef- fect of the distribution of a dividend. Any such gain or loss will be recognized for federal income tax purposes and will be treated as capital gain or loss, provided the shares of Hawkeye Common Stock were held as capital assets. However, if the cash payment does have the effect of the distribution of a dividend, the amount of taxable income recognized generally will equal the amount of cash received; Mercantile Bancorporation Inc. Page 4 such income generally will be taxable as a divi- dend, and no loss (or other recovery of such shareholder's tax basis for the shares of Hawkeye Common Stock surrendered in the exchange) generally will be recognized by such shareholder. The deter- mination of whether a cash payment has the effect of the distribution of a dividend will be made pur- suant to the provisions and limitations of Section 302 of the Code, taking into account the con- structive stock ownership rules of Section 318 of the Code. This opinion may not be applicable to Hawkeye shareholders who received their Hawkeye Common Stock pursuant to the exercise of employee stock options or otherwise as compensation or who are not citizens or residents of the United States. We hereby consent to the filing of this opinion with the Securities and Exchange Commission as an exhibit to the Registration Statement, and to the reference to this opinion under the caption "SUMMARY -- Federal Income Tax Con- sequences in General", under the caption "CERTAIN FEDERAL IN- COME TAX CONSEQUENCES OF THE MERGER" and elsewhere in the Proxy Statement/Prospectus. In giving such consent, we do not admit to being "experts", within the meaning of the term used in the Act or the rules and regulations of the Securities and Exchange Commission promulgated thereunder, with respect to any part of the Registration Statement, including this opinion as an exhibit or otherwise. Very truly yours, /s/ Wachtell, Lipton, Rosen & Katz EX-99 6 EXHIBIT 8.2 [Letterhead of Baird, Holm, McEachen, Pedersen, Hamann & Strasheim] October 23, 1995 Hawkeye Bancorporation 222 Equitable Building 604 Locust Street Des Moines, Iowa 50309-3723 Re: Merger of Hawkeye Bancorporation with and into a Wholly Owned Subsidiary of Mercantile Bancorporation Inc. Ladies and Gentlemen: This opinion is delivered to you in connection with that certain Agreement and Plan of Reorganization by and be- tween Hawkeye Bancorporation ("Hawkeye") and Mercantile Bancor- poration Inc. ("Mercantile"), dated as of August 4, 1995 (which, together with all Exhibits attached thereto, is re- ferred to herein as the "Agreement and Plan of Reorganization" or the "Plan"). Our opinion is based upon a review of the Plan, the representations which have been submitted for our consideration as described herein, and our understanding of the facts as set forth herein. Unless otherwise defined herein, capitalized terms used herein shall have the same meaning as set forth in the Plan. As to all questions of fact material to this opinion, we have, with the permission of the parties, without any inves- tigation or independent confirmation, relied upon and assumed the accuracy of the representations and warranties of the par- ties contained in the Plan with respect to the relevant facts stated therein, the representations which have been submitted for our consideration described in this letter, and our under- standing of the facts set forth herein. Our opinion is based upon existing tax law and authorities, which are subject to change. We have assumed for purposes of this opinion that all steps necessary to effectuate the Plan will be effected pursu- ant to and in satisfaction of requirements under applicable state and federal law and will be consistent with the Plan. This opinion is not binding on the Internal Revenue Service and no ruling has been or will be requested from the Internal Revenue Service as to the federal income tax conse- quences of the merger pursuant to the Plan of Hawkeye with and into a wholly owned subsidiary of Mercantile (said merger here- inafter referred to as the "Merger"; said wholly owned subsid- iary Hawkeye Bancorporation October 23, 1995 Page 2 hereinafter referred to as the "Merger Sub"). Consequently, there can be no assurance that the tax consequences set forth below will occur or continue as described herein; nor can any assurance be given that the issues discussed below will not be challenged by the Internal Revenue Service, or if so challenged, will be decided favorably to the parties of the Merger or their respective shareholders. We express no opinion as to the laws of, or the effect or applicability of the laws of, any jurisdiction other than the laws of the United States of America, and then only with respect to the specific federal income tax consequences addressed herein. Our understanding of the relevant facts is as fol- lows: Mercantile is a bank holding company which holds One Hundred Percent (100%) of the outstanding shares of the Merger Sub. The Boards of Directors of Mercantile and the Merger Sub believe that combining with Hawkeye, which has a long- established banking franchise in the State of Iowa, is a natu- ral and desirable extension of Mercantile's and Merger Sub's market area. The Boards of Directors of Mercantile and Merger Sub also believe that the consolidation of resources by reason of the Merger will enable a wider and improved array of finan- cial services to be provided to customers and will provide Mer- cantile and Merger Sub with added flexibility in dealing with Iowa's changing competitive environment. To achieve the desired business combination, Hawkeye will statutorily merge with and into Merger Sub, with Merger Sub as the surviving corporation. The Merger will be governed by the laws of the State of Iowa. If the Plan is approved by holders of the requisite number of shares of Hawkeye Common Stock and Merger Sub's Common Stock, the outstanding shares of Hawkeye Common Stock will be converted in the Merger into shares of Mercantile Common Stock as specified in the Plan. The following representations have been submitted to us by Hawkeye, Mercantile and Merger Sub with respect to the Merger: (a) The fair market value of Mercantile Common Stock and other consideration received by the Hawkeye share- holders will be approximately equal to the fair mar- ket value of the Hawkeye Common Stock surrendered in the exchange. (b) Neither the management of Hawkeye, Mercantile, nor Merger Sub knows of any plan or intention on the part of the Hawkeye shareholders to sell, exchange, or otherwise dispose of the Mercantile Common Stock to be received by them in the Merger which would reduce the Hawkeye shareholders' ownership of Mercantile Common Stock to a number of shares of Mercantile Common Stock having a value, as of the date of the Merger, of less than Fifty Percent (50%) of the value of all of the formerly outstanding Hawkeye Common Stock as of the date of the Hawkeye Bancorporation October 23, 1995 Page 3 Merger. For purposes of this representation, the following shares of Hawkeye Common Stock will be treated as outstanding Hawkeye Common Stock on the date of the Merger: (i) shares surrendered for Mercantile Common Stock or other consideration (ii) shares surrendered for fair value pursuant to the exercise of shareholders' dissenters' rights and (iii) shares surrendered for cash in lieu of fractional shares. In addition, neither the management of Hawkeye, Mer- cantile, nor Merger Sub is aware of any transfer of Hawkeye stock by any holder thereof prior to the Merger which was made in contemplation thereof. (c) Merger Sub will acquire at least Ninety Percent (90%) of the fair market value of the net assets and at least Seventy Percent (70%) of the fair market value of the gross assets held by Hawkeye immediately prior to the Merger. For purposes of this representation, the following amounts will be included as assets of Hawkeye held immediately prior to the Merger: (i) amounts paid by Hawkeye for shares surrendered for fair value pursuant to the exercise of shareholders' dissenters' rights; (ii) amounts paid by Hawkeye to shareholders who receive cash or other property; (iii) assets of Hawkeye used to pay its reorganiza- tion expenses; and (iv) all redemptions and distribu- tions (except for regular, normal dividends) made by Hawkeye immediately preceding the Merger. The man- agement of Hawkeye, Mercantile, and Merger Sub are not aware of Hawkeye having redeemed any Hawkeye stock, having made any distribution with respect to any of the Hawkeye stock, or having disposed of any of the Hawkeye assets in anticipation of or as a part of a plan for the acquisition of Hawkeye by Merger Sub. (d) Prior to the Merger, Mercantile will be in control of Merger Sub within the meaning of Section 368(c) of the Internal Revenue Code of 1986, as amended (the "Code"). (e) Following the Merger, Merger Sub will not issue ad- ditional shares of Merger Sub stock that would result in Mercantile losing control of Merger Sub within the meaning of Section 368(c) of the Code. (f) Mercantile has no plan or intention to redeem or oth- erwise reacquire any of the Mercantile Common Stock to be issued in the Merger. (g) Mercantile has no plan or intention to liquidate Merger Sub; to merge Merger Sub with and into another corporation; to sell or otherwise dispose of the stock Hawkeye Bancorporation October 23, 1995 Page 4 of Merger Sub; or to cause Merger Sub to sell or otherwise dispose of any of the assets of Hawkeye acquired in the Merger, except for transfers described in Section 368(a)(2)(C) of the Code or dispositions made in the ordinary course of business. (h) The liabilities of Hawkeye assumed by Merger Sub and the liabilities to which the transferred assets of Hawkeye are subject were incurred by Hawkeye in the ordinary course of its business. No liabilities of any person other than Hawkeye will be assumed by Merger Sub in the Merger, and none of the shares of Hawkeye to be surrendered in the exchange for Mercan- tile Common Stock in the Merger will be subject to any liabilities. (i) The assumption by Merger Sub of the liabilities of Hawkeye pursuant to the Merger is for a bona fide business purpose and the principal purpose of such assumption is not the avoidance of federal income tax on the transfer of assets of Hawkeye to Merger Sub pursuant to the Merger. (j) Subsequent to the Merger, Merger Sub will continue the historic business of Hawkeye or use a significant portion of the Hawkeye historic business assets in a business. (k) Hawkeye, Mercantile, and Merger Sub will pay their respective expenses, if any, incurred in connection with the Merger. (l) There is no intercorporate indebtedness existing be- tween Mercantile and Hawkeye or between Merger Sub and Hawkeye that was issued, acquired, or will be settled at a discount. (m) No two parties to the Merger are investment companies as defined in Section 368(a)(2)(F)(iii) and (iv) of the Code. (n) Neither Hawkeye, Mercantile, nor Merger Sub, are un- der the jurisdiction of a court in a Title 11 or similar case within the meaning of Section 368(a)(3)(A) of the Code. (o) The fair market value of the Hawkeye assets trans- ferred to Merger Sub will equal or exceed the sum of the Hawkeye liabilities assumed by Merger Sub, plus the amount of liabilities, if any, to which the Hawk- eye assets are subject. (p) The total adjusted basis of the Hawkeye assets trans- ferred to Merger Sub will equal or exceed the sum of the Hawkeye liabilities assumed by Merger Sub, plus Hawkeye Bancorporation October 23, 1995 Page 5 the amount of liabilities, if any, to which the transferred assets of Hawkeye are subject. (q) No stock of Merger Sub will be issued in the Merger. (r) None of the compensation to be received by any Hawk- eye shareholder/employee will be separate consider- ation for, or allocable to, any of their shares of Hawkeye Common Stock; none of the shares of Mercan- tile Common Stock received by any Hawkeye share- holder/employee will be separate consideration for, or allocable to, any employment contract; and the compensation paid to any Hawkeye shareholder/employee will be for services actually rendered and will be commensurate with the amounts paid to third parties bargaining at arms-length for similar services. (s) The Merger is being transacted for a bona fide corpo- rate business purpose. (t) The Agreement and Plan of Reorganization has been duly adopted by the Boards of Directors of Hawkeye, Mercantile, and Merger Sub; the Agreement and Plan of Reorganization is in effect and, subject to satisfac- tion of all conditions precedent stated therein, in- cluding obtaining the requisite shareholder and regu- latory approvals, the statutory Merger will be com- pleted in accordance with the laws of the State of Iowa. (u) The Merger will be completed in accordance with the terms and conditions contained in the Agreement and Plan of Reorganization and all representations and warranties of Hawkeye, Mercantile, and Merger Sub contained in the Agreement and Plan of Reorganization are true and correct. (v) The payment of cash in lieu of fractional shares of Mercantile Common Stock is solely for the purpose of avoiding the expense and inconvenience to Mercantile of issuing fractional shares and does not represent separately bargained-for consideration. The total cash consideration that will be paid in the Merger to the Hawkeye shareholders instead of issuing frac- tional shares of Mercantile stock will not exceed One Percent (1%) of the total consideration that will be issued in the Merger to the Hawkeye shareholders in exchange for their shares of Hawkeye stock. The fractional share interests of each Hawkeye share- holder will be aggregated, and it is intended that no Hawkeye shareholder will receive cash in an amount equal to or greater than the value of One (1) full share of Mercantile Common Stock. Based upon the foregoing and subject to the assump- tions, qualifications and limitations hereinbefore and herein- after set forth, we are of the opinion that: Hawkeye Bancorporation October 23, 1995 Page 6 (i) The Merger will constitute a "reorganization" for federal income tax purposes under Section 368(a)(1)(A) and (a)(2)(D) of the Code. (ii) No gain or loss will be recognized by Hawkeye as a result of the Merger. (iii) Hawkeye shareholders will recognize no gain or loss as a result of the exchange of their Hawkeye Common Stock solely for shares of Mercantile Common Stock pursuant to the Merger, except with respect to cash received in lieu of fractional shares, if any, as discussed below. (iv) A holder of shares of Hawkeye Common Stock who re- ceives cash in the Merger in lieu of a fractional share interest of Mercantile Common Stock will be treated as if the fractional shares were received in the exchange and then redeemed by Mercantile. A holder of shares of Hawkeye Common Stock will be treated as if the shareholder sold his or her fractional share of Mercantile Common Stock for the amount of cash received and will therefore recognize gain (or loss) to the extent that the amount of cash received exceeds (or is less than) the tax basis of the fractional share. Such gain or loss will be capital gain or loss if the shares of Hawkeye Common Stock were held as capital assets and will be long-term capital gain or loss if the holding period of the shares of Hawkeye Common Stock so exchanged was more than one year. (v) The aggregate adjusted tax basis of the Mercantile Common Stock received by a shareholder of Hawkeye in the Merger, including for the purposes of (iv) above the tax basis of any fractional share interest, will be equal to the aggregate adjusted tax basis of the respective shares of Hawkeye Common Stock sur- rendered. (vi) The holding period of the shares of Mercantile Common Stock received by a shareholder of Hawkeye in the Merger, including for purposes of (iv) above the holding period of any fractional share interest, will include the holding period of the respective shares of Hawkeye Common Stock exchanged therefor, provided the shares of Hawkeye Common Stock were held as capi- tal assets. (vii) A Hawkeye shareholder who receives only cash as a result of the exercise of dissenters' rights, will realize gain or loss for federal income tax purposes (determined separately as to each block of Hawkeye Common Stock exchanged) in an amount equal to the difference between (x) the Hawkeye Bancorporation October 23, 1995 Page 7 amount of cash received by such shareholder, and (y) such shareholder's tax basis for the shares of Hawkeye Common Stock surrendered in exchange therefor, provided that the cash payment does not have the effect of the distribution of a dividend. Any such gain or loss will be recognized for federal income tax purposes and will be treated as capital gain or loss, provided the shares of Hawkeye Common Stock were held as capital assets. However, if the cash payment does have the effect of the distribution of a dividend, the amount of taxable income recognized generally will equal the amount of cash received; such income generally will be taxable as a dividend; and no loss (or other recovery of such shareholder's tax basis for the shares of Hawkeye Common Stock surrendered in exchange) generally will be recognized by such shareholder. The determination of whether a cash payment has the effect of the dis- tribution of a dividend will be made pursuant to the provisions and limitations of Section 302 of the Code, taking into account the constructive stock own- ership rules of Section 318 of the Code. This opinion is limited in its use solely to Hawkeye and its shareholders in connection with the Plan, and is not to be used, circulated, quoted or otherwise relied upon for any purpose. No other person or entity may rely on or claim reli- ance upon this opinion, and it is not to be quoted in whole or in part or otherwise referred to by any governmental agency or other person or entity without prior written consent of this firm. Notwithstanding the foregoing provisions of this para- graph to the contrary, we hereby consent to the use of this opinion as Exhibit 8.2 to Mercantile's Registration Statement on Form S-4 filed with the Securities and Exchange Commission under the Securities Act of 1933, as amended, with respect to the shares of Mercantile Common Stock issuable in the Merger and to the references to us in such Registration Statement un- der the captions "SUMMARY INFORMATION--Federal Income Taxes in General" and "CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER." Yours very truly, /s/ BAIRD, HOLM, McEACHEN, PEDERSEN, HAMANN & STRASHEIM EX-99 7 EXHIBIT 23.1 Independent Auditors' Consent The Board of Directors and Stockholders Mercantile Bancorporation Inc.: We consent to the use of our reports incorporated herein by reference and to the reference to our firm under the heading "Experts" in the prospectus. /s/ KPMG Peat Marwick LLP St. Louis, Missouri October 20, 1995 EX-99 8 EXHIBIT 23.2 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in this Registration Statement of Mercantile Bancorporation Inc. on Form S-4 of our report dated January 24, 1995, appearing in the Annual Report on Form 10-K of Hawkeye Bancorporation for the year ended December 31, 1994 and to the reference to us under the headings "Relationship With Independent Accountants" and "Experts" in the Prospectus, which is part of this Registration Statement. /s/ Deloitte & Touche LLP Des Moines, Iowa October 19, 1995 EX-99 9 EXHIBIT 23.6 CONSENT OF DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION We hereby consent to the use of our name and to the description of our form of opinion letter under the captions "Summary Information" and "Terms of the Proposed Merger--Opinion of Hawkeye's Financial Advisor" in, and the inclusion of such form of opinion letter as Annex B to, the Proxy Statement/Prospectus which is part of the Registration Statement on Form S-4 of Mercantile Bancorporation Inc. to which this consent is an exhibit. 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. DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION By: /s/ Thomas J. MacDermott Thomas J. MacDermott Senior Vice President New York, New York October 20, 1995 EX-99 10 EXHIBIT 99.9 [Form of Support Agreement] August 4, 1995 Mercantile Bancorporation Inc. Mercantile Tower St. Louis, Missouri 63166 Dear Sirs: The undersigned understands that Mercantile Ban- corporation Inc. ("Mercantile"), and Hawkeye Bancorporation ("Seller") are entering into an Agreement and Plan of Reor- ganization (the "Agreement") providing for, among other things, a merger between a wholly owned subsidiary of Mer- cantile, and Seller (the "Merger"), in which all of the out- standing shares of capital stock of Seller will be exchanged for shares of common stock, par value $5.00 per share, of Mercantile. The undersigned is a stockholder of Seller (the "Stockholder") and is entering into this letter agreement to induce you to enter into the Agreement and to consummate the transactions contemplated thereby. The undersigned confirms its agreement with you as follows: 1. The undersigned represents, warrants and agrees that Schedule I annexed hereto sets forth shares of the capital stock of Seller of which the undersigned is the record or beneficial owner (the "Shares") and that the un- dersigned is on the date hereof the lawful owner of the num- ber of shares set forth in Schedule I, free and clear of all liens, charges, encumbrances, voting agreements and commit- ments of every kind, except as disclosed in Schedule I. Ex- cept as set forth in the Schedule, the undersigned does not own or hold any rights to acquire any additional shares of the capital stock of Seller (by exercise of stock options or otherwise) or any interest therein or any voting rights with respect to any additional shares, other than as previously disclosed to you. 2. The undersigned agrees that the undersigned will not, and will not permit any company, trust or other en- tity controlled by the undersigned to, contract to sell, sell or otherwise transfer or dispose of any of the Shares of any interest therein or securities convertible thereunto or any voting rights with respect thereto, other than (i) pursuant to the Merger, or (ii) with your prior written consent. Mercantile Bancorporation Inc. August 4, 1995 Page 2 3. The undersigned agrees that all of the Shares beneficially owned by the undersigned, or over which the un- dersigned has voting power or control, directly or indi- rectly, at the record date for any meeting of stockholders of Seller called to consider and vote to approve the Agreement and/or the transactions contemplated thereby will be voted by the undersigned in favor thereof. 4. The undersigned agrees to, and will cause any company, trust or other entity controlled by the undersigned to, cooperate fully with you in connection with the Agreement and the transactions contemplated thereby. The undersigned agrees that the undersigned will not, and will not permit any such company, trust or other entity to directly, or indi- rectly (including through its officers, directors, employees or other representatives) initiate, solicit or encourage any discussions, inquiries or proposals with any third party re- lating to the disposition of any significant portion of the business or assets of Seller or the acquisition of any capi- tal stock or other securities of Seller or the business com- bination, merger or consolidation of Seller with any person or any similar transaction (each such transaction being re- ferred to herein as an "Acquisition Transaction"), or provide any such person with information or assistance or negotiate with any such person with respect to an Acquisition Transac- tion or agree to or otherwise assist in the effectuation of any Acquisition Transaction. The undersigned has all necessary power and author- ity to enter into this letter agreement. This agreement is the legal, valid and binding agreement of the undersigned, and is enforceable against the undersigned in accordance with its terms. This letter agreement may be terminated at the op- tion of any party at any time after the earlier of (i) ter- mination of the Agreement and (ii) the day following the Closing Date (as defined in the Agreement). Please confirm that the foregoing correctly states the understanding between us by signing and returning to us a counterpart hereof. Nothing herein shall be construed to require the undersigned or any company, trust or other entity controlled by the undersigned to Mercantile Bancorporation Inc. August 4, 1995 Page 3 take any action or fail to take any action in violation of applicable law, rule or regulation. Very truly yours, By: /s/ Stockholder Confirmed on the date first above written. MERCANTILE BANCORPORATION INC. By: /s/ -----END PRIVACY-ENHANCED MESSAGE-----